The Neglected Link Between the Legal Nature of WTO Rules, the Political Filtering of WTO Disputes, and the Absence of Retrospective WTO Remedies

Abstract

This note examines the shortcomings of the conventional analysis of why the WTO’s dispute settlement mechanism has not been equipped with retrospective remedies. In doing so, this note examines the neglected link between the underlying legal nature of WTO rules as international obligations of result instead of conduct, the ex-ante governmental filtering of WTO disputes, and the absence of retrospective remedies at the WTO. The two key findings of this note are as follows. First, in addition to the increasing complexity of WTO law, it is the underlying nature of WTO rules as international obligations of result that renders this part of international economic law particularly prone to good-faith breaches. Second, in light of the fact that individual WTO members are in a position where they may interpose themselves as political filters of potential disputes, equipping such a system with retrospective remedies would significantly raise the cost of breach, thereby eroding the economic benefits of the current system of prospective remedies. Therefore, by lowering the cost of not only good-faith breaches but of breach in general, the prospective nature of WTO remedies creates an important incentive for WTO members to participate in future rounds of trade liberalisation. Furthermore, the absence of retrospective remedies encourages WTO members to litigate disputes through to formal findings, thereby producing an important positive externality in the form of valuable clarifications of the complex legal framework applicable to all WTO members. Considering that the WTO’s poor and small members are more likely to commit good-faith breaches of the WTO Agreement, the absence of retrospective remedies is in line with strong efforts by the WTO to level the playing field between its members and to provide all of its members with equal opportunities in the context of WTO dispute settlement. Overall, it emerges that the existing prospective nature of WTO dispute settlement has served the international trading system rather well. A switch to retrospective remedies may do more harm than good.