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On the Role and Design of Dispute Settlement Procedures in International Trade Agreements

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  • Giovanni Maggi
  • Robert W. Staiger

Abstract

Formal economic analysis of trade agreements typically treats disputes as synonymous with concerns about enforcement. But in reality, most WTO disputes involve disagreements of interpretation concerning the agreement, or instances where the agreement is simply silent. And some have suggested that the WTO's Dispute Settlement Body (DSB) might serve a useful purpose by granting "exceptions" to rigid contractual obligations in some circumstances. In each of these three cases, the role played by the DSB amounts to "completing" various dimensions of an incomplete contract. Moreover, there is a debate among legal scholars on whether or not precedent-setting in DSB rulings may enhance the performance of the institution. All of this points to the importance of understanding the implications of the different possible degrees of activism in the role played by the DSB. In this paper we bring formal analysis to bear on this broad question. We characterize the choice of contractual form and DSB role that is optimal for governments under various contracting conditions. A novel feature of our approach is that it highlights the interaction between the design of the contract and the design of the dispute settlement procedure, and it views these as two components of a single over-arching institutional design problem.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14067.

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Date of creation: Jun 2008
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Handle: RePEc:nbr:nberwo:14067

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  1. Pierpaolo Battigalli & Giovanni Maggi, 2003. "International agreements on product standard: an incomplete contracting theory," NBER Working Papers 9533, National Bureau of Economic Research, Inc.
  2. Nicola Gennaioli & Andrei Shleifer, 2007. "The Evolution of Common Law," Journal of Political Economy, University of Chicago Press, vol. 115, pages 43-68.
  3. Giovanni Maggi, 1999. "The Role of Multilateral Institutions in International Trade Cooperation," American Economic Review, American Economic Association, vol. 89(1), pages 190-214, March.
  4. Fon, Vincy & Parisi, Francesco, 2007. "On the optimal specificity of legal rules," Journal of Institutional Economics, Cambridge University Press, vol. 3(02), pages 147-164, August.
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    • Krishna, V. & Morgan, J., 1999. "A Model of Expertise," Papers 206, Princeton, Woodrow Wilson School - Public and International Affairs.
    • Vijay Krishna & John Morgan, 1999. "A Model of Expertise," Working Papers 154, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  7. Álvaro Bustos, 2008. "A Dynamic Theory of Common Law Courts," Documentos de Trabajo 352, Instituto de Economia. Pontificia Universidad Católica de Chile..
  8. Marco Battaglini, 2000. "Multiple Referrals and Multidimensional Cheap Talk," Econometric Society World Congress 2000 Contributed Papers 1557, Econometric Society.
  9. Luca Anderlini & Leonardo Felli & Andrew Postlewaite, 2003. "Should Courts Always Enforce What Contracting Parties Write?," PIER Working Paper Archive 03-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  10. Kyle Bagwell & Robert W. Staiger, 2004. "The Economics of the World Trading System," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262524341, December.
  11. Klimenko, Mikhail & Ramey, Garey & Watson, Joel, 2008. "Recurrent trade agreements and the value of external enforcement," Journal of International Economics, Elsevier, vol. 74(2), pages 475-499, March.
  12. Horn, Henrik & Maggi, Giovanni & Staiger, Robert, 2007. "Trade Agreements as Endogenously Incomplete Contracts," CEPR Discussion Papers 6037, C.E.P.R. Discussion Papers.
  13. Pierpaolo Battigalli & Giovanni Maggi, 2002. "Rigidity, Discretion, and the Costs of Writing Contracts," American Economic Review, American Economic Association, vol. 92(4), pages 798-817, September.
  14. Schwartz, Warren F & Sykes, Alan O, 2002. "The Economic Structure of Renegotiation and Dispute Resolution in the World Trade Organization," The Journal of Legal Studies, University of Chicago Press, vol. 31(1), pages S179-204, January.
  15. Horn, Henrik & Mavroidis, Petros C., 2003. "US Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia: what should be required of a safeguard investigation?," World Trade Review, Cambridge University Press, vol. 2(03), pages 395-430, November.
  16. Robert Z. Lawrence, 2003. "Crimes and Punishments?: Retaliation under the WTO," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 372.
  17. Kyle Bagwell & Robert W. Staiger, 1989. "A Theory of Managed Trade," Discussion Papers 801, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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Cited by:
  1. Giovanni Maggi & Robert W. Staiger, 2009. "Breach, Remedies and Dispute Settlement in Trade Agreements," NBER Working Papers 15460, National Bureau of Economic Research, Inc.
  2. Ceva, Emanuela & Fracasso, Andrea, 2009. "Seeking Mutual Understanding. A Discourse Theoretical Analysis of the WTO Dispute Settlement System," MPRA Paper 14356, University Library of Munich, Germany.
  3. Horn, Henrik, 2009. "The Burden of Proof in National Treatment Disputes and the Environment," CEPR Discussion Papers 7316, C.E.P.R. Discussion Papers.

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