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Bite the Bullet: Trade Retaliation, EU Jurisprudence and the Law and Economics of ‘Taking One for the Team’

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  • Hoekman, Bernard
  • Mavroidis, Petros C

Abstract

This paper discusses the Fedon case law of the European Court of Justice (ECJ), which involved a claim for compensation by Fedon (an Italian producer of eye glass cases) from the EU for the imposition of WTO-authorized retaliatory trade barriers by the United States following the failure by the EU to comply with an adverse ruling by the WTO regarding its import-regime for bananas. As a result of the EU non-compliance, European banana distributors and some bananas producers benefitted from WTO-illegal protection, at the expense of a set of EU exporters, including Fedon, that were hit by US countermeasures. By not complying with its international (WTO) obligations, the EU redistributed income across producers in different sectors as well as between suppliers and consumers of bananas. Fedon contested the non-compliance by the EU before the ECJ and sought compensation. This paper assesses the ECJ ruling against Fedon and argues that the ECJ got it wrong, both in terms of legal principle and as a matter of legal technicalities. An alternative approach is proposed that would better balance individual rights to property against the ‘general’ EU interest whether or not to comply with adverse WTO rulings.

Suggested Citation

  • Hoekman, Bernard & Mavroidis, Petros C, 2013. "Bite the Bullet: Trade Retaliation, EU Jurisprudence and the Law and Economics of ‘Taking One for the Team’," CEPR Discussion Papers 9496, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9496
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    References listed on IDEAS

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    1. Limão, Nuno & Saggi, Kamal, 2008. "Tariff retaliation versus financial compensation in the enforcement of international trade agreements," Journal of International Economics, Elsevier, vol. 76(1), pages 48-60, September.
    2. Petros C. Mavroidis & Patrick A. Messerlin & Jasper M. Wauters, 2008. "The Law and Economics of Contingent Protection in the WTO," Books, Edward Elgar Publishing, number 12731, April.
    3. Levy, Philip I & Srinivasan, T N, 1996. "Regionalism and the (Dis)advantage of Dispute-Settlement Access," American Economic Review, American Economic Association, vol. 86(2), pages 93-98, May.
    4. Robert Z. Lawrence, 2003. "Crimes and Punishments?: Retaliation under the WTO," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 372.
    5. Alberto Alemanno, 2008. "At the end of the tunnel there is ... darkness: The European Court of Justice denies EC liability for WTO non-compliance," Post-Print hal-00637100, HAL.
    6. Marco Bronckers & Naboth van den Broek, 2005. "Financial Compensation in the WTO," Journal of International Economic Law, Oxford University Press, vol. 8(1), pages 101-126, March.
    7. Hoekman, Bernard M. & Kostecki, Michel M., 2009. "The Political Economy of the World Trading System," OUP Catalogue, Oxford University Press, edition 3, number 9780199553778.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    dispute settlement; EU law; trade agreements; trade retaliation; WTO;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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