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Punishment and Dispute Settlement in Trade Agreements

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  • Wilfred J. Ethier

Abstract

This paper interprets dispute settlement procedures and punishments as responses to the fact that trade agreements are incomplete contracts. If no weight is given to the adjudication phase and if the degree of trade relatedness is known with certainty, the negotiated trade agreement will feature commensurate punishments, will induce violation of the dispute settlement ruling, and will deliver optimal liberalization and optimal unilateral trade-related action. With the adjudication phase of concern, the trade agreement will feature less liberalization, but still with a presumption of at least approximate commensurate punishment. The optimal trade agreement will likely induce abiding by the ruling when negotiators attach more importance to the adjudication phase, and violating it when they attach less.

Suggested Citation

  • Wilfred J. Ethier, "undated". "Punishment and Dispute Settlement in Trade Agreements," EPRU Working Paper Series 01-14, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:epruwp:01-14
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    File URL: http://www.econ.ku.dk/epru/files/wp/WEB-blaa-2001-14.pdf
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    References listed on IDEAS

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    1. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
    2. Butler, Monika & Hauser, Heinz, 2000. "The WTO Dispute Settlement System: First Assessment from an Economic Perspective," Journal of Law, Economics, and Organization, Oxford University Press, vol. 16(2), pages 503-533, October.
    3. Ludema, Rodney D., 2001. "Optimal international trade agreements and dispute settlement procedures," European Journal of Political Economy, Elsevier, vol. 17(2), pages 355-376, June.
    4. Dan Kovenock & Marie Thursby, 1992. "Gatt, Dispute Settlement And Cooperation," Economics and Politics, Wiley Blackwell, vol. 4(2), pages 151-170, July.
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    Cited by:

    1. Horn, Henrik & Mavroidis, Petros C., 2006. "A Survey of the Literature on the WTO Dispute Settlement System," Working Paper Series 684, Research Institute of Industrial Economics.
    2. Giovanni Maggi & Robert W. Staiger, 2009. "Breach, Remedies and Dispute Settlement in Trade Agreements," Cowles Foundation Discussion Papers 1735, Cowles Foundation for Research in Economics, Yale University.
    3. Tadashi Ito, 2007. "NAFTA and productivity convergence between Mexico and the US," IHEID Working Papers 26-2007, Economics Section, The Graduate Institute of International Studies, revised 27 Nov 2007.
    4. Pao-Li Chang, 2004. "The Politics of WTO Enforcement Mechanisms," Econometric Society 2004 Australasian Meetings 117, Econometric Society.
    5. Wilfred J. Ethier, 2003. "TRIPS, externalities, trade agreements, hostages," PIER Working Paper Archive 03-034, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

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