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US-COOL Retaliation: The WTO’s Article 22.6 Arbitration

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  • Chad P. Bown
  • Rachel Brewster

Abstract

This paper examines the Article 22.6 arbitration report of the WTO dispute over the United States’ country of original labeling (US-COOL) regulation for meat products. At prior phases of the legal process, a WTO Panel and the Appellate Body had sided with Canada and Mexico by finding that the US regulation had negatively affected their exports of livestock – cattle and hogs – to the US market. The arbitrators authorized Canada and Mexico to retaliate by over $1 billion against US exports; this is the second largest authorized retaliation on record and only the twelfth WTO dispute to reach the stage of an arbitration report. Our legal-economic analysis focuses on a number of issues that arise in the arbitration report. First, the complainants requested the arbitrators consider a new formula for computing the permissible retaliation limit that would also include the effects of domestic price suppression. We provide a simple, economics-based model explanation for the arbitrators’ rejection of such a proposal. Second, we provide market context for the $1 billion finding. While the arbitrators relied on the “trade effects” formula – which sets the retaliation limit as equivalent to the perceived loss of export revenue resulting from the WTO violation – we argue this amount to be implausibly large, given the actual conditions in the US market for cattle and hogs during this period. We then describe a number of the challenges facing arbitrators as they construct such estimates, including those likely to have arisen in this particular dispute.

Suggested Citation

  • Chad P. Bown & Rachel Brewster, 2016. "US-COOL Retaliation: The WTO’s Article 22.6 Arbitration," RSCAS Working Papers 2016/68, European University Institute.
  • Handle: RePEc:rsc:rsceui:2016/68
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    References listed on IDEAS

    as
    1. Chad P . Bown, 2002. "The Economics of Trade Disputes, the GATT's Article XXIII, and the WTO's Dispute Settlement Understanding," Economics and Politics, Wiley Blackwell, vol. 14(3), pages 283-323, November.
    2. Chad Bown & Kara Reynolds, 2015. "Trade flows and trade disputes," The Review of International Organizations, Springer, vol. 10(2), pages 145-177, June.
    3. Crowley, Meredith A. & Howse, Robert, 2014. "Tuna–Dolphin II: a legal and economic analysis of the Appellate Body Report," World Trade Review, Cambridge University Press, vol. 13(02), pages 321-355, April.
    4. Bagwell, Kyle & Staiger, Robert W., 2001. "Reciprocity, non-discrimination and preferential agreements in the multilateral trading system," European Journal of Political Economy, Elsevier, vol. 17(2), pages 281-325, June.
    5. Howse, Robert L. & Horn, Henrik, 2009. "European Communities – Measures Affecting the Approval and Marketing of Biotech Products," World Trade Review, Cambridge University Press, vol. 8(01), pages 49-83, January.
    6. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    WTO; dispute; arbitration; retaliation; regulation; nontariff barrier; remedies;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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