Dispute Shows Limits of WTO Remedies

Settling trade disputes within the World Trade Organization is not an easy matter largely because of the convoluted rules. However, the most amazing thing is the agreed process for enforcement which requires retaliatory protection. Essentially therefore, a nation that has been harmed is allowed to institute trade penalties that reduce the imports of the violating WTO member. Now, this rule is puzzling for it is the result of a political agreement which reflects a very poor understanding of international trade theory. A country that imposes high tariffs or restricts trade with another definitely harms itself because it constrains its own firms from importing products or services. Impliedly therefore, it shows that optimal trade strategy should tend towards free trade hence measures that restrict further trade should not be part of the judgment.

The absurdity of the retaliatory protectionism is impressively in show because of an obscure trade dispute between the US and the Caribbean nations of Antigua and Barbuda. It claims that US restrictions of online gambling by its citizens is effectively an anti-trade measure that harms the complainants where some of the online casinos are based. Gary Rivlin reports here for the NYT on the dispute whose hearings have been concluded with the exception of the award. Compensation for the complainants would involve instituting retaliatory measures in the form of commensurate trade barriers against the US. Now, Antigua does not have the ability to raise trade barriers to the extent of the damages estimated US$ 3.4 billion not only because this would hardly harm the US but also because instituting such measures would be idiotic in the sense that it would harm itself. Mr. Mark Mendel, representing the plaintiff is therefore proposing the equally odd measure of being authorized to violate intellectual property laws with the expectation that the intellectual property producers would nudge the US administration to compensate Antigua and Barbuda.

This is a nice ring of the WTO instituting absurd enforcement measures on the one side together with the US unwisely banning gambling which a small nation is eager to provide to US citizens.