revised version forthcoming in Economics & Politics 

The Economics of Trade Disputes, the GATT's Article XXIII
and the WTO's Dispute Settlement Understanding

Chad P. Bown
Brandeis University

Abstract

        Economic theory has yet to provide a convincing argument that can explain why the threat of retaliation under the GATT/WTO dispute settlement procedures is not sufficient to prevent countries from violating the agreement. We consider the question of why countries violate the agreed-upon rules in the face of explicit provisions which allow them to legally adjust their trade policy. Using the GATT/WTO institutional structure and the guiding principle of reciprocity, we provide a structure and a theory suggesting when countries will choose to implement protection 'illegally,' in violation of GATT/WTO rules, as opposed to 'legally,' under the relevant safeguards provisions, when trade policy adjustments are necessary between 'negotiating rounds.'