Punishments and dispute settlement in trade agreements : the equivalent withdrawal of concessions

Abstract

I interpret dispute settlement procedures and the principle of equivalent withdrawal of concessions as responses to the fact that trade agreements are incomplete contracts. With no adjudication phase and the degree of trade relatedness known with certainty, an 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 an adjudication phase, the agreement will feature less liberalization, but still presumably approximate commensurate punishment. The agreement will likely induce abiding by the ruling when negotiators attach more importance to the adjudication phase, and violating it when they attach less.