National Treatment in the GATT

The National Treatment clause (NT) is the first-line defense in the GATT (and in most other trade agreements) against opportunistic exploitation of the inevitable incompleteness of the agreement. This paper examines the role of NT as it applies to internal taxation under the GATT. It is shown that despite severely restricting the freedom to set internal taxes, NT may improve government welfare. But it will not completely solve the incomplete contract problem it is meant to remedy. Furthermore, it requires a high degree of economic sophistication on behalf of trade negotiators in order for this beneficial effect to materialize.National Treatment; GATT; WTO; Trade Agreements

The Burden of Proof in National Treatment Disputes and the Environment

The basic legal instrument in the WTO Agreement regulating domestic environmental policies is the GATT National Treatment (NT) provision. The practical ambit of this clause is largely determined by the allocation of the burden of proof (BoP) in NT disputes. The purpose of this paper is to examine the role of this burden for trade liberalization and for the environment, in a situation where imports may cause environmental damage. The paper finds that there may be a tension between NT and environmental concerns, but that this is not likely to arise in the context of severe threats to the environment. In any event, relieving regulating countries of the BoP will have fundamentally unclear implications for the environment.National treatment; Burden of proof; Environment; GATT; WTO; Trade agreements

Merger Policies and Trade Liberalization

This paper is about the interactions between what is traditionally considered trade policy and a narrow but important aspect of competition policy, namely merger policy. We focus on links between merger policies and trade liberalization. We put special emphasis on the topical issue of the role that international agreements such as the GATT play when merger policies are nationally chosen. Of particular concern is the possibility that liberalization of international trade will induce countries to increasingly use competition policies to promote national interests at the expense of others. We examine the incentives for a welfare maximizing government to make such a substitution. Interpreting merger policy as a choice of degree of industrial concentration, we investigate how the merger policy that is optimal from the point of view of an individual country is affected by restrictions on the use of tariffs and export subsidies.

Antitrust in Open Economies

We examine antitrust rules in a two county general equilibrium trade model, contrasting national and multilateral (cooperative) determination of competition policy, exploring the properties of the policy equilibrium. It is not imperfect competition, but variation in competitive stance between sectors that matters for trading partners. Beggar-thy-neighbor competition policies relate to countries’ comparative advantages, and hurt the factor intensively used, or specific to, the imperfectly competitive sector. They also create a competitive advantage for export firms. FDI can be pro-competitive in this context, reducing the scope for beggar-thy-neighbor policies and reducing the gains from a multilateral competition agreement.antitrust policy, competition policy, merger policy, trade and imperfect competition, FDI

Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry

In industries with imperfect consumer information, the lack of a reputation puts latecomers at a competitive disadvantage vis-a-vis established firms. We consider whether the existence of such informational barriers to entry provides a valid reason for temporarily protecting infant producers of experience goods and services. Our model incorporates both moral hazard in an individual firm's choice of quality and adverse selection among potential entrants into the industry. We find that infant-industry protection often exacerbates the welfare loss associated with these market imperfections.

A Survey of the Literature on the WTO Dispute Settlement System

This paper surveys the law and economics literature on WTO dispute settlement. As a background, we first briefly lay out main features of the legal framework, and discuss possible roles of a dispute settlement mechanism. We then discuss the two main themes in the empirical literature on dispute settlement: (i) the determinants of participation by members as complainants, respondents and third parties; and (ii) the role of the DS system for the settling of disputes. The paper finally points to a number of areas that are in need of further research.WTO; Dispute Settlement; DSU

Burden of Proof in Environmental Disputes in the WTO: Legal Aspects

This paper discusses allocation of burden of proof in environmental disputes in the WTO system. Besides laying down the natural principles that (i) the complainant carries the burden to (ii) make a prima facie case that its claim holds, WTO adjudicating bodies have said little of more general nature. The paper therefore examines the case law of relevance to environmental policies, to establish the rules concerning burden of proof that are likely to be applied in such disputes. Evaluating this case law, the paper makes two observations,: First, in cases submitted under the GATTWTO, adjudicating bodies have committed errors regarding the required amount of evidence (the burden of persuasion); and second, such errors, as well as errors concerning the determination of the party to carry the burden of providing this evidence (the burden of production), have been committed in disputes submitted under the TBT/SPS Agreements. These errors largely seem attributable to the general absence of methodology regarding the interpretation of some key substantive provisions featuring in the three Agreements.Burden of Proof; Burden of Production; Burden of Persuasion; WTO; Environment

The Permissible Reach of National Environmental Policies

Trading nations exchange tariff concessions in the context of trade liberalizing rounds. Tariffs, nonetheless, are not the only instrument affecting the value of a concession. Domestic instruments affect it as well, but public order is not negotiable, and, consequently, is not scheduled. Public order is unilaterally defined, but must respect the default rules concerning allocation of jurisdiction which are common to all WTO Members and bind them by virtue of their appurtenance to the international community. In this paper, we focus on the interaction between trade and environment. The purpose of this study is to highlight how these rules and the GATT/WTO jointly determine the scope for unilateral environmental policies for WTO Members. In the study we examine the relevant multilateral framework dealing with this issue, as well as the relevant GATT and WTO case-law. We also briefly present the jurisdictional default rules in Public International Law. As a means of focusing the discussion, we consider a series of scenarios, partly building on factual aspects of cases that have already been brought before the WTO. These scenarios are intended to isolate issues of specific interest from a policy point of view. For each scenario we then seek to determine what would the outcome be, in case WTO adjudicating bodies were to explicitly take account of the default rules concerning allocation of jurisdiction, something which has not been done to date. Our main conclusions are two-fold: on occasion, the outcome would be different, had WTO panels observed the default rules concerning allocation of jurisdiction; more generally, the default rules can help us understand the limits of some key obligations assumed under the WTO. Crucially, absent recourse to the default rules concerning allocation of jurisdiction, one risks understanding non-discrimination (the key GATT-obligation) as an instrument aimed to harmonize conditions of competition across markets, and not within markets, as the intent of negotiators has always been.Trade and Environment; WTO

International jurdisdiction over standard-essential patents

Countries are alleged to pursue commercial interests through their antitrust interventions regarding FRAND commitments for standard-essential patents (SEPs). This paper examines pros and cons of allocating jurisdiction according to fundamental principles in international law, assuming that countries' regulations promote national objectives. It shows why the Territoriality Principle yields too lenient treatment of patent-issuing countries' SEPs, and too strict of treatment of other countries' SEPs, and why the Nationality Principle yields too lenient treatment generally. Non-discrimination obligations can, but need not, improve on outcomes. Hence, existing international law will typically not implement efficient outcomes, suggesting that an international agreement is required.Financial support from the Swedish Competition Authority, and from Jan Wallanders och Tom Hedelius stiftelse, is gratefully acknowledged

Trade Agreements as Endogenously Incomplete Contracts

We propose a model of trade agreements in which contracting is costly, and as a consequence the optimal agreement may be incomplete. In spite of its simplicity, the model yields rich predictions on the structure of the optimal trade agreement and how this depends on the fundamentals of the contracting environment. We argue that taking contracting costs explicitly into account can help explain a number of key features of real trade agreements.