In or Out? Standards, Discretion, Compliance and the WTO
| DOI | http://doi.org/10.1111/twec.12385 |
| Published date | 01 June 2016 |
| Date | 01 June 2016 |
In or Out? Standards, Discretion,
Compliance and the WTO
James C. Hartigan
Department of Economics, University of Oklahoma, Norman, Oklahoma, USA
1. INTRODUCTION
AN agreement that is self-enforcing with uncertain benefits and costs of future compliance
may sustain commitment to its obligations and disciplines through several possible provi-
sions.
1
These include a safeguard (SG) or escape clause (EC), in which de facto undercompli-
ance or non-compliance is construed as de jure adherence to the agreement.
2
As many
international agreements are prisoners’ dilemmas (Oye, 1985; Snidal, 1985), a third strategy
of escape is added to the traditional strategy set of cooperate and defect.
3
Another such provision is a dispute settlement procedure (DSP).
4
This can address either
contractual violations or non-violation nullification and impairment of expected benefits.
5
A third avenue for sustaining the agreement is renegotiation.
6
This can be scheduled, such as
the negotiated rounds of the General Agreement on Tariffs and Trade (GATT) that transpired
approximately every decade, or unplanned.
7
The fourth approach entails the textual expression of the agreement itself, that is the extent
of reliance upon rules and standards in the interpretation of the agreement by its signatories,
manifested through their implementation of policies. Negotiation of rules requires front-end
investments in establishing the commitments of the agreement through precise, quantifiable
and objective language. Discretion in the implementation of the treaty by the signatories is
circumscribed or non-existent. Standards emphasise back-end investments in enforcement and
verification costs. Negotiation costs are lower than for rules, while enforcement costs are
Thanks for comments without implication are given to Joe McMahon, Kevin Costello, seminar partici-
pants at the Sutherland School of Law at University College Dublin, and the anonymous referees.
1
Current (Hungerford, 1991; Hochman and Segev, 2010) and future (Frischmann, 2003; Koremenos,
2005; Frischmann and Hartigan, 2011) uncertainty regarding benefits and costs of compliance have been
considered in the literature of trade agreements.
2
Non-compliance is defined as the optimal policy implementation that would occur in the absence of an
agreement. Undercompliance is interpreted as a cooperation at a lesser level than that negotiated. This
can be construed as an abuse of discretion. An example would be committing to reduce carbon emis-
sions by 20 per cent in 5 years, but only reducing them by 8 per cent. Abuses of discretion in the con-
text of the World Trade Organization (WTO) would be zeroing and the Byrd Amendment by the US.
3
A SG is to be construed as an intra-contractual opt-out provision. A specific manifestation is the
Agreement Safeguards (ASG) of the WTO.
4
Bown (2002) discloses that a member may violate an agreement, precipitating a dispute, even when a
SG provision exists. The right of consultation under the Dispute Settlement Understanding (DSU) of the
WTO permits some accommodation of obligations as a settlement.
5
Under the Marrakesh Agreement (MA) of the Uruguay Round (UR) establishing the WTO, there is a
presumption of N&I when a violation is substantiated through the DSP.
6
As Koremenos (2005) discusses, SG is less flexible than renegotiation. There is not a provision for
more permanent adjustment in commitments in SG.
7
The WTO seems unable to continue with this tradition, as the Doha round was scheduled for comple-
tion a decade ago.
©2016 John Wiley & Sons Ltd
738
The World Economy (2016)
doi: 10.1111/twec.12385
The World Economy
higher. Interpretation of commitments permits discretion. Expression of the agreement is
subjective.
8
Uncertainty arguably is a substantial cause of failure to adhere to commitments. That is,
expected benefits from and costs of compliance/performance are a matter of prediction at the
time of negotiation. Compliance may not transpire when net benefits are negative. Another
source of uncertainty arises from the level of detail in the text of the agreement. Less precise
language or omissions, that is the use of standards and silence, create alternative forms of
uncertainty, that is uncertainty with respect to how the agreement will be interpreted and
implemented.
9
The contention and a contribution of this paper is that discretion in interpreta-
tion of an agreement can be a vehicle by which the architecture of the treaty remains sup-
ported when commitments are temporarily, but not obviously, diluted. That is, flexibility of
interpretation can mitigate the destabilising effect that unanticipated adverse shocks can have
upon the multilateral trading system.
10
A rigid agreement, requiring high compliance and low
evidentiary standards of under or non-compliance, may be less attractive in the presence of
uncertainty than one with discretion and flexibility.
11
The present paper introduces a discussion of standards to treaties in general and the WTO
in particular, contending that they are inherently imprecise and more inviting of discretion
than are rules. They are an alternative to SG and, depending upon the expression of the agree-
ment, also may be an alternative to disputes. That is, standards may be sufficiently imprecise
that discretion results in undercompliance rather than a dispute or SG. This particularly is
desirable when disputes are costly to both the complainant and the respondent. SG under the
WTO may entail a cost through the compensation or retaliation provisions.
12
Additionally,
injury investigations are costly to both the complainant and the respondent. The paper also
proposes that, even if disputes are not filed, they are supportive of discretion as an extra-con-
tractual opt-out. The evidentiary standard utilised by the DSP defines the extent to which sig-
natories can engage in undercompliance without triggering a formal (intra-contractual) dispute
or extra-contractual retaliatory undercompliance.
The weaker (less precise and more subjective) the standard, the less apparent that breach
has occurred. It renders the policies and actions of a potential respondent more defensible and
a SG (or other intra-contractual opt-out) less necessary. Thus, disputes and SG are reduced in
frequency relative to what they would be in a more objective agreement.
13
What is more, the
reciprocal conflict problem identified by Ethier (2009), under which negotiators of the
8
Scott and Triantis (2006) have discussed the interpretation of contracts between private actors in terms
of rules and standards. Their insights are applicable to the understanding of treaties.
9
Maggi and Staiger (2011) disclose that disputes under the DSP are more often about interpreting vague
commitments and giving audio to silence than they are about enforcing clear obligations.
10
The potential for discretion exists for any commitment that is not expressed quantitatively. That is, a
commitment to free trade entails a greater potential for discretion than an agreement to set all border
taxes equal to zero.
11
Johns (2014) is the closest paper in tenor to mine. Her depth of an agreement is analogous to my
compliance/performance standard. Her rigidity of an agreement differs from mine. Failure to comply is
always observed, and her rigidity refers to the extent of the penalty incurred. She does not consider stan-
dards explicitly.
12
The Anti-dumping Agreement (ADA) of the WTO may be considered an alternative form of SG. Har-
tigan and Vandenbussche (2013) have considered the ADA from the perspective of rules and standards.
13
I recognise that disputes have been increasing in frequency, particularly with regard to China. My
contention is that they would have been even more prevalent under higher compliance/performance and
lower evidentiary standards.
©2016 John Wiley & Sons Ltd
STANDARDS, DISCRETION, COMPLIANCE AND THE WTO 739
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