Flexibility and enforcement in the WTO: towards an agenda for reform

Part I of this study gave an introduction to incomplete contract theory. It stressed the crucial role that contractual flexibility provisions, and default rules in particular, play in incomplete contracts. Part II presented a comprehensive contract-theoretical analysis of the WTO contract. We identified players, utilities, and motives for contracting, and discussed the nature of contractual incompleteness prevalent in the treaty. This was followed by a portrait of basic entitlements exchanged in the WTO today and how they are protected from intra- and extra-contractual ex post non-performance. Pursuant to this systematic examination, we assessed in which respects the system of trade policy flexibility and enforcement is flawed in the current-day WTO. The consequences of these shortcomings for the international trading system in general were summarized. This final part of the study is geared towards an outline of reform. Chapter 6 will conduct the thought experiment of a “hypothetical bargain analysis” (see Scott 1990, p. 598). It theorizes about how reasonably rational, self-interested trade negotiators can be expected to organize and design a system of contractual non-performance in a multilateral trade agreement such as the WTO. Building on the previous analysis, we will search for the most efficient institutional rules for breach, “breach,” and remedies trade negotiators will craft for themselves, cognizant of the idiosyncratic contracting context of the WTO. We want to elucidate which intra-contractual (legal) rules of trade policy flexibility best protect the various entitlements traded in the WTO, which enforcement provisions best safeguard compliance with these rules, and what cost injurers should incur for committing illegal behavior.