Financial Compensation in the WTO

The current system of remedies in the WTO provides Members with a choice between trade compensation or retaliation. There is a problem in that trade compensation is only possible with the consent of the non-complying country and thus often remains theoretical, while retaliation has the disadvantage of requiring the complaining Member to 'shoot itself in the foot' by restricting imports and thus hurting its own industrial users, importers and consumers. Such retaliatory restrictions also hurt innocent bystanders abroad: private parties who are not involved in a dispute lose their export markets. As importantly, the current system does not provide for effective reparation of damages suffered by the WTO Member and private parties concerned. These problems are even more urgent for developing countries. Many of them cannot effectively retaliate: their economies are too small to make an impression on the infringing country, and the negative effects of such countermeasures would be felt disproportionately by their own economies and businesses. Introducing financial compensation could be a solution. Financial compensation does not restrict trade, helps to compensate injured Members and industries, avoids hurting innocent bystanders, and can contribute to more effective compliance. In addition to analysing the problems with current remedies and the pros and cons of financial compensation, this article outlines what financial compensation in the WTO could look like. Copyright 2005, Oxford University Press.