‘Optimal’ Retaliation in the WTO – a commentary on the Upland Cotton Arbitration

Abstract

The Upland Cotton case raises a range of interesting issues regarding the rationale for retaliation in the WTO system and the proper approach to its calibration. These include: Should the approach to retaliation differ in cases involving prohibited or actionable subsidies ? When should cross-retaliation be allowed? Should retaliation be based only on the harm to the complaining nation, or to other nations as well ? And, most importantly, what economic content can be given to the standard of countermeasures 'equivalent to the level of nullification or impairment '? We address these and other issues from both a legal and economic perspective, with particular attention to the question of what level of retaliation will restore the lost welfare of the complaining nation.