What If? Tinkering with the Counterfactual: A Comment on US–Washing Machines (Article 22.6-US)

Abstract

Typically, the WTO Arbitrator, when charged with evaluating the permissible level of countermeasures (suspension of concessions), has chosen a counterfactual state of the world where the challenged (illegal) measure has not been adopted at all. The Arbitrator then would calculate the trade lost because of the adopted (illegal) measure, and thus, decide on the level of permissible countermeasures. In US–Washing Machines (Article 22.6-US), deviating from this custom, the Arbitrator adopted a different counterfactual, assuming that the complainant had adopted a different, ‘reasonable’ measure. The Arbitrator then evaluated the trade lost based on the distance between the adopted (illegal) and the ‘reasonable’ measure and calculated the level of countermeasures. In this paper, we explain the multitude of perils facing dispute settlement if this approach is adopted in future disputes. We also advance a few thoughts on rethinking the workings of the Arbitrator when measuring the level of permissible countermeasures, since similar slippery slopes risk being reproduced in future cases.

Three essays on international economics

“…With Balistreri et al (2020), this paper is one of a few attempts to comprehensively evaluate the WTO's current arbitration employing the Armington model. Previous studies handle the WTO's arbitration with a different framework-before the DS464 case, most arbitration cases relied on the widely recognized framework stemming from Bagwell and Staiger (1990).…”