Sunday, December 9, 2012

No more wars?

Pascal Lamy recently commented on the ability of the dispute settlement mechanism of the WTO to prevent trade wars thus:
"I think one of the great things about the WTO is that we don’t have to wage wars anymore. We have trade frictions. The more trade you have, the more occasions you have to have frictions. Part of this friction becomes trade disputes. If there is a trade dispute we will adjudicate it, but there is nothing like a trade war, like there was in the past. So, in many ways, the existence of the WTO provides a sort of collective insurance policy against trade friction degenerating into political problems."
The significance and role of the dispute settlement mechanism is often underestimated in world trade. Though anointed the "crown jewel" of the WTO system, trade disputes are often seen as a negative thing. The other way to look at it is as a "safety valve". With increased trade in a globalized world there are bound to be disputes. National measures are bound to be challenged. Instead of domestic measures being a cause for embarrassment and rising diplomatic wars, what better way than to solve it within the rule-based system. With this, trade can go on while disputes can be resolved amicably through a channel. It is definitely better than a "power-based" system where the economic strength of the trading partner determines the result of the dispute. There are of course questions about the efficacy of the dispute settlement in terms of the time taken and compliance levels. However that does not take away the positives. We are not in a perfect world, are we?

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