WPS 2015-02: Legitimate Economic Efficiency in International Trade Law: Externalities and the future of WTO Dispute Settlement

Jan-Frederik Keustermans

This paper explains how the World Trade Organization (‘WTO’) dispute settlement system can cope with ongoing sociocultural globalization and the changing role of state sovereignty. These evolutions have influenced our understanding of the legitimacy of international organizations. In this context, the WTO receives heavy criticism for its democratic deficit. State consent no longer suffices to legitimize its actions. The democratic deficit is especially high with respect to the WTO dispute settlement system, which is increasingly pushed to engage in judicial activism and to rule on non-trade issues.
The paper first argues that the traditional economic goals of the WTO no longer suffice. The paper proposes a new dual goal for WTO dispute settlement, coined ‘legitimate economic efficiency.’ The WTO dispute settlement system should increase its own legitimacy, and, at the same time, seek to overcome collective action problems in international economic relations, but only when doing so is efficient.

Next, the paper offers a theory for WTO dispute settlement, based on three principles that implement the dual goal: (i) legitimacy, (ii) efficiency, and (iii) subsidiarity. Specific sets of tools are proposed to operationalize these principles.

The paper proceeds to show in how these tools are reconcilable with the current legal framework, thereby avoiding the unrealistic pre-requisite of amending the WTO agreements, and how political, institutional and financial hurdles may be addressed.

Finally, a case study of the EC – Seal Products dispute shows how the WTO dispute settlers may already be applying some of the tools and principles in their current practice, and how that practice can quite easily be improved in order to better pursue legitimate economic efficiency.

Jan-Frederik Keustermans WPS 02-15