Theory of Distortions and Welfare as the Backbone of the WTO: If We Lose the Form, Do We Lose the Essence?

Abstract

The Project asks us to work on the presumption that the WTO is at the crossroads and may either survive after significant reforms or cease to exist. This concept paper does not examine the specific challenges that the WTO is currently facing or the various reform proposals. Instead, the paper revisits the underlying rationale for the need for the/a multilateral trading system and underscores the significance of the “Theory of Distortions and Welfare” to the proper functioning of the WTO or its successor. The paper submits that regardless of the fate of the WTO, anti-protectionism, collective rule-making and judicial interpretation and enforcement will remain at the core of international trade regulation. The fundamental function of the/a multilateral trading system will continue to be disciplining the choice of trade policies and policy instruments. As the backbone of the system, the “Theory of Distortions and Welfare” provides an effective mechanism for encouraging the use of economically efficient policy instruments without impairing governments’ capacity to pursue chosen non-protectionist policy objectives.