Chapter 8: Compensation and retaliation
A multilateral trading system operates based on mutually agreed concessions among trading nations, and its success depends on their observance of the negotiated concessions. The problem with import restrictions such as safeguard measures is that such restrictions upset the balance of concessions between the importing and exporting Members. Thus, it is reasonable to allow Members to obtain compensation for the loss of their trade caused by the application of a safeguard measure. Thus, where compensation is not offered, the affected Members should, arguably, be allowed to suspend or withdraw their own concessions. Such a responsive measure is often described as retaliation. However, despite the negative connotation of the term, retaliation in the context of safeguards is not necessarily punitive in nature, as it attempts to restore the balance between the importing and exporting Members of concessions that have already been upset by the application of a safeguard measure. Nevertheless, retaliatory action is applied unilaterally to the trade of a Member applying a safeguard measure, often accompanying political and diplomatic feuds between the importing and exporting Members over the justification of the action. The trade relations of those Members may well deteriorate as a result of retaliation and the subsequent disputes. The Member whose trade is affected by retaliation may also apply yet another responsive measure, and, in the worst scenario, the downward spiral of sequential retaliations is a possibility, and this type of trade war would cause a grave disruption to the multilateral trading system.
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