8 - Separating Legal and Economic Issues  pp. 123-138

By Robert E. Hudec and J. Michael Finger

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SEPARATING legal and economic issues is difficult because the two sets of issues tend to occupy the same ground. In the GATT, legal measures are never taken for their own sake. They are taken to encourage a particular kind of conduct because that conduct is thought to be economically beneficial. For a legal measure to be “effective”, it must have two consequences. It must induce the kind of conduct desired (legal effectiveness) and the desired conduct must in turn achieve the economic benefit desired (economic effectiveness). Debates over “effectiveness” have a tendency to slide from one issue to the other, usually without warning.

Neither issue is necessarily controlling when it comes to selecting the optimal government policy. Even if the government of a developing country is persuaded that certain market distortions are economically harmful and ought not to be employed, considerations of legal policy might still militate against undertaking GATT legal obligations prohibiting such distortions. For example, the government might believe (i) that it was perfectly capable of adopting liberal trade policies by itself without the aid of GATT obligations and (ii) that GATT obligations may cause political hardships for developing countries by legitimizing the use of economic coercion by developed countries. Alternatively, even if a government believed that certain market distortions were economically beneficial, it could still logically oppose adopting them on the grounds of legal policy.