The last ten years have seen an upsurge in interest in the nexus of trade and environmental policies. In part this reflects the need to deal with major global pollution problems, and in part a concern that globalization may have adverse impacts on the environment. Environmentalists worry that globalization may trigger a race-to-the-bottom in environmental standards. While they would like to see upward harmonization in environmental standards, they are sceptical about the ability of supra-national agencies to achieve this. Industrialists also raise concerns about the need for a ‘level playing field’ in environmental regulations because of fears about the impact of environmental regulations on competitiveness. However, developing countries question whether disputes over differences in environmental regulations simply reflect a covert form of ‘green protectionism’. In this paper we review what light recent developments in economic analysis (conceptual and empirical) can shed on these concerns. We quickly summarize conventional trade models in which government bodies have perfect information and are welfare maximizers, and show that this analysis does not provide much support for the concerns or proposed policy recommendations. We then turn to models of political economy and imperfect information to see whether they provide a better explanation for the concerns and policy recommendations.

WTO member countries understand the core agreement of the organization to consist of binding reciprocal market access achieved through multilateral negotiation, and supported by a system of trade policy rules and dispute settlement. Attempts to introduce social chapters into the WTO would compromise the core agreement. Specifically, authorizing the use of trade sanctions to pursue non-trade goals would diminish the value of the WTO to its members, and undermine the global trading system. WTO agreements and rules can be reconciled with environmental goals, the improvement of labor standards and the promotion of human rights through the development and strengthening of international institutions dedicated to these issues. Efforts by governments to promote new global institutions and international agreements would thereby remove political barriers to trade liberalization.

This article contests the view advanced by Daniel Esty in World Trade Review, that the WTO is now facing ‘a crisis of legitimacy’, for which the remedy is to create for it ‘links with popular sovereignty’, to broaden its objectives and concerns, and to establish it as part of a stronger system of ‘global governance’. I argue that the legitimacy of an international agency derives first and foremost from its member governments; that democratic legitimacy and ‘popular sovereignty’ do not necessarily go together; that non-governmental organizations have no valid claim in their own right to participate in the activities of international agencies; that bringing these organizations into the WTO would weaken and divide it; that governments, in handling and deciding trade matters, already take account of wider issues and goals and are not uncritically committed to freer trade; that it is still appropriate to limit the concerns of the WTO to questions relating to trade and trade liberalization; that globalization has neither undermined the power and competence of national states nor given rise to a need for new forms of global governance; and that the WTO, despite its now more secure status and enlarged scope as compared with the GATT, is for good reasons neither a powerful instrument of global governance nor in course of becoming so. While the Organization has no ‘legitimacy crisis’, it faces substantial problems both old and new. Its potential for useful activity largely depends, as in the past, on the readiness of its member governments to defend and pursue the goal of freer trade.

David Henderson misreads, misstates, and misunderstands my argument in The World Trade Organization's Legitimacy Crisis. He pejoratively refers to my suggestions for restoring the WTO's legitimacy as ‘radical’ no fewer than three times.

The tensions between the (quasi-judicial) dispute settlement process and the (political) diplomatic and treaty-making activities have intrigued me ever since I arrived in Geneva in December 2001. In the course of the six years during which I served as a member of the Appellate Body, my original doubts have grown into concerns. They are shared by prominent and well-informed observers. They have not only become the subject of a provocative and alarming book, but also found their way into one of the world's leading newspapers. It is therefore timely to discuss these issues widely, particularly in the context of the ‘Doha development agenda’ and more specifically the negotiations on improvements and clarifications of the Dispute Settlement Understanding (DSU).

Efforts to ensure that intellectual property rights are respected and protected world-wide have met increasing resistance by critics who see extreme imbalances in the costs and benefits of implementing stronger intellectual property protection. The WTO's Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) attracts particular criticism as an enforceable multilateral embodiment of these efforts. While few disagree that developed countries stand to benefit more in the short term from TRIPS implementation than developing countries, precisely estimating associated costs and benefits is challenging. This paper comments on an approach to estimating the ‘indirect’ costs of implementing TRIPS proposed by McCalman (2001) and argues that the approach overestimates the costs born by developing countries. Specifically, this overestimation is due primarily to an inadequate representation of the TRIPS Agreement and a counterfactual assumption that countries would not have strengthened their intellectual property policies in the absence of the TRIPS Agreement.

The tension between the WTO and its constituent States and the conflicting impulses of trade liberalization and domestic regulatory autonomy is well documented. This phenomenon is brought into stark relief by the perceived interference from WTO dispute settlement panels into fiscal and regulatory policy-making within States. It is clear that the GATT and GATS agreements do in fact mandate a high degree of policing by WTO panels in areas that were traditionally seen as the exclusive sovereign preserve of States.