What can explain the European Union's dispensing with both inter-state retaliation and inter-state trade remedies? This is the question that In Place of Inter-State Retaliation seeks to answer. Although proportional countermeasures are the norm in international law, the European Union's prohibition of trade retaliation as an enforcement mechanism makes it an outlier among international treaty regimes. Additionally, the European Union (EU) seems to be the only international preferential trade regime that prohibits the use of all three forms of internal trade remedies (i.e. anti-dumping measures, countervailing measures and safeguard measures).
Given these two peculiarities of the EU, In Place of Inter-State Retaliation sets out to solve ‘the puzzle’ of how it was politically possible for EU member states to reach this unique outcome. This is therefore essentially a work of political science, although it may also be described as ‘a book about the law’,Footnote 1 given its concern with identifying and explaining the political determinants that shaped the law. Phelan believes that both the scholarship on European integration and the scholarship on international trade politics fail to adequately address and solve ‘the puzzle’. He argues that the EU's rejection of countermeasures and trade remedies was possible due to several distinctive features of its member states and of their trading relations.
Chapter 1 begins with a succinct introduction to the European legal order followed by a comparative discussion of the EU and other international treaty regimes, on one hand, and of the EU and other international trade agreements, on the other hand. The author maintains that ‘[t]he essential theoretical difference between the European legal order and general international law’ (p. 17) lies in the EU's rejection of countermeasures as a means of enforcing treaty obligations. On the basis of this difference, he argues that the EU is best described as a ‘self-contained regime’. It should be noted that that the foundational treaty of the European Economic Community (the precursor of the EU) was silent with regard to countermeasures, and that the prohibition of such unilateral ‘self-help’ means of enforcement was formulated and reiterated by the European Court of Justice (ECJ) in a string of judgements. The comparison with other trade regimes (free trade agreements and customs unions) reveals that those typically contain escape mechanisms, such as trade remedies, that permit members to manage the costs imposed by trade liberalization on domestic actors. In contrast, the EU does not allow the imposition of any form of intra-EU trade remedy.
Chapter 2 broadly describes the European legal order and offers a review and critique of the scholarship explaining its development. The author observes that European law provides both for international dispute settlement ‒ the European Commission or a member state can bring another member state before the ECJ – and for enforcement before national courts in cases brought by private individuals. According to the doctrines of direct effect and supremacy of EU law, developed by the ECJ in its early jurisprudence, national courts are bound to directly apply European law, and where a conflict with domestic law arises, EU law prevails. In other words, national courts must, at the request of interested individuals, disapply domestic law that is incompatible with EU law. Following a survey of the scholarship on the development of the European legal order, the last part of Chapter 2 discusses the shortcomings of this scholarship in explaining the EU's ability to dispense with countermeasures and trade remedies.
Chapter 3 considers the scholarship on enforcement and escape in international trade politics, and shows that scholars view countermeasures, or the prospect of imposing countermeasures, as essential to enforcing costly trade obligations, despite their relative ineffectiveness. The author concludes that the examined scholarship ‘offer[s] little or no consideration of the possibility that a demanding international trade regime could – like the EU – operate without the use of WTO-style inter-state sanctioning mechanisms’ (pp. 82‒83).
With regard to trade remedies, it is noted that they ‘are often considered the most important legal safety valves employed by WTO Members’ (p. 86). In addition, the literature dealing with escape in trade agreements emphasizes the necessity of safety valves so as to make it easier for states to enter trade regimes and remain part thereof. As virtually all trade agreements provide for WTO-style trade remedies, ‘[t]he argument that international trade regimes need trade remedy instruments as unilateral ex post escape or flexibility mechanisms is often presented as a finding of general applicability’ (p. 88).
In Chapter 4, Phelan develops an explanation for ‘the puzzle’ on the basis of circumstances that might enhance a state's political capacity to comply with demanding trade obligations. He argues that EU member states accepted to renounce the use of retaliation because direct effect and supremacy of EU law were available as an alternative enforcement mechanism. This argument should be considered in light of the fact that a trade regime free of countermeasures is highly desirable, given that retaliation is disruptive of trade relations. Moreover, Phelan views the enforcement of EU law by domestic courts as a ‘highly intrusive form of treaty-based dispute settlement’ (p. 109) which forces member states ‘to accept a more frequent, more intrusive, less predictable, and more binding stream of trade-related policy adjustments’ (p. 133). Nonetheless, the author maintains that states may choose to depart from the direct application of EU law, entirely or selectively, when faced with irresistible domestic demands for protectionist measures. The occurrence of such an event would prompt a reversion of the regime to countermeasures. However, states can keep in place a trade regime free of countermeasures ‘when political and economic conditions allow them to sufficiently consistently prioritize fulfilling their trade obligations’ (p. 108). Hence, as long as states are able to resist demands for protectionism and abstain from limiting or removing the direct effect of EU law, they will not revert to countermeasures.
The rest of Chapter 4 – and here is where the real value of this book lies – discusses certain distinctive features of the EU member states and of their trading relations that enhance their ability to manage the economic and social costs resulting from trade liberalization, thereby fostering compliance with trade obligations. Firstly, Phelan shows that high levels of intra-industry trade occurring between EU member states reduce trade-related adjustment costs. Secondly, he proposes that certain types of democratic political institutions give states a combination of inclusiveness and authority that makes them more responsive to a broader array of national interests and, conversely, less responsive to demands for protection advanced by narrow interest groups. Such states would be unitary rather than federal states; they would have proportional representation electoral systems as opposed to ‘first-past-the-post’; and would be parliamentary rather than presidential systems. He demonstrates that the political institutions of the great majority of EU states score high on inclusiveness and authority. Thirdly, relatively generous social insurance schemes prevailing in EU member states, particularly unemployment compensation, increase the manageability of adjustment costs imposed on labour. In short, the presence of these factors places EU member states in a better position to manage and reject demands for protectionist policies. Finally, a comparison of the EU to other regional trade regimes, such as NAFTA, MERCOSUR, Andean Community, and ASEAN, as well as with a group comprising the 21 most active respondents in WTO dispute settlement, reveals that the above-mentioned features are more prevalent in the EU than in any of the other trade regimes examined.
Chapter 5 provides a concise overarching account, written in narrative form, of the main arguments and explanations developed in the previous chapter. Spanning merely 16 pages, Phelan's narrative ‘sets out to describe the development of the European legal order from the Treaty of Rome through the mid-1990s’ (p. 135).
Chapter 6, the concluding chapter, briefly restates the main premises and arguments of the book and offers some additional explanations and clarifications. More importantly, it notes certain limitations of the proposed thesis. For instance, in light of the uniqueness of the EU's rejection of both countermeasures and trade remedies, the author acknowledges that ‘an explanation for a single remarkable outcome can only be tested in relatively broad terms, and the full set of scope conditions underlying the creation of an EU-style international organization cannot be very precisely specified’ (pp. 157‒158).
Although mentioned in the title, trade remedies do not enjoy much attention throughout the book. While certain sections of the first three chapters deal with trade remedies, the last three chapters forego any serious discussion of such instruments. In any case, the commitment to abandon the use of trade remedies, like the rejection of countermeasures, ‘[b]oth reflect the EU's prioritization of reliable trading conditions in the European common market over autonomous policy-making and ‘self-help’ behaviour by the participating states’ (p. 23). The ability to maintain such a priority, at the expense of narrow interest groups, seems to explain how the EU is able to operate without trade remedies.
Regarding the explanations developed in Chapter 4, the proposition that EU member states are better equipped to prioritize compliance with trade obligations due to certain distinctive features is both informing and convincing. Nevertheless, the thesis that the existence of direct effect explains the European Union's dispensing with countermeasures is not entirely persuasive. It seems like Phelan's thesis is premised on an understanding of direct effect that overstates the scope and intensity of constraints that this enforcement mechanism imposes on EU member states. As certain prominent European legal scholars explain, the primary function/purpose of direct effect is not enforcement of treaty obligations but upholding the rights of private individuals:
The enforcement of EU law through the assertion of individual rights before national courts … is an important and distinctive feature of EU law. However, the enforcement of the EU legal order here is only seen as a byproduct of the assertion of individual rights. The primary focus is to secure individual redress and the question of enforcement is tailored around this. The judgement might thus address only some features of the illegality … Most importantly, the EU law in question must give rise to rights and somebody must be willing to litigate those rights. If it does not, there can be no enforcement. As we saw, only a very small proportion of EU law is litigated regularly in national courts. (Chalmers et al., Reference Chalmers, Davies and Monti2010: 316–317)
Moreover, the treaties of the European Union also provide for other enforcement mechanisms. As the author notes, a non-compliant member state can be brought before the ECJ by other member states. In addition, the European Commission monitors compliance with EU law and may initiate infringement proceedings, that is, administrative proceedings and legal actions at the ECJ, against members appearing to be in breach of their obligations. While it is uncommon for a member state to bring another member before the ECJ, the Commission makes heavy use of infringement proceedings. It appears that many breaches of EU law are enforced in this manner, as suggested by the high number of pending proceedings.Footnote 2 To be sure, it is a bit of a puzzle why infringement proceedings are ignored in this book, given that their use is considered to be ‘wide-ranging and significant’ (Chalmers et al., 2010: 318). Overall, it is implausible that the direct applicability of EU law is the reason for which member states renounced countermeasures, considering that direct effect is just one of the widely used enforcement mechanisms. In any case, it seems that in Phelan's view, direct effect is the only credible substitute for countermeasures because the other available enforcement mechanisms ultimately require the cooperation of the member found to be in breach, whereas a government cannot disobey its own courts. Nevertheless, ECJ judgements are obeyed by member states, while the great majority of infringement proceedings are settled at an early pre-litigation stage (Chalmers et al., 2010: 316, 333 and 339).
The reviewer would venture to propose a modified explanation that avoids Phelan's arguable overemphasis of direct effect. According to this modified explanation, EU member states accepted the ECJ's prohibition of countermeasures because they were committed to European integration and saw great value in dispensing with a mechanism that is injurious to deep integration. Indeed, Phelan does make the point that a trade regime free of countermeasures is desirable but does not put this at the centre of his explanation. Furthermore, a reversion to countermeasures never occurred because of the member states' relatively good record of compliance with EU law. In turn, compliance is explained by the member states' distinctive ability to ‘sufficiently consistently prioritize fulfilling their trade obligations' (p. 108), as Phelan proposes.
Despite the criticism expressed above, In Place of Inter-State Retaliation remains an informing and thought-provoking book. The demonstration that certain distinctive features of EU member states enhance their ability to comply with demanding trade obligations surely makes it a valuable addition to both the scholarship on the European legal order and the scholarship on international trade. Hence, this book is particularly recommended for those who seek a better understanding of the European Union, viewed as a trade regime, but also for those interested in international trade in general. The factors analysed in Chapter 4 have the potential to inform the study of other regional trade agreements.
