Coercive Trade Policy∗

As pointed out by many observers, even if it has been very successful in promoting trade liberalization, the WTO remains a court with no bainli . How can this international institution achieve its goal if defendants can reject adverse rulings with impunity? Given the WTO's limited enforcement powers, are unilateral or multilateral coercion more e ective in inducing the target country to concede? To answer these questions, we build a two-country model of coercion that can provide a rationale for how weak international institutions might be e ective, even if their rulings cannot be directly enforced. We show that if coercion is unilateral, the country requesting the policy change will demand a concession so substantial to make it unacceptable to its partner, and a trade war will ensue. If the parties can instead commit to an international organization (IO), compliance is more likely, because the potential IO ruling places a cap on the Foreign government's incentives to signal its resolve. JEL classi cation numbers: F12, F16, L11.