WTO Adjudication as a Tool for Conflict Management

The effect of courts arises through process and precedent. First, the process of selecting cases to escalate in the legal venue reveals information about the preferences of defendant and complainant. A third party arbitrator and multilateral membership adds international obligation and reputation as new leverage for compliance. Second, a formal dispute mechanism may have broader impact if the adjudication of one case leads to other countries reforming policies. This paper examines WTO dispute settlement to assess the role of courts to solve disputes and prevent future incidents. The effectiveness of WTO dispute settlement as a process for resolving specific disputes is tested with statistical analysis of an original dataset of potential trade disputes coded from U.S. government reports on foreign trade barriers. Evidence shows that taking a dispute to legal forum brings policy change and reduces dispute duration in comparison with outcomes achieved in bilateral negotiations. Whether these cases also prevent future disputes is more challenging to evaluate. The paper explores the possibility of precedent effects through analysis of the time trend in frequency of complaints filed by all members from 1995 to 2009. The growing role of courts in international affairs suggests that states must find them useful. But do we really know? A well functioning court will enforce law through resolving the disputes brought before it and establish consistent expectations sufficient to guide behavior toward compliance with the law. This may represent a lofty ambition that cannot always be achieved by domestic courts let alone by those at the international level. This chapter conducts an empirical investigation of how courts resolve conflict using evidence from WTO dispute settlement. The WTO offers a useful test case as an international court with a large membership (153 and growing) and active docket of cases (over 400 since 1995). It regulates a broad scope of policies ranging from labeling policies to subsidies and investment rules. The legal process includes right to a hearing by a panel of experts and appeal to a panel of judges with nearly automatic adoption of the rulings. Referred to as the “crown jewel” of the WTO, the dispute settlement procedures are a central element of the trade regime. The stated goal of the dispute settlement process is to resolve those disputes brought forward by members. This paper will assess this aspect of conflict management. Section 1 addresses the problem of selection for evaluation of institutional effectiveness. I review the logic for how the cost of adjudication functions as a screening mechanism that provides information helpful to improve bargaining. Obligation provides additional compliance pull. The next two sections introduce empirical analysis of the potential disputes data from the U.S. National Trade Estimate Reports. Section 2 presents analysis showing that filing a complaint promotes policy change of the measure in comparison with the alternative of negotiating. Section 3 demonstrates that these outcomes are achieved at no loss of time: filing a complaint shortens the time to resolve the issue relative to negotiation. Then the chapter shifts to explore whether the dispute settlement system is able to achieve the long term reduction of conflict by reducing the incidence of disputes. Section 4 analyzes the trend of declining frequency of disputes looking at data for complaints filed by all members under different legal agreements of the WTO. A discussion of WTO legal scholarship notes the de facto nature of precedent in the WTO system and points to efforts by states to internalize the growing jurisprudence. The empirical analysis offers an initial look at the possible role for deterrence and precedent effects as one component in the declining frequency of disputes. A final section concludes. WTO, World Trade Report 2007, p. 261. Sections 2 and 3 rely on analysis in my forthcoming book (Davis, 2012).