The WTO dispute settlement system would survive without Doha

Chad Bown 19 June 2010

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What do you get when you combine a sudden collapse in world trade, a global recession, a stalled round of multilateral negotiations, and a moderate-to-substantial increase in measurable protectionism? The answer, somewhat surprisingly, has been remarkably little trade friction – at least as measured by the number of trade disputes brought to the WTO’s dispute settlement mechanism. The yearly totals for 2008 (19 new disputes) and 2009 (only 14 new disputes) are two of the five lowest on record in the WTO’s 15-year history.

If and when an upswing in WTO disputes does return, would failure to progress on the Doha Round of negotiations raise the prominence of the WTO’s judicial branch to a politically unsustainable level? Unlike the dysfunctional dispute settlement system GATT era, the WTO process is prepared to take on a much higher caseload of disputes. Furthermore, because the WTO’s self-enforcing system lacks a police force and independent prosecutors, access to dispute settlement is important for all exporting economies. This access is especially critical for the WTO’s developing economy members (Hoekman and Kostecki 2009).

WTO dispute data: The continued importance to developing economies

Most WTO disputes boil down to a simple issue – a group of exporting firms in one economy has lost (or failed to realise) sales to a foreign market that was “promised” when a trading partner took on an earlier WTO commitment.

Figure 1 illustrates the total use of WTO dispute settlements over time. Most striking is a substantial drop-off in new cases starting around 2001. Combined, WTO members initiated an average of 41 new disputes per year during 1995-2000, but this number falls to fewer than 21 new disputes per year for 2001-2009.1 This drop-off is almost entirely explained by changing use by the US and EU of the system. During 1995-2000, the US and EU combined to initiate one half of all WTO disputes, and half of those were cases launched against each other. Since 2001, these two economies have combined to initiate fewer than six disputes per year on average.

Figure 1. WTO disputes initiated by year, 1995-2009

Source: Compiled from the WTO’s website. Disputes are broken down into bilateral (complainant/respondent) pairs. Because some disputes involved more than one complainant, the 402 requests for consultations initiated over the 1995-2009 period yielded 429 bilaterally paired disputes.

Developing country use of WTO dispute settlement is much steadier over time at more than 10 new disputes per year during 2001-2009, down only slightly from an average of 13 cases per year during 1995-2000. Increasingly these cases involve challenging other developing economies. While China has yet to file a dispute against another developing economy, four recent disputes filed against China have included challenges by developing economies like Mexico (three times) and Guatemala (once).2

The relative increase in developing country use of WTO dispute settlement to resolve their differences is good news. It is evidence that developing economies are increasingly invested in the multilateral, rules-based WTO system.

The lingering perception that disputes are bad is wrong

The idea that an international organisation staffed by unelected bureaucrats with limited public accountability having power to interpret the WTO contract through legal rulings makes many understandably nervous. The decision by the EU and US to use WTO dispute settlement to resolve a number of politically sensitive trans-Atlantic issues during the immediate post-Uruguay Round period (1995-2000) (bananas, beef hormones, foreign sales corporations, and the Byrd Amendment, among others) greatly raised the public profile of the system. Politicians in the US (if the EU was the complainant) or Europe (if the US was complainant) raised concerns that the WTO was threatening national sovereignty by forcing countries to take on obligations through judicial rulings instead of multilateral negotiations. However, the high volume of politically sensitive cases brought against the US and EU from 1995-2000 did not bring down the system because the US and EU adeptly managed the political problem of “losing” many WTO disputes by initiating and “winning” just as many cases as complainant. All that was necessary to silence a domestic critic complaining that the WTO threatened national sovereignty was to point out the larger set of benefits deriving from the other side of the ledger.

Dispute settlement under the WTO has experienced growing pains and legitimate debates about the substance of particular WTO legal rulings. Legal scholars and academic economists have provided substantial critical commentary on the evolving WTO jurisprudence.3 Nevertheless, it is also fair to say that most WTO decisions have been quite narrow. Panels and the Appellate Body have been sympathetic to concerns about judicial activism, and they frequently invoke the principal of “judicial economy” by refusing to rule on many issues the parties raise in a case.

A lesson from this era is that a politically acceptable future of WTO dispute settlement is not necessarily tied to the number of cases being pursued. Even under a scenario of a failed Doha Round, a high volume of WTO disputes can be sustained politically if the involved countries manage a political "balance" of offensive and defensive cases. Just as history has shown that trade negotiations require a balance of market opening initiatives across countries to conclude a politically and economically palatable round, what matters for the WTO’s judicial branch is that individual countries manage a reciprocal balance of ongoing disputes.

Reciprocal WTO dispute settlement in action

An example of a reciprocal balance of WTO disputes is currently taking place between the EU and China over two different varieties of the same product – iron and steel fasteners.4 As background, the EU initiated an antidumping investigation over Chinese fastener exports in 2007 and imposed new duties of up to 85% in January 2009. China responded by initiating its own antidumping investigation over EU exports of a different variety of fasteners in 2008, and it imposed new 25% tariffs.

Without WTO dispute settlement, a tit-for-tat exchange of trade retaliation might have emerged. Instead, in July 2009, China filed a WTO dispute seeking to have its access to the EU iron and steel fastener market restored. In May 2010, the EU responded by initiating its own WTO dispute against the Chinese antidumping duties, seeking restored access for its exporters to the Chinese market.

In this light, WTO dispute settlement provides an opportunity for these two economies to unwind trade barriers and reciprocally open up each other’s markets for these products. Doing so relies on the same principles and economic tradeoffs that negotiators relied on during the market-opening GATT rounds of 1947-1994 although in this case the market opening is simply on a smaller scale.

Developing economies and the importance of even small-scale disputes

The media-headlining US and EU cases of the 1990s provide a distorted picture of WTO dispute settlement. The typical dispute is much less politically charged. The example of EU and Chinese challenges to imposed antidumping measures are much more typical, especially for cases initiated by developing economies.

Developing economies now face a much lower cost to litigating and getting advice on WTO dispute settlement through access to the Advisory Centre on WTO Law, a Geneva-based legal assistance provider that offers developing economies access to high quality subsidised legal services. It has assisted developing economies in more than 30 formal disputes.

Many of these cases are small. Table 1 identifies a number of South-South disputes in which the alleged WTO-infraction wiped out less than $10 million in annual export revenue. Examples include Argentina initiating a dispute against Peru, Turkey filing against South Africa, Bangladesh challenging India, Pakistan targeting Egypt, and Guatemala taking on Mexico.

Table 1. Selected WTO disputes with less than $10 million in lost annual export sales, 2001-2008

WTO Dispute (Developing Country Complainant)
Average Value of Complainant Exports in Three Years Prior to AD*
Estimated Value of Lost Exports due to AD**
 
 
 
Peru — Provisional Anti-Dumping Duties on Vegetable Oils from Argentina(Argentina)
$11,000,726
-$9,720,227
South Africa — Definitive Anti-Dumping Measures on Blanketing from Turkey(Turkey)
$5,906,750
-$5,766,517
India — Anti-Dumping Measure on Batteries from Bangladesh (Bangladesh)
$315,430
-$315,430
Egypt — Matches (Pakistan)
$2,608,283
-$2,453,799
Mexico — Steel Pipes and Tubes (Guatemala)
$2,693,535
-$2,242,200
 
 
 

Source: Adapted from Bown (2009, table 6-6). AD = antidumping. Complainant exports are of 6-digit Harmonised System (HS) product subject to the AD import restriction (see Bown, 2010c); HS export data taken from WITS. *Average annual value in the three years prior to the AD investigation. Value of lost exports calculated as value of exports two years after the AD investigation minus the average annual exports in the three years prior to the AD.

Encouraging socially beneficial disputes for developing-economy exporters

If managed according to a principle of reciprocal balancing, lessons from the 1995-2000 US and EU experience suggest that a higher volume of WTO disputes need not threaten the sustainability of the multilateral system. But more needs to be done to ensure that developing economies use WTO dispute settlement to pursue disputes that would challenge actual WTO violations, are based in sound economic, legal, and political reasoning and evidence, and would have a large economic payoff.

Now that establishment of the Advisory Centre on WTO Law has addressed the problem of high WTO litigation costs, a last major hurdle for developing countries to pursue the “right” disputes is their access to information. In particular, exporters and their advocates currently lack access to economic, legal, and political information on the causes of their lost foreign market access – technical information that also needs to be made accessible to their policymaking representatives. There are a number of market-failures contributing to why such technical information has not historically been generated on behalf of developing countries. In earlier research (Bown 2009, chapter 8) I go so far as to propose a new international institution – the Institute for Assessing WTO Commitments – to provide the services to help overcome this market failure.

The international community responded to the global economic crisis of 2008-2009 with a step in the right direction through number of new monitoring and information-generation initiatives.5 Substantially more detailed information that can help trace the causes and economic importance of (potentially WTO-violating) lost market access has now been compiled into public databases provided by the Global Trade Alert (Evenett 2009) and the World Bank (Bown 2010c).

Technically competent analysts and stakeholders in the development-focused community could transform this data. They could use it to provide exporting developing economies with what they require to make informed and self-interested decisions on the potential “right” disputes to pursue when self-enforcing their access to foreign markets. An endgame in which such information is put to use and there is a resulting surge in WTO disputes could be good news for the rules-based trading system and its developing economy members. Even in the absence of progress on the Doha round.

References

Bown, Chad P (2009), Self-Enforcing Trade: Developing Countries and WTO Dispute Settlement, Brookings Institution Press.

Bown, Chad P (2010a), “China’s WTO Entry: Antidumping, Safeguards, and Dispute Settlement”, in Robert C Feenstra and Shang-Jin Wei (eds.), China’s Growing Role in World Trade, University of Chicago Press for the NBER.

Bown, Chad P (2010b), “Developing Countries and Monitoring WTO Commitments in Response to the Global Economic Crisis”, World Bank Working Paper no. 5301, May.

Bown, Chad P (2010c), “Temporary Trade Barriers Database”, The World Bank.

Evenett, Simon J (2009), “Global Trade Alert: Motivation and Launch”, World Trade Review 8(4):607–609.

Hoekman, B and M Kostecki (2009), The Political Economy of the World Trading System, Oxford University Press.

Horn, Henrik and Petros C Mavroidis (eds.) (2007), The American Law Institute Reporters' Studies on WTO Case Law: Legal and Economic Analysis, Cambridge University Press.


1 The post-2000 downward trend in disputes was briefly interrupted in 2002 with an economic recession which led to U.S. imposition of a controversial steel safeguard import restriction and surge in disputes challenging the measure.
2 Despite its large share of world trade, China was relatively absent from WTO dispute settlement after it acceded in 2001, being involved in only one dispute as complainant and one as respondent through 2006 (Bown 2010a). Since 2006, China has initiated six disputes and been a respondent in 17 disputes.

3 An example is an American Law Institute project that generates annual analytic reviews of WTO Appellate Body decisions. See Horn and Mavroidis (2007).

4 See European Communities — Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China (DS397) and China — Provisional Anti-Dumping Duties on Certain Iron and Steel Fasteners from the European Union (DS407).

5 Bown (2010b) describes the information that might be provided to address potential WTO-violations.

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Topics:  Global governance International trade

Tags:  WTO, Doha Round, international trade

Senior Fellow, Peterson Institute for International Economics; CEPR Research Fellow

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