Abstract
Can international courts ever be independent of state influence? If not, how do courts manage the tension between legal principles and political concerns? We address these questions through an analysis of one of the most independent international adjudication mechanisms – dispute settlement at the World Trade Organization (WTO). We find that the ad hoc nature of WTO panels, judicial hierarchy, and panelists’ concern for compliance create a set of incentives that encourage panelists to moderate rulings against the most powerful WTO members. Our analysis shows that WTO dispute settlement panels limit the negative effects of judgements against the United States and the European Union by reducing the scope of such verdicts through the use of judicial economy. We argue that WTO panels use this practice to balance the demands of the law with the concerns of powerful members, which results in a level of judicial restraint on the part of panels and increased prospects for compliance by the US and EU.
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Notes
This occurs because the AB has no independent fact-finding capability; if a panel has chosen to exercise judicial economy on a particular claim that the AB determines is necessary for the appeal, the AB may not have sufficient information to render a decision.
Our argument here is similar to Posner and Yoo (2005), who argue that judicial deference to member states increases compliance with institutional rules and regime stability. Posner and Yoo, however, argue that such deference is a feature of highly dependent institutions, while we argue that WTO panels show such deference despite the relative independence of WTO Dispute Settlement. We follow Posner and Yoo in suggesting the WTO has a comparatively independent tribunal, based on six characteristics: term length of panelists, jurisdiction, initiation, number of states, state consent to jursidiction, and source of panel members. For more on this topic, see Posner and Yoo (2005: 26-27). For an analysis of the interaction of bias and power in other international institutional settings see Johns (2007).
Interviewees for this project consisted of former panelists who had served on nine WTO panels and those appointed to the WTO’s indicative list of potential panelists. Participants agreed to be interviewed anonymously and interviews were conducted via Skype and phone in September of 2014.
For a broader discussion of the incentives from appointments and staffing rules in international institutions, see Cortell and Peterson (2006).
Article 8 of the DSU contains an exception to this rule: for disputes between developed and developing countries, developing countries can request a panelist from their own country.
In our data set, 85 percent of panelists are not from the United States or EU countries (calculated based on EU membership prior to 2004 since our data set stops in 2005).
If there is no agreement within 20 days, parties may request the Director-General of the WTO appoint panelists; however even at this stage, the appointments are done after consulting with the parties (Article 8.7 of the DSU). For more on this process, see: http://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/c6s3p2_e.htm
We examined a snapshot of 20 randomly selected panelists from 20 randomly selected disputes from our dataset, reviewing their professional positions and credentials. Reviewing this random sample provides a snapshot of how panelists present their WTO experience and complements information on panelists’ incentives gathered through interviews.
Indeed, Busch and Reinhardt (2003) suggest that developing countries have performed worse in WTO dispute settlement due to a lack of legal capacity. Given this finding, developing countries are likely to value the legal expertise of WTO panelists, which provides strong career incentives for such individuals to serve multiple times on WTO panels.
The promotion from WTO panelist to AB member is not uncommon. As of 2013, 3 of the 7 AB Members had previously served as WTO panelists.
AB decisions will also affect how subsequent panels interpret WTO law and even regulate the practice of judicial economy. Indeed, in one of the earliest WTO disputes, the AB criticized a panel for “false judicial economy,” which occurred because the panel narrowed the scope of its decision too much and did not address all claims necessary to resolve the dispute (DS18: Australia-Salmon). Our argument here is not that panels exercise judicial economy without regard to the content of the law, but rather that they consider how the AB balances legal principles and political considerations when employing judicial economy.
We focus on the practice of judicial economy by WTO panels rather than the AB because panels have a considerable comparative advantage in this regard. In the early years of the WTO, AB members understood panels as being the exclusive source of judicial economy, since Article 17 of the DSU requires the AB to address every legal issue raised on an appeal. Alvarez-Jimenez (2009) argues that in recent years, the AB has been more willing to exercise judicial economy, however, even if this is true, the AB may still benefit from the strategic use of judicial economy by panels because such decisions limit the scope of appeals.
By “active” we mean that the country is participating in the dispute as the complainant, defendant, or third-party.
We follow the advice of Gelman et al. (2008) and adopt a Cauchy distribution for our prior.
Our data are drawn from the Busch and Pelc dataset, except where we specifically note original data coding or other data sources. Judicial economy is dichotomous, coded as 1 if a panel opts to exercise judicial economy on one or more articles cited by the complainant and 0 otherwise. Panels must identify and explain their use of judicial economy in every report; for this reason, “the coding of judicial economy is unambiguous” [268] (Busch and Pelc 2010). Although the panel must explain its initial use of judicial economy, the subsequent use of judicial economy within the same ruling may be explicit or implicit; it is for this reason that the variable is dichotomous. For example, if a panel opts to exercise judicial economy on a specific claim, other claims may become irrelavant. In such cases, the panel’s report may specifically mention judicial economy with regard to only one article, when in fact judicial economy may have been exercised with regard to several additional articles not discussed in the panel report. This point was reinforced in our interviews, with panelists explaining that the choice to use judicial economy on an article early in the case may automatically mean judicial economy is used later (WTO Panelist 2014a). Thus, the main question is whether judicial economy is used at all (WTO Panelist 2014a), and not “how much” judicial economy is used.
The EU is considered as a single entity because trade policy is centrally coordinated (Meunier 2005).
Differences in the data support this disaggregation. For example, the EU has lost 11 disputes, 7 of which pertain to trade involving agricultural goods, whereas the US has lost 14 disputes, only 2 of which relate to agriculture. Similarly, the EU has lost 2 cases pertaining to health and safety standards, whereas the US has not lost any on this matter.
Due to the small sample size and our underlying theory, we only include this indicator for the content of the dispute. Our results are robust, however, to the inclusion of the Busch and Pelc control variables indicating whether a dispute involves agricultural matters and whether the dispute includes a non-violation complaint (i.e., no agreement has been violated but a government argues that it has been deprived of an expected benefit due to another government’s actions.)
US and EU Loss also have the expected effect and are statistically significant when analyzed individually, while controlling for just the number of articles cited and mixed third-party submission.
To calculate predicted probabilities, we use a quasi-bayesian simulation that samples 1000 times from a distribution based on the coefficients and variances from our regression (Model 4 in Table 1). We compute the difference in predicted probability using this simulation data and changing the variable of interest (US Loss or EU Loss) from 0 to 1.
This finding could be interpreted as evidence that panelists are more motivated by compliance concerns than by career incentives, since opting not to use judicial economy when the US or the EU is the complainant would benefit these countries and theoretically increase a panelist’s odds of reappointment. Since complainants generally win cases, however, these powerful economies may already be inclined to reappoint panelists under such circumstances, thus reducing the incentives for panelists to avoid judicial economy.
Busch and Pelc (2010) find a much stronger effect, where moving from zero to one mixed submission increases the odds of judicial economy by 27 percent. This difference in results is partly attributed to our inclusion of several different variables (such as US loss and EU loss) in our model. It is also due to a different approach for calculating predicted probabilities, where we use a quasi-bayesian sampling technique rather than holding all variables at their means. Although these predicted probabilities are based on a bayesian logit regression model, our findings are robust to Busch and Pelc’s approach, which uses a rare event logit regression model.
The weighted measure thus takes into account all parties with a defined preference in the dispute and allows us to generate a more meaingful measure of the broader membership’s preferences than limiting our examination to mixed submissions or or a simple pro-con split.
The weighting of the balance variable also provides a notable distinction from the work of Busch and Pelc (2010), who create a similar “Partisan Split” measure, however, they fail to weight the measure which limits its usefulness as a measure of the opinion of the membership at large.
In our dataset of 104 cases, participation (as complainant or defendant) by other economic powers is as follows: Brazil - 11 cases, Canada - 16 cases, India - 12 cases, Japan - 9 cases, and Korea - 14 cases.
In our dataset, the number of losses per country is as follows: Brazil - 7, Canada - 12, India - 8, Japan - 5, and Korea - 6.
The cut point for “early” versus “late” disputes is October 22, 2001, which is the date the final AB report was circulated. All disputes initiated after this date are considered part of the “late” period.”
All significant variables from Model 4 maintain significance at at least the 10 percent level and the coefficients are stable with the inclusion of the early period dummy.
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Acknowledgments
We extend our gratitude to Marc Busch, Christina Davis, Raymond Hicks, Kosuke Imai, Jonathan Kastellec, Jeffrey Kucik, Krzysztof Pelc, Helen Milner, three anonymous reviewers, participants of the International Political Economy Society and Political Economy of International Organizations 2014 conferences, and participants of Princeton’s seminars who provided valuable comments and suggestions on this project
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Brutger, R., Morse, J.C. Balancing law and politics: Judicial incentives in WTO dispute settlement. Rev Int Organ 10, 179–205 (2015). https://doi.org/10.1007/s11558-015-9216-x
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DOI: https://doi.org/10.1007/s11558-015-9216-x