The internationalization of production and the politics of compliance in WTO disputes

Abstract

In this paper we seek to advance the debate on the conditions under which the WTO Dispute Settlement Body can bring about trade-liberalizing policy change in WTO members. Under what conditions do WTO members change domestic policies or measures that are challenged in WTO litigation? Starting from the assumption that policymakers are political-support maximizers who seek to avoid the mobilization of political enemies, we argue that the degree of integration in Global Value Chains (GVCs) of the economic sectors affected by a WTO dispute influences members’ propensity to change domestic policies when targeted in WTO litigation. The initiation of a WTO dispute against sectors highly integrated in GVCs engenders the emergence of a domestic coalition of pro-trade liberalization groups composed of exporters seeking to avoid the imposition of retaliatory measures and import-dependent firms wishing to exploit the opportunity to access cheaper imports. Under these circumstances, trade-liberalizing responses to WTO legal challenges are therefore more likely. We test this hypothesis by estimating a Cox proportional hazard model and find that GVCs positively impact states’ propensity to comply with the WTO dispute settlement panel rulings.

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Notes

  1. 1.

    For a more comprehensive review of these various literatures see Bernauer et al. (2014) and De Bièvre et al. (2017).

  2. 2.

    On the private-public partnership in WTO dispute settlement, see Shaffer (2003).

  3. 3.

    See, in particular, Gereffi (1999) and Burch and Lawrence (2005) for the expansion of such global linkages in the food industry.

  4. 4.

    See also, OECD (2014).

  5. 5.

    For a detailed overview of exporting sectors and the collective action dilemmas they face, see Dür (2010).

  6. 6.

    We follow Grossman and Helpman (2001) and consider policymakers to be self-interested actors.

  7. 7.

    For an extensive overview, see Read (2005).

  8. 8.

    See: the proceedings of the Impact of the Section 201 Safeguard Action on Certain Steel Products. Hearing before the U.S. House of Representatives Committee on Ways and Means Subcommittee on Trade, March 26 2003.

  9. 9.

    Tonya Vinas “DDayFor Steel,” Industry Week, December 21, 2004. Accessed on May 12, 2016 via: http://www.industryweek.com/none/d-day-steel. See also: “U.S. Disagrees with the WTO steel Ruling,” The World Trade Review, 15 December 2003. Accessed via: http://www.worldtradereview.com/news.asp?pType=N&iType=A&iID=72&siD=23&nID=12206.

  10. 10.

    See: Press Briefing by US Trade Representative Zoellick on Ending the Temporary Steel Safeguards. Washington: The White House Office of the Press Secretary Available at: http://iipdigital.usembassy.gov/st/english/texttrans/2003/12/20031204164450yessedo0.718197.html#ixzz45cv7YfiB Accessed on April 12, 2016.

  11. 11.

    Relevant data are missing for a subset of WTO defendants, including Thailand, Egypt, Guatemala, Argentina, Colombia, Chile, the Dominican Republic, and the Philippines. Collectively, these defendants account for 17 cases, which are omitted from our first model due to data limitations. However, in our second model, we conduct two separate analyses using alternative data sources, which can include most of these missing disputes. They reveal substantively similar results.

  12. 12.

    We start the clock to calculate ‘time until compliance’ from the AB report because the extent of a violation, and therefore the extent of policy change required to bring about compliance, is only clarified for the defendants after a final ruling is delivered by the AB. As a robustness check, however, we run separate analyses in our supplementary appendix in which we calculate the ‘time until compliance’ from the original panels’ report. Our results are substantively similar.

  13. 13.

    Four additional details warrant attention. First, in cases where there were multiple complainants in a dispute, we distinguish each pair and count them as separate disputes. This decision is consistent with a number of works in the field (e.g., Horn et al. 1999; Bagwell et al. 2004) and was made so that we can observe the impact of additional WTO members in a dispute. Second, our sample does not include disputes that targeted horizontal measures, since these disputes did not target specific sectors. Although some horizontal measures may involve certain sectors more than others, we only examine responses to litigation if there is a sector whose import dependence can be measured. Third, a few disputes resulted in compliance around the same time there was a panel ruling. Even though the defendants in these disputes did not comply with a panel ruling per se, they demonstrated domestic policy change after a panel composition, in which the clarity of violations were most likely made before the circulation of panel reports. Finally, in certain disputes, defendants notified the WTO DSB of compliance, but we could not find the corresponding domestic legislation. These cases are coded “complied with” and we rely on WTO Members’ notification to the DSB and official WTO records to consider the extent of compliance.

  14. 14.

    For the World Input Output Database, see: http://www.wiod.org/new_site/database/wiots.htm

  15. 15.

    For the TiVA dataset, see http://stats.oecd.org/Index.aspx?DataSetCode=TIVA2015_C1#.

  16. 16.

    The data on FDI stocks were collected from the OECD where available and EUROSTAT for the EU. For the data on developing WTO members, we utilized UNCTAD. The closest year available was used if data were missing for certain years.

  17. 17.

    See OECD (1993), for an overview on HHI index and sector concentration.

  18. 18.

    Sector employment is used as a proxy for political importance by Hoffman and Kim (2009). In addition, Spilker (2012) and Sattler et al. (2014) consider agricultural sectors to be politically important.

  19. 19.

    Results remain substantively similar when omitting outliers.

  20. 20.

    More information on the specifics of the TiVA data and the substantive effects can be found in the appendix.

  21. 21.

    See also, Orefice and Rocha (2014), Eckhardt (2013, 2015); Eckhardt and Poletti (2016), Jensen et al. (2015); Kim (2015), Manger (2009) and Milner (1987).

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Acknowledgements

We are grateful to the attendees of the 9th Political Economy of International Organizations (PEIO) conference held in Salt Lake City, Utah. We extend our thanks to Leonardo Baccini, for his valuable comments. The authors gratefully acknowledge the support of the Research Fund of the University of Antwerp.

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Yildirim, A.B., Tyson Chatagnier, J., Poletti, A. et al. The internationalization of production and the politics of compliance in WTO disputes. Rev Int Organ 13, 49–75 (2018). https://doi.org/10.1007/s11558-017-9278-z

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Keywords

  • International institutions
  • World trade organization
  • Global value chains
  • Compliance