The Limits of WTO Adjudication: Is Compliance the Problem?

1. The Limits of WTO Adjudication:Is Compliance the Problem? Juscelino F. Colares ASIL ─ International Economic Law Group Biennial Conference Minneapolis, Minnesota November 2010

2. Overview • There is a sizeable disparity between Complainant and Respondent success rates in WTO adjudication • Complainants win 80 to 90 percent of disputes • Success rates have not abated over time • High and sustained Complainant success rates have been explained by Respondent protectionism, built-in settlement constraints and biased rule-development • Bias theory seems to be the most robust explanation • Bias or not, legalists believe the system needs to be strengthened, pointing to noncompliance as a serious problem • Basic tasks: • Conduct an empirical study of WTO compliance disputes to determine whether compliance litigation protects the pro-free trade interests detected in substantive litigation • Explain the role of noncompliance in the system and why reforms to the system are unlikely to affect compliance levels

3. What Explains Disparity in Litigant Success ? • Most empirical analyses of WTO substantive adjudication reveal a high Complainant success rate, but avoid explaining its causes • Traditional narrative that “Respondents are Protectionists” is notoriously simplistic and overbroad • Empirical case for a settlement effect that would constrain Respondents’ ability to settle through operation of the MFN principle is weak • Bias theory can explain Complainants' systematically high success rate • Empirical research that codes for case subject matter, level of income, third-party involvement and product-type differences shows high, sustained Complainant success rates across the board • Qualitative examination of decisional patterns in varied litigation demonstrates adoption of über-trade liberalizing views that displaces balance struck in the agreements • Would a "bias" in substantive disputes also appear in compliance adjudication? • It wouldn't be necessary . . . Yet, if present, it would look ≠

4. Results –The Big Picture • Compliance proceedings preserve results of substantive litigation • Bias in Complainants' favor is not necessary at this point to protect pro-free trade interests (status quo is enough) • Curiously, erstwhile Complainant success in compliance litigation is no longer high across the board • Their success rates are highly correlated with whether they appear in furtherance of trade liberalization in compliance cases • . . . As opposed to requesting retaliation (i.e., authorized trade restrictions) • Think of the WTO as trade metaphor to Richard Dawkins' "selfish gene" theory • Now, on to specifics . . .

5. Results—Overall Compliance • Of 117 original substantive cases, 42have resulted in compliance disputes (outright compliance 64%of the time) • These 42 original cases led to 61compliance disputes • Of these, only 9 cases reached the retaliation stage • I.e., 85.25 percent of compliance cases led to compliance without need for retaliation • In combination with instances of outright compliance, the record of compliance with WTO decisions is impressive • Yet, this says little about whether Complainants maintained the same success rates they had in substantive litigation

6. Results—Complainant Success Rates • Complainant success rates are not as high as in substantive litigation • However, these numbers do not reveal the actual success of erstwhile Complainants in compliance litigation • Only by accounting for eventual litigant reversals can one determine actual erstwhile Complainant success rates

7. Results—Implications of Posture Reversals • Posture reversals disturb conventional perceptions regarding the interests litigants represent • Complainants in compliance cases may not appear to vindicate trade liberalization • E.g., Article 22(6)“Level of Suspension” Arbitration • Suspension of concessions (i.e., retaliation following a win in a substantive case) is a permissible trade restriction • Erstwhile Complainant’s proposed level of suspension may be too high to DSB • Do such posture reversals disturb the pattern of high erstwhile Complainant wins?

8. Results Accounting for Litigant Reversals • Erstwhile Complainant success rates are no longer uniform • Yet, their much lower success rate in Article 22(6) arbitrations is clearly due to their pursuit of levels of suspension that the DSB deems beyond acceptable • I.e., too trade restrictive! • Note of caution: These are only 9 cases . . . • Still, the overlap between the switch in interests and the drop in success rates is undeniable • What kind of compliance or recalcitrance can we observe following these 9 level-of-retaliation cases?

9. Actual Noncompliance the DSB authorized retaliation in only six • Of nine cases . . . • Only four of these cases actually led to suspension of concessions • Only two members, the US and the EC, submitted to retaliation in two cases each • The US eventually complied with FSC and Byrd rulings . . . • Through congressional enactments in 2004-05 • The EC has complied with the Bananas ruling, but not Hormones • In regards to Bananas, the EC has worked out agreements with the parties involved and ended the dispute • The EC has only worked out a side agreement with the US in the Hormones dispute • What does this mean for the WTO system?   

10. Views on Noncompliance • Some scholars argue that changes must be made to the system • Broader and more diversified sanctions are necessary to strengthen adjudication outcomes • Improvements to timeliness of compliance will cut down the amount of time a member can delay compliance • Other scholars argue that harsher enforcement rules will not likely have any effect because it ultimately depends on the will of states to comply • Reforming current compliance rules might be disastrous, leading to the ultimate collapse of the trade system • Noncompliance is not a problem • Members no longer have a veto power, so the system needs to give members time and flexibility • Recalcitrance is the only option members have left • Recalcitrance plays a cushioning role, allowing for negotiations and the passage of time to reduce the domestic cost of compliance

11. Conclusion "The remaining alternatives for coping with the way the DSB system has operated may be viewed, is a sense, as the new veto . . . Reforming the system to make it yet more 'legalistic' would be unwarranted, as such proposals would make it too rigid and unaccommodating and might push its more powerful members toward outright bilateralism, eventually causing it to collapse . . . In fact, compliance is the least of the system's problems." "The remaining alternatives for coping with the way the DSB system has operated may be viewed, is a sense, as the new veto . . . Reforming the system to make it yet more 'legalistic' would be unwarranted, as such proposals would make it too rigid and unaccommodating and might push its more powerful members toward outright bilateralism, eventually causing it to collapse . . . In fact, compliance is the least of the system's problems." "The remaining alternatives for coping with the way the DSB system has operated may be viewed, is a sense, as the new veto . . . Reforming the system to make it yet more 'legalistic' would be unwarranted, as such proposals would make it too rigid and unaccommodating and might push its more powerful members toward outright bilateralism, eventually causing it to collapse . . . In fact, compliance is the least of the system's problems."