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Developing Countries and GATT/WTO Dispute Settlement. Marc L. Busch, Georgetown Eric Reinhardt, Emory. Motivation. Developing countries seldom used GATT dispute settlement WTO’s greater “legalism” expected to boost their effective use of dispute settlement Question :

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Developing countries and gatt wto dispute settlement

Developing Countries and GATT/WTO Dispute Settlement

Marc L. Busch, Georgetown

Eric Reinhardt, Emory


Motivation
Motivation

  • Developing countries seldom used GATT dispute settlement

  • WTO’s greater “legalism” expected to boost their effective use of dispute settlement

    Question:

  • Has legalization helped developing countries make more effective use of WTO dispute settlement?


Argument
Argument

  • New hurdles under the more “rules-oriented” WTO Dispute Settlement Understanding (DSU)

  • Poor complainants hampered by their lack of legal capacity, not by their inability to retaliate

  • The gap is in the form of less “early settlement,” rather than fewer legal wins or less compliance


Findings
Findings

  • Poor countries not more likely to win concessions under the WTO than under GATT, but rich ones are

  • Gap takes the form of less early settlement in cases involving poor, rather than rich, complainants

  • There is no apparent gap in verdicts or compliance rates for poorer versus wealthier complainants

  • This gap is not a function of market size, but rather income as a proxy for legal capacity


Roadmap
Roadmap

  • Argument: Negotiating in the Shadow of the Law

  • Models: Outcomes by Stage of Dispute Settlement

  • Results: The Gap in Dispute Settlement Outcomes

  • Implications: Reforming the DSU: What will Help?


Dispute settlement gatt vs wto
Dispute Settlement: GATT vs. WTO

GATT

WTO

Request for Consultations

Request for Consultation

Request for Panel

Request for Panel

Panel Ruling

Panel Ruling

Appellate Body

Compliance Panel

Retaliation

Arbitration Panel


The need for legal capacity
The Need for Legal Capacity

  • New premium on legal capacity disproportionately hurts poorer countries

  • WTO delegations and dedicated staff inadequate or missing for most developing countries

  • Vast majority of countries lack experience (US+EC+Canada>50% all complaints 1980-2002)


The logic
The Logic

  • A poor complainant’s higher relative litigation costs decrease credibility of its threat to pursue the case

  • Defendants with weak cases less likely to concede early, which is when most full concessions made

  • But the probability of a pro-plaintiff ruling, if issued, may not be lower for a poor complainant


Hypotheses
Hypotheses

  • Wealthy complainants are more likely than poor complainants to induce concessions under the WTO, as compared to the GATT period

  • This widening gap should be most evident in disproportionate rates of early settlement, rather than in the pattern of pro-plaintiff verdicts or compliance ex post


Empirical tests
Empirical Tests

  • Dataset of 380 concluded GATT/WTO disputes initiated between 1980 and 2000, inclusive.

  • Ruling direction (no, partial, or full support for complaint, net of first Appellate Body decision)

  • Level of concessions by defendant (none, partial, full)

  • Early settlement (if full concessions occur before ruling issued)


Concessions

Variables

WTO, Complainant’s and Defendant’s per capita income (constant 1995 $US, logged), WTO*Complainant’s per capita income, Complainant’s and Defendant’s market size (GDP in constant 1995 $US, logged), Panel, Multilateral, Agriculture, Discriminatory Measure, Sensitive Case (i.e., SPS)

Data

Model 1: 380 GATT/WTO Disputes

Model 2: 154 WTO Disputes

Robustness Check: US-EC Control

Concessions


Full concessions under the gatt wto
Full Concessions Under the GATT/WTO

.63-.78

.41-.64

.33-.48

.27-.49

NOTE: Displays predicted probabilities from Model 1, holding all other variables at their sample means, moving WTO from 0 to 1 and Complainant’s Per Capita Income from its 10th percentile value ($2,152) to its 90th ($29,251), with 90 percent confidence intervals.


Legal capacity and concessions
Legal Capacity and Concessions

  • India and Australia have nearly identical GDPs in 2000, but per capita income $459 v. $23,837

  • Under WTO, India’s predicted odds of getting the average defendant to concede is 41% …

  • … versus Australia, which is predicted to have a 73% chance of gaining concessions


Not all developing countries are alike
Not All Developing Countries Are Alike

  • 17 of 24 “full” WTO victories for developing countries won by 4 LA states, Korea, Singapore, Thailand & India

  • Under GATT, developing country winners and losers had equal average incomes

  • Under WTO, developing country winners have 50% higher incomes than their losing counterparts

  • Thus, the apparent gains under the WTO apply only to a handful of the largest, richest developing countries


Early settlement and compliance

Variables

WTO, Complainant’s and Defendant’s per capita income (constant 1995 $US, logged), WTO*Complainant’s per capita income, Complainant’s and Defendant’s market size (GDP in constant 1995 $US, logged), Panel, Multilateral, Agriculture, Discriminatory Measure, Sensitive Case (i.e., SPS)

Data

Model 3: 154 WTO Disputes

Model 4: 41 WTO Disputes ending with a ruling

Robustness Check: US-EC Control

Early Settlement and Compliance


Legal capacity and concessions1
Legal Capacity and Concessions

  • India and Australia have nearly identical GDPs in 2000, but per capita income $459 v. $23,837

  • Under WTO, India’s predicted odds of inducing early settlement is 13% …

  • … versus Australia, which is predicted to have a 49% chance of inducing early settlement



Concessions and legal escalation
Concessions and Legal Escalation

61% of all instances of full concessions under WTO occur prior to ruling

Source: Busch and Reinhardt 2000



Third Parties and WTO Dispute Settlement

Consultations

DSU 4

“substantial trade interest”

informal third parties

Panel

DSU 10

“substantial interest”

formal third parties

Appellate Body

DSU 17


Third parties and rates of early settlement
Third Parties and Rates of Early Settlement

  • With no third parties, predicted probability of early settlement is 70%

  • With mean number of third parties, no systemic issues, probability drops to 31%

  • Add systemic issues, and probability drops to 3%


Implications for developing countries
Implications for Developing Countries

  • Average developing country complaint has twice as many third parties joining in

  • In these complaints, third parties twice as likely to side with the defendant

  • Negative impact of third parties on early settlement appears stronger for poor countries



Deterrence of protection
Deterrence of Protection

Does legal capacity deter US AD duties?

  • Sample: 1,000 US AD investigations, 1978-2002

  • Sample: 3,000 non-named suppliers of products



Ds experience and us ads
DS Experience and US ADs

  • Contrast a country with no disputes (Sri Lanka) with one filing 7 per year (EU)

  • Odds of the more experienced country being hit with a US AD is fully 1/3 less



Conclusions
Conclusions

  • Poor countries not more likely to win concessions under the WTO than under GATT, but rich ones are

  • Gap takes the form of less early settlement,not rate of legal victories or compliance

  • Third party participation hurts prospects of achieving early settlement (forum shopping?)

  • Being WTO member, and having DS experience, can deter protectionism in the first place


Implications for the wto
Implications for the WTO

  • Rules-oriented system does not necessarily level the playing field

  • Inequity in system’s workings encourages illiberal policies on all sides, both rich and poor

  • Capacity-building targeted at pre-litigation negotiations can help considerably



Selection Bias?

  • Are poor countries filing more frivolous cases?

    No….

    • poor complainants not losing more verdicts under the WTO

    • type of cases brought under WTO make them easier to win

  • Are rich countries filing better cases?

    No….

    • rich complainants not winning more verdicts under the WTO

    • Coverage of intellectual property under WTO is not the key


Gatt wto dispute outcomes
GATT/WTO Dispute Outcomes

Note:

* denotes one-tailed p < 0.05; **, p < 0.01

Per capita income and GDP figures in logs.

Robust standard errors clustered across dyads.


Wto dispute escalation and outcomes
WTO Dispute Escalation and Outcomes

Note:

* one-tailed p < 0.05; **, p < 0.01

*** All but three of this subsample of 41 cases meet our definition of “multilateral.” Because it varies so little, we accordingly exclude MultilateralCase from this column’s regression.

Per capita income and GDP figures in logs.

Robust standard errors clustered across dyads.


Endogeneity?

  • Direct stakes: third parties v. co-complainants

  • Indirect stakes: third party’s “systemic issues”

  • Nature of dispute: control for defendant’s GDP



Selection model of ruling direction

Variables

Third Party Participation or Third Party Direction

System Issues

US-EU Dispute

Complainants’ GDP

Defendants’ GDP

Litigating Complainants’ GDP

Litigating Defendants’ GDP

Sensitive Case

Article XXII

Data

1st Stage: 200 WTO Disputes

2nd Stage: 65 WTO Disputes ending with a ruling

Selection Model of Ruling Direction


Third parties and ruling direction
Third Parties and Ruling Direction

  • For average “politically sensitive case,” likelihood of pro-complainant ruling is 13%

  • This rises to 46% with only pro-complainant third parties, and 67% with systemic issues

  • Likelihood drops to 53% if we add pro-defendant third parties to the mix


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