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Firms, Global Value Chains, and Compliance in WTO Disputes

Political Economy
WTO
Trade
Gabriele Spilker
Universität Salzburg
Soo Yeon Kim
National University of Singapore
Gabriele Spilker
Universität Salzburg

Abstract

Country pairs such as the US and the EU regularly face each other in front of the WTO dispute settlement body. As their disputes are settled through panel and Appellate Body rulings, in some cases respondents comply within the ‘reasonable period of time’ stipulated in the settlement whereas in others respondents draw out the compliance period well beyond the legally mandated period. Hence the question arises why the same countries seem to have no difficulties with compliance in one trade dispute while have more difficulty with others. Common explanations in the literature on compliance focusing on countries’ legal capabilities, political institutions or national welfare are of little help here since they cannot explain this dispute level variation. In this Paper, we focus on the role of firms in the process of trade dispute resolution. Applying the insights of new, new trade theory, we argue that depending on the types of firms involved and the respective markets they serve – domestic and or/foreign – governments will have a differentiated incentive to either increase or decrease the compliance period with WTO DSM rulings. We expect disputes involving mainly multinational corporations with production processes involving global value chains to have an incentive to lobby governments for shorter compliance periods. In contrast, domestic firms interested in protection from international competition should lobby for extended periods of compliance. We test our argument using data on antidumping disputes in the WTO from the Temporary Trade Barriers Database (TTBD) compiled by Chad Bown. Using interdependent duration models to take into account the previous history of a dispute we analyze how the involvement of different types of firms affect compliance with adverse dispute rulings.