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The Political Economy of Compliance in WTO Disputes

Tobias Hofmann
Freie Universität Berlin
Tobias Hofmann
Freie Universität Berlin
Soo Yeon Kim
Open Panel

Abstract

This paper analyzes the World Trade Organization''s (WTO) success at bringing about compliance with the international rules of trade through its Dispute Settlement Understanding. Focusing on what happens after a WTO dispute has been arbitrated, we explain when and why respondents modify their trade practices once dispute panel or Appellate Body reports find in favor of complainants. We advance the argument that delays in policy change toward WTO-consistent trade practices depend on the relative political weight of domestic special interests benefiting from the policy status quo. Delays in the implementation of WTO-recommended policies are a consequence of opportunistic governments trying to maximize their political support function by providing influential economic sectors with continued non-compliance. Using binary response and duration models, we analyze decisions to comply in due time and the time-to-compliance with almost 100 adopted dispute panel and Appellate Body reports adopted between 1995 and 2008 and requiring respondents to modify their trade practices. The statistical results provide strong empirical support for our theoretical argument. It is also supported by a number of case studies that primarily focus on trade disputes between the United States and the European Union.