States and Non-Participatory Memberships in the WTO

Felicia A. Grey

• Publisher: Palgrave Macmillan
• Year: 2019
• Print ISBN: 9783030004576
• eBook ISBN: 9783030004583
• Topic: Social Sciences
• Subtopic: International Relations
• Index: Social Sciences

This book examines non-participatory memberships or why states choose not to use the benefits of international institutions to which they belong. To investigate this question, the author explores why states choose not to litigate within the World Trade Organization's Dispute Settlement Body (DSB). The research contributes to the literature on global governance and institutions generally, and of the WTO specifically. Additionally, the project includes comparative case analysis of WTO agreements and international disputes: China and Jamaica; Guatemala and Mexico; the United States and Mexico. This volume will interest policy makers, trade professionals, academics, and everyone who is interested in development studies.

© The Author(s) 2019

Felicia A. GreyStates and Non-Participatory Memberships in the WTOhttps://doi.org/10.1007/978-3-030-00458-3_1

Begin Abstract

1. The Puzzle of Non-participatory Membership

Felicia A. Grey¹

(1)

Political Science, Middlebury College, Middlebury, VT, USA

Felicia A. Grey

Email: [email protected]

This book is derived, in part, from an article published in International Trade Journal on June 18, 2018, available online: https://​doi.​org/​10.​1080/​08853908.​2018.​1480435.

End Abstract

1.1 Introduction

Multilateralism is under threat. Multilateralism is dead. The World Trade Organization (WTO) is no longer relevant to the twenty-first century. These sayings have become prevalent in an international system that seems to be retrenching from the order established after World War II. The rise of populist leaders across the world; the trade wars between the United States and China; the United States’ withdrawal from the Paris Agreement and the renegotiation of the North American Free Trade Agreement (NAFTA) all point to countries choosing to protect their national interests, even it means abandoning the status quo. At the same time that some states are flouting and acting outside institutions , some countries are intensifying their participation in them. For example, 184 countries have become parties to the Paris Agreement as at November 2018. ¹ In 2015, China created the Asian Infrastructure Investment Bank which now boasts 87 members and has some of the leading economies included. ² The WTO, which is said to be “outdated,” has 22 countries seeking membership. ³ These concurrent events suggest as Deputy Director-General Alan Wolff posits, that multilateral rules generally, and those for trade specifically, still continue to guide the global political economy. ⁴

The extant literature on international institutions focuses on reasons for their creation and design. Scholars have given far less attention to the reasons why states use—or choose not to use—institutions once they have been created. The presumption is that material benefits are sufficient for rational actors. Benefits, however, are a necessary cause, but not a sufficient one. The decision by states to join international institutions is a distinguishing feature of the international trading system. ⁵ This speaks volumes about the perceived benefits of participating in these mechanisms. Concurrently, however, this also highlights a voluntary choice by states to give up some of their power to these supranational organizations to at least achieve the desired outcomes. Reaching universal consensus and satisfaction in an organization replete with diverse members is onerous. Yet, since inception, the WTO aims to accomplish this feat and has had considerable success in doing so. What then is the WTO and what is its scope and main functions?

The WTO is the main international framework for regulating trade among countries. With over 191 recognized countries in the world, the WTO boasts a membership of 164, aiming to facilitate free, fair and predictable trade. ⁶ Article II of the Marrakesh Agreement delineates the WTO’s scope. It is firstly mandated to “provide the common institutional framework for the conduct of trade relations among its Members in matters related to the agreements” and associated legal instruments included in the Agreement’s Annexes. ⁷ In a broader sense, this means that the institution administers WTO trade agreements, provides a forum for trade negotiations, handles trade disputes, monitors national trade assistance and training for developing countries, and cooperates with other international organizations. ⁸

The WTO’s functions are outlined in Article III of the Marrakesh Agreement. It is legally bound, for example, to “facilitate the implementation, administration and operation” of the Marrakesh Agreement itself, the Multilateral Trade Agreements ⁹ and to provide the framework within which the same operations can take place for the Plurilateral Agreements. ^{10 , 11} Generally, however, the WTO functions primarily by five central principles. These include nondiscrimination, ¹² reciprocity, ¹³ enforceable commitments, ¹⁴ transparency, ¹⁵ and safety valves. ¹⁶

Many countries become Members of the WTO because of the reprieve that they have in the event of a trade violation. This is embodied in the three main trade remedies that are available as recourse for disputes over trade in goods. These include countervailing duties, ¹⁷ safeguards ¹⁸ and anti-dumping, ¹⁹ of which, anti-dumping has been the one most frequently used. ²⁰ An aggrieved party may therefore use the Dispute Settlement Body (DSB) which evokes a process of consultation, adjudication, and implementation to get redress for trade violations. ²¹

It is a bit ironic that the WTO would have a DSB. This is because Members commit to free and fair trade and recognize the legally binding provisions of the WTO . Some may argue, however, that this would make it all the more necessary to have some mechanism for reprieve since we do not live in a utopian society. The WTO’s intent is that in the event of a trade violation, Members do not engage in unilateral retaliation. Instead, the hope is that the parties to a dispute should be able to come to mutually agreed solutions, or call upon the institution to adjudicate on their behalf if they are unable to do so. ²² According to Horn and Mavroidis, the WTO is largely an incomplete contract in that it does not explicitly delineate what is permissible in every possible state of the world. Countries therefore use the DSB to resolve a coordinating problem in that it adjudicates on their behalf. ²³

1.2 Research Rationale

Despite calls for reform, multilateralism supporters point to the general membership and success of the WTO as evidence for their theory. Since its inception, world trade and GDP have increased 20 and 15 times respectively, with millions of people lifted out of poverty. ²⁴ This optimism, however, has been countered by the seeming disparities in how developed and developing countries use the DSB for trade recourse. 95% of the G-20 countries have used the DSB as a complainant or respondent. On the other hand, many developing countries have never used the DSB in either capacity, and have sparse participation as third-party litigants. This is not to say, however, that they have been totally absent from the process. Several countries like Argentina, Chile, Colombia, Costa Rica, Ecuador, Honduras, India, South Korea, Pakistan and Thailand use the mechanism regularly. ²⁵ The relative paucity of cases from developing countries suggests that the system may be inherently biased against them and so they are to some extent disenfranchised. Scholars who explore the extent to which the DSB functions in satisfying the needs of its developing country Members highlight power asymmetries, initiation and retaliation costs, start-up expenses and low domestic, institutional capacity as possible impeding factors. ²⁶

Highlighting solely the variance in usage between developing and developed countries is but one side of the coin. If participation in this mechanism is taken as the dependent variable and power asymmetries an independent variable, then there is an implicit assumption that trade violations follow only a unidirectional path. This reasoning takes it for granted that only large states are violators, that they exploit weaker states, and that weaker states do not contravene WTO provisions. How then would one account for trade disputes between developing countries and also those between developed ones? Moreover, if economic and institutional capabilities are directly related to a state’s tendency to file a dispute, what explains the fact that not all wealthy countries litigate although they may have the ability to do so? Moreover, some affluent nations are more frequent users of the DSB than others. What explains this?

General participation in the DSB is taken as an indication that its provisions are accessible to all its Members. A state’s usage as a complainant or a defendant therefore indicates its ability to at least file or respond to a dispute. Participation, by itself, however, does not account for the calculated opportunity cost of participation versus non-participation. In essence, several factors outside of those mentioned may precipitate participation and conversely, non-participation, even if the state is able to do so. If the world trading system is an international chessboard upon which moves and countermoves are weighed based on preferences, perceived options and payoffs, then participation in the DSB needs to be revisited. Under conventional views of the DSB , non-participation could indicate that a state:

1. a.
   Has no trading rights that are being violated.
2. b.
   Has been violated but is unable to file a dispute proceeding.
3. c.
   Has been violated but is fearful that litigation may make it worse off ex ante.

Less examined are the possibilities that a violated state may:

1. a.
   Choose not to file although it is able to do so.
2. b.
   Choose not to file because it is fearful of retaliation.
3. c.
   File outside of the WTO .
4. d.
   Retaliate.

Many Members of the WTO are simultaneously bound in bilateral and regional arrangements. What therefore explains their choice to proceed with the formal dispute settlement arrangements within the WTO versus informal means, or even the selection of multilateral over bilateral and regional mechanisms and vice versa? Examining this phenomenon may add value to the debate about the (in) efficacy of the WTO generally, and the Dispute Settlement System specifically, since states have other options at their disposal and may therefore choose the one that gives the best payoff at the moment in question. As one tries to make a conclusion about the usefulness of institutions in facilitating cooperation, the example of the DSB which is embedded is an interwoven international trading system may also help to explain state behavior in other dispute resolution mechanisms and especially their ability to opt in and out at will.

1.3 Research Questions

The main puzzle that this research probes is the often-overlooked fact that membership in institutions does not necessarily equate ...

Table of contents

• Cover
• Front Matter
• 1. The Puzzle of Non-participatory Membership
• 2. Cheating, Costs and Litigation at the World Trade Organization
• 3. To File or Not to File? The Anti-Dumping Agreement and Ordinary Portland Grey Cement
• 4. Legal Capacity and Non-participatory Membership
• 5. Calculated Costs and Non-participatory Membership
• 6. The Puzzle of Non-participatory Membership: Discussions and Conclusions
• Back Matter