When Multilateralism Backfires: Dispute Settlement and Compliance in the Global Trade Regime

Abstract

Multilateralism is associated with a variety of benefits. Involving more states can help monitor compliance and contribute toward enforcement. Yet, in international dispute settlement, multilateralism can backfire. When legal processes are open to participation by non-litigant countries, defendant governments are less likely to comply with unfavorable rulings. First, non-litigant participation spoils bilateral settlements between disputants. Second, it expands the scope of the rulings. As a result, non-litigant participation results in more frequent, more burdensome rulings. This will drive down compliance. We test our argument at the World Trade Organization. Using a novel dataset on compliance in over 150 WTO disputes, we show that third party country participation is correlated with significantly lower compliance rates. Our findings highlight a risk of stringent enforcement and the consequences are significant: noncompliance problems threaten to undercut the operation of the multilateral trade regime, as we’ve seen in recent events.

Keywords: World Trade Organization, Compliance, International Law, Multilateralism

JEL Classification: F1