Diplomacy and the Settlement of International Trade Disputes

• Author: Julia Gray,Philip Potter
• Date: 01 August 2020
• Published date: 01 August 2020
• DOI: 10.1177/0022002719900004
• Subject Matter: Articles

Article

Diplomacy and the

Settlement of

International

Trade Disputes

Julia Gray

1

, and Philip Potter

2

Abstract

How do countries settle disputes in the shadow of the law? Even in the presence of

legalized dispute settlement, countries still rely on diplomatic channels to resolve

conflicts. But it can be difficult to assess diplomacy’s impact on dispute resolution

because those channels tend to be opaque. We presentboth an original theory of the

impact of diplomacy on dispute resolution and a novel measure of diplomacy. If

countries withclose or, conversely, distantrelationships use legal channelsfor dispute

resolution, diplomacy will have little impact on dispute settlement; resorting to legal

recourse among friends or adversaries likely means that the dispute is intractable.

However, diplomacy can increase the chances of settlement between countries with

moderate levels of affinity. We test this argument using a protocol-based proxy for

diplomatic interactions—gifts given at the occasion of meetings between diplomatic

counterparts—that would otherwise be difficult to observe. Using the case of the

United States and its disputes in the World Trade Organization, we find support for

our argument. This suggests that even when countries resort to legalized methods of

dispute settlement, bilateral dealmaking still plays an important role.

Keywords

diplomacy, trade, conflict resolution, international organization

1

Department of Political Science, University of Pennsylvania, Philadelphia, PA, USA

2

Department of Politics, University of Virginia, Charlottesville, VA, USA

Corresponding Author:

Julia Gray, Department of Political Science, University of Pennsylvania, 133 S. 36th Street, Philadelphia, PA

19104, USA.

Email: jcgray@sas.upenn.edu

Journal of Conflict Resolution

2020, Vol. 64(7-8) 1358-1389

ªThe Author(s) 2020

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DOI: 10.1177/0022002719900004

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International legal frameworks formalize interactions between countries, which

should in principle minimize behind-the-scenes bargaining.

1

But diplomacy does

not end once an international conflict goes to adjudication. States negotiate at every

stage of the process, from the decision to file through the aftermath of an interna-

tional ruling (Tallberg and Smith 2014). Although some treat international litigation

as the domain of lawyers and technocrats, practitioners insist that power, politics,

and diplomacy remain prominent throughout the legal process (Alter 2014). Accord-

ing to one former diplomat, “The assumption that once a dispute is filed, diplomacy

ends: that’s not what I saw based on my own experience. On the contrary, it’s quite

the opposite. It’s the legal process that is a part, or a subset, of the big picture of

diplomatic relations between countries.”

2

What are the patterns of diplomacy in the shadow of legal dispute settlement?

Research on diplomacy is experiencing a revival, but its role in the context of legal

disputes is understudied (see, for example, Holmes 2013; Hall 2015; Lebovic and

Saunders 2016; Yarhi-Milo 2018; Trager 2015; Ainsbett and Poulsen 2016; Carne-

gie and Carson 2018; Gertz 2018; Carson and Yarhi-Milo 2017). We contend that

interstate diplomacy has particular impact between countries with dissimilar prefer-

ences, who may have weak preexisting relations. In contrast, for countries that have

similar preferences and are likely to habitually interact at many levels of govern-

ment, further diplomacy is less likely to improve understanding of the other side’s

position. In fact, when countries that usually agree resort to legal mechanisms, it can

indicate an intractable issue.

We test this argument with original data that capture meetings between formal

diplomatic delegations. Diplomatic interaction exists at many levels—including

phone calls, official cables, interactions within the walls of international organiza-

tions (IOs) or embassies, and formal diplomatic exchanges such as d´emarches. But

formal delegations, which we measure here, indicate applied diplomatic effort to

resolve cooperation problems (Lebovic and Saunders 2016; Potter 2013).

We identify an overlooked measure of diplomatic interaction. Diplomatic proto-

col generally leads to the exchange of gifts at the initial formal meetings between

delegations, and the State Department is legally required to catalog and report these

gifts in the Federal Register. Thus, while of no great significance in their own right,

gifts are the observable residual of diplomatic interactions between US officials and

their foreign counterparts. The granularity of these data stands in contrast to other

measures of the depth of diplomacy, such as the presence of embassies and

ambassadors.

We focus on diplomacy concurrent with litigation involving the United States at

the World Trade Organization (WTO). As the world’s largest economy, the United

States is a party to 87 percent of WTO cases.

3

The WTO’s dispute settlement

understanding (DSU) emerged from what had been an entirely diplomatic process

under the General Agreement on Tariffs and Trade (GATT), in which countries

discussed and resolved disagreements out of the public eye (Hudec 1993; Davis

2012).

4

The transition from the GATT to the WTO sought to make conflict

Gray and Potter 1359

resolution more legalized and transparent (Barton et al. 2008). Yet, diplomacy still

plays a significant role in the WTO.

5

US officials acknowledge this dynamic and its

importance: in 2011, then–Secretary of State Hillary Clinton said in a speech,

“When American businesses are not treated fairly, that’s not just an economic issue.

It is also a diplomatic issue, and we raise it at the highest levels.”

6

Although scholars

and pundits alike acknowledge the importance of diplomacy in the presence of legal

frameworks, its effect is not fully understood. Our novel data enable an examination

of the effect of formal diplomacy on dispute settlement, allowing for a deeper

understanding of the way that states interact bilaterally within the context of legal

dispute resolution.

Diplomacy and International Organizations

Diplomacy is central to the study of international relations, with some of the dis-

cipline’s deepest roots lying in diplomatic history and practice.

7

Early research on

diplomacy tended to be historical and episodic, focusing on key individuals and

seminal diplomatic negotiations (e.g., Epstein 1959; Fischer 1967).

Although research on diplomacy is enjoying a resurgence (Ainsbett and Poulsen

2016; Carson 2016; Carnegie and Carson 2018; Holmes 2018; Jandhyala, Gertz, and

Poulsen 2018), for many years, it remained relatively underdeveloped in the face of

broader advancements in the field. This happened for two reasons, one normative

and one empirical. Normatively, the postwar era witnessed the rise of IOs. These IOs

aimed to help member states solve cooperation problems in a transparent and legit-

imate manner. This legalization of the international system reflected a shift in

thinking toward international mechanisms that aimed to provide access to all mem-

bers and did not privilege the powerful. In response, researchers shifted their focus to

the ways in which these IOs—rather than other forms of diplomacy, which can be

idiosyncratic and difficult to observe—shaped state behavior.

On the empirical point, the emergence of IOs coincided with an explosion of

quantitative research in international relations, and IOs featured many easily obser-

vable attributes. Researchers have coded a variety of metrics that capture the internal

workings of IOs, including their design, changes in their number of members, and

the presence and use of legalized dispu te settlement mechanisms (Smith 2000).

Diplomacy, by contrast, was difficult to observe and measure, with some exceptions.

Singer and Small (1966), for example, collected data on the level of diplomatic

representation (i.e., charg´e d’affaires, minister, ambassador) between all states.

However, diplomatic representation tends to remain stable over time and between

countries, except in the most contentious relationships.

8

This leads to a largely

invariant indicator, making cross-national work on diplomacy difficult.

In short, while the study of IOs and their dispute settlement mechanisms proved

amenable to the quantitative turn in international relations, this left behind the

serious consideration of the rol e of the interstate diplomacy that persists in t he

presence of IOs.

1360 Journal of Conflict Resolution 64(7-8)