To Enforce or Manage: an Analysis of Wto Compliance

• Citation: Vol. 32 No. 3
• Publication year: 2018

To Enforce or Manage: An Analysis of WTO Compliance

Pavan S. Krishnamurthy

TO ENFORCE OR MANAGE: AN ANALYSIS OF WTO COMPLIANCE

Pavan S. Krishnamurthy^*

Introduction.............................................................................................378

I. International Compliance Theory............................................379

A. The Enforcement Approach and the WTO.................................382
B. The Management School and the WTO .....................................387

II. Data.................................................................................................388

A. Dataset ...................................................................................... 388
B. Response Variables .................................................................. 392
C. Explanatory Variables .............................................................. 393

1. Domestic Compliance Structure ......................................... 394
2. Interest Groups' Influence.................................................. 395
3. Economic Differences......................................................... 395
4. U.S.-EU Disputes................................................................ 396
5. Non-Tariff Barriers............................................................. 397
6. Agriculture.......................................................................... 397
7. Agricultural Non-Tariff Barriers........................................ 398

III. Results............................................................................................ 398

A. In-time Compliance ..............................................................398
B. Time-to Compliance ................................................................. 400
C. Robustness Checks.................................................................... 402

1. Aggregation Strategies ....................................................... 402
2. Domestic Differences .......................................................... 403
3. United States Compliance .................................................. 403

Conclusion.................................................................................................404

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Introduction

Nearly ten years after consultations were initially requested, the Dispute Settlement Body (DSB) of the World Trade Organization (WTO) met on January 28, 2013, to discuss the remedy to the U.S.—Gambling dispute. After a series of compliance proceedings, the DSB found that the United States had failed to implement its recommendations and rulings—namely, to provide online gambling service suppliers of Antigua and Barbuda treatment no less favorable than like U.S. suppliers. Despite adverse rulings, the United States chose not to comply; the DSB consequently authorized the suspension of concessions and obligations to the United States with respect to intellectual property rights. However, Antigua and Barbuda has yet to exercise its right to suspend its intellectual property obligations to the United States.¹ What might cause these sorts of breakdowns in WTO compliance?

In the study of international relations and international law, two dominant theories have emerged to explain international legal compliance: first, the enforcement approach, which argues that implementation failures occur due to the gross costs of compliance; second, the management school, which argues that states prefer compliance, but are hindered by domestic administrative constraints. These predominant theories have particular significance in the study of WTO compliance as they guide legal structure and policy decisions. To test these theories, this Article asks: Does the influence of interest groups or the domestic compliance structure explain the WTO's ability to compel members to comply with adverse dispute settlement decisions? Alternatively, does the enforcement approach or the management school help predict potential WTO compliance?

Binary logistic regressions and Cox proportional hazard (PH) models were used to analyze 120 adverse decisions in the DSB of the WTO. To test the two theoretical frameworks mentioned above, statistical models included variables related to the required use of legislation and, importantly, the types of legislatures known to be more influenced by interest groups. In support of the enforcement approach, the empirical evidence presented in this Article suggests that it is not simply the domestic compliance structure that drives non-compliance; rather, it is the compliance structures that are more likely to

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capitulate to domestic interest groups that better explain whether and when a country complies with an adverse decision by the panel or the Appellate Body (AB) of the WTO.

This Article proceeds in four parts. Part I outlines the two predominant theories of international legal compliance. Part II presents the dataset, how it was culled, and the variables to be tested. Supporting the enforcement approach, Part III models the association between the explanatory variables and response variables in-time/time-to compliance. The conclusion follows.

I. International Compliance Theory

The collaboration between scholars of international relations and international law has built "an interdisciplinary research agenda."² This joint research program has flourished around dialogue concerning dispute resolution and international legal compliance.³ International relations and international law scholars have developed theoretical frameworks to explain the implications of international law. Prominent liberal theorist Robert Keohane, incorporating contemporary theoretical developments within international relations, described "two optics" of international law: an instrumentalist optic and a normative optic.⁴ The instrumentalist optic argues that international law "will matter only if [it] affect[s] the calculations of interest by agents," while the normative optic argues that international law "constrain[s] subjective interpretations, promote[s] habitual compliance, and impose[s] reputational costs on violators of norms . . . ."⁵ Though Keohane concludes that the "instrumental and normative incentives work in tandem," his theoretical dichotomy has continued to develop and mature.⁶

Two dominant theories of compliance now emerge from Keohane's initial optics: the enforcement approach and the management school. Taking its inspiration from the instrumentalist optic, the enforcement approach utilizes a rational actor model and argues that non-compliance occurs strategically when

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the benefits outweigh the costs of defection.⁷ Enforcement approach scholars believe that efficient breach or strategic non-compliance occurs due to interest groups' influence on national policy.⁸ Alternatively, drawing from the normative optic, the management school sees international organizations as seeking to "promote compliance not through coercion but . . . through [the] interactive process of justification, discourse, and persuasion," where "the impetus for compliance is not so much a nation's fear of sanction, as it is fear of diminution of status through loss of reputation."⁹ When non-compliance does occur, the management school claims it is the result of either the domestic compliance structure or capacity constraints and treaty ambiguity. It is best to understand the enforcement approach and management school as mid-level theories that drive hypotheses in academic scholarship—as well as policy—in the development of international compliance mechanisms.¹⁰

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Predicting the growth in international legal compliance scholarship, liberal theorists Kal Raustiala and Anne-Marie Slaughter called for further empirical WTO DSB research to be nested within wider theoretical developments in the international compliance literature.¹¹ Their calls have not been ignored. Earlier studies of the WTO sought to analyze the utility of the WTO DSB for developing and least-developed countries by studying the initiation of disputes. Partially in support of the management school, a consensus has emerged that the economic dynamics between countries mattered less than the domestic capacities of potential dispute initiators that drove decisions regarding the utilization of the DSB.¹²

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Likewise, there has been a growing interest in treaty compliance,¹³ and this interest has extended to the international economic treaties within the WTO.¹⁴ However, most recently, several studies have attempted to analyze the WTO compliance question beyond the descriptive analytics of their predecessors. Importantly, these studies have followed the enforcement/management theoretical divide as explored below.

A. The Enforcement Approach and the WTO

Enforcement approach scholars claim that the DSB's compliance success comes from "the enhanced ability of the . . . [WTO] to respond to and punish . . ." violators rather than its normative legitimacy because of the central role played by domestic special interests in shaping the liberalization of trade.¹⁵ These assumptions are then used to justify game-theoretical and public choice models when describing WTO compliance.¹⁶ Subsequently, several WTO scholars have utilized inferential statistics in studies to confirm this framework.

Political economists Tobias Hofmann and See Yeon Kim argue "the relative political importance of the domestic economic sectors at the center of WTO disputes is key to understanding why opportunistic governments provide extended periods of non-compliance, or protection, to some of these sectors."¹⁷ Deploying enforcement approach theory, their study used the "relative employment and GDP of the sector" affected by a WTO dispute as a proxy for

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the relative importance of the said sector.¹⁸ However, this approach has three methodological limitations.

First, the size proxy for interest group power does not conceptualize the significance of a sector. The...