Legal And Economic Analysis Of The Wto/fta System, The

Dukgeun Ahn

• Publisher: WSPC
• Year: 2016
• ISBN:
  9789814704366
• Topic: Volkswirtschaftslehre
• Subtopic: Internationale Wirtschaftswissenschaften

The Legal and Economic Analysis of the WTO/FTA System presents a collation of interdisciplinary studies covering a wide range of issues from WTO dispute settlement issues to trade remedy systems and FTA negotiations. The author applies legal as well as economic rationales and methods to analyze core issues in the world trading system and in doing so, sheds an interesting light on various trade issues. The interdisciplinary analysis on WTO and FTA issues provides a unique opportunity to reconsider many conventional trade topics. For instance, the author shows that third country dumping rarely used in the GATT/WTO system may have a new role with economic incentives in the context of FTAs.Contents:Dispute Settlement in the WTO System:Understanding Non-litigated Disputes in the WTO Dispute Settlement SystemKorea in the GATT/WTO Dispute Settlement System: Legal Battle for Economic DevelopmentPractices and Theoretical Foundations of the Trade Remedy System:Alternative Approach to Causation Analysis in Trade Remedy Investigations: 'Cost of Production' TestThird Country Dumping: Origin, Evolution and ProspectRestructuring the WTO Safeguard Mechanism in The WTO Trade Remedy SystemFoe or Friend of GATT Article XXIV: Diversity in Trade Remedy RulesCountervailing Duty against China: Opening a Pandora's Box in the WTO System?United States — Anti-Dumping Measures on Certain Shrimp and Diamond Sawblades from China: Never Ending Zeroing in the WTO?International Decisions: United States — Definitive Anti-Dumping and Countervailing Duties on Certain Products from ChinaInterrelation between Trade and Finance:Linkages between International Trade and Financial Institutions: IMF, World Bank and WTOWTO Disciplines Under the IMF Program: Congruence or Conflict?Is the Chinese Exchange-rate Regime 'WTO-legal'?Book Review: International Law in Financial Regulation and Monetary AffairsLegal and Economic Analysis of Free Trade Agreements:Dispute Settlement Systems in Asian FTAs: Issues and ProblemsAnalysis of Anti-dumping Use in Free Trade AgreementsLegal Issues for Korea's "Internal Trade" in the WTO SystemReadership: Researchers, students, and members of the public who are interested in international trade or economic law, international economics and international political economy.World Trade Organization; Trade Remedy; Dispute Settlement; Free Trade Agreement Key Features:This collection of the author's work is an invaluable foundation for broadening research scopes and methodological perspectivesThis collection includes insightful pioneering studies on many core trade topics, such as linkage between trade and finance, FTA trade remedy system, non-litigated WTO disputes and countervailing against China

Part One

Dispute Settlement in the WTO System

Chapter 1

Understanding Non-litigated Disputes in the WTO Dispute Settlement System

Dukgeun AHN, Jihong LEE &
Jee-Hyeong PARK*

*Dukgeun Ahn, Graduate School of International Studies, Seoul National University. [email protected]; Jihong Lee, Department of Economics, Seoul National University. jihonglee@snu.āc.kr; Jee-Hyeong Park, Department of Economics, Seoul National University. [email protected].

We are very grateful to valuable comments by Sungjoon Cho, Chul Chung and Patrick Messerlin. We also thank Minjung Kim, Hyoyoung Lee, Dahee Park, and Jaeyoun Roh for their excellent research assistance. Dukgeun Ahn and Jee-Hyeong Park acknowledge financial support from the National Research Foundation of Korea Grant funded by the Korean government (NRF-2011-330-B00063). Jihong Lee’s research was supported by a Korea Research Foundation Grant (KRF-2009-327-B00117). This research was also supported by the Asia Research Foundation Grant funded by the Seoul National University Asia Center (0448A-20130004).

Ahn, Dukgeun; Lee, Jihong & Park, Jee-Hyeong. ‘Understanding Non-litigated Disputes In the WTO Dispute Settlement System’. Journal of World Trade 47, no. 5 (2013): 985–1012.

© 2013 Kluwer Law International BV, The Netherlands

This article focuses on a less scrutinized aspect of the WTO dispute settlement system – non-litigated disputes. Legal rules concerning consultation and settlement during the panel proceedings are analysed with the case laws. We then propose, and empirically analyse, several key economic determinants of non-litigation in the WTO dispute settlement system that are motivated by the theory of bargaining with informational asymmetry. In particular, our logistic regressions show that a greater difference in the size of the pair of disputing countries reduces the likelihood of voluntary settlement or non-litigation. WTO members also tend to prefer non-litigation when the respondent is smaller than the complainant, has less reputational concern, and faces less retaliatory capacity of the complainant. Our findings suggest a case for reforming the legal rules of the consultation process towards mitigating informational asymmetry or improving communication between disputing parties in the WTO.

1 INTRODUCTION

The WTO dispute settlement system has been one of the most actively growing subject areas in international economics as well as in international law. In particular, the whole jurisprudence of international trade law has been developed with numerous rulings by panels and the Appellate Body that constitute important foundation of WTO case law at an unprecedented level of sophistication.¹

In contrast to the vast amount of case law and relevant academic analyses, there are still a significant number of WTO disputes that have drawn less attention from the academia and practitioners. They are WTO disputes that were settled at a consultation stage or during the panel proceeding. Among 419 cases brought to the WTO dispute settlement system until 2010, 230 cases – almost 55% – were not litigated.² Since these disputes did not produce any formal rulings by panels or the Appellate Body, they were categorically excluded from the development of the WTO jurisprudence and thereby mostly ignored in serious legal analyses. These non-litigated disputes,³ however, are not less important with respect to the roles of the WTO dispute settlement system. To the contrary, settling disputes by non-litigation may be a more efficient way to serve the purpose of the WTO dispute settlement system than litigating disputes, especially considering the fact that the WTO litigation has become increasingly more expensive and difficult to ensure prompt compliance.

This article focuses on this less scrutinized aspect of the WTO dispute settlement system – non-litigated disputes. Unlike litigation process of panel proceeding and appellate review, which have been articulated by constant amendments of rules and practices, non-litigation process such as consultation or settlement has not been sufficiently elaborated primarily for the purpose of allowing significant discretion for disputing members. Our objectives are two-fold. First, we present a detailed description of the WTO procedures and rules that govern the disputing parties’ decisions on whether or not to litigate the disputes to obtain legal rulings. In particular, we analyse different rule developments for non-litigation or settlement process and explain the structural issues to be addressed by future amendments. Second, we attempt to identify the key economic determinants of the disputing countries’ incentives for (non-)litigation from the actual WTO dispute data. Based on the theory of settlement bargaining with asymmetric information, we conjecture how certain economic indicators of the disputing countries affect the likelihood of non-litigation, and conduct an empirical analysis using the WTO dispute data. Our main finding is that the relative economic sizes of the disputing countries matter in a significant way: a greater disparity between the two countries’ Gross Domestic Product (GDP) decreases the likelihood of non-litigation. Furthermore, this effect is stronger when the respondent country has a size advantage over the complainant country. WTO members also tend to prefer non-litigation when the respondent has less reputational concern and faces less retaliatory capacity of the complainant.

The non-litigation aspect of the WTO dispute settlement system has been addressed by only a few economic and legal studies to date.⁴ Among these, Guzman and Simmons (2002) also examine the likelihood of non-litigation using the actual WTO dispute data. In contrast to the present article, these authors test the hypothesis that settlement is more likely to occur when a dispute concerns more ‘continuous’ cases such as tariff, nonzero quotas and subsidies. Their empirical study is based on a smaller sample of disputes, filed between 1995 and 2000.

The article is organized as follows. Section 2 reviews the legal rules pertinent to non-ligation in the WTO dispute settlement system. Section 3 presents economic rationales for settling the WTO disputes by non-litigation on the basis of bargaining theory and identifies several key determinants of the disputing parties’ (non-)litigation incentives. Section 4 presents the results of our logistic regressions on the likelihood of non-litigation using data accumulated under the WTO dispute settlement system during the period of 1995–2010. Section 5 discusses the remaining agenda for future research as well as rule development in the WTO.

2 LEGAL RULES FOR NON-LITIGATION IN THE WTO DISPUTE SETTLEMENT SYSTEM

There are essentially two stages for a WTO dispute to be settled without litigation. First, a request for consultation in the WTO dispute settlement system may successfully resolve the dispute. Second, in case they cannot settle a dispute at a consultation stage, disputing parties may resolve a dispute during the panel proceeding and thus prevent the panel from issuing the final legal rulings. In addition, even if disputing parties formally settle a dispute neither in consultation nor during a panel proceeding, a complainant sometimes does not pursue a formal litigation after the consultation request or panel suspension despite the absence of explicit mutual resolution. This inaction on the part of the complainant tacitly implies a settlement between the disputing parties.

The above-mentioned three possible cases of non-litigation are subject to certain procedural rules and disciplines of the WTO. Pursuant to Article 3.5 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (hereinafter ‘DSU’), agreed solutions by consultation or settlement shall be consistent with the covered agreements and shall not nullify or impair benefits accruing to any member. However, unlike the Dispute Settlement Body (DSB) recommendations and rulings for which Article 21.5 of the DSU applies to ensure the implementation, there is no procedure to check or monitor whether agreed solutions are properly implemented.

2.1 NON-LITIGATION BY SETTLEMENT IN A CONSULTATION STAGE

2.1[a] Rules for Consultation

When a WTO Member intends to bring a complaint to the dispute settlement system, it must start with consultation except for very special and limited cases such as disputes under the Agreement on Textiles and Clothing (ATC)⁵ or complaints under GATT Article XXIII: 1(c).⁶ After consultation requests are made by a complainant, a respondent should engage in consultations in good faith. Only in case where the respondent does not respond to the consultation request or the consultation fails to settle the dispute in sixty days,⁷ a panel proceeding may begin.

There were in fact a few cases in which respondents explicitly refused to consult. For example, when Nicaragua brought a complaint against the US trade sanctions or Yugoslavia challenged the EC trade embargo, the respondents refused to consult with complainants.⁸ Turkey also did not respond to the consultation requests by India, Hong Kong and Thailand when these countries challenged certain Turkish policies to restrict textile importation as a part of the compliance under the EC-Turkey Customs Union.⁹ Respondents may skip or shorten the sixty day consultation period by not responding to consultation requests or agreeing to prompt establishment of a panel. In case of urgency, such as disputes concerning perishable goods, parties should begin consultation within ten days from the ...

Table of contents

• Cover page
• Title page
• Copyright page
• Dedication
• Acknowledgments
• About the Author
• Preface
• Part One. Dispute Settlement in the WTO System
• Part Two. Practices and Theoretical Foundations of the Trade Remedy System
• Part Three. Interrelation between Trade and Finance
• Part Four. Legal and Economic Analysis of Free Trade Agreements