The global trade regime's legal backbone was broken on December 11, 2019. The World Trade Organization's (WTO's) Appellate Body (AB) had been a significant step forward in international trade law (see, for example, Goldstein and Martin Reference Goldstein and Martin2000; Hudec Reference Hudec and Weiss2000). However, citing years of frustrations with the dispute system, the United States began vetoing AB member appointments. By the end of 2019, the AB had too few members to hear appeals, effectively ending the appeals process. What led to this crisis?
To many, the crisis at the WTO is an example of growing disillusionment with decades of neoliberal policies (see Johnson Reference Johnson2019; Wallach Reference Wallach2019). However, the WTO's problems predate the recent “populist backlash.” The crisis reflects deeper, structural issues within the organization. The WTO illustrates the limits of legalization in international dispute resolution. Institutions are “legalized” when states delegate authority to a system of binding, precise rules (Abbott et al. Reference Abbott2000; Goldstein et al. Reference Goldstein2000). In theory, highly legalized institutions can benefit states. Governments share an interest in tying one another's hands to the law (Hathaway Reference Hathaway2005). Yet, attempts to enforce international law can backfire. States are protective of their sovereignty and they resist delegating authority to dispute bodies with binding authority (see, for example, Downs, Rocke and Barsoom Reference Downs, Rocke and Barsoom1996).
Many international courts (ICs) reflect this balance between sovereignty and enforcement. ICs are often designed so that rulings do not set legal precedent (Cohen Reference Cohen, Bianchi, Peat and Windsor2014; Verdier and Voeten Reference Verdier and Voeten2014). Precedent means treating prior legal decisions as authoritative and obligatory. Precedent is discouraged in ICs precisely because states value flexibility in their agreements and are wary of binding rulings that may alter states' obligations (Alter Reference Alter2008; Vaubel Reference Vaubel2006).
Despite their design, many ICs rely heavily on precedent. That is because courts have incentives to apply the law consistently over time (see, for example, Helfer Reference Helfer1993; Lupu and Voeten Reference Lupu and Voeten2012). Consistency increases the predictability of rulings, adds authority to those rulings, and may even induce higher levels of voluntary compliance (Franck Reference Franck2006). This is especially true of bodies that decide issues on appeal, where judges wish to protect the court's legitimacy by confirming prior decisions. Given these incentives, ICs regularly invoke previous rulings—even if doing so might overstep their mandate.
We argue that ICs risk political resistance from governments when they rely too heavily on precedent. The backlash is particularly sharp when ICs extend precedent. Extensions constitute increases in legalization. Extensions occur when ICs apply prior decisions to areas of the law not implicated in the previous case, effectively widening the binding coverage of the ruling. In this way, extensions can expand countries' obligations and reduce the flexibility that governments prefer.
Extending precedent is one of the problems facing the WTO, which contains one of international law's most legalized dispute systems (Jackson Reference Jackson1997; Young Reference Young1995). Like many ICs, the WTO's dispute system proscribes precedent. Yet, two-thirds of all WTO AB reports include at least one precedent extension. These extensions expand the binding scope of WTO law, gradually refining states' obligations and removing leeway in the rules. In response, some WTO members have accused the AB of “legal overreach.” They argue that the AB makes obligations stricter and more precise than states originally intended or agreed to. One way governments signal their dissatisfaction is by refusing to comply with AB decisions.
We explore the relationship between precedent and compliance using original data. We gather new data on over 5,500 precedent applications in AB reports and a uniquely detailed record of respondents' compliance with disputes from 1995 to 2015. We define compliance as tangible policy changes respondents make to conform to WTO rulings, typically by reversing or modifying trade barriers. The results show a significant, negative correlation between precedent extensions and compliance. The findings are robust to various estimation techniques and model specifications. We infer that the content of rulings—as distinct from a dispute's political or economic stakes—helps to determine compliance rates.
This article contributes to emerging literature on the life cycles of international organizations (Gray Reference Gray2018). Research shows that some organizations induce very little cooperation because governments gradually stop investing in commitments that run counter to their interests. We demonstrate how the authority of—and faith in—ICs can deteriorate over time. At the WTO, systematic noncompliance reveals declining support and threatens the organization's future.
Secondly, our findings speak to a debate in the literature on ICs, including the European Court of Justice. Some international judges are reluctant to issue adverse rulings when there is a serious threat of backlash from the membership (Carrubba, Gabel and Hankla Reference Carrubba, Gabel and Hankla2008; Garrett, Kelemen, and Schulz Reference Garrett, Kelemen and Schulz1998). With respect to the WTO, we show that threat is credible: judges who turn a blind eye to the political context of their decisions may see countries ignore their rulings.
Thirdly, our findings resonate with the literature on institutional design that emphasizes the importance of flexibility. International agreements are deliberately “incomplete” (Koremenos Reference Koremenos2005), and research demonstrates that ICs ruling on a more precise body of law can avert many potential conflicts (Johns Reference Johns2015). However, we demonstrate how a court's strong reliance on precedent, which makes the law more refined and precise, can backfire. Rather than facilitating the early resolution of disputes in the shadow of the court (see, for example, Busch and Reinhardt Reference Busch and Reinhardt2000; Poletti et al. Reference Poletti, De Bievre and Chatagnier2015), legalization may erode flexibility and expand states' obligations, driving down their willingness to comply.
Background and Theory
Current events highlight the limits of legalization. Recent resistance to the International Criminal Court, the European Union (EU), and the WTO arises partly because IC efforts to uphold binding rulings conflict with states' interest in protecting their sovereignty and their desire for flexible obligations.
Interstate dispute systems illustrate the core tension. Research shows that dispute settlement has a variety of benefits, including monitoring state behavior, clarifying the law (Chaudoin Reference Chaudoin2014; Keohane, Moravcsik, and Slaughter Reference Keohane, Moravcsik and Slaughter2000), and promoting agreement durability (see, for example, Gilligan, Johns and Rosendorff Reference Gilligan, Johns and Rosendorff2010; Rosendorff Reference Rosendorff2005). However, governments are also less likely to comply if their hands are tied too tightly. That is why agreement designers often place limits on ICs' authority (Maggi and Staiger Reference Maggi and Staiger2011). A common limit is proscribing precedent.
Precedent in International Law
Precedent means treating previous decisions as authoritative. Precedent “do[es] more than simply resolve a dispute”; it also “creates a body of law for lower courts to apply and for the high court itself to follow in the future” (Lester and Bacchus Reference Lester and Bacchus2019, 1). Many ICs are designed so that rulings do not establish precedent (Shahabuddeen Reference Shahabuddeen2007). Famously, Article 59 of the Statute of the International Court of Justice (ICJ) states that “[t]he decision of the Court has no binding force except between the parties and in respect of that particular case.”Footnote 1
States constrain ICs because they are wary of rigid obligations. International agreements are delicate political bargains that contain deliberately ambiguous, flexible language, which helps states overcome obstacles to compliance (Horn, Maggi and Staiger Reference Horn, Maggi and Staiger2010; Koremenos, Lipson, and Snidal Reference Koremenos, Lipson and Snidal2001). Given their desire for flexibility, governments worry that precedent gives ICs the ability to upset the political balance through decisions that increase binding commitments under the law.
Yet, ICs have strong incentives to rely on previous rulings (see, for example, Guillaume Reference Guillaume2011). Courts value consistency and candor in the law. For example, the ICJ tends “to follow the reasoning and conclusions of earlier cases,”Footnote 2 and similar behavior is commonplace in international adjudication. Reading the law consistently over time can increase ICs’ legitimacy (Franck Reference Franck1988). It can also help clarify states' obligations. Since international law is so often ambiguous (Linos and Pegram Reference Linos and Pegram2016), holding consistent positions on disputed issues can refine the rules. Moreover, adjudicators view ambiguity as a legal problem to be solved through stricter interpretations of the rules. International judges are trained to produce consistent, coherent rulings, which means adjudicators typically view precedent as the preferred way to apply law across disputes and issue areas (Cohen Reference Cohen2013; Pauwelyn Reference Pauwelyn2015).
Applying precedent often means following prior rulings—that is, directly applying a previous decision to a similar issue in a subsequent case. ICs can also go further, sometimes extending precedent to widen the scope of prior rulings. Through extensions, ICs apply a binding interpretation of states' obligations under the law to an issue area (or context) not identified in the prior ruling. ICs extend precedent for the reasons stated earlier: they value legal coherence that clarifies states' obligations under the law (Ginsberg Reference Ginsberg2005). In doing so, judges ensure the law covers a broader range of circumstances. Evidence shows the European Court of Justice has promoted its own authority through expansive rulings (Mattli and Slaughter Reference Mattli and Slaughter1998). We argue that extending precedent also affects respondent states' willingness to comply, as illustrated by behavior at the WTO.
Precedent at the WTO
The WTO's AB fits the criteria for a highly legalized IC: WTO members (1) delegate authority to a legal body whose (2) decisions add precision to highly specific commitments with (3) binding force (Johns Reference Johns2015; Steinberg Reference Steinberg2004). However, the WTO's founding members placed limits on dispute rulings. Article IX:2 of the WTO AgreementFootnote 3 and Article III.2 of the Dispute Settlement Understanding proscribe precedent (Bhala Reference Bhala1999). Under the rules, WTO disputes are independent events, judged on their own merit, and the rulings are binding on disputing parties only.
The dispute system's design was a deliberate decision to ensure that rulings did not alter states' rights and obligations.Footnote 4 Like many international policy domains, trade is contentious. Cooperation is vulnerable to time-inconsistency problems, wherein governments recognize the long-run benefits of multilateral trade liberalization but may feel strong domestic pressures to shirk their agreements during hard times (Davis and Pelc Reference Davis and Pelc2017; Goldberg and Maggi Reference Goldberg and Maggi1999). States respond to this problem by creating incomplete contracts, including flexibility provisions that provide leeway to adjust policies (Bello Reference Bello1996; Milner and Rosendorff Reference Milner and Rosendorff1997). States then interpret legal provisions according to their own needs. Exploiting ambiguity in WTO rules, states use trade protection to assuage domestic stakeholders while maintaining the position that those policies are consistent with their obligations.
Unfortunately, flexibility use creates disagreement among members. The majority of WTO disputes involve the exercise of flexibility provisions, including antidumping and safeguards. In response, the WTO's dispute body prefers to reduce ambiguity in the law, closing controversial “loopholes” that states rely upon to alleviate domestic protectionist pressures. They do this by using precedent (see, for example, Kucik Reference Kucik2019; Pelc Reference Pelc2014). Panel and AB reports regularly cite past decisions, as do litigants in their legal arguments (Shaffer, Elsig, and Puig Reference Shaffer, Elsig and Puig2016). The WTO itself states that “it is very likely that the panel or the Appellate Body will repeat and follow” a persuasive interpretation of a decision.Footnote 5 In other words, previous decisions are instructive—and treated as binding.
The WTO's history reflects its reliance on precedent. In 25 years, the AB has never entirely overruled a previous decision.Footnote 6 In fact, the AB frequently extends previous decisions. Some 10 per cent of the WTO's total precedent applications (575 of 5,576) were extensions. These extensions have a political consequence: less or delayed compliance with rulings.
How Precedent May Affect Compliance
Extending trade law precedent is controversial. Extensions can result in “legal overreach,” whereby decisions alter the rights and obligations of members under the WTO agreements.
As noted, the WTO is the product of difficult, lengthy negotiations, during which states crafted their commitments carefully (Finger and Nogués Reference Finger and Nogués2001). This is why the Dispute Settlement Body's (DSB's) reliance on precedent can be problematic. Extensions remove the benefits of flexible language, leaving states less room to maneuver within the rules. As Goldstein and Steinberg (Reference Goldstein and Steinberg2008, 269–70) note: “the [AB] has engaged repeatedly in a form of lawmaking by which it has given specific meaning to ambiguous treaty language [that had been] intentionally left vague by the negotiators.” In effect, the reduction of flexibility increases legalization, expanding the scope of governments' obligations. Thus, extending precedent can upset the delicate political balance that sustains compliance with trade law.
Leaving governments less leeway to overcome domestic resistance can result in delayed compliance—or outright refusal to comply—with international rulings. For instance, states might retain a trade barrier that is beneficial to key domestic stakeholders long after the AB has determined it violates WTO rules. Respondents often try to delay compliance (Brewster Reference Brewster2011). Delays prolong the period of immunity during which respondents protect domestic groups while avoiding retaliation from complainant states. Beyond that, states might argue that AB decisions apply the rules incorrectly—and flout the ruling entirely. While not all states oppose the extension of precedent all the time, on average, we expect that when legal rulings chip away at the flexibility states value, those rulings will provoke backlash.
These dynamics played out in disputes like US—Stainless Steel (Mexico), which the Office of the US Trade Representative (USTR) cites as a turning point in the AB's application of precedent. In that case, Mexico disputed US antidumping practices, including zeroing—a controversial methodology used to determine whether imports are being “dumped” in the importer's market. Mexico argued that previous antidumping rulings were binding, stating: “there is an expectation that panels will respect prior AB rulings on the same issues … which expressly requires panels to promote the systemic values of ‘security and predictability.’”Footnote 7
The United States pushed back, arguing that previous rulings were only suggestive, not binding. The United States stated that “[precedent] was never agreed to by the WTO Members in the Uruguay Round” and that “it raises fundamental and deeply troubling questions about the AB's role within the WTO system.”Footnote 8
The AB eventually sided with Mexico and, in so doing, extended precedent. One of the cited cases was US—Softwood Lumber V, which addressed whether the Agreement on Anti-dumping prohibited zeroing. In that previous case, the AB decided that the antidumping did not clearly ban the zeroing methodology. Yet, in US—Stainless Steel (Mexico), the AB changed course, writing: “[General Agreement on Tariffs and Trade] 1994 has to be interpreted now in conjunction with the relevant provisions of the Anti-Dumping Agreement.” This includes Article 2.4.2, which, the AB decided, did prohibit zeroing in both the original investigations of damages and in the “sunset reviews” that countries use to decide whether to extend antidumping measures.
This ruling constitutes an extension of precedent. In US—Stainless Steel (Mexico), the AB revised a previously ambiguous decision and restricted the methods countries may use to determine whether dumping occurred. In so doing, the AB tightened the obligations and limited the flexibility the US government claimed under the original text.Footnote 9
Prior to the US—Stainless Steel (Mexico) ruling, the United States generally complied with WTO decisions (69 per cent), including disputes about antidumping and steel. In this case, however, the AB ruling resulted in delayed, limited compliance. The United States missed its compliance deadline of April 30, 2009. Instead, it took until April 8, 2013, to reach a partial settlement. The delay was largely due to the content of the decision. US authorities and interest groups argued that the AB violated its own design by extending precedent. The American Iron and Steel Institute (AISI) stated: “any fundamental changes to the rights and obligations of WTO members should arise only out of negotiations and mutual agreement, rather than out of interpretation in the course of dispute settlement … the Department should not adopt any change to [zeroing] methodologies” (AISI comment, February 18, 2011, 3, emphasis added). The AISI urged the Department of Commerce to ignore the AB ruling because it extended WTO obligations outside proper channels of treaty renegotiation.Footnote 10 The AISI's concern is specifically about the loss of flexibility. US authorities had previously relied on ambiguity in the rules to argue that zeroing was permissible. Here, the AB had made antidumping obligations more stringent. The implication, in the AISI's view, was that AB rulings “created obligations that do not exist … and hinder the ability of the US government to adequately remedy injury to domestic producers.”Footnote 11 This eventually led the Department of Commerce to refuse portions of the AB decision and the United States achieved only partial compliance.
US—Stainless Steel (Mexico) shows the content of decisions matters, not just the direction of the ruling. This is apparent when comparing rulings within policy areas. The United States faces frequent litigation over antidumping and yet it complies with 38 per cent of antidumping rulings when precedent is not extended. Conversely, in decisions that do extend precedent, the United States complies only 18 per cent of the time.
Other members express similar dissatisfaction. India felt that the AB unjustly expanded obligations under the Agreement on Textiles in US—Wool Shirts and Blouses. Japan and Hong Kong both worried about precedent extensions in EC—Asbestos. Chile, Colombia, and Australia raised concerned over the AB's ruling in Turkey—Rice. Even the EU, which generally has a favorable view of precedent, protested the EC—Export Subsidies on Sugar decision partly because the AB extended Canada—Dairy. Canada echoed the EU's worries.Footnote 12
We do not argue that all members resist precedent. What these examples suggest is that precedent can elicit political resistance, helping explain respondent governments' (non)compliance with adverse legal rulings. We propose two observable implications:
Hypothesis 1 (H1): Respondents are less likely to follow stated deadlines when precedent is extended.
Hypothesis 2 (H2): Conditional on respondents ever complying, the extension of precedent should be associated with longer delays.
We acknowledge several alternative hypotheses. First, one might suspect that noncompliance is simply an artifact of the frustrations of losing a dispute. However, the loss rate for respondents at the WTO is highly consistent (over 90 per cent), whereas on-time compliance rates across the WTO are just under 50 per cent. As a result, simply losing a case cannot explain why the odds of on-time compliance are fifty–fifty.
As for the United States, it faces more litigation and more total losses than does any other member. However, the United States' loss rate is slightly lower than other countries (87 per cent), and its on-time compliance rate is close to the WTO average (48 per cent). If the United States resisted all rulings that cut against its interests, it would comply at far lower rates.Footnote 13
Secondly, and related, compliance is not merely an artifact of a dispute's “stakes.” Research shows that volume of disputed trade varies, with many cases involving very little trade (Bown and Reynolds Reference Bown and Reynolds2015). Moreover, compliance rates are actually higher when more trade is at stake (Kucik and Peritz Reference Kucik and Peritz2021). Therefore, while we control for economic stakes in the following analysis, it is unlikely to be the principal determinant of compliance.
In terms of political stakes, it is important to note that disputes only arise when complainants are willing to incur litigation costs. There were over 12,000 protectionist policies around the world between 2009 and 2020. However, there were only 220 WTO disputes filed. The scarcity of disputes shows how WTO members are highly selective in initiating complaints. In other words, the political stakes are always high and are unlikely to determine compliance in one instance and not another.
Thirdly, noncompliance is not the only way states can express dissatisfaction. Governments could simply stop filing disputes or abandon a treaty. Yet, those behaviors are relatively rare and countries still rely on the WTO to adjudicate disagreements. This is consistent with what we observe in the European Court of Justice, where frustrations have not prevented countries from utilizing the court. European states sometimes choose not to abide by legal decisions but continue to support the legal system in general (Carrubba, Gabel and Hankla Reference Carrubba, Gabel and Hankla2008; Garrett, Kelemen and Schulz Reference Garrett, Kelemen and Schulz1998). States often choose noncompliance, rather than abandoning a system outright, as a way to signal frustration (Pauwelyn Reference Pauwelyn2005).
Research Design
We collected original data to test our hypotheses, including new data on the application of precedent within AB decisions and a detailed record of compliance with each WTO ruling. The data represent, to our knowledge, the most comprehensive account of the content of WTO rulings,Footnote 14 as well as the behavioral responses to those decisions.Footnote 15 Our data represent a major contribution to the study of WTO dispute settlement. The sample covers rulings made between 1995 and 2015, totaling 415 disputes.Footnote 16 Those disputes include 158 rulings against respondents.Footnote 17 The data include one row per dispute d.
Measuring Precedent
Precedent involves the application of prior rulings to a current dispute d. From 1995 to 2015, 71.4 per cent of AB reports applied precedent. There were approximately 1,400 citations of previous disputes, totaling around 5,600 individual applications of precedent. For example, the AB ruling on United States—Anti-dumping Measures on Oil Country Tubular Goods (DS282) cited nine previous disputes,Footnote 18 for a total of 43 individual precedent applications.
We code each citation for the nature of precedent applied. There are four possibilities. When past precedent clearly applies,Footnote 19 a court may follow that precedent through a simple, direct application of prior readings. Alternatively, it may narrow precedent through a refinement of those past readings. When precedent does not clearly apply, the court can distinguish the current reading, explaining why precedent does not fit the case at hand, or it may extend precedent by applying a past reading to the analysis of an obligation in a new circumstance. In the previous example of DS282, of the forty-three applications, twenty-five followed, nine distinguished, six extended, and three narrowed previous readings.
Coding precedent requires careful attention. Decisions that follow prior rulings are generally apparent. However, applications that narrow or extend past decision requires understanding the implication of prior decisions. We determine that precedent is extended when a previous reading of a rule creating an obligation is applied to a different area of the law. Coders scrutinized each citation at least twice for meaning and compared decisions to increase intercoder reliability. We provide examples of the coding in Online Appendix B.
The majority of applications follow a prior ruling. The AB follows its own precedent 77 per cent of the time (see Table 1). Our particular interest is in those decisions that extend prior rulings, which occurs in about 10 per cent of total applications. To measure the degree to which an AB ruling provokes respondent resistance, we take the logged count of the total Extensionsd in the AB report.Footnote 20 Looking now at the dispute d level, sixty-one out of the ninety AB reports that applied precedent contained extensions: that is two-thirds of the rulings took a prior interpretation of WTO treaties and expanded its application in the current dispute.
Table 1. Distribution of precedent applications by type
Notes: This table records the frequency of precedent applications by type. The final column reports the share of AB reports containing at least one application of a given type. It should be noted that many disputes contain different kinds of applications within one report.
Extensions occur across a wide range of issues. Table 2 shows the frequency of total citations and extensions for the ten most disputed agreements. Customs valuations aside, precedent is extended at similar rates across issues. We might anticipate that extensions are more common in especially controversial areas of the law—for example, antidumping or subsidies. However, precedent is not extended any more frequently in those contentious areas, suggesting that the AB is not applying precedent strategically in an attempt to stress particularly controversial issues.
Table 2. Distribution of extensions by issue area
Note: This table shows the share of total precedent applications that were extended for the ten most frequently cited GATT/WTO agreements. The median is 0.11 (SD = 0.04).
Measuring Compliance
We measure compliance as tangible policy reforms by the respondent after an adverse ruling. Policy change is not the only way to comply with the WTO. However, it is the best measure of whether international legal decisions shape state behavior—that is, whether governments made a deliberate choice to bring policies “into conformity.”
Our compliance data adapt recent work by Peritz (Reference Peritzforthcoming) and is discussed in Online Appendix B. We measure two outcomes. The first is whether states meet the deadline for compliance specified in the relevant DSB report. Reports identify a date, which varies case-to-case, by which a respondent is supposed to adopt the DSB's recommendations. The average window of time that respondents enjoy is 335 days (eleven months) from the AB report. On-Time Compliancer is a dichotomous indicator of whether a respondent r implemented policy reforms before that formal deadline. Policy reforms are those resulting from a panel or, when appealed, the AB ruling. Secondly, we measure time until compliance. Many members eventually reform their policies well after the stated deadlines. Time to Compliancer is the logged number of days from the AB report until the date that respondents implement reform.
Respondents met their compliance deadline on seventy-five of 158 occasions (48 per cent).Footnote 21 The average time to compliance is 485 days (SD = 586), or about sixteen months. Table 3 shows how compliance rates vary across the ten members who faced the most adverse rulings. The United States complies right at the WTO average, while the EU is lower (25 per cent) and countries like Korea (86 per cent) and Canada (64 per cent) meet their compliance obligations more frequently.
Table 3. Compliance by member (ten most frequent respondents)
Note: This table reports on-time compliance rates by member, highlighting the ten most frequent respondents in WTO disputes. The extension rate measures the share of precedent applications a respondent country encountered that extended, rather than followed, narrowed, or distinguished, existing legal decisions.
Respondent countries face precedent extensions at relatively consistent rates.Footnote 22 The data do not support a story in which the AB judges routinely target certain countries for extensions. Instead, WTO members are exposed to legal overreach on a case-by-case basis, which helps to drive compliance in the dispute at hand.
Control Variables
We control for a number of confounding factors. First, compliance may vary by a dispute's “stakes.” Existing work shows that third-party participation proxies for the broader interest of the WTO membership (Busch and Reinhardt Reference Busch, Reinhardt, Curtis and Ciuriak2003, Johns and Pelc Reference Johns and Pelc2016). We include the logged count of Third Partiesd to control for the membership's interest, as well as the political “weight” nonlitigants may bring to bear on the compliance decision.
Compliance may also vary by the amount of disputed trade, though it turns out that evidence on this is limited (Chaudoin et al. Reference Chaudoin, Kucik and Pelc2016). The average amount of disputed merchandise is only USD66 million (Bown and Reynolds Reference Bown and Reynolds2015), implying that neither dispute filings nor the compliance decisions are driven mainly by trade stakes. Dispute settlement is sometimes “political theater” (Allee and Huth Reference Allee and Huth2006; Davis Reference Davis2012). Nevertheless, economic ties may matter. The threat of retaliation by a complainant against a respondent who fails to comply may be one factor (Blonigen and Bown Reference Blonigen and Bown2001).Footnote 23 We include a variable (Trade Sharer,c) that measures the share of respondent exports that go to the complainant c's market. Political and economic pressure on the respondent may also be a function of relative market size since larger respondents can better absorb retaliation. We control for the share of total participant gross domestic product (GDP) accounted for by the respondent (GDP Sharer,c).
Certain issues might also be more contentious. Antidumping is especially controversial, accounting for 112 of the first 500 WTO cases. Therefore, we include a dichotomous control for whether the dispute is about Antidumpingd. Another way to capture the intensity of litigation around a given issue area is to consider the total number of previous decisions on disputed issues. This is distinct from precedent.Footnote 24 The number of past rulings simply captures the number of times a panel or the AB considered a particular issue. We include a measure of the logged count of times the AB issued Past Rulingsd on the legal issues named in dispute d.
Likewise, the respondent government's policy reform process could affect compliance. Some WTO rulings concern administrative measures, while others address legislative measures. The latter tend to be more difficult to reform because more actors must consent to those changes. Our regressions include a dummy variable for rulings on legislative measures.
In terms of political stakes, some trade disputes garner more attention than others (Shaffer Reference Shaffer2003). For example, private sector involvement raises the political stakes of the dispute, potentially prolonging the standoff between litigant governments. Ryu and Stone (Reference Ryu and Stone2018) provide data on the number of stakeholder firms involved on each side of the first 415 WTO disputes, that is, Firms (Compl.) and Firms (Resp.). For the subset of disputes in which the United States is a litigant, they also measure annual firm lobbying expenditures (in millions of US dollars), that is, Lobbyingc,t and Lobbyingr,t, respectively. Given the difficulties measuring private sector influence, we believe these data are the best measures available to date.Footnote 25 Our robustness checks use additional controls, as discussed in Online Appendix A.
Analysis and Results
Our analysis first addresses H1, which anticipates a negative correlation between precedent extensions and on-time compliance. We then address H2, which posits a positive correlation between precedent extensions and delays in compliance.
On-Time Compliance
Our baseline analysis uses our measure of on-time compliance. We estimate a linear odds regression (Model 1) and a logistic regression (Model 2), with standard errors clustered by “repeated filings.”Footnote 26 As the substantive results are very similar, we rely on linear models in Table 4 for their ease of interpretation. Our results are also consistent when clustering standard errors by respondent or year (see Table A2 in the Online Appendix). The full logistic model results are in the Online Appendix (see Table A3).
Table 4. On-time compliance
Notes: a Log units. Robust standard errors in parentheses. AD = antidumping; OLS = ordinary least squares; FEs = fixed effects. ** p < 0.01; * p < 0.05.
Table 4 reports the estimates from regressing on-time compliance on precedent extension and provides consistent support for H1. Model 1 provides a reasonable fit to the data.Footnote 27 The controls behave as expected, with lower compliance in antidumping cases and larger markets. We report the substantive effects across the interquartile range (IQR) of extensions. The point prediction at Extensiond = 0 is 0.51 (0.41, 0.62).Footnote 28 At Extensiond = 2, which is the equivalent of roughly seven extensions of precedent, the prediction is 0.23 (0.03, 0.43). More extensions of precedent cut the compliance rate in half. In the logistic regression Model 2, the corresponding point predictions are 0.49 and 0.29, respectively, meaning that more extensions cut the compliance rate by over two-fifths.Footnote 29
The relationship holds when using maximum likelihood estimation (Model 2) and when including respondent-year fixed effects (Model 3), which control for unobserved factors that might drive compliance decisions. Models 4 and 5 confirm that precedent extensions have a uniquely strong correlation with noncompliance. Model 4 looks at the logged count of decisions that follow precedent, which is negatively signed but misses significance at the 5 per cent level. Model 5 looks at the narrowing—that is, limiting the scope—of past decisions. Narrowing is insignificant. These tests demonstrate that extensions are distinct from other forms of precedent.
Model 6 in Table 4 considers the importance of issue area. In addition to our control for antidumping, it includes separate dichotomous indicators for whether the dispute involves the most frequently litigated issues: agriculture, GATT (1994), subsidies, and technical barriers to trade. One possibility is that extensions are more likely in controversial areas of the law, particularly if the AB is trying to reaffirm a past stance with which members already failed to comply. The core results hold when controlling for additional issues (and Online Appendix D shows that precedent extensions are uncorrelated with issue area). Model 7 shows that the number of stakeholder firms involved in the dispute does not predict compliance.
Other robustness checks are included in the Online Appendix (see Tables A3 and A4). We control for: the total amount of disputed trade; a respondent's past compliance behavior; and the outcomes of previous disputes between the litigants in dispute d.Footnote 30 As not all potential confounding variables are observable, we also conducted a sensitivity analysis to quantify the extent of omitted variable bias that would be required to undermine our substantive conclusions (see Online Appendix A8). Our findings remain robust.
As with any study of legal disputes, there are potential drivers of nonrandom selection. It should be noted that selection into disputes is not a concern for our inquiry. Our goal is explaining whether given the existence of a ruling, respondents comply. We do not compare (non)compliant behavior to instances where there was no formal dispute.Footnote 31 Nor do we compare our results to instances in which there was no legal ruling.Footnote 32 Instead, we focus on selection into appeals, the stage in which extensions may occur, thereby altering governments' willingness to comply.
We utilized a Heckman model to address selection into AB rulings. It is possible that particularly contentious disputes—that is, those where compliance may be lower, all other things being equal—are more likely to wind up before the AB. We implement the Heckman correction where the selection equation uses a dichotomous indicator of whether there was an Appeald and the outcome equation is our measure of on-time compliance. We rely on several identifiers. First, we code the percentage of times that the panel chair in dispute d had previous decisions appealed. Some panelists may have their decisions appealed more frequently than others. However, this should not directly influence the compliance decision because litigants have influence over who serve as panelists (Brutger and Morse Reference Brutger and Morse2015). If anything, litigants may prefer panelists with favorable records, implying a “bias” toward compliance. We also include whether the dispute was filed under Article XXII, which shapes whether members can join as third parties, thereby influencing the likelihood that a dispute reaches an early settlement (see, for example, Johns and Pelc Reference Johns and Pelc2014). Whether the dispute addressed systemic issues concerning the broader membership is also a predictor.Footnote 33 Model 8 in Table 4 reports the Heckman estimates, and our baseline correlation holds.
Across these models, there is a strong, negative correlation between extended precedent and on-time compliance.
Compliance Delay
The second hypothesis is that governments delay their compliance in response to extended precedent. The linear models in this section use as the dependent variable a logged number of days from the request for consultations until compliance. The sample size is smaller because we only look at cases where compliance occurred.Footnote 34
Model 9 in Table 5 reestimates our baseline model with the delay variable. It shows a positive, significant correlation between extended precedent and delayed compliance. Across the IQR, this corresponds to over a one-year difference in time until compliance. At the twenty-fifth percentile (Extensionsd = 0), the predicted length to compliance is 181 days.Footnote 35 At the seventy-fifth percentile (Extensionsd = 2), the predicted length is 612 days.Footnote 36 This predicted 413-day (fourteen-month) delay provides extra time for governments to negotiate with domestic interest groups while dragging their feet on compliance. The average dispute is about two years long from the initial request for consultations to its final resolution. Extending precedent effectively makes disputes about 52 per cent longer. Model 10 shows that the results are not driven by domestic stakeholders, as proxied by the number of firms involved.
Table 5. Compliance delay
Notes: a Log units. Robust standard errors in parentheses. AD = antidumping; OLS = ordinary least squares. ** p < 0.01; * p < 0.05.
Model 11 reruns our Heckman selection correction using our delay variable in the outcome equation. Conditional on selection into an appeal, states take longer to comply with adverse rulings when those AB decisions extend precedent. Our replication materials reestimate models 2–6 with our delay variable, and those results are consistent.
We evaluate another implication of H2: that states become frustrated with the system based on the accumulation of experiences with AB rulings. To do so, we rely on Cox proportional hazard models, which offer an alternative way to estimate compliance delay. The “failure event” is compliance with the ruling. Our duration models use yearly observations, the same control variables, and robust standard errors clustered by respondent. As earlier, the “duration” is measured relative to the date in the AB report.
Models 12, 13, and 14 in Table 6 examine precedent accumulation over time, finding that extensions correlate with longer delays until compliance. Accumulation is the rolling sum of applications against each respondent (rather than just the applications in dispute d). Model 12 measures accumulation of precedent extensions in all disputes with an AB decision against the respondent. Model 13 looks at the subset of AB decisions where the United States was a litigant. In these instances, targeted firm lobbying expenditures are matched to each side of the dispute. Model 13 suggests a negative effect of extensions and shows that respondent side lobbying tends to prolong disputes, though incomplete data calls these estimates into question. Model 14 confirms that precedent extensions matter more than other forms.
Table 6. Duration: Cox proportional hazard models
Notes: a Log units. b Millions USD. Robust standard errors in parentheses. ** p < 0.01; * p < 0.05.
The survival model results are merely suggestive. Duration models hinge on assumptions about: (1) proportional hazard rates; and (2) the inevitability of the terminating event. However, the WTO legal process itself generates nonproportional hazards: the DSB imposes deadlines for compliance that governments adjust to, and so the “risk” of compliance is likely to change abruptly over time. Moreover, not all WTO disputes can be resolved decisively.
For these reasons, we infer only that a respondent's history of facing precedent extensions tends to induce longer delays. This is substantively important. Governments are not only responding to the immediate application of precedent; they are also sensitive to a history of encountering AB overreach. The results suggest that the ill effects of legalization may spill over from one dispute to the next, souring a state's experience with the WTO system.
Role of the United States
Finally, we acknowledge that the United States is the most vocal—though not the only—critic of the AB. It also faces the most litigation. Our baseline models control for US involvement, and the results hold when using country-year fixed effects. Models 15 and 16 in Table 7 include an interaction term between Extensions and whether the United States is the respondent. That interaction is insignificant for both on-time compliance and compliance delay. The estimates show that the United States complies more often and at shorter delay than the WTO average when there are no precedent extensions. Extensions also have a larger impact on the United States than the rest of the members, though that estimate is not statistically significant. This is due to the mixed attitudes of the membership at large. Many members besides the United States have expressed opposition to precedent.
Table 7. Role of the United States
Notes: a Log units. AD = antidumping. Robust standard errors in parentheses. ** p < 0.01; * p < 0.05.
Certainly, members do not oppose precedent universally. The EU, which is the second most frequent respondent, has a more favorable view of precedent. However, precedent divides opinion, creating tensions within the organization. That is precisely why the AB's precedent use helps explain the differential compliance rates among countries—and why the AB fell into crisis.
Conclusions and Implications
The WTO began life as an ambitious step forward in the legalization of international economic relations. Now, the AB is accused of overreach by adopting a strong reliance on precedent that often extends the scope of prior rulings. This exceeds, in the view of some members, the AB's mandate. The result is lower, and slower, compliance.
The results support an emerging literature on international organization life cycles. International adjudicatory bodies are designed with specific limits on their authority. Proscribing precedent is one such form of control. However, ICs can sometimes drift from their original mandates and push the boundaries of these limits. The recent pushback against legalization in a variety of contexts shows that states guard their sovereignty closely and resist perceived instances of overreach by adjudicatory bodies. Evolution can upset the delicate balance states strike when delegating authority to international organizations.
Our study brings novel data to bear on the dynamics of adjudicatory overreach and compliance, which remains a central concern in the study of cooperation. Our findings demonstrate how stricter enforcement of trade law can backfire (Downs, Rocke, and Barsoom Reference Downs, Rocke and Barsoom1996). That is what we see at the WTO. Strong reliance on precedent increased the legalization of the dispute system and restricted the policy leeway that members guard so preciously. When precedent deepens states’ obligations, whether or not it increases the precision of the law, there are clear costs to legalization (Johns Reference Johns2015).
Finally, there is a temptation to believe that the WTO's is a sui generis story driven by the United States. Given public testimony from other WTO members, the dissatisfaction with precedent is more general. Nevertheless, the United States has more to lose from the WTO's judges claiming the authority to “make law.” From the US point of view, this AB practice is especially harmful when a state needs flexibility to support industries affected by the trade practices of lower-cost producer states. US opposition has shone a spotlight on a legal regime whose judicial activities have crept beyond their mandate and, in doing so, incentivized countries to delay or avoid compliance, tacitly undercutting the regime. Our findings point to the need for reform to the WTO dispute settlement system—reforms that might institutionalize and reintroduce the flexibility that is lost through precedent extensions.
Supplementary Material
Online appendices are available at: https://doi.org/10.1017/S0007123422000163
Data Availability Statement
Replication data for this article can be found in Harvard Dataverse at: https://doi.org/10.7910/DVN/11V2P6
Financial Support
This work was supported by the National Science Foundation (SES-1421326).
Competing Interests
None.
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