Between Law and Diplomacy: The Social Contexts of Disputing at the World Trade Organization [Illustrated] 080477143X, 9780804771436

Citation preview

Between Law and Diplomacy

Between Law and Diplomacy The Social Contexts of Disputing at the World Trade Organization

Joseph A. Conti

S t a n f o r d U n i v e r s i t y P r e ss Stanford, California

Stanford University Press Stanford, California © 2011 by the Board of Trustees of the Leland Stanford Junior University No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, or in any information storage or retrieval system without the prior written permission of Stanford University Press. Library of Congress Cataloging-in-Publication Data Conti, Joseph A.    Between law and diplomacy : the social contexts of disputing at the World Trade Organization / Joseph A. Conti.       p. cm.    Includes bibliographical references and index.    isbn 978-0-8047-7143-6 (cloth : alk. paper)    1.  World Trade Organization.  2.  Foreign trade regulation.  3.  Dispute resolution (Law).  4.  Sociological jurisprudence.  I.  Title. k4610.c66 2011 382'.92—dc22       2010016538 Printed in the United States of America on acid-free, archivalquality paper Typeset at Stanford University Press in 10/14.5 Minion

For Lou and Diana

Contents



     ix

1

Sociolegal Studies and Disputing at the World Trade Organization    1

2

The World Trading System: From GATT to WTO    24

3

The WTO Dispute Settlement Process    59

4

The Good Case: Legal Mobilization at the World Trade Organization    68

5

International Legal Contexts and State Power: The Institutional Influences on Dispute Transitions    97

6

Compliance Measures    123

7

Power, Law, and the Future of the Global Trading System    161



     193



     209



     219 



     239

Preface

The kings and queens of capitalism who gathered for their  annual meeting of the World Economic Forum at the mountain retreat of Davos, Switzerland, faced dire global economic conditions. What had begun as the bursting of a speculative bubble in the U.S. housing market had devolved into a global financial contagion. Some of the world’s largest financial institutions had failed, and many more teetered on insolvency. Iceland’s coalition government failed under recessionary stress, and other governments faced austerity programs or massive deficit spending. The governments of Sweden, Germany, France, India, China, Brazil, and other countries took steps to protect sensitive industries such as automobiles and steel. And the United States was considering a second massive economic rescue package in six months that included “buy American” provisions, mandating the government to prefer domestic sources in the purchase of key materials and goods. Economic nationalism, like a zombie returned from the dead, stalked the global economy and threatened descent into a global trade war. The exuberance over the most recent age of globalization had vanished. The beginning of the World Trade Organization (WTO) in  had appeared to inaugurate an era of private global economic action, where the important questions seemed to hinge on whether states could continue to govern a world dominated by mobile global capital. Business leaders and scholars pondered the end of the nation-state, and offered new models of private governance for a borderless world. While the attacks of September , , reminded many of the continued salience of borders, it was only with the global economy teetering on collapse and talk of a new Great Depression that the role of states in constructing and maintaining globalization resurfaced and came again into focus. In the words of Klaus Schwab, founder of the Davos meeting, “[T]he pendulum has swung, and the power has moved back to governments.”1



Preface

But do not be mistaken. Despite the hand-wringing over protectionism, the current economic crisis has not signaled the return of some classic idea of modern sovereignty and an international system modeled on the peace of Westphalia. The apparent ascendancy of states in the current moment is a reflection of the important role they have always played in fostering globalization. Now, the world economy in crisis (yet again) created the imperative to act. Opting out, choosing not to act, is not an option for states, particularly rich and powerful states. But this is not the manner of regulatory or profit-driven arbitrage that is the typical image of the weakening power of states. Powerful states must act in concert. They are locked in—rebuild the global economy or be destroyed. At Davos, it did not go unnoticed that the global economic crisis had its origins in the Global North, and particularly in the United States. There was no small sense of irony about the crisis originating in the same countries that promoted free-market liberalism and financial integration in the first place. To some it appeared that economic globalization had gone too far, forcing countries far removed from the epicenter of the crisis to face political turmoil and a dramatic unraveling of economic prospects. This contributed to acrimonious debates about trade, particularly about the languishing Doha Development Round of negotiations and the U.S. turn toward protectionism. In this way, the current crisis reflected an earlier one. In the aftermath of the Asian Financial Crisis, Fidel Castro addressed trade diplomats gathered to celebrate the fiftieth anniversary of the General Agreement on Tariffs and Trade. He chastised the United States for its role in the crisis, but lauded the new World Trade Organization for giving each country a vote and limiting the abilities of powerful countries to veto the will of the membership. He then called on trade delegates to turn the WTO into an “instrument of the struggle for a more just and better world.”2 Remarkably, the anticapitalist revolutionary saw possibilities for democratic global governance in an institution designed to foster the expansion and deepening of global capitalism. But how could the developing world challenge the dominance of the Global North, and particularly the United States, when those countries have established the very system of rules that govern the global economy? Aren’t international rules really a manifestation of the hegemony of powerful countries, imposed as they were through decades of colonialism and imperialism? Can developing countries really force rich nations to abide by rules? What did Castro see in the

PREFACE xi

system of rules that defined the WTO trading system? These are the broad questions about the relationship between trade, power, and law that motivate this book. To be certain, many developing countries are severely disadvantaged by the requirements for effectively mobilizing the WTO. These include the need for significant resources, investment in organizational development of trade bureaucracies at home and in Geneva, and the acquisition, maintenance, and mobilization of sophisticated legal expertise. Even then, the mechanisms provided at the end of the dispute process for ensuring compliance are ineffective for countries dependent upon trade flows from their richer trading partners. Consequently, the structure of the dispute system ensures that only the richer countries can effectively use its most coercive tools. Since Castro’s challenge, however, the global economy has been transformed, with emerging economies continuing to achieve high rates of growth and increasingly asserting themselves in international affairs. In , faced with slowdowns from lack of import demand from developed countries, developing countries have begun looking for ways to continue these patterns of economic growth. Despite the recessionary turn in the Global North, developing countries remained in a relatively strong position, expecting modest but continued growth. This strong position coupled with the sentiment that the developing world is being crowded out of diminishing stocks of international capital led to calls for greater cooperation over trade between developing countries. Indeed, South-South trade had increased more than  percent since , and it is expected to continue to grow. The growing volume of these trade flows both reflects a shift in global power away from the United States and Europe and offers a prescription for containing the economic crisis unleashed by the North by rethinking how trade is practiced. While the developing world will remain reliant on trade with advanced economies, their growing economic power and investment in the global system of trade is the basis for new challenges to the United States and Europe and the trading order that they have dominated since World War II. These include new demands to complete the Doha Development Round of negotiations on development-friendly terms and for vigorous enforcement of trade rules against protectionist practices. When charged with confronting “buy American” provisions, WTO secretary-general Pascal Lamy remarked, “I am not that

xii

Preface

big cop,” and if there are violations of WTO rules, it would be dealt with by WTO member nations initiating disputes against the United States.3 Lamy’s comments highlight both an important feature of disputing at the WTO and a signal development in global political economy. Member nations must mobilize WTO rules to assert their rights. Indeed, the Brazilian foreign minister Celso Amorim considered going to the WTO over the “buy American” provisions “a real option.”4 That those rules exist and can be mobilized creates a platform for skirmishes between states and authorizes strategic contests over state power and the constitution of global markets. By mobilizing WTO law, countries accept the risks associated with direct confrontation. Armed with growing economic power and political influence, that is what developing countries are doing with increasing efficacy. How does the legalization of the world economy reconfigure power inequalities between states? Why can’t the United States simply ignore the demands of developing countries? The dispute processes of the World Trade Organization provide an opportunity to empirically examine how the economic and political positions of member nations in the world political economy are mediated by the institutional and legal contexts created by the legalization of world trade. The relationship between power and law and how they create the architecture for global markets is complex and nuanced. In part this complexity has to do with the system of states, deep histories of power politics, and dependencies fostered by economic integration. But it also has to do with the relationship between formal rules, the meanings that they acquire, and how they are used in practice. This is a central concern of this book, drawn from significant scholarship in law and society and the sociology of law. How law and legal institutions are used is the real story of power struggles over trade and is the critical insight for understanding how developing countries strategically mobilize the WTO for a variety of reasons other than, but including, winning substantive trade concessions. Rich countries have greater room for maneuver. They are better able to exert pressure on their trading partners, and they are better able to resist pressures put on them. Only rich countries can truly deploy the economic leverage that underpins the WTO’s retaliatory mechanism. But this is not to say that powerful countries can ignore the WTO as a matter of course. They cannot. Recalcitrance among the world’s richest does occur. The United States is frequently called out for failing to live up to its

PREFACE xiii

WTO obligations. But these failures are always exceptional, even if they appear frequent. Focusing only on instances of noncompliance obscures the deeper trend. When the United States or Europe fails to comply, significant effort is made to present such events as actual compliance, or, failing that, to present it as exceptional. Deference is given to the rules. The trend for the major players is one of active engagement in the WTO, validation of it as a legal forum, and ultimately, accommodation to its authority. This was made evident yet again in the particular construction of “buy American” provisions so heavily derided at Davos. The legislation specifically exempted all signatories to the WTO agreement on government procurement. It was drafted to be WTO compliant to the letter of the law. This book characterizes the multiple meanings and uses of WTO law, how that law mediates power between states, defines markets, and creates unexpected opportunities for developing countries to challenge rich countries, sometimes with significant effect. These are important issues in the context of rapid economic changes and the continued institutionalization of a liberal world economy. The future is uncertain, and in thinking about states, markets, and the distribution of power we should not be bound by received assumptions about the dominance of the United States and Europe or how long that will last. The rise and fall of hegemonic powers proceeds through glacial economic change punctuated, during periods of transition, by cataclysmic politics. Scholars are debating the decline of the United States, pointing to the rise of China and other emerging countries, or possibilities of a multipolar world, in which political and economic power are not located in a single country. This book describes a similar trajectory, but from the perspective of the inside of the WTO dispute system and the ways that law both replicates and challenges structures of power. Where the global trading system was once a tool for securing national development, its purpose and operation have become transformed, providing new capabilities for different global actors. This transformation is in no small part due to the ad hoc and incremental introduction of lawyers and legal practices in the world trading system, as well as new norms about the role of law in international relations. Indeed, a multifaceted tension between law and diplomacy is a defining feature of the WTO as an international economic institution. The legalization of the global trading system, which was once a manifestation of the hegemony of the United States and its vision for a

xiv

Preface

legitimate, stable, and inexpensive form of domination, has unleashed a new logic for the global trading system. It is producing unanticipated consequences for power relations in the global economy. Even developing countries are finding that they can mobilize the WTO to enforce trade liberalizing practices on their trading partners. So while the economic crisis reveals the continued salience of states in structuring globalization, this book demonstrates that the relationship between states, and between states and global markets, has been transformed through the increasingly important role of law in governance of the world economy. Global politics is no longer just about the “congress of nations” but also about supranational authority and, in the case of the WTO, legal authority. This can be seen by looking inside WTO law in action. Law authorizes specific resources and tactics, creating forums for the construction and maintenance of the architecture of the global economy while hailing supranational authority as a field of power beyond the control of any single country. This book demonstrates how and why this has occurred through the processes of disputing at the WTO. In writing this book, a slow and drawn-out process over several years, I have accumulated many debts. I thank the participants in my research for taking the time to offer thoughts and insights. Naturally, all errors in the pages that follow are my own. Travel and research support has been provided by a National Science Foundation Dissertation Improvement Grant (#), the University of California Institute on Global Conflict and Cooperation Dissertation Fellowship, the Horowitz Foundation for Social Policy Dissertation Grant, the James D. Kline Fund for International Studies, and the Abelina Suarez Educational Trust. I would like to thank Caroll Seron, former editor of Law & Society Review, for her advice on an article that appeared there and that reappears here in Chapter Four. A portion of Chapter Five appears in an article published in Law & Social Inquiry. I thank Laura Beth Nielson and Lila Strom for their efforts to make that happen. Jennifer Earl, John Foran, Bill Bielby, Bill Felstiner, Barbara Herr Harthorn, John Sutton, and Richard Appelbaum provided much needed guidance, critique, and friendship during my time in Santa Barbara. I am grateful for the year I spent writing while in residence at the American Bar Foundation, which is as dynamic an intellectual environment as a young sociolegal scholar could ask for. I would like to thank Jeremy Sharpe, Jamie Roth, Beth Mertz, Karen

PREFACE xv

Alter, Greg Shaffer, Sigrid Quack, Sheigla Murphy, Craig Reinarman, Harry Levine, Michael Goldstein, and my colleagues in the Department of Sociology at the University of Wisconsin, Madison. A special thanks is due to Terry Halliday, who took interest in my research and encouraged me to turn it into a book. Kate Wahl and Joa Suarez at Stanford University Press proved friendly and capable and helped to make this book better. I also greatly benefited from reviewers’ comments. I owe thanks for the provocative critique of Bryant Garth. Over the years, Moira O’Neil has been critically engaged in this project, reading, commenting on, and discussing almost every aspect with me. Then there is my family. I am grateful for the support of Joanne Fitzgerald Ross, my extended Conti and Suarez families, the Murphys, and the O’Neils. Lou, Cathy, Beth, and Dee, I thank you and your families. It was my parents that first inculcated a love of learning and served as my earliest models of how to live with compassion and curiosity. But none of this could have been accomplished without Moira. I thank you again, for much more than this book.

Between Law and Diplomacy

chapter one

Sociolegal Studies and Disputing at the World Trade Organization It’s not so much that dispute settlement is one of the tools of politics; it is that dispute settlement is an aspect of politics. It’s politics by another means, if you will. —Counsel, Canadian trade delegation, Geneva, Switzerland

The dispute settlement system of the World Trade Organization (WTO) is a complex social forum for economic, political, and symbolic skirmishing between vastly unequal states. Established in  through a treaty agreement of  nations, the WTO has jurisdiction over nearly  percent of world trade, making it a central institution of the global economy.1 The Dispute Settlement Understanding (DSU) of the WTO provides an empirical site for the study of international law-in-action as it offers mechanisms for member countries to litigate when they believe their rights under the terms of the WTO agreements have been violated. The most defining characteristic of this international legal system is a multifaceted tension between law and diplomacy in the processes of disputing. This tension is a product of the international context and lack of overarching world government, but perhaps equally as important, this tension stems from the “creeping invasion” (Hudec : ) of legal concepts, norms, and lawyers into a formally exclusive diplomatic terrain. Much attention has been given to the legalization of world trade, though less to how actors in the system make sense of and mobilize WTO law. The tendency has been to view the WTO as a machine for trade liberalization. In this book, I challenge that presumption by utilizing a multimethod approach to study legal action at the World Trade Organization. At the center of the analysis is a concern for the relationship between law and state power. Does law constrain the powerful and empower the weak? Given the interstate context, how does law do this, to what degree, and why?



SOCIOLEGAL STUDIES AND DISPUTING AT THE wto

To address these questions, this book charts a new course for studying and thinking about the law and dispute settlement in the World Trade Organization by examining the thoughts and practices of actors working in WTO legal contexts. In so doing, this book builds on Shaffer’s () sociolegal analysis of relationships between private actors and government officials in the use of the WTO system as well as Chorev’s () institutionalist account of the internationalization of components of the U.S. government in the formation of the WTO system. What this book adds is an interior view of the WTO, an examination of its dispute resolution processes from the inside, a focus on the WTO itself, not predominantly the states that bring disputes to its Appellate Body. The WTO is a social world that actors must make sense of before using the law. Understanding the dynamics of WTO disputing requires attention to the institutional and professional relationships that characterize the working lives of practitioners. Focusing only on grand political games or structural trade issues misses how institutional dynamics, like legal capacity and experience, and interpersonal dynamics, like reputation, shame, and fear, shape processes of disputing. How states go about disputing is persistently mediated by the institutional arrangements in place for managing trade and the personnel who occupy those institutional spaces, whose judgment and discretion are at the basis of making and enacting policy. Indeed, while a trade grievance is a prerequisite for initiating a dispute, a trade grievance alone is insufficient and in practice is accompanied by a number of different motives and expectations. The practice of law at the WTO is not reducible to trade relationships and macrolevel structures of the world political economy. Institutional and small group social phenomena are sites for the formation of state’s strategies, for calculating the possible, forming reasonable expectations, and thus for determining the specific contours of state interests. The legalism of the WTO maintains states and their agents at the center of the political and legal processes facilitating trade globalization. The WTO only directly regulates states. This justifies the focus on legalization and state power. States retain the authority to pick economic winners and losers in how they go about complying, compensating, or retaliating over trade. But the implications are broad. Beyond commerce and questions of economic development, the fates of indigenous peoples, the environment, and civil society very often depend on state measures regulated by the WTO. The WTO is thus a pivotal institution of

SOCIOLEGAL STUDIES AND DISPUTING AT THE wto 

global governance, with wide-ranging implications not only for states but also for the peoples and the myriad relationships touched by state policies. While the rapid growth in the number of free-trade agreements has made the international trading system highly complex, the WTO remains the central pillar of the legal foundations of the global trading system. How this legal foundation is managed is central to understanding the modern world economy and relations among states. Disputing is a site where these relationships become clear. And while the rules for trade and for disputing over them have been written, there is much left to decide about what the rules mean, how they should be used, and to what ends. There is much to be learned from close examination of the procedures and practices of WTO disputing and the sense made of them by practitioners. A sociolegal analysis, as I hope to demonstrate, can fruitfully contribute both empirically and theoretically to ongoing scholarship about globalization. This book intervenes in two lines of thinking about the World Trade Organization. The first intervention is directed at scholars of world order and globalization that have largely overlooked the WTO as a complex social forum, preferring instead to evaluate the WTO in its macro social, political, and economic context. The second intervention is aimed at proponents of the WTO, particularly those emphasizing the equalizing effects of legalization. Each of these points of intervention is taken up in turn below. In the sections that follow, I will briefly outline different approaches to these interrelated questions of trade globalization, law, and state power. The purpose of doing so is to create the foundations for a sociolegal framework for international trade law. This framework will be applied over the course of the book. My goal, drawn from the insights of sociolegal scholarship, is to provide insight into the meanings and uses of the WTO and how they mediate but do not eliminate vast inequalities between states.

Globalization and the State One of the central themes in the literature on globalization is the changing role and character of the nation-state in the world political economy and the emergence of multilayered and multicentric organizations of global authority, or what Sassen terms the “deterritorialization” of sovereignty (Hardt and Negri ; Sassen , ; Shaw ; Held et al. ). For instance, Robinson



SOCIOLEGAL STUDIES AND DISPUTING AT THE wto

argues that the nation-state is being transformed and integrated into a transnational state-class structure. As such, the state is no longer the main organizing principle of global capitalism (Robinson ). By extension, a focus on the nation-state as a unit of analysis obscures the globalization of states into transnational political and class structures. To understand the processes of globalization and capitalism in the current moment requires looking beyond state apparatuses as independent actors within the interstate system. There is an imperative in this approach to evaluate the external integration of states into supranational institutions along with emergent global constellation of class forces, which are linked to the global accumulation of transnational corporations (Robinson ; Sklair ). These authors tend to emphasize the pivotal role of transnational corporations, of supranational institutions, the ties between nation-states and structures of governance at the regional and supranational level, the limits of state apparatuses to regulate transborder activities, especially financial flows, global class-state formations affecting policy choices of particular states, and globalizing ideologies of consumerism. It is the continuities between state governmental apparatuses, supranational institutions, and global class forces, as well as transnational corporations, that are the privileged units of analysis. While states remain important, they do so only in the manner in which they are organized into various constellations of global authority. Other authors have taken this argument much further, claiming that the very notion of globalization as a worldwide phenomenon, occurring through and beyond nation-states, implies that the capacity of nation-states to regulate global processes is mitigated; that national economies are merging into one global economy; and that national territorial control and national culture are increasingly less salient in the face of an emergent global economics, politics, and culture (Ohmae ; Sassen ; Strange ). For these authors, research on the nation-state inappropriately diminishes the significant activity of regional economic zones, transnational corporations, as well as financial and currency markets that are shaping new geographies of political power. These different approaches share a single orientation to the WTO as an object of research and have tended to treat it as one node—even an important node—in the structure of the world political economy that rather uniformly enforces neoliberal orthodoxy. In this line of thought, there is no need to look inside it or to examine how it operates from the inside out. It is enough instead

SOCIOLEGAL STUDIES AND DISPUTING AT THE wto 

to look at where it fits in the disciplinary structures of global governance (cf. Bello ; Sklair ; Shiva ; Harvey ; ; van der Pijl ). World Order, Law, and Legal Practices: Approaches to Law in International Affairs In international relations, the relationship between state power and international regimes has been the subject of much research. Much of this comes from liberal internationalists and scholars of hegemonic stability, who have theorized the emergence of international legal structures as a solution facilitating hegemonic orders—in particular, the liberal order under the auspices of U.S. hegemony. For instance, Ikenberry () critiques the realist assumption that international politics are inherently anarchic by pointing to the stability of the post–World War II legalization of world order under the “penetrated hegemony” of the United States. Constitutional-like features of the postwar settlement were an essential solution for the United States as it sought to induce participation in its vision of liberal world order. The “cobinding” arrangements of legalized orders constituted a bargain whereby the leading state agreed to limit its power by operating in an institutionalized rule-bound context in exchange for the participation of weaker states. In this way, legalization promotes participation in the U.S. world order by placing limits on the exercise of power. Ikenberry notices a long-term historical progression of constitutional-like orders emerging in the wake major crises of world order. He asserts: The postwar settlement of , , , , and  may all have been major reordering moments, but the specific character of the orders they produced evolved over the centuries. The settlements grew more global in scope. . . . Most importantly, the settlements increasingly sought to institutionalize cooperation—to go beyond reinforcing state autonomy and reconstructing the balance of power by binding states to each other in mutually constraining institutions. With the rise of these cobinding institutions, the settlements increasingly came to resemble constitutionallike order.  (: )

Ikenberry describes world historical phenomena conditioning the character of world order in which law and legal practices have, over time, increasingly structured international affairs. The process of legalization is thus driven by breakdowns of order and the interests of ascendant states to conserve their power (Kindleberger ; McKeown ; Lake ).



SOCIOLEGAL STUDIES AND DISPUTING AT THE wto

While neorealists generally dismiss international law as epiphenomena of the material capabilities of states primarily concerned with survival (Baldwin ), Ikenberry and others (Abbott et al. ; Abbott and Snidal ; Krasner ; Stein ) tend to understand international law and organizations as vehicles for surmounting the anarchy of international politics. For these scholars, the primary role of international law and organizations is to facilitate state cooperation by diffusing information and reducing transaction costs for enforcing world order. In such legal contexts, states pursue their interests at reduced cost. These goals are achieved by placing limits on the power of dominant states, forcing them to exercise power under rule-bound conditions. This is efficacious because dominant states have an interest in conserving power, and that explains why law works—the powerful want it to. Investing in the institutionalization of rules facilitates that goal. In this conception, law remains an extension of state power that provides, through its institutionalization, a medium for accomplishing state interests. Where the material capacities of states for coercion are the “real” structure of world order, law is a tool for the satisfaction of state interests. Finally, legalization is identified based on the presence of formal laws. The political projects and economic structures that guide the implementation of rules constitute the critical social action, rather than how people use or make sense of law, or how legal understandings may change over time. World systems theorists share with neorealists and neoliberal theories a similar emphasis on the material capacities of states as the primary source of power in the international system. Unlike those approaches, however, the unit of analysis in world systems theorizations is not the atomized state but the system of states and the historical processes by which they are incorporated into and stratified in the modern world system. As such, there is much emphasis placed on relationships between states, particularly patterns of trade and uneven development. While world systems approaches are useful for thinking about power dynamics between states as they interact over trade, they ultimately fail to suggest an adequate understanding of the role of law in international power relations and tend instead to privilege military and economic relationships (Halliday and Osinsky ). In this conception, law plays a secondary role, providing normative coherence to the meaning of property rights in the economic organization of world order (Chase-Dunn ). In contrast to neoliberal institutionalists and world systems theories, critical

SOCIOLEGAL STUDIES AND DISPUTING AT THE wto 

scholars of the “new constitutionalism” understand legal practices as powerladen, and by so doing move law and legal institutions to the center of analytic focus as a critical element in social order at the global level. Law constrains power as an inducement for cooperation with a hegemonic system and provides ideological buttressing for capitalist economics. As such, law and legal institutions are sites for the exercise of power. For instance, Gill’s (; ) “new constitutionalism” describes the institutional manifestation of disciplinary neoliberalism, whereby states are restructured to be made accountable to global markets. Similarly, McMichael () suggests that the legalization of world trade constitutes an institutional bulwark favoring transnational accumulation at the expense of nationally vested capitalists. This alters political and economic opportunities and incentives, both in global and in national markets, to favor increased liberalization. Murphy () and Chorev () make similar arguments about how legalized institutional arrangements facilitate cooperation with the liberalization bias of the world trade regime by transforming the very terrain of political struggles over the role of the state in protecting declining industries. At the same time “new constitutional” theories provide only anemic understandings of why law works. Why is it that constitution-like features of international relations are constraining? What are the social bases of law that enable it to “lock in” neoliberal relationships? By paying close attention to the cultural underpinnings of world order and particularly law, world polity scholars offer answers to some of those questions. In this approach, a global cultural frame, which encompasses nation-states and other international actors, serves as a repository of normative meanings and asserts profound influence over the organizational and institutional features of social life (Meyer ; Halliday and Osinsky ; Boli and Thomas ). For world polity scholars, international law is derived from this “self-enacting,” higher cultural order as well as from pressures generated by the persuasive and ideological power of international actors that work to codify world polity norms in conventions, treaties, and laws. This results in surprisingly homologous structures across nations in terms of national constitutions, education, human rights, citizenship, and other domains (Meyer ; Halliday and Osinsky ; Boli and Thomas ). Where other approaches attend to the material bases of state power, world polity approaches emphasize the cultural and normative systems that make sense of material capabilities and provide terms on which they



SOCIOLEGAL STUDIES AND DISPUTING AT THE wto

can be mobilized. In particular, the legitimate uses of material force are embedded in the diffusion of Western cultural models that also emphasize rationality and bureaucratization (Finnemore ). Such world cultural frames provide external legitimation for organizational forms and function, thus facilitating the diffusion of similar organizational forms across national boundaries and a growing homogenization of world culture. World polity scholars’ concern for normative meanings and culture has an affinity with the constructivist school of international relations. Constructivists also reject the heavy emphasis placed on economic rationality by neoliberal institutionalists and attend to the ways in which ideational and value structures constitute state behavior. These structures, in addition to material factors, shape the processes of state interest formation. Learning and experience as well as normative ideas of appropriate state behavior are central features of the constitution of state identities and interests. In this way, international organizations and normative structures socialize states, shaping the rationales for action and the goals they seek to achieve (Reus-Smit ). Constructivists focus on logics of legitimate action and how they are conditioned by ideational structures, such as law. For instance, Barnett and Finnemore () adopt a Weberian understanding of bureaucratic authority to challenge neorealist understandings of the autonomy and power of international organizations. The authors identify three variations of the bureaucratic authority of international organizations— delegated, moral, and expert—that characterize the ways in which international organizations acquire and exercise power vis-à-vis states. Their approach begins with institutional-level features of the international state system and works outward, evaluating how international organizations constitute legitimate authority in their proscribed domains, thus altering their relationships with states. Although highly congruent with their analysis of bureaucratic authority, they overlook the role of legal authority in shaping the relationship between states and international organizations. The WTO’s bureaucratic form and the increasing institutionalization of law, legal practice, and legal discourse are important sources of its legitimacy claims, and thus ripe for the type of analysis employed by Barnett and Finnemore. In contrast to constructivists, world polity scholars have moved beyond simply claiming that social structure matters in international affairs to specifying the substance of these social structures as having particular Western and “Webe-

SOCIOLEGAL STUDIES AND DISPUTING AT THE wto



rian” features (Finnemore : ).2 Finnemore compared world polity and constructivist approaches and argued that where constructivists have tended to focus on the structures of specific norms invoked in issue-areas, world polity scholars have articulated a “system level” framework. She lauds this development for providing testable hypotheses and a coherent research agenda. At the same time, the systemic level approach of world polity scholars has been criticized as deterministic and obscuring of agency (Green ) and for marginalizing politics (Finnemore ). These critiques have been taken seriously with renewed attention in recent work to the contestation and fragmentation of world culture (Boyle ; Lechner and Boli ). Both world polity and constructivist approaches question the unity of the state as an actor in international affairs and the assumption that states have fixed characteristics or interests. World polity approaches provide potent ways of thinking about the role of the WTO in consolidating normative behavior in the concrete practice of law at the international level. Yet, world polity approaches de-emphasize the material power of states and other global actors. In particular, world polity approaches fail to adequately capture the complexity of power—in both ideological and material dimensions—as it is exercised within international forums. In this regard, world system analyses provide an important corrective in suggesting how the capacities of states to operate in the WTO are founded on historical structures of domination and dependence. World polity and world systems approaches tend toward structural analyses, attending to organizational functioning and form rather than the social construction of organizations, how they are used and made sense of by people existing within them, and thus how such how organizational structures are transformed (Finnemore ; Green ). Sociolegal Approaches to Law and State Power Many of the approaches reviewed so far (excepting world polity and constructivist scholars) tend to focus on formal law, in contrast to its practice, and organizations in structural accounts of international affairs. Additionally, they each tend to theorize at the level of the international state system, without sustained theoretical interest in institutional-level and local social phenomena. As a result, they tend to overlook how international politics and economics are constituted by human, in addition to state, actors. It is just such a focus on situated actors and state power that Bourdieu’s theorization of the force of law

10

SOCIOLEGAL STUDIES AND DISPUTING AT THE wto

brings into focus. Bourdieu developed the idea of the force of law through the application of his theories of fields, habitus, and competition over symbolic capital to law. Robert Terdiman characterizes the force of law as being “like a magnet, a social field [that] exerts a force upon all those who come within its range” (Bourdieu : ). He describes it as “inherently mysterious.” This mysteriousness is a production at the center of the legal field that obscures through competition between different actors over interpretation, the arbitrary origins of law as a form of domination. Competition over the ability to interpret the meaning of the law, and how it should relate to larger social processes, is the central dynamic that structures the juridical field, promulgating a legal division of labor and regulating status. These competitive processes, rooted in the legal habitus, combine the logic of science, in the form of the rational deduction and application of legal principles, with normative and ethical claims about the universal relevance of legal productions. This has several effects, including the “universalization” effect, in which law appears as autonomous from economic and political domination, and the “neutralization” effect, in which law appears as natural and inevitable. Together these effects generate the force of law, where each actor that enters the field of law becomes subject to its rules, procedures, and meanings. In this way, the force of law is expansionary, driven by internal productions of actors and symbolic capital that are the subject of competitive struggle. The concept of a field of law thus opens a perspective on how social relations are constituted through symbolic struggle and competition over the meaning of rules (Bourdieu , ). Scholars of international law have deployed this line of thinking to examine how legal actors have developed international strategies, engaging in competition over the meaning and salience of international law, to reconfigure state power. In so doing, they link national actors to foreign sources of capital, both material and symbolic, in the reconstitution of national states (see, for example, Dezalay and Garth , ; Sacriste and Vauchez ; Vauchez ). Most notably, Dezalay and Garth () offer an analysis of state power as constituted in part by legal practices and institutions. In their account, international law provides sources of symbolic capital—opportunities for power and prestige that become the objects of competition for nationally rooted lawyers. In the process of these competitions, innovations are inserted into the field of international law as it expands. Similarly, Hagan and coauthors (Hagan and Levi ; Hagan, Levi, and Ferrales

SOCIOLEGAL STUDIES AND DISPUTING AT THE wto

11

) demonstrate how legal actors in the International Criminal Tribunal for the Former Yugoslavia expanded the force of law through the accumulation of resources and strategies in a struggle for control over the legal process. In each of these analyses, the development of the force of law intersected with the field of state power, which shaped the trajectory of the development of law, but which was also forced to accommodate new sources of legitimacy in international affairs. Together, these approaches link macrolevel social change, such as the move from the developmental to the neoliberal state, through the biographies of individuals as they pursue careers, seeking prestige and wealth. Law and legal institutions play a critical role in this contest over state power, particularly as legal imports and exports reshape legitimate claims on the state. Importantly for this analysis, state power is conceived as a field of competition for situated actors that is in part historically constituted by lawyers, the legal profession, and legal institutions. State power and international relations are thus negotiated and constructed on a united terrain of political and symbolic struggle (see also Chorev ; Halliday and Carruthers ; Hagan and Levi ; Hagan, Levi, and Ferrales ). Thus in contrast to most world order theorizing in which legal practices are obscured or marginalized, sociolegal scholars keep both state power and law in view while focusing on empirical sites that link macrolevel characteristics of the world political economy to microlevel interactions of institutions and situated individuals. They provide powerful starting points for the development of sociolegal studies of international and global legal processes that I build upon in this book. Here, the WTO is a focal point for raising questions about globalization, law, and state power. To do so, however, I must also intervene in another line of thought related specifically to the WTO.

WTO Legal Reform and the Leveled Playing Field Proponents of the WTO tend to view the legalization of trade as legal reform movement. The assertion is that rule-bound procedures for determination of WTO-compliant trade practices reduces the ability of powerful countries to resist demands for liberalization even when they come from poorer or weaker trading partners. In the following passage, former WTO director-general Renato Ruggiero describes the novelty and power of the new legal system:

12

SOCIOLEGAL STUDIES AND DISPUTING AT THE wto

The WTO is rules-based. Almost uniquely in the history of international relations, the WTO is based on a set of rules—or contractual obligations—governing trade and economic policy. This greatly reduces the uncertainty surrounding transactions across national frontiers, which in turn promotes trade-related investment, job creation and economic growth. More importantly, the system helps ensure that the economic relations among nations are based on the rule of law, not the rule of power.  (Ruggiero )

In his view, the legalization of trade vacates power from the processes by which member nations address grievances, permitting small trading powers the right and ability to contest the trading practices of larger powers. Another former director-general, Michael Moore, takes the same position: We uphold the rule of law. The alternative is the law of the jungle, where might makes right and the little guy doesn’t get a look in.  (Moore )

The rule of law levels the playing field. This is a frequent refrain for scholars investigating the “constitutionalization” of international affairs as a hegemonic strategy for constructing a world order: legal orders restrain the powerful and provide inducements for participation in the system. I seek to show how power relationships do not disappear in legal contexts, but are instead reconfigured, authorizing new strategies and resources in the context of political and symbolic skirmishing. Stated more strongly, power and law are tightly coupled: law is power. In this way, I echo the insight of a Canadian trade counsel quoted at the head of this chapter in his allusion to Clausewitz’s oft-cited dictum—disputing, as with war, is politics by other means. To make these interventions—into discussions of globalization, law, and the state and into thinking about trade, power, and law at the WTO—I draw from sociolegal scholarship to look inside the WTO and see how it operates in practice. Marc Galanter, in his article “Why the “Haves” Come Out Ahead” (), wrote: “Most analyses of the legal system start at the rules end and work down through institutional facilities to see what effect the rules have on the parties. I would like to reverse that procedure and look through the other end of the telescope” () to see, in short, how the parties shape the way the law works. So, to the world order and globalization scholars, it is my aim to use the insights of the law and society scholarship to look “inside” law in practice, at the global level. And for the proponents of the WTO, I examine how the disputants shape

SOCIOLEGAL STUDIES AND DISPUTING AT THE wto

13

the legal process and in so doing create new strategies for challenging power alongside new modes of inequality. In the remainder of this introductory chapter, I develop this sociolegal framework for studying the WTO as a site of legal action.

An Approach to Law and International Society For this book, I develop a sociolegal perspective and apply it to an empirical account of how international trade law mediates power-laden relationships between states. Developing such a framework is warranted due to the proliferation of legal institutions, practices, and beliefs in international and transnational contexts. It is also warranted by the increasing interest in theories of “constitutionalism” in international affairs as a central dynamic of global governance. A sociolegal approach provides a framework for considering how law is made sense of, how it is used, and what it means. This is only possible by understanding the social—and not just political or economic—context of rules and legal practices. Socio-legal studies offer new sources of insights into international legal practices by deploying conceptual tools developed in other contexts. The critical tradition within social scientific approaches to law challenges the taken for granted character of social life. There is an orientation toward exposing the operation of power and revealing the social and cultural bases of legal action. This evidenced in Edelman’s () arguments about law and power. She argues: By highlighting the social and cultural aspects of law, then, [law and society] scholarship provides a means of understanding how both law and the economy are embedded within a social environment in which power matters and in which highly institutionalized beliefs, structures, and rituals jointly shape the nature of legality and rationality. If law tends to incorporate, to reify, and to legitimate ideas of rationality that are in fact the product of political struggle, cultural meaning, and social inequality, then legal solutions grounded in efficiency are likely to perpetuate inequality and to legitimate extant power relations.  ()

In Edelman’s view, law is a product of cultural and political struggle where the very sense of what is rational reflects social order and power relationships. The institutionalization of rules reifies those relationships, obscuring their basis in struggle and sense-making. Sociolegal scholarship provides a means of uncov-

14

SOCIOLEGAL STUDIES AND DISPUTING AT THE wto

ering those relationships, exposing social inequality as embedded in law and social context. The meaning of legal processes is thus problematized as a social phenomenon and object of study. The meaning of law is not located in the formal requirements or case files, but in the sense made of them by situated actors as they mobilize legal institutions. Edelman and others challenge the presumption that law is static or mechanical, or that it operates in obvious or trivial ways. Viewed through this lens, the WTO is a complex social forum characterized not only by grand political economic equations and trade grievances but also by actors situated in informal relationships, with professional concerns, with shared and sometimes contested meanings about the law, and both practical and normative ideas about the operation and role of the WTO in world affairs. Sociolegal scholarship provides several other “lessons” that may be applied to the study of legal practices in international forums. Together these constitute a framework for empirically studying legal practices in international and transnational contexts. The goal is not to supplant other approaches per se, or to argue that such insights have never been employed in this way. It is to articulate a conceptual framework aimed specifically at understanding legal action in international and transnational contexts that balances structure and agency, and norms and material power in specific institutional contexts. It is to consolidate insights from sociolegal studies and make them newly available and useful for the study of international legal practices. The important lessons are: Law is embedded in social and political life. The meaning and practices of legal actors in legal forums are not disconnected from social life, but rather deeply embedded in it (Galanter ; Sutton ). While law may be self-referential in certain circumstances and able to carve out authoritative domains of relative autonomy from other institutions (Friedman ), at no point does law exist “outside” of society. While this appears as an obvious point, the “autonomous” view of law is the received notion in many fields, including the law and economics literature (see Chapter Three). To adopt that position is to imply that culture, politics, and inequality have no bearing on the constitution and operation of systems of law—a position anathema to the law and society tradition. Rather, law, politics, and economics are mutually constitutive. Politics takes distinctive forms when engaged through legal meanings and institutions (Reus-Smit ) as does economics (Commons ). This position should attune analysts to

SOCIOLEGAL STUDIES AND DISPUTING AT THE wto

15

the intimate relationships between legal practices and the society in which they take place, particularly how formal legal systems are utilized. Even at the international level, legal actors must “name, blame, and claim” as steps toward legal mobilization (Felstiner, Abel, and Sarat –). And before legal mobilization can occur, the law itself must be invented (Halliday and Carruthers ). This is particularly salient in international contexts. As with local legal institutions, domestic and national court systems, the WTO is embedded in a social context that authorizes specific understandings about the status and role of law and legal action. A dispute taken to the WTO has not been removed from society but relocated to a specialized region of world society populated largely by representatives of states as well as private attorneys and other experts. As these actors engage in a variety of forums they carry with them ideas about what should take place and form expectations, often based on prior experience, about reasonable outcomes. Such meanings are not derived from WTO treaties but derive from practice and have significant impact on how the treaties are used. Law authorizes meanings associated with legitimate social behavior and identities. Weber has been a major influence on world polity and constructivist scholars of international affairs, largely because of his insights into how the authority of law is rooted in the rational ordering of abstract rules and administration through bureaucracy. The legal-rationalization of normative social behavior has formal dimensions, particularly as related to encoding of meaning in rules. These formal rules have significant implications for social order, proscribing legitimate behavior as well as identities (cf. Collier ). However, there are also informal dimensions related to how the practices of disputing shape the meaning of grievances and the identities of the actors involved (Trubek ; Felstiner, Abel, and Sarat –; Sarat and Felstiner ). Law is thus constitutive and operates through symbolic designations of normative categories. The power of law is not monopolized by material force or sanction but relies on definitional accounts of right, wrong, legal, and illegal. Contestation over the meaning of the law shapes the law. Such contestation reflexively defines social locations and the meanings of grievances as they are articulated in legal forums through the practice of disputing (Mather and Yngvesson ; Felstiner, Abel, and Sarat –). “Recursivity” between formal law and its uses extends to the creation of law and thus to processes of

16

SOCIOLEGAL STUDIES AND DISPUTING AT THE wto

legalization (Halliday and Carruthers ). Halliday and Carruthers, in articulating a recursive approach to legal change in global contexts, argue that legal change occurs through the interaction between the uses of law and the making of law. These authors place analytic focus on both the makers and users of law and attend to the constitutive power of legal concepts. They write: “[In] legal implementation, law’s subjects come to view their problems through concepts institutionalized in statutes” (Halliday and Carruthers : ). Legal change redefines identities, meanings, strategies, and motives for legitimate and rational behavior. In the complex recursivity of legal development, situated actors make sense of legal concepts and take action. Such actions may include strategies to modify the law or use it in a novel way. Similarly, WTO law is constitutive of motives for disputing and the identities of legal actors. The uses of the law help to define the scope of reasonable action, to anticipate the typical behavior of others, and deploy labels such as “compliant,” “litigious,” or “good international citizen.” Formal legal systems are thoroughly intertwined in systems of inequality and power. From Galanter’s () insights on how the “haves come out ahead” to the notion that the legal ideology of equality requires that law, “on occasion,” actually be just (Thompson : ), to the critiques of colonial (and postcolonial) law as carriers of power and inequality (Silbey ; Darian-Smith ; Garth ), sociolegal scholars repeatedly point out how systems of inequality are reproduced and challenged by legal practices (Young and Sarat ). In this way, law is not an autonomous realm, leveling the social, political, and economic playing field. Rather, it is a medium or new terrain for material and symbolic struggles. The legal contexts of the WTO serve to define the meaning of state power between states. The WTO legal system is a site where law, expertise, and resources interact to reproduce the outer boundaries of the field of state power and the architecture of global markets. State power is understood as a relational construct rather than a natural property of autonomous states. Weber defined power as “the probability that one actor in a social relationship will be in a position to carry out his own will despite resistance, regardless of the basis on which this probability rests” (Weber : ). This definition is useful because it explicitly conceives of power as relational, rather than a characteristic of a person, and it views power as probabilistic. Power exists in the tendency to

SOCIOLEGAL STUDIES AND DISPUTING AT THE wto

17

achieve one’s goals. Finally, the definition is agnostic on the basis of power, and indeed, for this reason Weber defined legitimate authority and domination as particular manifestations of power. In the context of the WTO, the authority of law reorients the power relationships between internationally stratified states, refracting, but not eliminating, the implications of state power. Law, as a form of legitimate domination, can create opportunities for the dominated, new ways of making claims on power, but is not inherently progressive. Much depends on how law is used but also on broader questions of how law links to and rearticulates political and economic power. Structural approaches to law and inequality are complemented by grounded and interpretive approaches. Power and inequality are persistent themes in the sociolegal literature. The WTO, as a legal institution, provides points of “legal contact” connecting class in the global economy to modes of legal conflict (Seron and Munger ). This point of legal contact is at the intersection of state power as contextualized by the WTO legal regime. These points of contact between class and law have been characterized as being of two sorts: law and inequality “from the top down” emphasize structural inequalities in access to justice and the social organization of law in action. Seron and Munger also identify approaches to law and inequality that work “from the ground up” and give more weight to interpretive analysis of meanings, roles, and contexts in examining the relationship between law and inequality. The important insight is that structural approaches are complemented by grounded/interpretive approaches and bring together social structure and sense-making in analyses of the relationship between law and power. Structural features of the global political economy and the nation-state system shape the meaning and uses of law as do situated actors. The “class structure” of WTO members is defined by the history of “development” and expansion of European capitalism and the interstate system. This history provides a structural context in which inequality acquires meaning alongside conceptions of rights and power. At the same time, grounded insights, including attention to the “doing of law” (Collier ) and to legal consciousness (Silbey ; Ewick and Silbey ) are important vantage points for understanding the meanings associated with law at the international and global levels of analysis. This focuses attention not just on the stratification of WTO members but also on their presence in the system vis-à-vis trade delegations, personnel, expertise, and

18

SOCIOLEGAL STUDIES AND DISPUTING AT THE wto

other institutional and individual level facets of the grounded practice of law. It is at the level of experience that power and law take on important meaning in the context of legal action. Bringing structural and interpretive approaches together emphasizes the importance of context in organizing social action. Attempting to bring these two approaches—from the top down and from the ground up—into conversation, this book relies on two primary methodological techniques: in-depth interviewing with well-situated actors in the WTO system and statistical analyses of the case history of WTO disputes. Each of these methods is described in detail in the Appendix. Litigation may be initiated for a variety of reasons and for reasons other than achieving a settlement. Legal mobilization may be aimed at waging moral, political, and economic struggles, and the formal outcomes of litigation may well be of secondary importance to the combative meaning-making processes of disputing. In a footnote to his review of the influence of social organization on dispute processing, Felstiner () asserts this view of disputing: Litigation is used as a skirmish or an important maneuver in economic and political warfare: the expense, inconvenience and disgrace of court involvement imposed on one’s opponent outweigh one’s concern about the end result of the ostensible dispute, if ever an end result is intended.  (, fn )

In describing litigation this way, Felstiner brings into analytic view the social organization and uses of disputing, including manifestations of power in legal proceedings. Motives for legal mobilization in the first place and the processes of disputing take interpretive primacy over outcomes of that process. Sarat and Felstiner () describe a similar dynamic in their study of divorce lawyers, as clients resist the imposition of the instrumental logic of attorneys seeking the most beneficial outcome. Attorneys struggle with their clients, asserting an instrumental, “realistic” vision of legal outcomes focused on material gains, and setting aside other concerns as exaggerated or “unrealistic.” Through this, lawyers construct specific meanings of law and the disputing process that assign values to legal outcomes. In doing so, and to convince their clients to negotiate a settlement, they frequently must reassert that the process will be sufficiently combative. Understanding disputing thus requires holding these two dimensions together; myopically evaluating outcomes eclipses the social processes producing them, often with the result of misunderstanding the social character

SOCIOLEGAL STUDIES AND DISPUTING AT THE wto

19

of disputes and the motives for legal mobilization in the first place. The framework for sociolegal studies of international law thus rests on a conception of law as embedded in society and constitutive of power. The mutual implication of law and power both reproduces and challenges inequality, which has structural and grounded dimensions. Finally, these claims about the relationship between law, power, and society, although developed by studies of the national and local, maintain their significance even in the context of international law. This contrasts with the common assumption that legal systems end at national borders or that law is the same as government or state power (see, for example, Black ; Friedman ). It also contrasts with theories of world order that merely posit a functional role for law in reducing transaction costs or those that argue that law “locks in” certain relationships without considering what law means or how it is used. Finally, it contrasts with the privileging of material power and macrostructural accounts of international legal action by asserting the need for nuanced appreciation of the social and cultural underpinnings of legal authority and the recognition that people make law happen in specific contexts. Overview of the Book Applying this framework for sociolegal analysis in international contexts to the specific instance of the WTO begins with characterizing the historical development of the WTO trading system with a focus on changing ideas about the role of law in international trade and how they became implemented in practice (Chapter Two). The General Agreement on Tariffs and Trade (GATT) began as primarily a diplomatic forum for negotiating and renegotiating trade concessions. Over time, legal practices were developed as ad hoc solutions for novel problems and changing circumstances. While the history of the modern world trading system has been told before, it is frequently told as a tale of geopolitical circumstance and great power machinations. Those elements are important, but this retelling attempts to resuscitate the people that worked in the GATT/ WTO, making sense of it, innovating legal practices, and recursively formalizing them. In so doing, the social context is highlighted amid the grand political games. Such contexts are important for understanding the unique institutional features of the disputing system (Chapter Three). The defining characteristic of the WTO, which manifests in multiple dimensions, is the relationship between

20

SOCIOLEGAL STUDIES AND DISPUTING AT THE wto

law and diplomacy that structures the process, the personnel, and normative understandings of what it should do. This relationship is revisited throughout the course of the book, but the groundwork is laid here. A central premise of the law in action approach is that the analysis of formal rules and procedures does not fully account for how those rules are used in practice. Assessing how participants make sense of and mobilize WTO law is a central concern of this book. Accounting for the use of the WTO begins with a characterization of how legal actors construct the “good case” in dispute settlement systems. Prior empirical research has focused on determinants of participation in WTO disputing but without full consideration of the social processes by which the decision to litigate is made. To the extent that these processes have been subject to study, scholars have presumed that initiation of a formal WTO dispute results from a cost-benefit analysis. In contrast, I demonstrate how practitioners offer multiple motives for initiating a WTO dispute (Chapter Four). Accounts of practitioners demonstrate that the idea of a “good case” encompasses flexible sets of motives including economic, political, and symbolic characteristics of trade grievances, to mobilize WTO law. The flexibility is due to uncertainties associated with litigation, which are manifestations of five features of the WTO: the newness of the system, the organizational and legal structure of the dispute system, the context of the WTO as an intergovernmental agreement, the persistence of inequality between states, and the difficulties of securing meaningful compliance. Six variations of the good case are identified, including symbolic, communicative, and affective motives above and beyond the existence of a trade grievance. Inequalities between participants, based in the global political economic order, also penetrate the WTO. However, the WTO legal forums mediate how such power inequalities play out in the context of trade disputes. This is particularly clear in the transition of disputes from the initial consultative phase to adjudication by a panel of experts. Rather than banishing power from disputes over trade, law reorients it, providing both new challenges and opportunities for developing countries to assert their rights in the global trading system. In contrast to prior approaches that treat legal capacity and state power as competing hypotheses, my analysis draws on the sociolegal framework developed in this chapter to demonstrate how WTO replicates systems of inequality. Law is viewed as a medium for struggles between states that authorizes specific

SOCIOLEGAL STUDIES AND DISPUTING AT THE wto

21

requirements for resources, personnel, and expertise. Institutional level factors, including the effects of case complexity and experience, have significant impact on how or whether disputes transition through the formal process, and cannot be reduced to trade relationships and position in the world economy. The findings demarcate the role of international legal contexts in reorienting struggles over trade between unequal trading partners and suggest the limitations of the WTO as a legal reform effort. The motives for disputing are many and the processes of disputing are marked both by power inequalities and investments in legal capacity and expertise. Investments in mastering WTO legal processes have created leverage for some developing countries in the WTO system. What then are the results? Does legalization “level the playing field” of international trade? Or is legalization just another manifestation of the domination of rich countries? The answers to these questions are complex and not well addressed through simple accounting of wins and losses. Prior quantitative approaches to assessing winning and losing provide very partial understandings about which parties are favored in the rulings of WTO panels and Appellate Body panels. There appears to be a strong complainant bias. But practitioners problematized a simplistic understanding of winning and losing and instead expressed multiple and context specific meanings associated with dispute outcomes, including a significant divergence of ideas about what compliance measures should accomplish (Chapter Six). While some praised the WTO for enhancing the ability of smaller trading nations to access dispute settlement, many discussions focused on the weaknesses of the compliance measures. Despite such weaknesses, many informants articulated a “legal enforcement” view of compliance, lamenting how the possibility of winning rulings was not necessarily matched by the likeliness of securing compliance. Still, a “rebalancing” view was also present, sometimes in the same informant, which suggested that the role of law was not to determine right or wrong, but to facilitate a renegotiation of the delicate balance of trade concessions. Together, these insights suggest that the prospects of compliance become decoupled from the motivations for litigation. The decoupling of motivations for litigation from expectations of compliance reorients meanings associated with litigation, bringing to the fore symbolic and political goals. This makes clear that the WTO is not merely an instrumental apparatus, mechanically administering the global economy. It is a hermeneutical field of

22

SOCIOLEGAL STUDIES AND DISPUTING AT THE wto

contest and struggle, where many of the critical battles are fought over ideas, identities, and symbolic capital. Such struggles over meaning take place in a broader social context, imbued with normative ideas about truth, justice, and equality as well as the relationship between those values and law. Divergences in opinion about what the WTO can achieve and what it ought to achieve demonstrates how law serves as a point of reference for practitioners to find fault in the diplomatic structure of WTO rules, for seeing them as underdeveloped and substantively unfair. The solution that follows from this is more law. This book examines the legal architecture of the global economy that constitutes relations of power between countries. WTO law neither levels the playing field of international trade nor simply reinscribes the power relations that define the modern world system outside of it. Legalization produced unexpected consequences, at times constraining the powerful while empowering the weak. This movement has not occurred in isolation, but is in conversation with a broad set of norms rationalizing interstate relations around values of justice, fairness, and equality. Building on such norms, practitioners constructed, incrementally, the system of rules defining the global trading system. These rules have acquired authority over states and can no longer be properly understood in the model of public international law conceived as external relations between states (Chapter Seven). The field of WTO law has internalized states, placing even powerful countries on its terrain. From the legal architecture of the global economy has emerged supranational authority over states. While the field of WTO law remains emergent, the trajectory is for increased legalization, increased institutional and legal complexity, and greater investment in the global force of law. This trajectory is driven by the demands for participating effectively in the WTO system, by ideas about what laws ought to achieve, and by the growing “legal complex” of international trade practitioners. The open question is whether greater legalization and emergent supranational authority of international trade law will permit reform of the foundations of the global economy that are beneficial even to the poorest members of the WTO. Many countries of the developing world have become remarkably well positioned to rethink the relationship between trade and social development. Economic growth and increasing political influence, as well as the current global financial crisis, pose the question of whether and how the developing world, can take advantage of their increasing leverage and abilities within the WTO.

SOCIOLEGAL STUDIES AND DISPUTING AT THE wto

23

Today, there is an unprecedented opportunity to mobilize the legal forums of the WTO to rearticulate the relationship between trade and development that will not only allow for greater diversity in national development policies, and a reintegration of trade policy into democratic politics, but also permit flexibility in the face of global economic downturns. The trick for making this happen is to invest in WTO law—law initially authored largely by the United States and that still grants it considerable advantages. In practice, this means that the bulk of WTO members are excluded from direct participation in WTO disputing. But those that can mobilize the resources and expertise for regular participation are positioned to make claims on the global trading system to better account for the needs of the developing world. The challenge posed to world order and to the future of the WTO by emerging economies raises questions about how rich nations should comport themselves with changing geopolitical relationships and a future possibly defined by multiple, relatively equal economic powers. In the past, such transitions in world order have been marked by large-scale violence. Faced with the rise of competitors, the United States will also benefit in the long run by institutionalizing greater equity and flexibility in the rules of the global trading system. Strengthening the rule of law now will bolster the advantages already held by the rich while more deeply institutionalizing a legal and political forum where struggles over the global economy can play out in a stable and predictable, even favorable manner. Democratizing the WTO and permitting greater flexibility in the conditions of market liberalization will also allow rich countries to adjust to changing economic fortunes over time—a need made clear in the most recent global financial crisis. Enhancing the rule of law, while increasing flexibility and diversity to protect the poor and prepare for economic downturns, may be the best hope for a future defined by peace, and even justice.

ch a p te r t wo

The World Trading System From GATT to WTO It’s exciting. I think it’s probably the one area of international law that is the most exciting. . . . It’s the one area with an effective dispute settlement system, that has some enforcement powers. People abide by the decisions. So it has everything that you could want as a lawyer. —Interview with private attorney, Geneva, April , 

Between  and , the Uruguay Round of negotiations between members of the General Agreement on Tariffs and Trade (GATT) produced the agreement establishing the World Trade Organization. The GATT system, created at the  Bretton Woods Conference, was intended to create peace and stability in the postwar trading system through progressive liberalization of national markets. Generally considered successful in this task, at least in terms of trade in goods, over time, the United States and other major trading nations nonetheless began pushing for a strengthened and expanded international trade regime. These efforts cumulated in the World Trade Organization (WTO), which came into effect on the first day of . The WTO is most noted for the comprehensiveness of its membership, accounting for nearly all of world gross domestic product, and for the “juridification” of its dispute settlement mechanism, which has been described as historically unprecedented (Abbott et al. ). In this chapter, I provide background and context on the historical development of the WTO. In the process, the chapter traces two important themes. The history of the GATT/WTO system is marked by the changing role and status of law and legal practice. While the WTO is noted for its legalization, the practice of law, as well as contestation over normative ideas about the role law should play in the regulation of trade, in many cases predated the WTO, and developed in practice over the course of the GATT regime. The elaboration

THE WORLD TRADING SYSTEM

25

of legal mechanisms through informal and pragmatic practices preceded their formal encoding in treaty texts. The practices of law, in this case, often led to its formalization. I also show the human scale of trade negotiation and disputing. Most narratives about the history of the GATT/WTO focus on macroeconomic and political contexts and interests. Such factors are important. But it is also important to recognize that actual people did the work of constructing the international system. The operation of the WTO dispute settlement system today remains profoundly marked by individual and institutional level features that shape the strategies of states. While it is easy to think of international affairs as distant, occurring in the abstract ether of elite politics and economics-cum-laws-ofnature, this retelling attempts, however marginally, to resuscitate the recognition that people make trade globalization happen. Fundamental human experiences, including the pursuit of careers, reputation, hubris, or shame are central features of international relations and affect how those individuals doing this work go about it. These things can have significant impact, if the person is so situated, on the issues of the times. To focus only on the macrolevel issues, the grand political game, or Realpolitik, is to obscure much of the social action in diplomacy and law.

The Postwar Order and the Failed International Trade Organization In the wake of World War II, the political leadership in the United States and other countries came to understand the causes of the Great Depression and the ensuing development of political-economic trade blocs preceding the war as rooted in nationalist and protectionist policies of the dominant economies. For instance, Cordell Hull, secretary of state between  and , believed that there was a “direct relationship between an open international economy and a peaceful, cooperative world political order” (as cited by Chorev : ). This idea was by no means Hull’s alone (Ikenberry ). However, Hull applied this theory in the drafting of the Reciprocal Trade Agreements Act (RTAA), passed in , in which Congress first delegated the authority to set tariffs to the executive branch. This marked a radical shift from the Smoot-Hawley Tariff Act of , which had provoked a “storm” of retaliatory measures from

26

THE WORLD TRADING SYSTEM

trading partners and was blamed for slowing recovery from the Depression (Bagwell and Staiger ; Chorev ). Understood as such, it was used by the State Department to convince Congress to delegate its authority over setting tariff levels (Chorev ). The RTAA also marked the first use of the principles of reciprocity (mutual exchange of trade concessions) and nondiscrimination (trade concessions made applicable to all trading partners) in U.S. trade policy. These principles were to become central principles of the GATT and the WTO (Bagwell and Staiger ). By the early s, the reforms of the RTAA were viewed as successful in promoting liberalization. The principle of reciprocity had been effective not only in increasing market access in foreign countries but also in containing the domestic pressures for protectionism by mobilizing domestic export sectors in favor of trade liberalization (Bagwell and Staiger ). With the RTAA viewed as a success, Hull and others began to push for multilateral negotiations over the postwar trading system that would be based on the same principles. In , twenty-three allied nations signed the GATT agreement. As with the RTAA, the GATT was founded on the idea, as expressed by Paul Samuelson, that “free trade promotes a mutually profitable division of labor, greatly enhances the potential real national product of all nations, and makes possible higher standards of living all over the globe” (as quoted in Pescatore, Davey, and Lowenfeld : ).1 This idea had its roots in the ideas of comparative advantage formulated by Adam Smith in The Wealth of Nations, as well as the Anti–Corn Law League of nineteenth-century Manchester, England, which argued that free trade between nations made war unlikely (Dryden ). The GATT sought to achieve these ends by establishing rules that limited national impediments to trade on the basis of “reciprocal and mutually advantageous arrangements” (General Agreement on Tariffs and Trade ). The new rules required the reduction of tariffs and other trade barriers and the elimination of discriminatory treatment between nations in commerce. At the same time, the rules reaffirmed that member nations retained sovereign control over trade policy. The treaty emphasized reciprocal concessions for mutual benefit (Bagwell and Staiger ). This was important in the context of the emerging Western Alliance, with the United States at its lead, aimed at consolidating capitalist nations in opposition to Soviet Russia and what appeared to be its growing sphere of influence (Dryden

THE WORLD TRADING SYSTEM

27

). Carefully liberalized trade would lessen conflict among capitalist allies, making them wealthy as well as less vulnerable to being “picked off and communized one by one,” as U.S. trade negotiator under Truman, Clair Wilcox, put it (as quoted by Dryden : ). At the time GATT was implemented on January , , it was expected that it would be subsumed under the International Trade Organization (ITO). Plans for the ITO date to  when the United States was engaged in consultation with England over U.S. loans for postwar reconstruction. American-led consultations over the ITO began in  and led to the draft treaty, known as the Havana Charter for an International Trade Organization (Diebold ). The Soviets boycotted the Havana conference, which coincided with a restriction on U.S. exports to the USSR as part of a U.S. economic offensive (Dryden ). The British were also leery of U.S. plans for a liberal world order and negotiated for guarantees for full employment (Chorev ; Ikenberry ). Key sectors of the American business community were skeptical too and eventually opposed to the ITO. American businesses worried that it left unprotected crucial domestic industries. Internationalists in business and in the U.S. Congress, whom Diebold referred to as “perfectionists,”2 objected to the charter because, in their view, the limitations and exceptions it provided, particularly for national economic planning, were so extensive that member countries could abide by its rules without liberalizing trade (Chorev ; Diebold : ). Despite such opposition, President Truman supported the ITO. However, Republican control of the Congress in  reduced the effectiveness of Truman’s leadership at a time when the nation and the executive branch were distracted by growing involvement in the Korean War. By December , President Truman had withdrawn the charter from congressional consideration, and the U.S. Congress took no action. Without the support of the Congress, the proposal to form the ITO collapsed. As Dryden notes, the failure of the ITO demonstrated how difficult it was for the United States to create an international trade regime “in its own image,” even at the peak of its power (: ). The GATT remained provisionally adopted, incorporating most of the trade related provisions of the Havana Charter, but lacking, most significantly, a governance structure or enforceable dispute resolution process (Pescatore, Davey, and Lowenfeld : ; Swacker, Redden, and Wenger : , ). Chorev () argues that the failure to pass the ITO functionally reflected the prefer-

28

THE WORLD TRADING SYSTEM

ences of internationalists because what it left in place—the GATT—did not contain protections for full employment and had weaker provisions for compliance. Where the ITO balanced international liberalization against domestic concerns for employment and stability, the GATT did not. The weaker GATT structure did little to mediate power inequalities between states and, as a result, played a minor role in U.S. trade policy formation. The GATT remained a treaty body without official institutional form until it was subsumed into the World Trade Organization in . Nonetheless, free-traders in the U.S. government and private enterprise continued to push for greater trade liberalization, including rounds of negotiations held under the auspices of the GATT. The GATT was designed as a system for negotiating and then ensuring mutual benefits of a trading system. The goal was to liberalize, but to do so in a context of reciprocity. Member nations (known as “Contracting Parties”) also developed practices for disputing over trade. These processes were intended to maintain negotiated balances of trade concessions rather than to secure free trade or to enforce trade sanctions for violations of treaty obligations. Over the course of the next fifty years, legal concepts and legal actors, particularly lawyers, increasingly played important roles in disputing over trade. Lawyers and legalization also engendered the normative idea that disputing was a process to adjudicate right and wrong in matters of trade. The gradual and inconsistent processes of legalization provide a deep context for understanding the legal practices at the WTO. Robert Hudec and Insurgents in the Foreign Policy Establishment A critical source for historical information about the GATT years comes from the writings of Robert E. Hudec. Between  and , Hudec served as assistant general counsel in the office of the first Special Trade Representative (STR), created under the Kennedy administration. Later, as a professor of law at Yale University, he served as a panelist in GATT, WTO, and NAFTA disputes. Shaffer () refers to him as a “modest giant” in both the practice and study of international trade. He is often considered the forefather of empirical studies of the GATT/WTO regime and of international trade law more generally. His writings are treated as canonical sources for understanding the evolution of the GATT/WTO regime. At the beginning of his stint in the STR, Hudec was a twenty-eight-year-old

THE WORLD TRADING SYSTEM

29

graduate of Yale Law who had served as a clerk to Supreme Court Justice Potter Stewart (Dryden ). From early in his legal career he developed a reputation as a “lawyer’s lawyer,” a “consummate master of legal doctrine and technique” (Trubek : ), and later, as he went on to be a luminary in the field of international trade law, a “great technician, as well as a thinker” (Blackhurst and Mavroidis : ). Hudec’s writings are very important for their insights on how GATT practices, particularly as related to law, changed and developed over time. Very little attention has been paid to law in the context of Cold War international politics. Indeed, law did not play a prominent role in international affairs of the period, which were the domain of diplomacy and statecraft, not law. Over the Cold War period, however, the status of law began to change, and Hudec, like no one else in the domain of trade, witnessed and commented on it. While elite lawyers had long occupied powerful positions within the U.S. state—lawyer-statesmen ranging from Elihu Root and William Howard Taft to Henry Stimson, Dean Acheson, and others—their influence was less grounded in law than in other sources of social capital. Across their careers, their positions in the state, at elite universities, and as representatives of big business stemmed not from mastery of doctrine and practice but from family, education, and business ties that “placed them above the mundane world of law” (Dezalay and Garth : ). These figures represent the old foreign policy establishment whose near monopoly over U.S. foreign policy, beginning in the nineteenth century, was tied to the rise of industrial capitalism and U.S. imperialism abroad, becoming challenged in the latter half of the twentieth century. Hudec’s tenure with the STR in the mid-s occurred during a transitional period as the foreign policy establishment faced an array of challenges to its dominance. In the account of Dezalay and Garth, these challenges included foreign policy failures such as Castro’s rise to power and later Vietnam, as well as the rise of new disciplines, such as international relations, that made claims to authority over the conduct of foreign policy. The challenges also included demographic changes on college campuses and a relative enlargement of the population within which elite universities recruited. The GI Bill as well as the growing civil rights movement motivated the changes on college campuses. Changing demographics of elite universities had the effect of making the professional trajectory into the foreign policy establishment more meritocratic and legitimate. Lacking the wealth and elite family ties and facing competition over

30

THE WORLD TRADING SYSTEM

professional strategies for accessing positions within the networks of business and the U.S. state, beneficiaries of this enlargement invested in the practice and institutions of law. Robert Hudec exemplifies this new career path into universities and into the state. Born in Cleveland, Hudec was the child of Slovakian immigrants and applied to college only when encouraged by a high school guidance counselor (Altman ). His investment in law and mastery of doctrine and practice, as well as the absence of ties to elite family networks, thus typifies the trajectory of challengers to the old foreign policy establishment. His skill and abilities with law explain his career and social position first within the state and then, as a faculty member of Yale Law School, as a key member of the epistemic community surrounding U.S. international trade efforts and the GATT/WTO itself. In his scholarship, Hudec identified an intimate relationship between law and diplomacy that shaped the operation of the international trading system. He recognized the legalization of international affairs as a powerful, yet subtle balancing act, even as he operated as an agent of legalization by interpreting the GATT/WTO treaties as legal instruments. As such an actor, like many that followed after him, he carried particularly American notions of law and litigation—ideas related to technical proficiency that helped him achieve his positions of authority. As U.S. foreign policy elites came to rely on deep investments in law as a new strategy for securing elite positions, they also authored ideas about how the international trade regime ought to work. As I will argue later in this book (Chapter Six), ideas about the role of law have continued to shift. Notions of law as a tool for enforcement have gained strength against ideas that formulate law as a structured form of diplomatic negotiation. Hudec was an actor in this transition, influencing the changes that he simultaneously described. Hudec provides a much-needed and insightful lens on a formative period in the emergence of law as an important dimension of international affairs. At the same time, it is a partial history reflecting Hudec’s investment in mastering legal doctrine and practice and his place in the U.S. state as a challenger to the old ways of doing things. Hudec’s history is thus not only descriptive of the period and the changing place of law but is also evidence of the particular ideas asserted by the new American foreign policy elite and how they reshaped the global trading system.

THE WORLD TRADING SYSTEM

31

The Early GATT: Emergent Practices Hudec described the first few years of the GATT as characterized by the wait for the passage of the International Trade Organization. Operations were conducted on a “day-to-day basis,” and in “whatever manner seemed convenient or appropriate at the moment” (Hudec : ). The failure of the ITO, however, left the procedures for disputing governed by the GATT agreement itself. The GATT agreement’s dispute procedures had not been well developed because of the expectation that the GATT, as a stand-alone treaty, would be short-lived.3 As a result, the GATT agreement included only rudimentary provisions for disputing which asserted that in the case of alleged “nullification and impairment of benefits” derived from the treaty, the grievance would be reviewed, recommendations made, and complainants would have the right to suspend tariff concessions. Importantly, no decision-making body was identified for disputes, and so the task of reviewing grievances was left to the Contracting Parties. This created the context for early experiments with dispute processing procedures. Over the summer after the first official session of the GATT, the Benelux governments initiated the first dispute over discriminatory taxes placed on the preparation of consular documents by Cuba. Consultations between the parties were unsuccessful. In the fall of , the dispute was raised again by The Netherlands by asking for a ruling on the dispute.4 More specifically, The Netherlands wanted to establish whether Cuba’s tax policy violated the most-favored nation provision of the GATT. The chairman ruled affirmatively and the taxes were subsequently removed. Hudec (: ) suggests that the ruling, in part evidenced by the lack of discussion by member states, was so obvious that it was likely that the whole dispute “was merely a rehearsed bit of stagecraft designed to formalize the legal obligation.” In particular, the dispute demonstrated the authority of the GATT body to apply the treaty in a substantive fashion. This dispute was also characterized by the use of a “chairman’s ruling” that relied on the “personal prestige” of the chair of the Contracting Parties (Hudec : –). This practice was short-lived and subsequently replaced by the practice of referring disputes to working groups for review, which was later replaced by the ad hoc designation of experts to review trade disputes. But this first moment of disputing established critical, if subtle, themes related to how disputing happened from then on: partially legal and partially diplomatic, with strong ele-

32

THE WORLD TRADING SYSTEM

ments of theater and expressive actions by states, and shaped by the charisma, ambition, and prestige of the people doing the work. Grievances over trade were initially addressed through diplomatic negotiations held in the context of semiannual meetings of the GATT, which were largely focused on negotiating further reductions in import tariffs (Jackson ). The diplomatic orientation was in part a product of the small number of participants in the agreement. It is reported that the early GATT of the s was operated as a small “club” of like-minded trade policy officials who had been working together since the – ITO negotiations. They all knew what they had meant to say in the General Agreement (even if they hadn’t always said it clearly). Thus they did not need a very elaborate decision-making procedure to generate an effective consensus about what particular governments were expected to do.  (Hudec : )

An organization structured around a negotiated consensus meant that there was little need for tightly written rules. It is important to retain this insight about informal GATT practices and understandings because the world trading system and membership in the GATT/WTO system have grown tremendously since the signing of the GATT agreements. Nonetheless, both shared and contested understandings, and personal and institutional dynamics of actors in GATT/WTO contexts continue to play an important, if more complex, role. This is most evident in ideas about the legal nature of the GATT/WTO system and how it ought to secure compliance. The United States was the first member to block an adverse GATT ruling (Hudec ). In , The Netherlands was authorized by a GATT dispute panel to retaliate against the United States over import restrictions on dairy. 5 The Netherlands never implemented the retaliatory measures, and the United States never implemented the changes demanded by The Netherlands and GATT (see Jackson ). Hudec describes the retaliation of The Netherlands as a “further extension of those essentially verbal and symbolic devices of moral suasion which are the GATT’s real (and only) powers of coercion” (Hudec : ). While the GATT appeared to be “getting tough” by authorizing retaliation, it was profoundly weak when it came to securing compliance, permitting the U.S. executive branch to seek trade liberalization abroad while Congress protected declining industries at home (Chorev ). The European Economic Community (EEC) initially, and later the United

THE WORLD TRADING SYSTEM

33

States, resisted the move toward legalization. In broad terms, the EEC’s legal policy favored negotiated, diplomatic approaches to policy conflicts as a way of diminishing attention to its own violations of GATT (Hudec ). But subtle changes began to occur in dispute practices, which in hindsight can be understood as early movements toward legalization. Hudec points to “subtle indications” of legalization in the seventh session of GATT in , where a dispute was first referred to a “panel” rather than a “working party,”6 as had been the practice up until that point. Also, the membership of that panel excluded representatives from the disputing parties as well as representatives from the major powers (Hudec : ). Although there was virtually no formal discussion of these procedural changes, which were elaborated in detail by the panel and the Secretariat, Hudec asserts that major delegations supported the move (Hudec ). In , the GATT membership changed the composition of the review panels to be composed of individuals who would adopt the panelist role in their personal capacity—and not as representatives of a government (Jackson ). Again, this process was not dictated by the GATT agreement, but was based on a procedural decision by then director-general Eric Wyndham-White (Jackson ). The reports of dispute panels were then given to the GATT Council, a standing body composed of member nations for handling dispute-related issues. Again, this body was not provided for in the GATT but was elaborated by the members. The practice that developed was for the council to approve the dispute panel report by consensus. Any contrary opinions would prevent the adoption of the panel reports. From this point on, decisions were made in dispute settlement by consensus until changed under the WTO. Unlike the procedural changes described by Hudec in , which were taken very quietly, the changes to the panel process in  were announced in a fourpage “Note by the Executive Secretary.” Referring to “traditional methods” for constituting panels, in which government representatives from the parties to a dispute were asked to rule on the validity of the claims, the report asserts: Experience has revealed that [the traditional method] also has disadvantages. In the case of complainants, for example, it often proved embarrassing for the representative of a country against which a complaint was lodged to associate himself with the working party report. On the other hand, it was often equally embarrassing for him to dissent from the report and file a minority statement.  (Hudec : )

34

THE WORLD TRADING SYSTEM

The potential embarrassment of delegates, when placed in the position of ruling on a dispute against their government, rationalized the need for more legalized processes. This suggests an affective dimension, shaped by WTO legal contexts, that informs how actors engage in legal practices. Moreover, the communiqué asserted that the switch to recruiting panel experts to rule in their personal capacity would enhance the objectivity of the ruling and make it more lawlike: This method of constituting the Panel has emphasized the fact that the primary function of the Panel is to prepare an objective analysis for consideration by the contracting parties, in which the special interests of individual governments are subordinated to the basic objective of applying the Agreement impartially and for the benefit of the contracting parties in general. . . . [Contracting parties] appear before the Panel in a capacity that is similar to that of the plaintiff and the defendant before a court of law.  (Hudec : )

In this passage, Hudec uses imagery of domestic U.S. litigation to explain the ideal relationship of the parties to a dispute and the legal institution. This ideal serves as an answer to the problems experienced by trade delegates. The insertion of legalized practices into GATT affairs served to enhance the “objectivity” and legitimacy of the rulings, while avoiding the embarrassment of delegation officials that might place their national interests above the needs of the contracting parties as a whole. Importantly, these practices, even though not present in the text of the GATT agreements, became deeply entrenched in the operation of GATT and even the WTO. Despite the fact that the motivating conception of the GATT regime was as a forum for negotiated balancing of concessions, the weak ability of the GATT to condemn GATT-inconsistent practices became the focal point of criticism of the regime (Jackson ). As such, the initial points of legalization identified by Hudec and Jackson are also marked by a divergence in expectations over how the GATT should operate and what kinds of power it should hold. GATT members developed legal mechanisms for adjudication while relying on normative pressure for compliance, creating a situation in which law and diplomacy came into a complex, though sometimes productive, tension. Growing reliance on law could facilitate clarifying obligations and create better understanding of key issues. The potential for airing a grievance as a dispute could also motivate diplomatic action. Law and diplomacy could work well together.

THE WORLD TRADING SYSTEM

35

But, it was a fine balance. Law and diplomacy could also undermine each other and lead to more intractable disputes to the degree that they fail to produce a settlement. Attempts to fine-tune this tension produced experiments in procedure and jurisprudence, contributing both to the legalization and flexibility of the GATT system. The early years of GATT produced important legal innovations that became a part of how the GATT and then the WTO function. These changes in the s constituted an early high-water mark for legalization. After , delegates adopted a less favorable attitude toward law, and legalized disputing ground to a halt.

Antilegalism While there were forty disputes initiated in the  to  period, no disputes were initiated between  and . And in the period between  and  only ten disputes were initiated, six of which were initiated by the United States (Hudec : ). The turn away from disputing was driven in part by a changing international system, the rise of new issues that were not included in the original GATT agreement, and abdication by Contracting Parties of their GATT obligations. These trends contributed to the declining use of GATT legal remedies. Perhaps more important, this period was marked by a change in attitude about the normative role of law in managing the international trading system. The assertion of legal claims came to be considered confrontational and aggressive. The antilegalism of the s was driven by two factors. The first was a high-profile failure of the disputing process and the second was a campaign by developing countries to gain leverage in disputing through strengthened legal remedies. The two—a loss of faith in law and a backlash to what was perceived as radicalism from the developing world—produced a culture of antilegalism among the major trading powers. The European Economic Community and the Chicken War The rapid acceleration of economic growth and investment in Europe following the signing of the Treaty of Rome and the establishment of the European Economic Community (EEC) contrasted with stagnation and increasing foreign exchange liabilities in the United States at the time (Evans : ). More-

36

THE WORLD TRADING SYSTEM

over, the EEC threatened problems for the United States and others, who would be excluded from the benefits of its Common Agricultural Policy (CAP). More broadly, the possible failure of EEC countries to implement liberal trade policies, particularly in agriculture, threatened the Western anti-Soviet alliance, or at least so feared U.S. observers (Evans : ). Nonetheless, the United States supported the formation of the EEC and sought to encourage British entry as a way of strengthening and consolidating both the EEC and U.S.-European “partnership” to combat Soviet economic hostilities (Dryden ). The emergence of the EEC was a major issue because it combined six countries, which had been relatively heavy users of the GATT system, into one. More important, the Common External Tariff constituted a retreat from the liberalization obligations of the GATT. The agricultural policies of the new European Common Market also took on greater importance. A former U.S. diplomat in the European Bureau of the State Department who later worked in the U.S. Trade Representative’s office during the Reagan administration, Julius L. Katz, describes the trade implications of the EEC: At the time, one of the major economic issues was economic integration in Europe and the advent of the European Common Market among the six original countries in Europe. This raised serious questions about the impact on other countries in Western Europe, particularly Britain, but also the Scandinavians, Austria and Switzerland that had organized themselves into the EFTA, the European Free Trade Agreement.[7] One of the main differences between the two groups had to do with agriculture. Agriculture was the issue that was sometimes spoken of as the cement that held the Common Market together, and the EFTA countries were not prepared to include agriculture in their free trade arrangement. In the case of free trade area, each member maintains their own tariff against the rest of the world, while tariff[s] are eliminated on trade within the area. A common market requires a greater surrender of sovereignty, since the interests of individual members must be subordinated to the interests of the group. In the case of the Europeans, the EFTA countries were unwilling to submit themselves to the commercial, and especially the agricultural policies of the Common Market. The problem with all of this was that the EFTA countries would face serious discrimination in the Common Market. In the United States, as well[,] there was concern that the Common Market would result in discrimination against US goods.  (Kennedy )

The formation of the EEC created significant uncertainties over trade, particularly in agricultural goods, not only for the United States but also for other

THE WORLD TRADING SYSTEM

37

European agricultural exporters. The EEC’s Common Agricultural Policy subverted obligations to GATT by effectively declaring the new Common Market’s autonomous ability to establish agricultural trade policies.8 The goal of the CAP was to ensure high domestic food prices as a support for agricultural producers despite low world food prices. To accomplish that, the CAP reintroduced an old type of trade barrier called a variable levy, which established a floating customs tariff to ensure higher prices for imported goods than subsidized domestic producers (Sampson and Snape ; Hudec : , ). This type of tariff contrasts with bound tariffs, which set a ceiling on tariff rates per a given unit. Bound tariffs are negotiated between states, and adhering to these bound rates form part of the obligations associated with membership in the GATT. Largely in response to the EEC, President Kennedy began working for the passage of a new trade act that would authorize the initiation of what became known as the Kennedy Round negotiations of GATT. The Trade Expansion Act of  permitted the president, through the newly established Special Representative for Trade Negotiations, or STR—the precursor to the Office U.S. Trade Representative (USTR)—to seek up to  percent tariff reductions across the board in exchange for reciprocal concessions from the EEC. The authority to reduce U.S. tariffs wholesale, rather than item by item, constituted an unprecedented transfer of power from the Congress to the executive branch. Following the passage of the Trade Expansion Act, the United States initiated a dispute—the so-called Chicken war—over the CAP program. Reflecting the concerns of poultry farmers, particularly in West Germany, the European Commission had replaced the bound rates on U.S. exports of frozen chicken parts with the variable levy. That resulted in dramatic increases in tariff charges on U.S. chicken parts and significant reduction of U.S. exports of chicken to West Germany, by about  percent in  and  (Evans ; Dryden ). It also clearly violated GATT rules, because the bound tariff rates for frozen chicken parts had been negotiated as a part of the initial GATT agreements. Under the terms of the GATT, the United States should receive compensation for a retraction of bound tariff rates. This was not in dispute. The amount of compensation and the method by which it should be determined were the points of disagreement (Evans ). Negotiations between the United States and the European Commission produced a proposal put before the EEC council that would have slightly reduced duties on chickens. The council not only rejected the proposal

38

THE WORLD TRADING SYSTEM

but also raised the duties. After subsequent failed negotiations over “balancing compensation” (Evans : ), the United States announced publicly that it would unilaterally retaliate by raising tariffs equal to the value of lost exports. The dispute erupted into a major affair and threatened to derail the ongoing Kennedy Round negotiations.9 European commissioners also took to the public stage, deriding the U.S. retaliation as excessive and as undermining the negotiations (Evans ). The publicity of the retaliatory measures locked the United States and the EEC into positions from which they could not retreat without significant embarrassment.10 As the outcome of a compromise agreement, an expert panel was convened to arbitrate the matter, which essentially split the difference between the starting proposals of each side. The United States proceeded strategically to implement retaliatory measures, raising duties on brandy, trucks, dextrin, and starch, guided by the logic that retaliation ultimately would rebalance negotiated trade concessions. While the dispute failed to produce a change in CAP policies, adherence to the decision of the arbitrators by the United States nonetheless strengthened the GATT system by avoiding tit-for-tat unilateral retaliations between Europe and the U.S. Indeed, the key members of the STR at the time recognized in advance that the dispute would unlikely lead to changes in EEC agricultural policy and would likely harm the prospects of achieving deeper liberalization through the Kennedy Round (Dryden ).11 The aftermath of the Chicken War was significant for the change that it produced in how U.S. delegates and decision-makers thought about the legal procedures of the GATT. The political intensity of the chicken war plus the failure of GATT disputing to bring EEC agriculture policies into compliance undermined the status of legalistic approaches to addressing grievances (Hudec ). For the next period of GATT history, legal remedies would be pushed to the side. Developing Countries At the time of its creation, GATT members were concerned primarily with postwar economic recovery. The concerns of developing countries, many of which remained under colonial rule, did not have much impact on the negotiations for the GATT or ITO (Wells ). During the s, the membership of the GATT grew as a result of the recovery of Japan and the economic growth of developing countries. Developing countries were courted into the trade agree-

THE WORLD TRADING SYSTEM

39

ment to undermine the influence of the Soviets and soon came to outnumber developed countries in the GATT by  to  (Picciotto ). This growth in membership forced new items onto the GATT agenda. As developing countries emerged as important exporters in the s, taking advantage of high commodity prices during the Korean War (Wells ), they began making demands on the GATT system. Many of the issues brought by developing countries were dealt with on an ad hoc basis. Over time and with the inability of the GATT to deal with agricultural trade, however, the original consensus that had supported the GATT also began to break down. Hudec describes the situation as the “accumulated weight of . . . legal dead spots” in which “attempts to assert legal obligations . . . became more difficult as governments began to question openly the fairness of enforcing some obligations when so many others were simply being ignored” (Hudec : ). In the late s, developing countries, which were increasingly organized as a bloc within the GATT, had succeeded in forcing the GATT to produce an Action Programme with the goal of finding ways of increasing exports from developing countries.12 This program was an extension of concerns going back to negotiations over the ITO for exceptions to trade liberalization based on developmental need. With the failure of the Action Programme to produce much action on developing countries’ concerns and declining terms of trade across the developing world, the campaign for differential treatment accelerated. In the s, developing countries began making claims both for differential treatment and for increasingly legalized dispute settlement mechanisms. In , Uruguay initiated a major dispute against fifteen major powers over their use of nontariff barriers.13 However, Uruguay adopted a passive pose, perhaps fearing retaliation for its disputes, and failed to participate fully in the panel process, including a failure to submit evidence of trade injury. Hudec () describes this dispute as a failed attempt to force the GATT Secretariat to adopt the role of prosecutor. Still, the panelists articulated a broader understanding of the basic requirements for initiating a dispute. While the GATT treaty required that a complaint be based on a nullification or impairment of rights, the panelists in this case took a broader view, interpreting the basis of a complaint to require only a violation of the treaty (and not necessarily the impairment of rights of a particular contracting party) (Jackson ). This was an important moment of juridical innovation that was later to be enshrined in treaty agreements.

40

THE WORLD TRADING SYSTEM

While ultimately failing to force changes in the practices of the major trading countries, the Uruguay dispute was an impetus for a new set of negotiating goals among developing countries. In the context of this dispute and the ongoing Kennedy Round negotiations, Brazil and Uruguay proposed a strengthening of the GATT’s legal dispute measures. The proposals included plans for greater technical assistance in disputing, third-party rights, and the strengthening of compliance remedies by permitting financial compensation and collective retaliation.14 Strengthened legal remedies would improve the ability of developing countries to secure trade concessions through disputing. However, such claims met strong resistance from Europe and the United States, and the proposals failed. Hudec disagreed with the developing country proposals, but also hinted at the ambiguous status of law in GATT practice. Referring to a working group meeting he attended in , Hudec () remarks: Delegates from the poorer “developing countries” had proposed amendments providing for collective retaliation and payment of money damages. Delegates from the richer “developed countries” (of which I was one) unanimously rejected the proposal as alien to the understood meaning of GATT legal obligations. Never mind the practical obstacles, they said. The main problem was that governments never meant GATT rules to carry such consequences. A proper understanding of these rules, they said, required a much finer appreciation of their delicacy and restraint. . . . The difficulty was that neither I nor my fellow delegates seemed to be able to give a very good explanation of what GATT law actually was if it wasn’t what the developing country delegates thought it was. What were governments promising in all of those very detailed and lawyer-like GATT provisions? (vii)

Hudec suggests, with a hint of condescension, that there was a correct way to understand the role and meaning of GATT law, even if was not articulated in the texts of the GATT agreement. The correct understanding resided in the minds and actions of the cohorts of trade delegates that had done the business of negotiation and disputing in the early days of the GATT. But what was the right understanding and what is the role of law if it is not to be strictly observed? Hudec’s broader analysis, developed over a career of scholarly analysis, was that the complex codes of international trade law were only a part of a multifaceted normative process where other important factors are at play (Trubek ). Such a system leaves large spaces for the strategies of the powerful. Hudec’s position harkens to the “club like” orientation of the early years of

THE WORLD TRADING SYSTEM

41

GATT, where shared understandings of a small group of negotiators were sufficient for a global regime. The growth of developing countries in the GATT challenged its implicit consensus and, over the duration of the postwar period, created demand for the turn to law. In retrospect, the ambiguous meaning and purpose of GATT law evidenced in these disagreements in the s point to the persistence and profound implications of the tension between law and diplomacy that characterized the GATT from the beginning. The Impact on legalization It was in this context of renegotiating its relationship with Europe and increased demands for legalization from developing countries that the United States backed away from its earlier support of legalized dispute settlement. The Chicken War, the broad dispute by Uruguay, and the proposals for strengthening compliance remedies provoked a “hostile response” and “set the tone of the rest of the decade” as a “hardening antilegal climate” (Hudec : ). Hudec reports that the United States was perceived in diplomatic circles as having needlessly risked the failure of the Kennedy Round over chicken parts. In addition, the legal procedures already in place, in the context of the New International Economic Order, the nonaligned movement, and developing country pressure within the GATT for enhanced legal rights, became associated with “radical” developing country demands. As a result, between  and  the United States adopted an “antilegal” stance shared by the EC, and formal legal claims asserted under the GATT were branded as “legalistic” and unfriendly. Hudec laments: “It had finally become clear that the normative claims of the old legal code had withered” (). This old normative order, which supported the diplomat’s law, had given way. He continues: Characterizing legal action as unfriendly confrontation was merely a way of saying that governments did not accept the appeal to legal obligations as a legitimate form of pressure. The real reason for refusing to accept such pressures was the changing attitude towards the rules themselves. The change had begun with resistance to the substance of certain specific rules that seemed unrealistic, but by the end of the period these selective exemptions had so unbalanced the rest of the legal structure that the entire legal code had become subject to challenge.  ()

In these moments of the relationship between law and diplomacy in international affairs, law broke down under the demands for exceptions from its con-

42

THE WORLD TRADING SYSTEM

straints. While both the United States and developing countries made efforts to revive and use the legal system, by the end of the s, the legitimacy of the GATT legal system had collapsed and the dispute settlement procedures fell into disuse.

The Return to Law By the late s, use of the legal features of the GATT was perceived as ineffective and hostile. In the United States, there were complaints from internationalist businesses that the GATT had become useless for securing foreign market access. International competition had increased, and so had demands of U.S. internationalists for greater access to foreign markets. Demands for “fair” trade replaced demands for “free” trade (Chorev : –). This was a renewed call for reciprocity in international trade. However, internationalists reached the conclusion that the only way to increase market access abroad was to liberalize at home.15 Despite the increased authority of the executive branch over trade, the U.S. Congress was still vulnerable to protectionist influence. For instance, the  passage of the Multi-Fibre Agreement (MFA), which was a quota system for limiting import competition with domestic U.S. textile manufacturers, undercut efforts to liberalize the world economy. As Chorev argues, passage of the MFA forced a change in strategy among internationally oriented business elites that then aimed to eliminate even selective protectionism, as a way of securing reciprocal trade liberalization from other countries.16 Internationalists began mobilizing for a revised institutional arrangement, both within the U.S. state and internationally, that would further limit the influence of protectionists, particularly over nontariff barriers (Chorev ). In the U.S. executive branch, the solution to both declining terms of trade abroad and the reassertion of protectionism in Congress was in part to seek a new round of GATT negotiations that would strengthen disciplines over nontariff barriers to trade and strengthen dispute settlement mechanisms. The resuscitation of GATT law in the United States began with the election of Richard Nixon, whose administration Hudec describes as having a “temperamentally more aggressive stance toward international economic relations” (Hudec : ). This more aggressive approach was reflected in the choice of Carl Gilbert to lead the Special Trade Representative’s office. Gilbert came

THE WORLD TRADING SYSTEM

43

to government from the chairmanship of the Gillette Company, which at the time made two-thirds of its profits overseas (Dryden ). As STR, Gilbert embraced the notion of “fair trade,” and borrowing from the rhetoric of the  Nixon/Agnew presidential campaign, arguing for a “better sense of law and order” in international farm trade (as quoted in Dryden : ). The GATT appeared again as an important venue for pursuing trade liberalization, but this time with a new element. Trade should be not only free but also “fair,” by ensuring that concessions made by the United States were matched by its trading partners, under the principle of reciprocity. New legal mechanisms and practices, as well as a revitalization of older ones, were key to creating a fair international trading system. Hudec attributes the revival of disputing at the GATT entirely to the United States, which initiated eleven of thirteen disputes in the – period.17 Chorev () and Hudec (: ) agree that the abandonment of the antilegal stance of the United States at the GATT was driven by heightened political pressures at home from internationalists frustrated by the breakdown of the GATT and inability to secure foreign market access. There was political capital to be gained by acting “tough” and pursuing a fair trade agenda (Dryden : ). Furthermore, for the first time the portfolio of settling trade disputes was given to the STR office where before disputes had been handled by departments of State and Commerce and the USDA. The second STR, William Eberle, who had replaced Gilbert, began pushing for greater utilization of the GATT disputing process and used, with some efficacy, threats of using the process to censure U.S. trade partners, notably Japan, that refused fair access of American exports. The U.S. push for fair trade focused on the continuing issue of European agricultural programs and, increasingly, Japanese industrial supports and access to its markets. As a result, there was increasing pressure to reform U.S. procedures for granting import protection to American producers and punishing “unfair” practices of trading partners. This included reforming the dispute processes of GATT, which was a part of the agenda for the Tokyo Round Ministerial meetings.18 The U.S. Trade Act of  was passed into law under the Ford administration. This legislation granted the authority to the executive to negotiate at the Tokyo Round Ministerial of the GATT and also made significant changes to the institutional arrangements governing U.S. trade policy. The STR became a statutory unit in the executive branch with cabinet rank, and was charged

44

THE WORLD TRADING SYSTEM

with negotiating U.S. trade policy (Kaplan ). Additionally, the act relocated the institutional authority to determine trade policy away from Congress to a bureaucratic and legalized forum under the control of the executive (Chorev ; Kaplan ). This new process created a set of procedures for ascertaining when foreign imports were harming domestic producers. So-called trade remedies are procedural mechanisms for establishing when an industry or business was injured by unfair trading practices abroad (such as dumping or illegal subsidies) and then for providing protection in the form of higher import tariffs. The act included the “Section ” provision and provided “fast track” authority for the president to negotiate trade deals with only an up or down vote of approval from Congress. Section  of the Trade Act of  authorizes the President to retaliate against foreign countries which impose unjustifiable or unreasonable restrictions against US commerce. The Act also provides the President with explicit authority to retaliate against countries which maintain such restrictions against US services as well as US trade in goods. [The act] provides a complaint procedure whereby interested parties can petition the Special Representative for Trade Negotiations to conduct a review, with public hearings of alleged practices and policies.  (Trade Act of , Pub. L. No. –)

In essence, Section  authorized the U.S. executive to seek out unfair trading practices and invoke unilateral means for obtaining compensation for injured industries.19 The Trade Act of  thus inaugurated a new regime, which Chorev () terms conditional protectionism, whereby protection was made contingent upon demonstration of a material injury resulting from trade. This made protectionist policies more difficult to implement, while ensuring that when they were, they were less disruptive to the project of liberalizing foreign markets. While on its face the act appears highly protectionist, Chorev argues that the U.S. executive was able to “monopolize protectionist demands” and enforce administrative practices that reduced injuries to specific industries while penalizing unfair trade practices. The use of these trade remedies changed over time, as did the political strategies of protectionists and the U.S. Congress. Unfair trade laws did not provide protection for uncompetitive U.S. businesses but provided a system to challenge the trading practices of other countries. As Chorev argues, this system of unfair trade laws combined with the use of Section  cases marked a shift in emphasis in U.S. trade policy toward opening

THE WORLD TRADING SYSTEM

45

of foreign markets and away from protecting industry at home (Chorev : ). It also represented something of a shift away from the older approach of subjugating trade to larger geopolitical strategies. While concerns for the Western Alliance persisted, trade was becoming a foreign policy goal in its own right, but the question remained as to whether the goal was a free-trade system or a system that promoted U.S. economic interests. By the s, the assumption that the two goals were synonymous had come into question (cf. Dryden : ). The Trade Act and its Section  provision had significant ramifications for GATT members, who charged that they were inherently unfair and made them the subject of negotiations in the Tokyo Round (Chorev ; Kaplan : ). By then, the United States had abandoned its antilegal stance, sought mechanisms for stronger enforcement of U.S. trade agreement rights, and thus focused on rebuilding the GATT legal system. The Tokyo Round negotiations produced a more automatic dispute settlement mechanism within the new subsidies code,20 in exchange for EC willingness to make significant concessions on subsidies (Hudec ). Besides the reforms to the disputing process, other major reforms included the addition of the “codes” addressing nontariff barriers to trade, such as subsidies, standards, and customs valuations. There were additional industrial tariff reductions and modest modifications to trade barriers in agricultural sectors (Kaplan ). All of the new codes included their own provisions for disputing. Each included time constraints for each stage of the dispute process, which was intended to increase the automaticity of empanelment. While strengthened under the new codes, changes to the general dispute settlement mechanism were more restrained. These reforms formalized the already established practice of seeking outside experts for panel reviews and included the assertion that disputing should not be viewed as a contentious act—all intended to increase the efficiency of the panel process. The reforms fell short, however, of asserting the right to have a GATT panel review a grievance (Hudec ). The state of legalism at the GATT had once again been transformed. Whereas throughout most of the s the legal dimensions of disputing had fallen into a pronounced state of disapproval, by  the dispute settlement system had been strengthened and destigmatized. Following the Tokyo Round Ministerial, use of the dispute settlement system returned almost to the levels of the s.

46

THE WORLD TRADING SYSTEM

However, the Tokyo Round did not resolve ongoing U.S./EC tensions over unresolved disputes,21 and the U.S. use of Section  cases. Nor did it alleviate the perceived pressures facing the GATT dispute system. For instance, Hudec notes that no effort was made to provide panels with a stronger base of legal skills or other resources that would permit them to deal more systematically with growing demand for disputes of significant complexity. Hudec argues for a greater investment in law for GATT dispute practice. Following the Tokyo Round reforms, the dispute settlement process was used more frequently, and, as the faith in the system began to recover, governments increased their demands on the system and the ambition of their claims. Such ambition, combined with increasing quantity and complexity of disputes, eventually resulted in a number of failures in the s. At the same time, as politically sensitive cases began to appear before GATT panels, governments began blocking the formation of panels and the adoption of rulings. Thus the Tokyo Round reforms and the resuscitation of the place of law in the GATT led, in the s, to new crises and renewed calls for reform of the dispute settlement system. The diagnosis, as evidenced by Hudec’s analysis and in the results of the Uruguay Round negotiations, was a need for more law and legal practice. Diminished Expectations: The Early 1980s Despite the significant diplomatic accomplishments of the Tokyo Round, which in addition to strengthening dispute settlement and reaffirming the normative value of law added a range of additional issues to the GATT disciplines, the s posed new challenges for multilateral trade regulation. The first U.S. ambassador to GATT, Michael B. Smith, describes the implementation of the Tokyo Round agreements and explains why the Ministerial round adopted codes rather than amendments to the GATT agreements: I became the first US Ambassador to GATT and actually signed the Tokyo Round agreements . . . then the most important trade negotiations ever conducted. My fundamental job was to implement the Tokyo Round. There was a lot left undone from the Tokyo Round, a lot of loose pieces that had to be pulled together, and a lot of implementation that had to be done. So for three and one-half years it was a grinding job of taking the Tokyo Round Agreements and putting them into practice. And particularly the thing called “The Codes,” which was a new aspect of GATT. There was the Substantive Code, the Dumping Code, the Civil Aviation Code,

THE WORLD TRADING SYSTEM

47

the Meat Code, the Dairy Code, the Standards Code, [and] the Licensing Code. There was a whole bunch of codes, which were negotiated separately. They thought in the Tokyo Round that trying to negotiate everything and force it into the GATT as an integral part of it would have opened up the whole GATT to amendment. They didn’t dare do that because of the developing world. They would develop these little codes, which were these red books here [shows them on a bookshelf], like the agreement on trade and civil aircraft, published in Geneva, . These were negotiated as agreements which were part of the GATT, but not part of the original text of the GATT. They all had to be implemented—committees, disputes, and all of that. So that was the first thing that I did.  (Kennedy )

Indeed, developing countries were highly dissatisfied with the results of the Tokyo Round and its failure to grant them preferential treatment. Some, led by Yugoslavian delegate Petrah Tomic, boycotted the signing ceremony (Kaplan ). These complaints became louder with rising protectionist sentiments in the United States. Ballooning trade deficits and the economic slowdown of the early s intensified political struggles over U.S. trade policies. The debt crisis, followed by structural adjustment in the developing world, fueled a wave of trade liberalization, making GATT even more central to developmental politics. The United States began pushing for a new round of negotiations as early as  to address persistent agriculture issues, particularly the EC’s agricultural trade policy, and expand the GATT into yet further areas, especially intellectual property rights (Kaplan ). Without enthusiasm for a new round from the Contracting Parties, who were leery of the domestic politics of another round so soon after Tokyo, the United States turned to an increasingly unilateral approach to trade policy. The unilateralism of the United States and the failures of the GATT dispute settlement system became important rationales for renewed calls for stronger and legalized dispute settlement procedures. The new codes of the Tokyo Rounds, particularly the subsidies code, proved difficult for member countries to abide by to the extent demanded by the United States. Nine disputes were initiated under the new Tokyo Round codes. Five of these were under the subsidies code.22 In each of these five cases, the complainant blocked adoption of the panel ruling. Hudec remarks: Beneath these emerging enforcement problems, a dangerous shift in legal policy was occurring within the United States. Since the s a view had been growing in US political circles that GATT law was not effectively protecting national interests—that

48

THE WORLD TRADING SYSTEM

the United States was giving more than it was getting. That view grew stronger in the s as the US developed a massive trade deficit.  (: )

The “dangerous shift” was the temptation to move away from the principle of reciprocity and demand that U.S. trading partners give greater concessions than they would receive in exchange from the United States. It was flirtation with an explicitly imperial trading system. Despite the major accomplishment of the Tokyo Rounds in reaching agreements on a host of new issues that were not covered under the GATT agreement, the system increasingly appeared unable to ensure compliance with the new agreements. This seemed particularly true in the context of Europe’s agricultural policies, which despite the new rules on subsidies, they refused to liberalize. Only weeks after signing the Tokyo Round Agreements, President Carter endorsed a “buy American” program, signaling continued discontent the with international trade regime (Dryden ). The United States began pursuing a unilateral trade policy intended to increase compliance with GATT obligations (as understood by the U.S.—thus, “fair” trade) and increase foreign market access, thus rebalancing the obligations and benefits accruing to the United States. The new trade policy sidestepped the GATT, and the U.S. began making bilateral demands on governments. As described above, Section  authorized the president to retaliate against foreign countries that imposed unjustifiable or unreasonable restrictions against U.S. commerce. As amended in , , , and , the Trade Acts23 provided for a review process of foreign trade relations conducted by the U.S. Trade Representative (USTR) (which replaced the STR) or the Department of Commerce, with input—some argue “pressure”—from domestic business groups (Stiglitz : ). The “Super ” provision created by the Trade Act of  required a prioritization of offending nations, instructed the USTR to pay particular attention to protection of intellectual property rights, and provided for an “accelerated” investigation process (Taylor : , fn ). These reforms were implemented to create a system through which “fair” trade could be effectively ensured (Kaplan : ). The  act that strengthened the Section  provision also gave negotiating authority to the executive to take part in the ongoing Uruguay Round negotiations. The primary unnamed target of the revised provision was Japan and reflected high anxieties about the country’s economic growth and challenges posed to U.S. producers. The “Super ” procedure also served as a warning

THE WORLD TRADING SYSTEM

49

to GATT negotiators to make progress in reforming the GATT dispute settlement procedures, or else the United States would rely on its own trade policy to achieve its goals. By the end of the decade, this unilateral approach had been so effective in reducing trade barriers that some began to argue that it was superior to the multilateral approach to world trade, which had proven unreliable in securing “fair” trade. Reforms to dispute settlement were an important outcome of the Tokyo Round. They had put to rest the antilegalism of the s, and use of the system increased. The GATT legal system continued to develop, albeit unevenly, becoming more legally precise and juridical in nature. In , the GATT established its first Legal Affairs Office in the Secretariat to provide legal and administrative support to panelists. This constituted explicit recognition of the growing legal sophistication of GATT affairs. The Legal Affairs Office aimed to bolster legal capacity within the Secretariat and among panelists. Disputes had become more complex, and parties tended to “bombard” panelists with every possible legal argument that could be made—a practice that would continue with the WTO. Establishing the legal office required overcoming the long-standing practice of excluding lawyers (or at least the practice of law) within the Secretariat as well as the complaints of the European Community, who were leery of legalization. The initial director of Legal Affairs, a two-year temporary position, was to report directly to the director-general—and not the complaining parties—so that excessive legalisms could be filtered out (Hudec ). By  the Office of Legal Affairs had grown to three lawyers and to five by the end of the Uruguay Round. By , the office, now a part of the WTO Secretariat, employed eight lawyers with an additional thirteen working in other divisions, including three working as the legal staff of the Appellate Body. Hudec describes this “creeping invasion of lawyers” (Hudec : ) as a testimony to the increasing legalism of GATT/WTO matters. GATT jurisprudence (that was not negotiated or reflected in GATT agreements) also continued to develop with the emergence of a new distinction between two types of cases brought under the agreement: violation cases (based on the prima facie nullification or impairment concept) and cases that allege a violation but without claims of specific nullification of the treaty benefits (so-called nonviolation disputes) (Jackson : ). This had the effect of enhancing the rule orientation of review panels. In practice, nonviolation dis-

50

THE WORLD TRADING SYSTEM

putes were uncommon. However, the evolution of this distinction constitutes a broadening of the basic legal criteria for the initiation of disputes that is noticeably different from early GATT practice, and that was to be formalized in the Uruguay Rounds.24 The United States initiated eleven new disputes between  and , nine of which were over implementation of the new Tokyo Round codes. These disputes played out over the course of the s and some through the end of the Uruguay Round negotiations in . The majority of these nine cases were legal attacks on the EC’s CAP program. The European Community resisted the legal onslaught from the United States and charged that it was abusing the dispute settlement system (Hudec ). The acrimonious legal challenges mobilized numerous procedural and jurisdictional issues in addition to the substantive content of the disputes, making the disputes long and complex. Five of the disputes received a panel ruling,25 four of which were blocked.26 In the case of both the Wheat Flour and Pasta disputes, the United States initiated retaliation in the form of export subsidies before the ruling was reached, triggering a subsidy war. In the Pasta dispute, the EC refused to take part in mandatory consultations, rejecting the legitimacy of the U.S. claim outright. Hudec describes the atmosphere of this dispute as “tense,” with delegates at times exchanging personal insults (Hudec : ). Finally, in the VAT dispute, the panel report favoring the U.S. position was finally adopted—the only one of the five to be adopted—but only in exchange for the removal of specific requirements for compliance. In the Pasta and Citrus disputes, the Secretariat experimented with a fiveperson review panel, rather than three persons. This experiment was abandoned after the panels were extremely slow in producing rulings. The reason for the slow pace could also have been the complexity and sensitivity of the issues at stake. The ruling on Citrus was the longest panel report to date, topping out at  pages, which is indicative of the increasing complexity of disputes, although relatively short in comparison to contemporary WTO panel reports. Despite its length, the Citrus ruling was criticized for its poor quality—the panel concluded that it could not investigate the claim, because it was initiated under the wrong agreement. They also failed to make determinations on the legal status of the agreement that the EC had established with Mediterranean countries over the trade in citrus fruit. This was the centerpiece of the U.S. claims. Together

THE WORLD TRADING SYSTEM

51

the five disputes were far-reaching and demanded deep concessions from the EC. The Citrus case in particular, according to Hudec, “threatened devastating legal consequences out of all proportion to the commercial problem involved” (Hudec : ).27 He attributes this in part to the antagonistic approach to law adopted by the United States. In this light it is also relevant that the Citrus dispute was a product of a Section  case initiated by the U.S. citrus industry in , to create leverage in the Tokyo Round. Hudec says: This type of excessive complaint is common in United States domestic litigation, where it tends to be accommodated by knowledge that the legal system is capable of precluding monstrous outcomes. In a new international legal order, however, such complaints trigger much greater uncertainty and are more easily seen as expressions of ill will.  (Hudec : )

U.S. trade policy as a whole had become more aggressive since the Nixon administration and the tenure of William Eberle as STR. Trade and the economic interests of the United States had taken center stage as a primary concern of international affairs, no longer displaced by other geopolitical goals. New cadres of trade practitioners, such as Robert Hudec, who grounded their professional careers in heavy investments in law and legal practice, had staked out careers through the trade policy agencies of the U.S. government. Often government service was followed by private positions representing corporate interests, U.S. and foreign, to law-makers in Washington, DC. These actors brought with them specific ideas about what international trade law ought to be able to accomplish and led them to a more aggressive, “American-style” approach to international economic diplomacy, defined by an increased reliance on law as a specialized mode of expertise and practice. Furthermore, with the reforms of the trade remedies legislation in the Trade Act of , U.S. business found that they could mobilize U.S. law for their international interests, with less interference from the executive branch. As Dezalay and Garth observe, this situation created opportunities for lawyers on all sides of the free-trade/fair trade question. “Adversarial trade practice began to flourish . . . giving legal doctrines that could be invoked by more traditionally oriented businesses” (: ). This created a market for lawyers specializing in international trade, particularly in the United States. The result was a further move toward legalization in a particularly American style of aggressive and legalistic disputing, which provoked Europe and some develop-

52

THE WORLD TRADING SYSTEM

ing countries to begin to invest in this style of international trade diplomacy. But they had to catch up. The United States retained an advantage, even after the curtailment by the WTO agreements of its primary legal tool, Section  of the Trade Act of , and a more effective dispute system that would be inaugurated under the WTO. As Shaffer describes, the United States held a comparative advantage in public and private lawyering, which was just the kind of expertise that was being made increasingly salient in international trade (). While the Tokyo Round reforms had resuscitated legalism at the GATT, and the sophistication of legal practices developed over the course of the s through innovation, experiment, and promotion by American legal practitioners, the failure of the GATT to produce meaningful resolution to long-standing and important trade issues undermined the GATT dispute system. Together, these trends, once again, led to the GATT system being viewed as weak and insufficiently able of securing a “fair” trading system. Demands were made for further reform. By the middle of the decade plans were made for a new round of Ministerial negotiations, and dispute settlement was only one of the concerns. The United States had been seeking further expansion of the GATT to cover services and intellectual property rights. Other countries, particularly developing countries that had embraced market liberalization under terms of structural adjustment, favored a new round as an opportunity to exact greater reciprocity and legal certainty out of the major players. It could be expected that smaller countries would invite restrictions that would ensure greater predictability for larger, more powerful governments. Even the European Community, which had traditionally argued against legalizing disputing, appeared to shift its position, initiating twice as many disputes in the first half of the s as it had since its entry into the GATT in  (Hudec ). The evolution of the EC attitude toward GATT legalism, in part a response to the onslaught of legal attacks initiated by the United States in the s, was a major turning point in the development of GATT legalism and set the stage for deep reforms in the Uruguay Round. Calls for reforms to the dispute settlement system were also driven, in part, by a desire to thwart the use of Section  investigations by the United States (Braithwaite and Drahos ; Taylor ). Section  cases were not consistent with the GATT, and the United States hesitated before using them, particularly in the case of the EC (Chorev ). Still, six of eleven disputes initiated by the United States in the first two years after the Tokyo Round were claims gener-

THE WORLD TRADING SYSTEM

53

ated under the Section  provision. The new negotiating agenda on dispute settlement and new issue areas was offered in exchange for a U.S. commitment not to pursue Section  cases (Hudec : ). Taylor writes: The economic power represented by US retaliation [in the form of Section  cases] was such that other trading partners were willing to pursue dispute settlement reform to constrain the United States. Aggressive unilateralism by the United States therefore greatly contributed to the dispute settlement reform undertaken by the Uruguay Round negotiations and to the actual contents of the WTO’s Dispute Settlement understanding.  (Taylor : )

Hudec describes the commitment to a new round of negotiations as “essentially defensive in character” (Hudec : ) as Contracting Parties sought to rein in U.S. unilateralism. In exchange for restraint on the use of Section , the abandonment of the Multi-Fibre Agreement, and the use of voluntary export restraint agreements, the United States was able to marshal support for the introduction of “new” issues, particularly intellectual property rights, into Uruguay Round negotiations. To placate domestic foes of further liberalization, the Reagan administration, facing an increasingly protectionist Congress, argued that the strengthened dispute measures would provide powerful new tools for gaining market access, while insisting that the WTO would have no ability to modify U.S. laws (Chorev ). Further judicializing GATT dispute settlement thus played a pivotal role in building support in the United States and internationally for a new negotiation round. The Uruguay Round Ministerial The Uruguay Round negotiations were a major undertaking; some assert the most ambitious ever, dwarfing even the large agenda of the Tokyo Rounds (Croome ).28 In addition to long-standing issues, such as agriculture subsidies, the ministers agreed to a broad negotiating agenda that would include intellectual property rights, services, investment, and other areas. The Contracting Parties also set an agenda for sweeping reform of the dispute settlement system that would reconfigure rights and obligations in the world trading system. Hudec asserts that the Uruguay Round was marked by “willingness—indeed, a perceived need—to make GATT a stronger influence on national policy” (Hudec : ). This highlights how legalization served as a strategy for reconstituting state power.

54

THE WORLD TRADING SYSTEM

While a consensus had emerged about the need to strengthen the rules and procedures of dispute settlement, differences remained in what changes should be made and, importantly, how enforceable they should be. The United States, with support of other countries including Canada, promoted the idea that dispute settlement ought to be able to establish right and wrong, legal judgments that would be the basis of compliance. Section  cases, and the unilateral trade policy of the United States, became viewed as an alternative to the GATT’s inability to provide such binding determinations (Croome ). In exchange for forgoing such unilateral approaches to “fair” trade, more legalized, binding procedures were sought at the international level. Developing countries supported the more legalized version of dispute settlement reform so long as it included safeguards and extra leverage for developing countries. In contrast, the position of the European Community and Japan was that dispute settlement should be a conciliatory process, where the rules were flexible enough to accommodate expedient bilateral settlements that may or may not adhere to the letter of the law (Croome ). When the EC finally put forward its proposal for dispute settlement, the primary principle was the need to establish a broad balance of rights and obligations across all GATT disciplines and constrain unilateral measures. An important goal of this proposal was to eliminate U.S. use of Section  cases. The United States argued that a prohibition on unilateral actions should also include “procedural unilateralism” (Croome : ), such as blocking the adoption of panel reports, as the EC had done repeatedly in recent high-profile disputes with the United States. But the larger vision of the European Community was for a dispute settlement system that broadly balanced concessions. This contrasted with the idea that dispute settlement should determine right and wrong in specific instances that was gaining a foothold among U.S. trade law specialists. This difference of opinion over the principles governing dispute settlement manifested in disagreement over the automaticity of requests for panel reviews and the consensus rule for the adoption of panel reports by the general membership. Still, as negotiations developed, the EC and the United States found many points of agreement, including the desirability of an appeals process and the need for compensatory or retaliatory measures in cases of noncompliance (Croome : –). Much of the early negotiating occurred through informal discussions, known as “green-room discussions,” for the color of the walls in the director-general’s meeting room.29 Through such procedures, the out-

THE WORLD TRADING SYSTEM

55

lines of the reformed system were established in a draft agreement in . In an interview conducted with a former U.S. negotiator at the Uruguay Rounds, he recalls how the final draft for dispute settlement was produced: And there was a working group [for dispute settlement], and it was chaired, by a man named Julio LaCarte, who I think is still alive; well, he was fairly old even then. He was a revered figure. He was the only person in the Uruguay round negotiations, who had been at the original Bretton Woods conference, where the GATT was agreed to. . . . But, at that time he was in his ’s. He presided over this group. [Peter] Sutherland had what he called “friends-of-the-chair”; there were  or  of them. . . . Julio LaCarte was the friend of the chair who presided over this working group, that was the mechanism for finalizing the charter. . . . LaCarte would let everybody speak, and for a long while. . . . I was very concerned that this really wasn’t going to get done because he would have these meetings, and he’d just let everybody talk. And then one day . . . LaCarte announced that he was gonna come up with a draft. And he came out with a draft. And everyone looked at it and said, “Well, this is it” . . . . It was an amazing piece of work in that it managed to strike [an] acceptable compromise on every issue.  (Interview with former U.S. negotiator, March , )

Reflecting the informal discussions and insider, “friends of the chair” negotiations, the productions of the new dispute settlement codes relied, in the end, on the prestige and expertise of a single person (see also Odell ). Steeped in GATT experiences, he brought together disparate ideas of what dispute settlement should accomplish into a single document sensitive to the demands of the major parties. The LaCarte draft reflected the dominant opinion that the fragmented dispute procedures of the Tokyo Round codes should be unified into an integrated institutional framework covering all of the agreements. The strengthening of the dispute settlement system thus led negotiators to consider an entirely new institutional structure for trade. The proposed Multilateral Trade Organization (MTO) would incorporate all of the agreements, including GATT and Tokyo Round codes, as well as new codes for intellectual property rights and others. It would include a unified dispute settlement system and provide for the administration of the Secretariat. It would be, fifty years later, the rebirth of the failed ITO. In the passage below, a former U.S. negotiator describes the culmination of the Uruguay Round negotiations. I quote this interview at length because in addition to describing how the Uruguay Rounds came to an end, and a some-

56

THE WORLD TRADING SYSTEM

what whimsical origin story for the name “World Trade Organization,” it gives a powerful sense of the interpersonal dynamics, the theatrics, and small-group dynamics that mediated the negotiation process. It is a reminder of the human scale of social action that is the basic foundation of the grand politics of states. The passage picks up near the end of the round, when negotiations over intellectual property rights had been concluded: The intellectual property agreement had in fact been declared to be done at some earlier date. At the very end, we re-opened it, and added a provision which Intel— Andy Grove, the President of Intel—went to Clinton, and got Clinton personally to agree that we would try to put into the intellectual property agreement a provision that barred so-called compulsory licensing of semi-conductor technology. There’d never been any compulsory licensing of semi-conductor technology, but he and his advisors were concerned that there might be at some point down the road, and they thought in anticipation of that we should put into the agreement a bar on that.

Inserting a new provision into the intellectual property rights agreement was a risky move, as it threatened not only to reopen a long and difficult negotiation with the European Community but also to undermine the completion of the overall Uruguay Round agreement. It led to a very dramatic moment at, literally, the end of the negotiations. [Negotiating chair Peter] Sutherland had a process. He spoke of it as gaveling a part of the agreement. . . . as parts of the agreement would come up, they’d be discussed, and he had a huge gavel . . . a theatrical gavel, and he would gavel the agreement, which didn’t mean everyone had agreed, because sometimes people would have reservations about agreements, in part because they had to keep these reservations alive until the very last minute because they couldn’t say to anyone back home that they had given up on it, so the genius of this, and it depended on Sutherland’s, [who had a] real genius for it, was knowing the difference between a real issue, which had to be resolved, or one that was a reservation that could be allowed to remain outstanding and would in the end be waived. But, the United States had a reservation on the creation of the World Trade Organization. When the charter came up for approval in this process, which would have included the dispute settlement process; although, that had been an objective of the United States, and that in particular had been an important objective. But, we said we couldn’t agree to the creation of the World Trade Organization because it’d never pass Congress unless the rest of the agreement was acceptable to us. So we had a reservation on the creation of the World Trade Organization.

THE WORLD TRADING SYSTEM

57

[So] we would’ve been [at it] all night except literally everyone fell asleep, negotiating over textiles, which was basically for show. . . . No one thought they were going to do this. I don’t think they could’ve done it, I don’t think the governments had the political capacity to do it, certainly they didn’t have the political will to do it, but we had this negotiation, and, finally everyone was asleep, and so we declared that it was over. And, so the next morning, we were scheduled to have what was going to be an allday session to resolve all the remaining reservations to the agreement. But, I had the idea that we might be able to cut it all short. It relates to the name of the World Trade Organization. Up until then, the organization had always been called the “Multilateral Trade Organization”; if you read all the documents, the charter documents all that, up until literally the last day of the negotiations, it was always called the “Multilateral Trade Organization.” So after we had this all-nighter . . . when everyone fell asleep, and we were over with, in a sense, all the serious negotiations, I had the idea we could cut it short. . . . So I went to Peter Sutherland, and I said, “You know, we’re going to have this terrible all day session, and we’re going to have to go through all these reservations, and everyone knows we’re not going to change anything. What if, when the session opens . . . ”

At this point, he explains his strategy to Sutherland and details how it should be orchestrated. He continues: And, he said, “You know, that might work.” He said, “I don’t know if it’s gonna work,” but he said, “We have nothing to lose.” So, we had this really dramatic session, it wasn’t all that important . . . but it was dramatic, because you know we presented the results of the textile negotiation . . . this time there’s a lot of intensity. People had been through an awful lot. . . . There was great intensity, and so . . . we finished that. And Sutherland said, “Well, we’ve gotta move now to the reservations.” And he called on me and I said that we were prepared to drop our reservations to the creation of . . . the Multilateral Trade Organization, on the condition that all of the other nations would drop all of their remaining reservations to the agreement and [that] there’s one other condition. At that point, everyone was just on the edge of their chair because they clearly believed that we were about to come up with something that was gonna be just a show-stopper, I mean I don’t know what it was, you know, with the changes that we’d already agreed to. . . . I said, “That condition is, instead of calling it the Multilateral Trade Organization, we would call it the World Trade Organization.” And, Sutherland . . . he said, “Well,” he says, “that sounds pretty good to me. . . . Does anyone have a problem with that?” And the European Union Ambassador was absolutely enraged, and everyone could tell. He says, “Well we’re not—, you’re not suggesting that we won’t have a serious discussion of our reservation on the

58

THE WORLD TRADING SYSTEM

intellectual property agreement?” And I said, “Without reservation has to be without reservation. We should go forward with the creation of the World Trade Organization without reservation by anyone.” And at that point, everyone in the room just sort of turned to the European Ambassador, who a lot of people didn’t like anyway, and you could just feel in the room that, “Is this guy gonna hold up the ending of the Uruguay Round?” and he, to his credit, he sat there and finally he just looked over and he said [nothing]. Sutherland said, “Hearing no objection, the Uruguay round is declared over.” That really was what happened.  (Interview with former U.S. negotiator, March , )

The World Trade Organization With the signing of the Marrakesh Agreement in  and the creation of the WTO, a new regime for governing trade was created that shifted institutional authority over trade from states to WTO review panels. There were  original signatories to the GATT agreement in . At the completion of the Uruguay Rounds there were  member nations. By , there were  members of the World Trade Organization, including Vietnam and China (P.R.C.), and  observer nations, including the Russian Federation and the Holy See (World Trade Organization a). Between  and ,  disputes were initiated under GATT obligations. In comparison, since its inception in  to the end of , there have been  cases initiated under the rules of the World Trade Organization (Leitner and Lester ). The Uruguay Round Agreements were a major development in international affairs. They were in no way a natural or automatic outcome of economic or technological change, but were literally made. The mundane work of negotiation was performed by lawyers, bureaucrats, and politicians from all over the world. In the end, the organization that they created enshrined ideas about the relationships between trade, law, and power in international affairs. They, however, did not make up these ideas themselves but instead drew from nearly a half-century of GATT practice and experimentation, which shaped their understandings of the possible and the desirable. Stepping back then from the negotiated accord, it becomes clear that how practitioners understand law, and how that changes over time, are of profound significance for understanding what the World Trade Organization is and what it can do.

chapter three

The WTO Dispute Settlement Process It was designed because people were negotiating agreements and trying to develop solutions to problems that had been identified in the real world. . . . The way in which the architecture of the dispute [system] would factor into eventual dispute cases was never thought out as people were doing the original negotiation. And, if you’d asked many people before the bananas case came along how would the agreement on services factor in that case, you’d probably say well, it won’t. But, it did. —Interview with former ambassador to WTO from Canada, Geneva, May , 

With the establishment of the WTO dispute settlement system, the modes by which member nations engage each other over trade issues were profoundly altered. A primary innovation of the WTO agreements was a new rule-bound system for the settlement of trade disputes that moved it closer toward “hard” law versus the “soft” law of the GATT system (Abbott and Snidal ). The reformed dispute settlement system eliminated the ability of any one country to block an unfavorable vote unilaterally, enacted more restricted and rigid time-frames for each phase of dispute settlement, instituted panel and appellate reviews by appointed jurists, made panel review an automatic result of initiating a dispute, and expanded WTO jurisdiction beyond trade in goods to include services, foreign investment, and intellectual property rights, among other issue areas. Finally, accompanying the legalization have been changes in the professional competencies of trade delegation personnel, with lawyers playing an increasingly important role in WTO affairs. This chapter provides an overview of the disputing process, emphasizing how it changed from the GATT system and how it compares with another major international legal forum, the European Court of Justice. The new legalism of the WTO dispute system has been touted as the first “worldwide rule-of-law system for international trade” and contrasted with the power politics and “antilegal culture” of the early GATT (Petersmann : ;

60

THE WTO DISPUTE SETTLEMENT PROCESS

Ruggiero ). Proponents of the WTO have argued that the new rule-bound process would “level the playing field” of international trade, ensuring that even smaller trading powers would have the opportunity to have their grievances aired. While dramatic, this overstates the degree of change; in fact, WTO dispute settlement is at best “quasi-juridical” (Pauwelyn : –; see also Palmeter and Mavroidis : –; Steinberg ). That is, the mobilization of WTO law is almost always accompanied by the possibility of recourse to diplomatic modes of engagement. It is meant to promote the settlement of disputes, rather than exact punishments, and to do it without threatening its members’ sovereignty (Palmeter and Mavroidis ; World Trade Organization a). As described in the last chapter, the gradual, ad hoc development of legal practices took place in what was initially a diplomatic context. This ethos of diplomacy (Weiler ) was retained in the WTO agreement, but alongside new rules and new actors, particularly lawyers. This is the defining feature of the WTO legal regime as it is the basis of a fundamental “dissonance” in WTO affairs between diplomatic and juridical processes, meanings, and expectations (ibid.). In drafting the Uruguay Round Agreement, negotiators utilized the “constructive ambiguity” of treaty language to build consensus around rules without specifying their precise meaning (Petersmann : ).1 As a result, member nations have increasingly used the dispute settlement mechanism, rather than negotiations, to obtain clarification of their WTO obligations (Holmes ). At the same time, panels and the Appellate Body formally lack the ability to establish precedent, as that is deemed to undermine the right of member nations to negotiate their international obligations. Nonetheless, with the legalization of dispute procedures in the Uruguay Rounds, panels and the Appellate Body have acquired the “persuasive authority” to clarify members’ rights and obligations.2 The decisions of panels and the Appellate Body are treated as sources of law “subsidiary” to the text of the agreements. While panelists retain the right to interpret and apply WTO rules as they see fit and are not bound to adhere to the decisions of prior panels or Appellate Body decisions (Cho ),3 deviations from prior decisions are not taken “lightly” (Palmeter and Mavroidis ).4 Panel and Appellate Body decisions operate as nonbinding precedent, are considered persuasive, and possess a strong normative power. As a result, while retaining the formal right to negotiate their commitments, member nations are no longer the only authority on the interpretation of their obligations under

THE WTO DISPUTE SETTLEMENT PROCESS

61

the WTO agreements. The establishment of juridical review began the de facto evolution of WTO jurisprudence. The character of this evolution is important, as it represents a subtle shift from a civil toward a common law approach and a preference for fact-intensive, “highly contextualized, case-specific approach as opposed to generic rules” (Shaffer : ). This is associated with the dominance of particularly American legal concepts and their “creep” into WTO jurisprudence, which is in turn associated with the dominance of U.S. law schools in producing international trade lawyers, as well as U.S. law firms doing trade law (Shaffer ). In the end, however, the evolution of WTO jurisprudence remains ongoing and, in the current moment, highly partial because of the lack of formal authority to establish precedent and the ambiguity of the treaty texts, which at times serve as a disincentive for utilizing unclear provisions (Conti a; Holmes ; Horn and Mavroidis ).

WTO in Comparative Context While a thoroughgoing comparison is beyond the scope of this chapter, the novelty of the WTO legal system can be appreciated through contrast with the European Court of Justice (ECJ). Established through the Treaty of Rome in , the ECJ has emerged through the preliminary ruling process into a “symbiotic” relationship with national judiciaries (Tallberg : ).5 The development of this relationship, in combination with doctrinal advances in ECJ jurisprudence, has empowered national courts as sites for adjudicating and implementing EC law (Alter ; Weiler ; Alter and Vargas ).6 Consequently, nonstate actors are able to mobilize EC law to regulate state behavior. The ECJ and the European Commission can monitor member state compliance with EC law and initiate legal procedures in cases of noncompliance. Through the monitorial and prosecutorial authority of the commission and the ECJ, as well as through the system of preliminary rulings, the ECJ is integrated into the institutional political structure of the European Union and its member states. Unlike the ECJ, the WTO is detached from a larger institutional political context that can easily clarify treaty obligations, generate secondary regulations, and ensure compliance (Tallberg ). WTO members meet periodically to negotiate and renegotiate their obligations under the WTO treaties,

62

THE WTO DISPUTE SETTLEMENT PROCESS

but given the standard of consensus for modifying the treaty, ministerial meetings have proven to be an inefficient political organ for clarification of existent obligations. The WTO Secretariat is a “facilitator” of negotiations and cannot initiate disputes or monitor compliance on its own (ibid.: ). While the ECJ has a mechanism for member states to initiate actions against one another for noncompliance with EC law, it is not often used (Tallberg ). The WTO is an international agreement that relies on its members to enforce its rules on themselves (Holmes ). WTO proponents suggest that the low rate of litigated cases ( Appellate Body rulings adopted by the WTO in the first ten years versus approximately , cases litigated annually at the ECJ) is indicative of the success of the system in inducing settlements. An alternative explanation, however, is that WTO members cannot rely on the Secretariat, like the EC Commission and ECJ, to demand compliance on behalf of all members. The WTO legal system is passive—there is no attorney general to seek out violations of the treaty agreement and seek remedy through the legal system. This feature is directly tied to the international context of the agreement. Forced to seek compliance with WTO laws themselves, member nations face risks stemming from direct confrontation with each other. As a result, the WTO dispute settlement process is more risky and uncertain than the ECJ.

The Phases of Disputing As will be clear in the chapters that follow, this analysis relies on a “dispute resolution” approach that is essentially concerned with what happens after a dispute is initiated. While Chapter Four is concerned with motives for initiating a dispute, less attention is paid to how a grievance is formulated in the first place or how a grievance becomes formulated as a dispute. This is a result of the empirical focus on trade practitioners rather than other relevant actors, such as those in business that may seek to use the WTO strategically to gain competitive leverage. This has the effect of implicitly emphasizing legal consciousness and the link between such consciousness and the use of the system, when in fact the origin of disputes may be less in perceived violations of the law than in awareness of the WTO system as a forum for economic diplomacy and negotiation. The dispute settlement process of the WTO is governed by the Dispute Settlement Understanding (DSU) and can be divided into three phases: () a

THE WTO DISPUTE SETTLEMENT PROCESS

63

consultative phase, in which a dispute is formally announced and the parties are required to engage in diplomatic dialogue; before progressing to () the adjudicative phase, where WTO review panels make determinations about member nations’ trade practices; and () an implementation phase, wherein the dispute settlement process focuses on appropriate implementation, enforcement, and compensation (see Palmeter and Mavroidis ). These general stages of the disputing process provide the organizational structure for the empirical chapters that follow. I briefly describe the procedural and practical dimensions of each stage below. Legal Mobilization The WTO legal system may be mobilized for a variety of reasons other than the existence of a trade grievance, including for obtaining greater clarity of rights and obligations, for instigating diplomatic action, for communicating to a wider audience the nature of the grievance, and for influencing trade negotiations. These reasons are examined in detail in Chapter Four. In fact, the true extent and damage of WTO inconsistent trade practices may not even be known at the outset. The WTO is a complex social forum, in which motives for disputing emerge and make sense based on a variety of considerations that cannot be reduced to trade issues or legal considerations alone. These multiple and overlapping motives for dispute initiation stem from significant uncertainties associated with litigation and pervasive inequalities between participants. The sources of uncertainties are the newness of the system, including the emergent and partial character of WTO jurisprudence, the organizational and legal structure of the dispute system, the context of the WTO as an intergovernmental agreement, and the persistence of international inequality between states in WTO procedures. This context for legal mobilization shapes expectations of what is possible. The Consultative Phase The formal process of legal review is initiated when a complainant requests consultations with another member country. Initial consultations between the parties are mandatory, the goal of which is to achieve a negotiated resolution of the complainant’s grievance. This initial move defines the identities of the parties throughout the dispute process and, as such, I will refer to the parties

64

THE WTO DISPUTE SETTLEMENT PROCESS

to disputes as either the complaining party (or complainant) or the responding party (or respondent). The parties must then formally engage in bilateral negotiations. The Secretariat can serve as a facilitator of negotiations, but these services are generally not used and some suggest that the consultation process can be pro forma. Clearly that is not always the case, as most disputes end at this stage. If, after sixty days from the date of request for consultations, there is a failure to reach a settlement, the complaining party may request that a panel of experts be assembled to review the dispute.7 What occurs in these consultations is not a part of the public record of disputing, and it can be difficult to discern why transitions out of the consultative phase occur. Of the  disputes initiated since ,  have moved to the adjudicative phase and received panel review (Leitner and Lester ). The remaining disputes are settled, withdrawn, or simply abandoned. While some settlements are reported to the WTO, most are not, and it can be difficult to assess empirically why a dispute did not transition to panel review. Some argue that the high share of disputes exiting the system at the consultative phase is an indication of the success of the legalized system in inducing cooperative negotiation and settlement. However, in Chapter Five I argue that “core” countries are the most litigious, and that more experienced respondents are most likely to resist settling and escalate a dispute. These findings suggest an alternative interpretation: those cases which progress out of the consultative phase of disputing are defined by expertise and power above and beyond trade grievances and the legal viability of a given dispute. By extension, the exiting of a dispute from the system prior to a panel review may just as well be symptomatic of power inequalities as they could be the product of genuine willingness to compromise. The Adjudicative Phase The most legalized stages of the dispute settlement system include reviews by panels of expert authorities. With the WTO, referral to a panel cannot be blocked without a consensus among all of the members. The procedural dimensions of these panels, including the time-frame that they operate under and the processes of selecting panelists, have been reviewed extensively elsewhere (Palmeter and Mavroidis ; Conti ). Panelists are chosen from the international community of trade administrators, practitioners, academics, lawyers, and diplomats. Once formed, the panel of experts reviews the griev-

THE WTO DISPUTE SETTLEMENT PROCESS

65

ance and issues a decision. Their decision is first issued privately to the parties (the “interim report”) with the hope of facilitating a settlement, and then it is made public. The parties may appeal the decision to the WTO Appellate Body, a standing body of semipermanent jurists, which then reviews the determinations of the initial panel, issues its own decision, and, if appropriate, requests that the responding party bring its trade practices into conformity with the WTO agreements. How do participants fare in the litigation processes? Almost all panel reviews that are initiated result in a ruling. That is to say, there are very few disputes that exit the system while the adjudicative process is underway. In the first ten years of disputing at the WTO,  panels were established. Of those,  received panel rulings and  received Appellate Body rulings. Empirical studies of who wins and loses panel rulings have identified a pronounced tendency for panel and Appellate Body rulings to support at least some of the claims made by complainants. For instance, Holmes, Rollo, and Young () found that  percent of disputes were decided in favor of the complainant. Yet these findings are based on a very minimal criterion for winning: “[A] case where the complainant wins on at least one of the issues it raises is scored for the complainant” (; see also Wilson ). While replicable and useful for a rough understanding of the process, such an approach fails to provide a clear understanding of which parties win on the substantive or major issues at stake. This approach could easily record a win for the claimant when, in fact, the “win” was on minor or procedural points. Hudec () developed a more nuanced approach to the analysis of GATT cases. He distinguished between wins, losses, and mixed rulings (see also Busch and Reinhardt a). Applied to WTO disputes, Hudec identified a pro-plaintiff trend, though it was not as pronounced as in the study by Holmes et al. Hudec found that  percent of decisions in the years between  and  favored the complainant (Busch and Reinhardt b). Considering together these two measures of procedural outcomes, it appears that the adjudicative processes of the WTO tend to favor complainants. However, as I demonstrate in Chapter Six, it can be difficult to discern the central issues in a given dispute, where sometimes both sides claim victory. Furthermore, favorable rulings from panels and the Appellate Body do not necessarily immediately translate into compliance. After the Dispute Settlement Body (DSB) adopts the panel and

66

THE WTO DISPUTE SETTLEMENT PROCESS

Appellate body rulings,8 an implementation period is established, usually not exceeding fifteen months. During this period, the responding party is requested to bring its trade practices into conformity with WTO obligations. Implementation and Compliance Measures The DSU establishes a hierarchy of methods for implementation (Rosas ).9 The preferred method is a negotiated, “mutually acceptable solution.” If a negotiated solution is not forthcoming, after the determination of violation in panel and Appellate Body rulings, the preferred method is the removal of the WTO inconsistent trade practice. If that does not occur or is not possible, the DSU provides for temporary compensation to be provided based on the mutual agreement of the parties. Finally, and as a measure of last resort, the complaining party may seek authorization to “suspend concessions” granted through the WTO agreements on a discriminatory basis. In other words, the complaining party will be authorized to retaliate against the recalcitrant respondent by selectively raising tariffs or invoking other protectionist measures on imports from the responding country to the complainant. In this way, the noncompliant party will suffer terms of trade that penalize its failure to remedy its trade practices. However, it can be difficult to mobilize the compliance measures, and doing so may in practice be counterproductive. A decoupling of litigation from expectations of compliance results in diverse motives for disputing. It also leads to disagreement among practitioners as to the goals and effectiveness of the WTO legal system. Despite its much lauded legalization, some continue to perceive the dispute settlement process as weak. These issues are examined in greater depth in Chapter Six.

Time, Expense, and Interstate Politics Many developing nations lack sufficient numbers of trained trade experts to staff permanent trade delegations in Geneva. Braithwaite and Drahos () confirm the resource discrepancies between developing and developed nations and their effects on negotiating in their discussion of “negotiation fatigue.” The authors describe the inability of trade negotiations to keep abreast of the huge numbers of complicated issues placed on negotiating agendas, not to mention the frequent meetings involved in the daily operation of the WTO. Inadequate

THE WTO DISPUTE SETTLEMENT PROCESS

67

resources and the expenses of trained legal experts also constitute a significant disincentive against initiating dispute cases where poorer nations are less able to confront multiple, complicated, and protracted disputes (Jackson ). Indeed, most member countries have never participated in a dispute. Only  of  members have ever taken part in a dispute as a primary disputant. This suggests a selection bias shaping participation in disputing. This bias, however, does not neatly map over the categories of developed or developing, as evidenced in the high rates of participation by Brazil and India. Many countries find the demands for legal capacity and expertise too burdensome to warrant dedicating scarce state resources to WTO disputing. Arguably, these countries may well benefit from the cases fought by others. For instance, Egypt and Angola may benefit just as much from Brazil’s dispute with the United States should the U.S. remove its subsidies program for cotton producers. Within the WTO there are several techniques, including personal pressures and threats made against developing nation trade delegates, the frequent use of informal, exclusive meetings to establish trade negotiation agendas, and a host of trade inducements, such as the General System of Preferences and the African Growth and Opportunity Act, which are used as carrots to sway developing nations to adopt the position of more powerful countries on trade issues (Jawara and Kwa ). These tactics are deployed by affluent nations to control information and marginalize poorer-nation trade delegations so as to set the negotiation agendas and minimize opposition to their trade policies that may occur through the dispute settlement system. The WTO is a new and unique legal forum for disputing between countries. It is also a forum in which diplomatic sensitivities mingle with sometimes ambiguously written legal obligations; where jurisprudence is beginning to develop as the WTO case history expands, but in which there are large sections of ambiguously defined treaty obligations; wherein compliance is uncertain; where the expense and complexity of participation in disputing weigh more heavily on smaller and poorer members of the WTO system. In the next three chapters, the processes of disputing are examined in detail, drawing on the sociolegal framework described in the first chapter, to uncover the social bases of legal action and interrogate the relationship between law and state power.

chapter four

The Good Case Legal Mobilization at the World Trade Organization Going to a dispute is as much a political decision as it is a legal decision. It’s a political decision based on legal considerations, but the law does not ever decide the issue. Just because you have a winning case doesn’t mean you’re going to the WTO. Just because you have a losing case doesn’t mean you won’t. —Interview with Canadian official, Geneva, April , 

This chapter applies and extends the sociolegal approach to understanding the practice of international law-in-action developed in the first chapter and critiques the market rationality of prior empirical analyses. I argue for a socially based understanding of rational action that attends to the specific social context in which a decision is made. What are the social conditions in which the decision to initiate a formal WTO dispute can be claimed as rational behavior? Edelman () argues for providing greater attention to the social basis of legal rationality: Rational action is not simply responsive to social norms and institutions; rather, it is instituted through social interaction, culture and meaning-making, norms, and rituals. Institutionalized ideas about what is rational develop at the societal level in concert with institutionalized ideas about what is fair, what is legal, what is legitimate, and even what is scientifically or technically possible.  ()

The reification of the concept of rationality has precluded thorough understanding of how its meaning is constructed in specific social contexts and institutionalized in norms, values, common sense, and law. To the degree that this construction requires struggle between competing social groups and their “common sense” notions of legitimacy, fairness, and other values and norms, the institutionalization of rationality is fundamentally power-laden (Edelman

THE GOOD CASE

69

; Epstein and Knight ; Weber : –). The concept of motive provides a framework for examining the social meanings that produce rationalities and also for understanding how power struggles and inequalities are institutionalized in legal decision-making. This chapter examines the social bases of rationality in the decision to initiate disputes at the WTO through identification of what participants in the dispute settlement system described as a “good case.” This can take on different meanings depending on the facts of the trade grievance, the participants involved, and the political context. Its multiple meanings stem from uncertainties derived from the structure of the WTO dispute settlement system, most notably the close relationship between legal and diplomatic modes of engagement. Taken as a whole, the overlapping and flexible meanings of the good case provide a set of motives for transforming a trade grievance into a WTO dispute. This approach situates rational decision-making in WTO legal proceedings in larger organizational, professional, and institutional contexts that reveal the interplay of interpersonal relations, organizational settings, political context, formal law, and cultural meanings that produce the practice of international law. Through invocation of elements of the good case, all members may behave rationally in the context of initiating a WTO dispute. But the meanings authorized by these motives lead to very different expectations about what litigation may likely produce, and in turn, which actions make sense. Where the economically powerful may choose to litigate for full legal victory and compliance, weaker members may choose to litigate for symbolic or communicative purposes decoupled from strong expectations of compliance. Understood in this larger context, the rationality of the decision to litigate subsumes and legitimates significant inequalities between member nations. This chapter begins with a review of the prior empirical literature on WTO dispute settlement and the presumption of economic rationality that dominates it. There is a lack of direct consideration of the processes by which trade lawyers evaluate potential disputes, and, when considered, these processes have been presumed to be guided by market rationality. This is in part a critique of method and research design. Quantitative analyses of the case history of the WTO do not adequately account for motive; an interpretive approach is required to ascertain why people make the decisions that they do. To discover the meanings attributed to the initiation of a dispute and to better understand law and social action, theo-

70

THE GOOD CASE

ries of motive as situated action are applied to the notion of the good case. This framework is coupled with a qualitative research design, described in detail in the Appendix, which elicited motives from informants through in-depth interviews. This is followed by examination of several features of the WTO that render litigation uncertain and introduce flexibility into the meaning of the good case. Then, six variations of the good case are described.

Costs and Benefits of Litigation While some hypotheses have been offered to explain why some disputes are initiated and others—even those with sound legal merit—are not, little research has been done given the problem of empirically examining nondisputes (Busch and Reinhardt ; Horn and Mavroidis a). Most research on WTO disputing begins with the existing case history and examines dispute settlement participation as a function of trade interests, state power relationships, litigation capacity, political regimes, or other factors. Horn, Mavroidis, et al. () provide one of the earliest and best-known empirical evaluations of WTO dispute settlement participation. They explain the decision to initiate a dispute in these terms: It seems reasonable to assume that litigation involves some fixed costs, and that therefore the trade values involved must exceed some minimum level for litigation to be worthwhile.  ()

On this basis, the authors produce a benchmark estimate for participation in the WTO derived from a country’s diversity of exported products. Similarly, Bown and Hoekman () assert that [a] potential complainant will file a dispute over a WTO-inconsistent trade restriction . . . if the discounted stream of future profits with the trade barrier removed, less the cost of litigation, are larger than the future profits with the trade barrier remaining in place.  (–)

For these authors, countries will weigh the costs of litigation against gains from increased market access. Dispute participants’ decisions to litigate are understood as shaped by impersonal and structural forces, such as the world economy, and evaluation of transaction costs is the primary decisional logic behind initiating a dispute.

THE GOOD CASE

71

There have been efforts to understand disputing as a political practice in the world political economy. Guzman and Simmons () maintain the same cost-benefit logic, but expand the conception of cost to include such potential political fallout as disgruntled domestic constituents, WTO countersuits, or withdrawal of foreign aid. Reinhardt () argues that states initiate disputes as a result of industry pressure, and, therefore, democracies are more likely to participate in dispute settlement (see also Davis and Bermeo ). These authors complicate the notion of cost and benefit by making political calculations central to participation in dispute settlement. Even in this line of study there is a central presumption of market rationality, albeit with a wider, political understanding of costs; disputes are initiated based on a grand equation of market evaluation, political circumstance, and legal possibility, each identifiable through aggregate indicators. In part, though not entirely, this is a ramification of the data and methods used in this scholarship. While the case history of the WTO is amenable to statistical inference (see Chapter Five and also Horn and Mavroidis b), it is not easily analyzed for motive. As a result, this research has gravitated toward questions that quantitative methods can answer well while glossing over the social production of disputes in the first place and the personal, professional, and bureaucratic contexts through which they acquire meaning as a dispute. The major exception to this critique comes from Shaffer’s analysis () of the mobilization of the WTO dispute settlement system through public-private partnerships. Where private firms have the means to devote legal and economic expertise to developing a legal case and political resources to lobby for action, governmental authorities retain the authority to represent national interests before the WTO. A firm or an industry must persuade its government to champion its cause as being in the national interest. According to Shaffer, for an industry to convince the U.S. government to champion its cause, it “must present the USTR [U.S. Trade Representative] with a strong legal case supported by a detailed factual record. The USTR wants a strong partner not only in terms of ensuring broad industry support; it wants a winning case” (: ). Governmental authorities retain a monopoly on the decision to initiate a dispute, and in the process of deciding, they frequently ask their lawyers whether or not the case can be won. How do they determine that a case can be won, and what does it mean to

72

THE GOOD CASE

win? It is at this point that this chapter intervenes to demonstrate that there are multiple motives ascribed by practitioners to the initiation of a dispute. Winning a case can take on different meanings for different parties. This is not to argue that disputes are initiated capriciously or that they do not carry significant costs or benefits for a variety of interested parties. Instead, the meanings attached to winning, and thus the motives for initiating, are more varied than prior scholarship would suggest, and are profoundly impacted by how each member country is able to confront uncertainties associated with WTO litigation. Winning may mean full compliance, but it may also mean triggering diplomatic action; or winning may mean not being embarrassed by the outcome.

The Good Case as Motivated Social Action While it is true that the perceived existence of a trade grievance is generally (though not always) a central rationale for initiating a formal trade dispute, it is not a sufficient reason by itself. Frequently, the precise effect of the violation is unknown and need not be known for litigation to proceed (World Trade Organization b: ). This point alone hints at the difficulty of basing the decision of whether to initiate a formal dispute on a precise cost-benefit analysis. When the effect of a violation is unknown or imprecisely known, it is difficult to anticipate the degree of benefit that would accrue from remedying it or the relative costs required to do so through litigation. Indeed, other structural, organizational, issue-specific, personal, and professional factors enter into the decision to initiate a formal dispute. Understanding the social bases of legal behavior has been a long-standing concern among scholars of law and society. This concern remains pertinent for understanding international trade disputes, including why some grievances are disputed and others are not. Understanding the initiation of disputes requires ascertaining the motive behind it. For Weber (), analyzing motive “consists in placing the act in an intelligible and more inclusive context of meaning” (). He defined the concept of motive as a “complex of subjective meaning” considered “adequate ground for the conduct in question” (–). Motives are a critical source of social action; they are not merely intentions about future goals or rationalizations of past actions, but reflect current subjective meanings that may or may not be conscious (Campbell ).

THE GOOD CASE

73

For C. Wright Mills, motives are “social instruments” or power-laden verbal constructions impinging on social circumstances with newly situated avenues for meaningful social action (: ). The power of motives as social constructs is their ability to impose order through articulation of meanings, which may often be at odds with the motives of others (Hopper ). The contestation between motives as they are institutionalized as norms, values, and laws energizes and coordinates specific actions, and in so doing embodies forms of socially constructed hegemony. Mills has been critiqued as a linguistic idealist for arguing that motives did not emerge from “internal states” of individuals, but rather are instrumental discursive practices intended to achieve specific goals in specific contexts. Campbell () has charged that this is a distortion of the Weberian concept that “unwisely” rejects the notion of subjective “internal states” as motive forces (). By rejecting “internal” sources of motive, Mills establishes a false dichotomy between the purely internal and the purely external. Instead, social situations should be understood as making available meanings for actors as actors. These are not given a priori; rather, human subjects are inculcated through meanings available in specific situations (see, for example, Althusser ; Foucault , ; Willis ). In short, not only do motives impute meaning on situations, they impose them on individuals qua subjects. To the degree that individuals are “interpellated” as situated subjects through specific social situations,1 attempting to arbitrate between internal or external sources of motive distracts from the important task of seeking sociological understanding. Instrumental motives are social constructs too. Understanding this transforms the sociological question about motives from “Is it an instrumental motive?” to “What is the sociological character of a context that authorizes instrumentality?” The point for sociological analysis is to identify and understand the features of a social situation that permit certain motives to make sense. This can be achieved, following Weber, by placing actions in more intelligible social contexts (: ). This conceptualization of motive offers a socially grounded way of interpreting the action of situated actors, including the making of putatively rational choices. Motives order sets of meanings already available to groups in concrete social situations such that they can make sense of the situation and take action. Decisions obtain their rationality through their relationship to the social situa-

74

THE GOOD CASE

tion and conventional beliefs, norms, values, rituals, and institutionalized practices, rather than from “real” motives, or “full” understanding of the situation. Felstiner et al. (–) have examined motive and rationality in the context of civil law. The perception of a grievance—the understanding of an event as injurious—and the assignment of blame invoke sets of motives and provoke certain kinds of action. The eventual resolution of that grievance requires contest, negotiation, persuasion, and perhaps litigation over conflicting sets of motives. In these situations, motive is shaped by ideas about the “nature, function and operation” (Trubek : ) of the law and legal institutions held by the aggrieved party and their reference groups. Such “agents of transformation” (Felstiner et al. –) provide information and assign meaning to the grievance and potential actions, including seeking redress through formal legal institutions; they help to define the terms by which any given action can be judged as “rational.” As the authors argue, the reification of disputes by institutions, which “reduc[es] them to records,” obscures the unstable and subjective manner by which people assign meaning to specific actions and chart further courses (). In contrast, a motivational understanding of the decision to litigate permits its examination as a social phenomenon formulated through meanings, though perhaps unstable and subjective, available in particular social situations. Where Felstiner et al. (–) and Sarat and Felstiner (, ) emphasized legal consciousness in the processes through which motives in disputing emerge, Galanter () focuses on structural relationships between parties and the dispute settlement institution. He highlights the impact of experience and unequal resources on parties’ motives, strategies, and goals in litigation. Repeat players enjoy many advantages, including greater access to resources, familiarity with the dispute institution’s rules and practices, lower start-up costs, and informal relationships with agents of the institution. As a result, repeat players have the strategic option of “playing for the rules” and investing in the shaping of jurisprudence. One-shotters, in contrast, lack these advantages, are less able to identify a “good” case, and are more likely to enter litigation without strategic ability to affect, or interest in affecting, ongoing development of law (Albiston ). The structural position of parties in relation to the operation of legal institutions shapes which sets of motive appear rational, credible, and legitimate. The good case constitutes the “complex” of meanings that accompany mobi-

THE GOOD CASE

75

lization of WTO law and the transformation of a trade grievance into a formal trade dispute. The process by which a trade grievance is identified as “good” reflects contextual constraints, such as the ability to marshal resources, personal, professional, and organizational goals, and knowledge of formal and informal legal mechanisms generated through experience. Taken together, the good case is the set of motives that constitute the “logic” of the context in which the decision to litigate is made. The good case depends on context and, as that context changes, so does the meaning of the good case and the motive for litigation. Those disputes that are not good cases will generally not be litigated (with some significant exceptions), WTO law will not be directly mobilized, and the aggrieved parties will have to look to alternative forums. The situation of the WTO as an international forum of states, the specific structures of its dispute settlement system, and the intertwining of law and politics in its procedures distinguishes the set of motives available to actors in the WTO from other legal contexts. These features of the WTO system, however, also create significant uncertainty about the outcomes of a given dispute. Similar to Galanter’s linking of motives and strategies in litigation to the structural relationship of parties to the dispute institution, distinctive features of WTO litigation make different strategies and goals available to WTO members, depending on their relationship to the dispute settlement process. In this way, uncertainties attached to litigation at the WTO create flexible and overlapping meanings of the good case, which in turn shapes what grievances are transformed into a dispute and why.

Uncertainties in WTO Litigation The meaning of a good case at the WTO is flexible because of significant uncertainties associated with litigating in the dispute settlement process. Informants varied in their assessments of how difficult it is to predict the outcomes of panel and Appellate Body reviews: one suggested that about  percent of cases are unpredictable;2 others suggested that the majority are unpredictable.3 Still others reported nearly the opposite—that the result of a legal case could almost always be foreseen at the outset of the dispute, though the political outcome could be a different story.4 Nonetheless, all informants reported significant uncertainties associated with WTO litigation. While most legal systems

76

THE GOOD CASE

contain some element of uncertainty, the uncertainties associated with identifying a good case at the WTO are such that participants are inclined to adopt goals other than, or in addition to, seeking full compliance with WTO obligations. Interviewees identified several types of uncertainty that are manifestations of four features of the WTO: the newness of the system, the organizational and legal structure of the dispute system, the WTO as an intergovernmental agreement, and the persistence of inequality between states. Emergent Jurisprudence and Stare Decisis The incomplete development of WTO jurisprudence has tremendous impact on the ability of member nation counsel to predict the outcome of a dispute. While members can clarify and expand WTO treaties, this is extremely difficult given the consensus-based decision-making processes of Ministerial meetings, the lack of another forum for generating secondary regulations, and the formal prohibition against establishing legal precedent. The WTO is a new legal system, and while some areas of jurisprudence are fairly well established—such as the national treatment,5 trade remedies, or the Most Favored Nation (MFN) provisions, which originated in the GATT system—others, including the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) and the Agreement on Agriculture, are less developed. One interviewee described these areas as “uncharted ocean” (Interview with Brazilian official, Geneva, May , ). In practice, grievances that venture into such “uncharted” areas of WTO jurisprudence are more likely to be avoided (Conti a). Without developed jurisprudence, legal counsel is less able to predict how an argument will be understood and, in turn, less able to evaluate the prospects of winning a case. Avoiding underdeveloped areas of WTO law thus contributes to the perpetuation of these very same lesser-developed areas of jurisprudence.6 One Washington, DC–based private attorney described the state of jurisprudence: You have a sitting Appellate Body which does try to take a consistent approach to all the cases, but that’s still in the formative phases. A lot of issues just haven’t been resolved yet. And so you don’t have kind of the precedential value yet of cases, where you would say, “Oh, the appellate body has spoken on this issue.” There are a handful of those issues where one could say, “Well, it’s pretty clear,” but even when they speak . . . it’s not in a way which one could say, “Well we shouldn’t bring that issue because it’s definitively closed,” because actually it doesn’t set this kind of stare decisis

THE GOOD CASE

77

that can’t be changed.7 And, you know, they can change, and the facts change a little bit, and they could distinguish [between them]. And so, because we are in such an early stage, I’m not sure yet, that . . . repeat users . . . would know and be secure to say, “Yeah, this is the good argument and that’s the bad argument so let’s drop that; let’s just stay with this one.” (Interview with private attorney, Washington, DC, February , )

The emergent and developing character of WTO jurisprudence combined with the lack of formal authority to establish precedent creates considerable uncertainty related to determining what arguments must be made to construct a good legal case. The rulings of the panels and Appellate Body are nonbinding on subsequent disputes but nonetheless exert a strong normative force, and consistency between rulings is prized. However, panels and the Appellate Body also tend to highly circumscribe their rulings to the case at hand. When complainants are unsure of the effectiveness of their arguments and positions that they take on the interpretation of WTO law, they may be inclined to make more arguments.8 Uncertainty related to how a legal claim will be understood and the weight that it will be given in a dispute hearing results in disputes becoming more complex as parties try everything that they can to make their case. Such uncertainty is also linked to how panel reviews are conducted. WTO Procedures The uneven development of jurisprudence is not the only source of uncertainty inhibiting the identification of a good case. The organization of the panel review stage of the dispute settlement system produces uncertainty about how a case should be pleaded. While the Appellate Body is composed of jurists who serve a set term on the bench, each panel is assembled on an ad hoc basis for each dispute. The DSU permits the parties involved in the dispute to nominate potential panelists, with the final panel composition requiring the consent of both parties. In practice, however, the director-general plays a large role in the selection of panelists because the disputants are unable to reach an agreement (Cottier ; Davey a; Bourgeois et al. ). This process creates incentives to select panelists that are perceived as being more likely to take favorable positions on the arguments made by the disputants and leads to the disqualification of otherwise competent panelists based on their nationality, work experience, or positions taken in prior cases (Shoyer ; Bourgeois et al. ).9 As a

78

THE GOOD CASE

result, the ad hoc system favors newer and less experienced panelists who may or may not have legal training or expertise in the relevant details of the dispute.10 Even if the panelists have legal training, they tend to come from diverse legal traditions and have little or no experience adjudicating legal matters, particularly diplomatic texts that contain inherent ambiguities.11 Rossler reports that in practice very few people are elected to serve as panelists more than three times (in Bourgeois et al. ). There has been significant discussion, driven by proposals from the EC, to change the panel system into a permanent body (World Trade Organization , ; Davey a, b, ; Cottier ; Petersmann ; Bourgeois et al. ). The aim of this proposed reform is multifaceted, and the likely effects are much debated. But increasing the competency and experience of panelists and increasing the consistency of rulings are persistent themes in the arguments favoring a permanent panel body (Davey a, ; Cottier ). Uncertainties in the panel process persist despite countervailing sources of consistency and predictability. Picciotto has argued that the Appellate Body has responded to ambiguities in the treaty designed to “paper over” policy disagreements by adopting a legalistic style and a literal approach to interpretation (). This approach is also intended to avert criticisms of judicial activism and understate the significant delegation of power from states to international adjudicators by veiling the policy positions of the Appellate Body in detailed textual interpretation. This results in Appellate Body rulings intelligible only to legal specialists. While reducing uncertainties for the parties by privileging objectivist interpretations of the treaty text, which facilitates the development of a coherent body of jurisprudence, this style of reasoning also amplifies the need for highly skilled legal experts. The Legal Affairs and Rules divisions of the WTO Secretariat provide legal advice and institutional memory for changing and sometimes inexperienced panelists (World Trade Organization b). Legal officers review submissions of members in dispute and offer analyses to panelists, which identify key legal issues and relate the current case to prior rulings. At times they may draft the text of the rulings based on consultations with the panelists. In practice, however, consistency can be difficult to achieve. Panelists are not required to adopt the advice of the Secretariat, and different divisions within the Secretariat may at times offer conflicting advice.12 For instance, two identical disputes initi-

THE GOOD CASE

79

ated by Korea about countervailing duties placed on their exports of computer memory to the United States and the European Communities were reviewed simultaneously by two panels and received the same advice from the legal officer managing both cases.13 However, divergent views of the substance of the dispute within the Secretariat produced distinct manifestations of that advice. As a result, the efforts of the Secretariat failed to result in consistent rulings in the two cases.14 These features of the ad hoc panel system interact with the emergent character of WTO jurisprudence to create significant uncertainties for how a trade delegation manages its case before a panel review. A Washington, DC–based private attorney described the effects of this on his approach to pleading before a panel: It’s difficult to know what you’ll win and what you’ll lose. . . . You get panelists of different quality, of different backgrounds, of different technical expertise. And so, the panelists will react differently to the legal and factual issues based upon their background, placing more or less emphasis on fairness to the extent that they don’t have the technical expertise. So, depending upon your panel, you’ll get different results. . . . It’s almost impossible to know in advance which are your winners and losers of your arguments, and it forces you . . . to make very broad arguments because we are in the beginning of building the system.  (Interview with private attorney, Washington, DC, February , )

In his view, the weight given to “fairness”—that is, to resolving the dispute through compromise rather than through adjudication of wrong-doing— depends in part upon the expertise of the panelists. And since panelists change from dispute to dispute, it is difficult to know in advance how legal arguments will be received. A U.S. official concurred with this assessment, describing litigation before a panel as a “crap shoot sometimes” (interview with U.S. official, Washington, DC, March , ). Law without a State While the emergent nature of the WTO system and its particular organization create uncertainties related to identifying a good case, the single most significant source of uncertainty is derived from the intergovernmental treaty basis of the WTO. The ability of counsel to identify a good case is limited by this structural feature of the WTO dispute settlement system, which makes ensur-

80

THE GOOD CASE

ing compliance with WTO rulings difficult. A Washington, DC–based private attorney suggested that the potential for protracted litigation not to result in any significant compliance threatens to undermine WTO dispute settlement altogether: But probably the biggest problem is implementation. You win cases and . . . there’s a good chance you will not get any kind of successful implementation to satisfy your client. That will continue to be a problem, and will ultimately undermine the system unless something is done to fix it.  (Interview with private attorney, Washington, DC, February , )

This comment also points to the tenuous meaning of winning in the context of WTO litigation. A legal victory may not in any automatic way translate into compliance. Another direct result of the “stateless” context of the WTO is the “quasijuridical” relationship between legal procedures and diplomatic negotiations prior to and throughout formal processes of dispute settlement (Jackson ; Abbott ). The rules of dispute settlement offer numerous opportunities to return to diplomatic engagement. This is evidenced in several features of the process, including mandatory consultation between the parties prior to a panel review, the release of preliminary panel findings to the parties before it is made final, and the difficulty of securing complete compliance with panel and Appellate Body determinations. Concern with diplomacy pervades even the most legalistic of dispute settlement proceedings. As described in Chapter Two, the dispute settlement process was initially a diplomatic engagement. Over time and through the ad hoc changes made by practitioners and the increasing presence of lawyers in WTO forums, the legalization of trade has engendered the idea that WTO law should adjudicate violations of treaty obligations. A U.S. official described the continued influence of “diplo,” or diplomacy, in the orientation of the panelists to a dispute. He argued that the dominant norms of diplomatic engagement orient the panelists away from a strict legal approach to resolving disputes and instead promote “settlement” of disputes that emphasizes compromise rather than the determination of right and wrong, winner and loser: Either we violated the agreement or we did not, and if we did not then that’s all there is. But there is a bit of—and I’m always say[ing] this to my colleagues when they get a little excited about some of this stuff that the panelists might say or their

THE GOOD CASE 81

approach—I said there’s a lot more of the UN diplomacy . . . view of how . . . the dispute is supposed to be resolved. . . . Because we’re all lawyers . . . we come with the legal view, and we all practice in court and so we come to . . . the idea that these guys are like three judges, like a three judge panel and they’re not. There’s a lot of diplomo, I call it “diplo” . . . you know, “We’re all colleagues, let’s all talk about this, let’s ponder it intellectually, let’s see what it’s all about, see if we can’t solve this problem,” right? . . . . I think their mindset is more diplomacy. There’s no winner, there’s no loser. What we’re trying to do here is settle a dispute. Settle. You know, it’s not resolve, it’s settle.  (Interview with U.S. official, Washington, DC, March , )

The quasi-juridical character of the dispute system and the influence of diplomatic norms on litigation disrupt his expectations that WTO panels should operate according to formal legal principles. This reflects the dissonance between law and diplomacy in disputing. It is also an example of the particularly American importation of ideas into international trade disputing about how law works and what it should be able to accomplish, as described in Chapter Two. In practice, panels may shift away from strict adherence to legal principles and standards, incorporating diplomatic norms for resolving disputes. The relative weight of legal claims and evidence are not fully given beforehand and depend upon the approach taken by the panels and the parties involved. At the end of the dispute process, the rules governing compliance with WTO panel and appellate panel decisions almost entirely revert to diplomacy and power politics. While rich countries have greater latitude in deciding whether to comply with dispute settlement rulings, informants report that the strongest force behind compliance may not necessarily be the threat of economic sanctions alone, especially for affluent countries. In addition, a powerful motivation for compliance is the stigma of being labeled as in violation of treaty commitments. This Counsel for the European Community highlights the importance of shaming, particularly for smaller trading countries. Because you still have the shaming of the decision. I mean Antigua and Barbuda will never be able to put sanctions on the U.S. for the gambling act. They might still ask for the authorization, [or request] special concessions in TRIPS, or GATS, or whatever, symbolically. Although I see that the U.S. pretends to have complied. Small nations attack big nations, even if there is no remote possibility of retaliation, simply because—if you are Antigua and you have been able to get US condemned, you hope that something will move. I mean, no Congressman probably knows where Antigua is located. But if you are the USTR, you might say, “Well, we are being condemned

82

THE GOOD CASE

and we need to do something. I need to make a report in the DSB, what should I say, Mr. Congressman?” It puts them on the radar screen and sometimes it may help in moving things.  (Interview with EC official, Brussels, April , )

In this account, the less powerful trading country mobilized the WTO legal system, intending to utilize the shame associated with an unfavorable ruling to foster a solution to their grievance. The mobilization of shame in WTO disputes recalls Scott’s () account of “weapons of the weak” among Malaysian peasants and points to the political underpinnings of WTO law. While WTO rules may constitutionalize a liberal regime for trade, it also provides ideological resources for struggle by the weak. And, indeed, shaming can have important effects. The same attorney relates that in another dispute, a smaller trading country, Ecuador, was able to extract concessions from the EC. Ecuador got authorization to retaliate against us in the banana dispute and then never implemented it. But still, symbolically it makes a difference. And that’s why, not symbolically, but in substance when we changed our banana regime: it was  percent to accommodate the U.S. interest and  percent to accommodate Ecuador’s.  (Interview with EC official, Brussels, April , )

A Geneva-based official provided a different understanding of the role of shame and its relationship to compliance with international treaty obligations by his government: It never occurred to policy makers at high levels that facing your damnation and just suffering is an option. . . . We as a nation are a very complying kind. We want to respect international relations, international law. After independence one of the main policies was to determine how would the world characterize us—look at [us] as a nation. We should be considered as a credible, respected, international player in everything. And trade certainly did not count anywhere in the kind of credible deal that we were looking for. Trade could be, if I may use the term, trade could be sacrificed on the altar of . . . this credibility. This was not only policy makers, in terms of the executive guys and the bureaucracy, but even the parliament.  (Interview with Indian official, Geneva, May , )

Understanding the role of credibility in disputing is very important and difficult, if not impossible, to measure. Yet, it is a consistent theme in explanations for how members engage the dispute settlement system. Being a “bad international citizen” can undermine credibility within negotiations and in forums

THE GOOD CASE 83

beyond the WTO.15 For officials of the United States and the EU, their country’s compliance with WTO determinations—to the degree that they comply—is often motivated by concern for enhancing the stability and effectiveness of the WTO system such that they may, in the future, claim wrong-doing and deploy the normative pressure of “international citizenship” to force changes in the trade policies of trading partners.16 While there is some evidence that reputational pressures encourage early settlement of disputes (Busch ; Busch and Reinhardt b), they are not so strong as to generate predictable outcomes of the dispute settlement system in terms of compliance with WTO panel rulings. Some member nations may choose to “pay their bill”—or accept the punitive sanctions authorized by the WTO rather than modify domestic trade law or practice (interview with U.S. official, Washington, DC, March , ). And frequent players tend to view disputing as routine and thus possess greater immunity to the politics of shaming in a given dispute because they have so many appearances before WTO panels. The option to refuse to comply, in practice, is not equally open to all members, and the moral terrain of shame, like those of resources and expertise, is uneven. Inequality and Litigation The challenge of identifying a good case posed by the quasi-juridical character of the WTO dispute settlement system is made more difficult by unequal distribution of legal and human resources between member nations. This feature of WTO dispute settlement is a product of historic inequities in the international system and affects nearly all activity at the WTO. Participating in the dispute settlement system is a time-consuming and sophisticated legal and political task, requiring teams of lawyers, economists, diplomats, and politicians. Inequality operates through various institutional forms including the direct costs of litigation, the requisite expertise and experience, as well as administrative and bureaucratic infrastructure to support the process. The fees for a single case can reach into the millions of dollars.17 The Advisory Centre on WTO Law (ACWL), a Geneva-based intergovernmental legal aid center, estimates that a WTO case of “medium” complexity requires nearly  hours of work to prepare the case and take it through the first round of review by a WTO dispute settlement panel (ACWL ). The ability to identify the good case is in part a reflection of the steep learn-

84

THE GOOD CASE

ing curve associated with litigation at the WTO. As will be examined more closely in the next chapter, those members who do not regularly participate are at a disadvantage in identifying whether a case is good.18 For example, an attorney remarked: There is a certain kind of knowledge that you can’t have if you have not been in Geneva. . . . People who have not been in Geneva normally do not have any idea of how it works because there are a lot of details that are not written in the [Dispute Settlement Understanding].  (Interview with Argentinean official, Geneva, April , )

Identifying a good case requires significant expertise with WTO processes and procedures. This kind of know-how is more that knowledge of the law, because of the strong element of diplomacy, and requires direct participation in disputes to acquire it (Davis and Bermeo ; Conti a, b). The already steep learning curve is made more difficult by personnel changes within trade delegations. While some diplomats and attorneys remain in Geneva for extended periods, more common is a frequent rotation of mission personnel back to the capital to prevent them from, in the words of one Geneva-based diplomat, “going native” and losing track of their country’s interests.19 Another barrier to acquiring experience for effective participation in the dispute system is the increasing factual and legal complexity of disputes, which are requiring greater time, expertise, and expense. One indicator of this is the lengthening of panel reports from routinely twenty to fifty pages during GATT to more than a thousand pages under the WTO. Another is the shift in personnel handling WTO affairs. Again, while diplomats typically filled these roles under GATT, WTO affairs are increasingly handled by personnel trained in international law.20 Other new categories of personnel are increasingly important for identifying a good case. Participants in dispute settlement are turning to econometric modeling as evidence and for arbitration over damages caused by WTO-illegal trade practices (see, for example, Keck, Malashevich and Gray ; Keck and Raubold ; World Trade Organization b). As such, they are requiring the expertise of quantitative economists to identify a good case.21 Expert knowledge is necessary to sort through complex factual issues, including scientific issues related to sanitary measures or environmental health and safety

THE GOOD CASE 85

regulations (Pauwelyn ). Disputes over the regulation of beef hormones,22 genetically modified organisms,23 and shrimp24 are indicative of the increasing scientific and environmental complexity of trade disputes.25 All of these trends have contributed to the increasing prominence of private attorneys in WTO dispute settlement. Although private attorneys offer acquired expertise, experience, and institutional knowledge to member nations who rarely participate in WTO dispute settlement, they are expensive. Moreover, the presence of private attorneys has reinforced the trend in dispute settlement toward procedural complexity—or, in the words of an EC official, the use of “procedural trickery” that further amplifies the necessity of employing highly skilled legal personnel for WTO dispute settlement (interview with EC official, Brussels, April , ).26 International inequality also affects the capacity to dispute through the character of public-private linkages over trade issues (Shaffer ). Effective participation at the WTO is enhanced through close cooperation between industry and government because industry can provide evidentiary data as well as subsidize the cost of attorneys and other personnel. While the European Union, United States, and other countries, including advanced developing countries like Brazil, have cultivated strong public-private links, other countries, such as India, rely nearly exclusively on the human and economic resources of the government to manage WTO cases (Shaffer , ; Shaffer et al. ).27 This has tremendous impact on the ability of trade delegations to identify a good case and then manage it through the dispute settlement process. For instance, while a country may contract with a private law firm to assist in litigation, the decision to do so presumes the prior identification of a legal argument. Where countries lack domestic international trade professionals and a competent private sector, the identification of a trade grievance in the first place may pose difficulty. This is why lack of legal capacity is not merely reducible to a question of economic resources: utilization of legal services requires the experience, understanding, and orientation—besides the money—to perceive a grievance as a legal problem and then mobilize the law (Conti b). As with domestic legal reform, increased access to the disputing stage of litigation likely shifts the impact of inequality to earlier, less transparent stages of the disputing pyramid where such expertise becomes vital (Felstiner, Abel, and Sarat –: –; Zemans ).

86

THE GOOD CASE

Yet another dimension of international inequality is related to the organization of international trade activities within the member nation government. Larger trading nations are more likely to have a specialized government unit for handling international trade affairs. As a former Appellate Body panelist reported, the ability to identify a good case corresponds to those delegations that are “more socialized” into the WTO legal system. This socialization includes expansive internal structures for evaluating the possibilities of WTO jurisprudence: Q: Even though there is a general tendency for claimants to win, are the major players more likely to continue a case when they are defendants? A: It depends on the issue. It depends on the general political relationships between the parties, etc. The difference between let’s say the United States and the EU on the one hand, Japan also, is that they have very elaborate internal structures dealing only with these issues. So they are more socialized in that they can make greater prediction . . . . As you know, the proceedings are confidential . . . and about half the membership has never participated in a litigation so they don’t know how it works because unless you are a [third] party . . . intervening in the case because there is a systemic issue which is of interest to you, you don’t know how it works. Q: Can that be a liability for a first-time participant? A: Of course, of course, and it is one of the handicaps of the system.  (Interview with Appellate Body member, Geneva, May , )

Failure to cultivate public-private partnerships systematically and to create specialized governmental units for international trade affairs places national trade delegations at a significant disadvantage because it restricts access to resources, including legal and economic expertise, administrative support, evidentiary data, and experience with WTO processes. In turn, these limitations limit the ability of legal counsel to foresee the likely outcome of a case and to manage it effectively while in process. In sum, many member nations lack the basic requirements for effective participation in dispute settlement, particularly well-trained and experienced trade law attorneys with sufficient administrative support. One official described what can happen when the decision is made to join a dispute without consideration of the resources required to manage it effectively: The problems that have to be grappled with are on my lap, and I have to somehow manage it, and [if] my counterparts, my colleagues, in other relevant ministr[ies] or departments are helpful, I am happy. If they’re not helpful, then I have to run along

THE GOOD CASE 87

and do my own research or study to find out how we should react or file submissions. This has led sometimes . . . [to] not even filing the written submission. . . . I mean, not having had adequate progress in the decision making process on what to file within the time limits, and fail to file it.  (Interview with trade delegation official, Geneva, May )

In this case, the burden of paperwork led to the inability to participate—their participation in a dispute was abandoned for lack of adequate administrative and legal staff. This is a prime example of what Hoekman and Kostecki () have termed “dispute fatigue,” which shapes the ways in which poorer nations perceive the possibilities of mobilizing WTO law. Such fatigue, however, does not occur in the trade agencies of the United States and Europe. A Washington, DC, private attorney, when asked about whether dispute fatigue could ever be induced on the part of the United States, responded: The fact is, you can’t overwhelm the United States. First of all, if you bring ten thousand claims you know, we have ten thousand people. There’s no limit really at the Department of Commerce or USTR. They’ll get it done. They’ll just do it. You know, if you make more that’s fine, we’ll just put more people on it.  (Interview with private attorney, Washington, DC, February , )

A U.S. official put it more bluntly: “We’re big and we’re rich and we can hire lots of people to do the dirty work” (interview with U.S. official, Washington, DC, March , ). As a result, more affluent members of the WTO system are more inclined to take advantage of WTO law and more likely to engage the process fully prepared, with a well-developed sense of what can be achieved. Uncertainties are pervasive and significant in the WTO dispute settlement system. But these are not experienced in the same way by each delegation, which have different capacities to adapt to them effectively. Member nations may be forced to abandon litigation or not to initiate litigation at all. A Geneva-based private attorney, when asked about whether some members may be inhibited from participating in dispute settlement, responded: Yes, countries are inhibited because they don’t have the resources, they don’t have the understanding, they don’t have the personnel, they have higher priorities. But, they are also inhibited because they know that there are political sensitivities; they’re getting something in return, that . . . they might get more aid if they keep their position, if they’re quiet.  (Interview with private attorney, Geneva, April , )

88

THE GOOD CASE

As the next section will show, “quiet” is not the only alternative to full-fledged litigation. The meanings assigned to the good case reflect these differences and shape the rationality of mobilizing WTO law.

Meanings of the Good Case One of several important adaptations to uncertainty within dispute settlement is flexibility in the meaning of the good case that enables and encourages participants to adopt more modest, alternative goals that may be something considerably less than complete legal victory and full compliance. A trade issue alone may not be sufficient by itself for a case to go forward and instead must align with other situational features. The “damage” of a trade problem must be of an appropriate magnitude or match with various goals and priorities of the government.28 An otherwise good case that is of relatively small economic or political impact may not be litigated unless it furthers some goal of the government. On the other hand, a dispute with enormous economic or political stakes may be avoided because of risks associated with disputing.29 At the same time, the dispute where a legal victory is most likely may not be litigated. Instead, according to respondents, “best cases” are more likely to result in mutually agreed settlements prior to the completion of litigation.30 Other disputes may be initiated to satisfy an influential domestic constituency, but these cases do not qualify as good cases unless they are understood as fulfilling one or more of the criteria below. Japan—Measures Affecting Consumer Photographic Film and Paper, a complaint by the United States (DS), was cited as an example of a “bad case” initiated largely to satisfy the demands of a powerful domestic lobby.31 Several informants lamented that their countries had taken on similar political cases and tended to view them as mistakes. Just as disputes defined primarily by their trade interest may not be litigated, so may those defined solely by their political content. In contrast, respondents identified six elements of the good case. By themselves or together, these are the meanings that motivate the initiation of a formal WTO dispute. All-out Victory The first type of good case is one that involves a substantive trade issue that can be argued in reference to WTO jurisprudence to produce a favorable judg-

THE GOOD CASE 89

ment on critical issues and that will trigger full compliance with WTO rulings. As a prerequisite, the legal and economic resources must be available to identify the grievance and fully prosecute the case. Many participants identify this type of good case as the ideal, and the best are frequently settled before litigation is begun. Relative Gain Another type of good case is one that is expected to result in relative gains through partial compliance. It is based on the expectation of a legal victory on critical issues that will, in turn, pressure the losing government to make substantive changes to its trade policies. But the complaining member realizes that the prospects of full compliance may be low for reasons out of its control: the issue may be highly politicized, or involve a highly mobilized lobby in the respondent country, or the respondent may be able to comply superficially. One attorney from a developing country commented that even marginal compliance could be beneficial and worth pursuing: I’m not very optimistic of compliance in [this case], to be very, very frank with you. . . . But, if they do something . . . in an interval between zero and one hundred that might be important. . . . It will be very far from what we think they should do, but anyway can be very helpful.  (Interview with trade delegation official, Geneva, May )

It may also be the case that the burden of litigation taxes the trade delegation to such a degree that its effectiveness is diminished and its prospects for a favorable outcome decline.32 Still, it may be advantageous for economic or political goals to seek partial compliance over none. Any member nation, by virtue of its national sovereignty, retains the formal right to not comply with WTO rulings. In practice, however, noncompliance is less of an option for poorer states that are more vulnerable not only to WTO mechanisms for inducing compliance but also to extralegal pressures, such as withdrawal of foreign aid. The United States, followed by the European Communities, are the most frequent noncompliers with panel and Appellate Body rulings (Marega ). As a result, rich countries are more likely to litigate with an expectation of full compliance, while less affluent members find themselves in the situation, especially when disputing the trade policies of more powerful countries, of anticipating the value of something less.

90

THE GOOD CASE

Sending a Message A case may be worth pursuing because it communicates a message. The type of message and the intended target may vary. A good case might facilitate the “education” of the citizenry and political leadership of a trading partner about a trade problem and create pressure for action through visibility in mass media. This is especially important when expectations of compliance are weak.33 For instance, the dispute over U.S. cotton subsidies led by Brazil served as a platform for disseminating information to civil society about the effects of U.S. agriculture policies on Third World cotton growers.34 The cotton case showed, not only internationally but I think mostly domestically in the U.S., how unfair for the U.S. consumer and for the U.S. tax-payer, such a regime of agriculture support is. . . . You have this very important effect of creating or strengthening awareness [in] American public opinion [about] how distorting and how unfair their agriculture policies are. And that may be in [the] long run, a very positive element.  (Interview with Brazilian official, Geneva, May , )

A second form of disputing-as-communication intends to trigger diplomatic action to resolve the grievance. Referencing scholarship on civil litigation, this has been termed negotiating in “the shadow of the law” (Mnookin and Kornhauser ; see also Busch and Reinhardt b; Petersmann ; Steinberg ; Weekes ). The initiation of a formal complaint can thus contribute to an informal settlement. Consultations can help formulate the trade issue and legal obligations and, as a former Appellate Body chair observed, contribute to a settlement: They have to negotiate. They have to go through mediation and the intercession and sometimes they go through litigation but the litigation itself reduces or, let’s say, formulates more completely the issues so that the parties end up settling.  (Interview with Appellate Body member, Geneva, May , )

Disputes may also be litigated to the point where the panel makes a ruling; but, because the WTO permits panels to release their findings to the parties before they are made official, the parties have the opportunity to settle quickly, avoiding a formal and public loss.35 In other situations, complainant’s intent may not necessarily be to see a dispute through litigation and seek a suspension of concessions; but threats of litigation can be effective. A Washington, DC,–based private attorney remarked:

THE GOOD CASE 91

Sometimes people will abandon [disputes]. They bring the claim for political reasons and . . . really never intend to pursue it but want to make their point. You know, they go through consultations. They decided they don’t want to go forward there; they’re not going to go forward anyway. They just wanted to make their point to the other government.  (Interview with private attorney, Washington, DC, February , )

To make the threat viable, however, the dispute must seem likely to prevail before panel and Appellate Body reviews. And it would be even stronger if the complaining party held the possibility of effectively applying retaliatory tariffs, the prospect of which is low for most developing countries and even some developed countries when facing each other. A European Commission official described the effect of initiating a dispute on the balance of power within the responding nation and how that can facilitate a settlement: The advantage of moving to the modality of consultations is it means that it is the ministry of trade, or foreign affairs that is now the interlocutor on the measure. . . . Therefore you shift the balance of decision within the national government . . . . You give more power to the ministry of foreign affairs [who] will go to the president . . . and say, “Look, I told you it was a WTO violation and now we’re in deep shit because of those guys from ministry of industry. Let’s find a settlement.” (Interview with EC official, Brussels, April , )

A dispute may be a good case because of its capacity to signal the importance of a particular trade relationship, to draw attention to a trade grievance, or to motivate diplomatic action in related contexts; a good case may be “political theater” (Hudec , : ). Not all members are equally vulnerable to pressures exerted through the “theatrics” of dispute initiation. Referring to the two biggest participants, the United States and Europe, the same commission official continued his remarks: I don’t think the two elephants do care. I mean we say, “Poof.” We have so many cases that one no way taxes on our main duties. . . . We say, “Fine, yes. Business as usual.” (Interview with EC official, Brussels, April 20, )

Given the expense and sophistication required by the process, not all members can participate equally in the politics of threat, nor are all members equally vulnerable to it.

92

THE GOOD CASE

Complementary Goals A good case furthers government goals and priorities in areas beyond the dispute at hand. National governments may prioritize issues such as intellectual property rights, obtaining greater market access, or changing the practices of trading partners in some fashion. Disputes will be chosen that further those goals.36 For instance, Shaffer () describes the FSC dispute37 as oriented less toward implementing retaliatory sanctions than forcing the United States to deal with the EC in a bilateral relationship and in the process, demonstrating that the European Commission could forcefully defend European interests abroad. More dramatically, a good case may be intended to affect ongoing WTO negotiations.38 In this scenario, a dispute will be chosen with the intent of altering the bargaining position of the participants by clarifying obligations under the WTO treaties. This strategy is particularly useful when members are not ready to reach consensus on a negotiating issue (Petersmann ). In the cotton case mentioned above and in the EC-Sugar ruling,39 Brazil and its co-complainants impacted Doha Round negotiations over agriculture by clarifying the legal obligations of the United States and EC to eliminate agriculture subsidies. These high-profile cases improved the bargaining position in the Doha Round negotiations for those nations seeking elimination of Northern agricultural subsidies. This meaning of a good case draws on the close relationship between litigation and negotiation (Petersmann ; Odell ; Weekes ; Davis ). Congruency with other national goals is a motive utilized by all members, given the basic ability to participate, and one reason why a trade interest alone is frequently insufficient reason to initiate a case. Systemic Issues Although informants reported that disputes were rarely initiated for purely systemic reasons, concern for shaping WTO jurisprudence and the procedures of the dispute system were factors considered in combination with substantive trade issues. Examples of systemic issues in past disputes have included the status of private lawyers in WTO proceedings, the admissibility of amicus curiae submissions, and the ability of small countries to mobilize the retaliatory measures of the WTO agreements (BRIDGES ; see also Steger ). A U.S. official reported that systemic disputes were unlikely unless vigorously pushed

THE GOOD CASE 93

by private industry.40 More likely were grievances that were not taken forward because of the risk that the complaining party would be subject to the same complaint in the future (Conti a).41 Shame Avoidance While generally underexamined in international relations, sociologists of emotion have argued that shame and its avoidance play a prominent role in shaping social action (cf. Scheff , ; Goffman ). Rivera (), for instance, analyzed how Croatia managed its stigmatized identity in the wake of the Balkan wars of the s and built a tourist industry. At the WTO, legal counsels appear particularly attuned to the risks of political embarrassment for themselves and their superiors and, as a result, will take only good cases to litigation. This concern underpins all other considerations of a good case. Informants reported that there was embarrassment attached to losing a case among Geneva-based officials.42 Other informants reported a sense of national shame associated with high-profile losses at the WTO.43 While this may be conceived as “bad publicity” for public officials, on one occasion the respondent suggested a deeper, affective response to having complied with a WTO ruling: It was a very difficult compliance process that we went through, politically and even from a technical point of view. . . . We felt quite ashamed doing it, because it was a reversal of national policy in both cases.  (Interview with trade counsel, Geneva, May )

Here, shame and embarrassment are the inverse of the reputational pressures for nations to behave as good international citizens, and act as strong motives for seeking to litigate only good cases. Nonetheless, the experience of being “shamed” in an earlier dispute increased pressure to mobilize WTO law to its fullest extent in a later one. The same legal counsel described how his country’s embarrassment at having to comply with a ruling in one dispute manifested in a strong demand to seek full redress in a later case against the same country: We paid a rough price to comply. And I think this weighed in when the political decision to retaliate in [this] case was taken. . . . The industry will come up to you, and through the parliamentarians, and others, and say . . . “What’s this WTO about then?” . . . You know, “we gave in to a northern compliance demand in our cases, so at least, we should carry this through to its logical conclusion in the WTO.” (Interview with trade counsel, Geneva, May )

94

THE GOOD CASE

While the decision to retaliate was also based on a technical estimate of the injury experienced by his country’s exporters, the politics of shame motivated the decision to strike back and make use of WTO law to the fullest extent possible. Loss as a defendant motivated the initiation of a dispute as a complainant; redress of shame manifested as imperative for litigation. All members of the WTO do not likely participate in such a political economy of shame to the same degree. Scheff () has described powerful mechanisms for hiding shame, so it would not be surprising that many trade personnel would not report affective motives in an interview. Galanter’s () theory suggests that repeat litigants—in this case, trading nations such as the United States and the EC—would be less likely to be emotionally invested in a given dispute to the same degree. Indeed, the “elephants” perceived participation in WTO litigation as routine. Perhaps more problematic is the understanding of emotion when assigned to complex organizations. While it is unclear how a complex organization emotes (although see Douglas ), affective states were nonetheless offered as meanings for the actions taken by a government; they were motives for the avoidance of a dispute in some cases and, in others, for subsequent initiation of litigation.

Discussion and Conclusion The good case draws on economic, political, and symbolic characteristics of trade grievances and the specific structures of the WTO treaties to mobilize WTO law. The meanings of the good case used by participants in legal proceedings explain their actions and the outcomes that the dispute mechanism produces. In practice, the good case is flexible and multidimensional, reflecting the close relationship between diplomacy and law in dispute settlement proceedings and the uncertainties that relationship creates for litigation. The good case makes sense of uncertainties as meaningful bases for action, permitting the transformation of trade grievances into formal disputes that are intended to achieve more modest compliance goals, trigger diplomatic action, affect ongoing negotiations, or achieve other goals. The set of motives constituting the good case include emotions, such as stigma, reputation, and shame. Informants offered these as personal and organizational dispositions. In the context of international relations, consideration

THE GOOD CASE 95

of the situated sets of motive in dispute settlement reorients the coherence of dominant conceptions of “national interests.” States pursue their “interests” through the legal mechanism of the WTO, but these are constructed through specific situations and persistently intersected by the personality, judgment, and training of personnel occupying the organizational spaces of governments (cf. Allison ). Viewing the decision to initiate litigation at the WTO through the concept of motive illuminates the social constructedness of rationality in decision-making about trade disputes. This contrasts with the presumption of market rationality found in economic approaches to legal decision-making. Whether a case is “strong” or “weak” will be evaluated through the lens of at least one, but more likely many meanings of the good case. The meaning of rational action, however, varies across members along with the human and economic resources that they bring to bear in identifying and developing a good case. Litigating for legal victory and full compliance is the highest standard of the good case, and disputes that most closely approximate this tend not to be litigated. At the same time, this motive is less frequently available to members from developing countries. Like Galanter’s typology of repeat players and one-shotters, unequal access to human and legal resources, unequal experience with the processes of the dispute settlement system, and lower expectations of compliance shift the good case toward emphasis on relative gain, symbolic victory, and communicative power, particularly among the “have-nots.” In these instances, it is no longer rational to expect the “benefits” of litigation to exceed the “costs” in terms of economic gain. While each participant confronts uncertainties in WTO litigation, the flexibility of the good case covers over differential capacities of unequal members to confront them. The good case provides a basis for action while institutionalizing inequality in the practice of international trade law. The multiple elements subsumed in the good case thus demarcate the limits of rational behavior in disputing for each member of the WTO. In this fashion, the good case reflects the hegemony in WTO proceedings of the economically powerful, which have the greatest latitude for rational behavior, while legitimating the dispute settlement mechanism as a formally fair and open forum for settling disputes for all. While this chapter has focused on the mobilization of WTO law, the next chapter turns to examining the transition of disputes from the consultative to the adjudicative phase of disputing. This is the next major phase of the formal

96

THE GOOD CASE

dispute process and perhaps the most important, as it marks the mobilization of the full legal remedies offered by the WTO. In line with the sociolegal framework developed in the first chapter, the statistical models that are the basis of the next chapter complement the interpretive analysis of this chapter, incorporating structural features of the disputing system into the analysis of the relationship between law and power.

chapter five

International Legal Contexts and State Power The Institutional Influences on Dispute Transitions Am I supposed to be making the world a level playing field so the United States can bulldoze everybody, or am supposed to be making the level playing field so even the United States has to play by the same rules? —Interview with U.S. official, Washington DC, March , 

What causes a dispute to transition to panel review, while others “fall out” through settlement, withdrawal, or other exit from the process? How do states shape how disputes move through the process of disputing? This chapter extends the sociolegal approach developed in the earlier part of this book to examine the transition from the consultative to adjudicative phase of the dispute settlement process. It relies on a statistical analysis of the case history of the WTO for its first ten years, from January  to October . Where interpretive approaches were ideal for establishing motives for litigation, the statistical methods that underlie this chapter are excellent for identifying systematic patterns of disputing. Combining statistical and interpretive approaches provides a more nuanced assessment of the relationship between law and power in the context of disputing over trade. The details of the statistical analysis and variable construction are located in the Appendix. The results of that analysis are presented here in graphical form and contextualized with the insights of informants. These results can be briefly summarized as follows: bilateral market dependence and the position of litigants in the modern world system have significant impact on how disputes are managed. Institutional features, such as legal capacity and dispute experience, also affect the processes of disputing and cannot be reduced to a state’s structural position in the world economy or its trade relationships. The impact of frequent participation is especially important because it links the materials resources of states to how they use the WTO legal system. It

98

INTERNATIONAL LEGAL CONTEXTS AND STATE POWER

is an important mechanism for distributing advantages within the system. The end of the chapter delves deeply into understanding how experience translates into advantages for frequent players.

Trade, World Economy, and Legal Capacity Effects Two broad hypotheses recur in the empirical literature (Horn and Mavroidis a: ). The “legal capacity hypothesis” argues that a lack of legal resources, particularly personnel with legal training, as well as financial and institutional capacity, inhibits poorer member nations from initiating and pursuing disputes, except for when there is the potential for a big payoff (Guzman and Simmons ; Horn and Mavroidis a; Bown and Hoekman ). Legal capacity refers to the institutional efforts of a government to engage effectively in WTO disputing. As Busch et al. () note, legal capacity is more than a team of lawyers but refers to a “bureaucratic apparatus” for assessing a government’s obligations, securing its rights in international legal forums, and managing legal, political, and financial relationships with the private sector. Scholars have focused on legal capacity to help explain differences in how member countries participate in disputing and assess whether developing countries are able to obtain equal treatment before the legalized procedures for disputing. For instance, Busch and Reinhardt (, a, b; also Reinhardt ), studying both GATT and WTO, argued that “early settlement,” prior to a panel review, offers the greatest likelihood of securing full concessions from a respondent. They also found that disputes involving developing and developed countries are more likely to transition to a panel review because developing countries, in part as a result of a lack of legal capacity in the prelitigation stages of disputing, fail to induce settlement. Where a lack of legal capacity has been found to negatively affect dispute initiation by developing countries, Busch and Reinhardt (b) found little effect of legal capacity later in the process of disputing. However, in a study that relied on the results of a survey of trade delegations to create an indicator for legal capacity, Busch et al. () found that legal capacity is critically important. Legal capacity is a profound concern for developing countries, and delegations with greater legal capacity are more likely to initiate WTO disputes but less likely to be a defendant. Their analysis is restricted to initiation of antidumping disputes, and so raises the question of whether legal capacity

INTERNATIONAL LEGAL CONTEXTS AND STATE POWER

99

remains an important dimension of disputing at later stages in the process and with other types of disputes. Recently, the notion of legal capacity has also been extended to include expertise derived from prior participation in the dispute settlement system (Davis and Bermeo ; Busch et al. ). Davis and Bermeo () describe how experience with disputing familiarizes government officials with processes of disputing and introduces them to legal specialists. Such officials become increasingly knowledgeable about how to build economies of scale suited for effective disputing. I build on these important insights by examining dispute transitions rather than initiation, by accounting for both cumulative and relative experience with the dispute process, and by eliciting the insights of practitioners about how they understand what legal experience means and its role in WTO disputing. In contrast to the legal capacity hypothesis, the “power hypothesis” asserts that member nations may face political costs for initiating a dispute. Such costs could include retaliation, an inability to enforce rulings, or loss of preferential trading arrangements or foreign aid (Bown a, ; Guzman and Simmons ; Horn and Mavroidis a; Zejan and Bartels ). Zejan and Bartels (), for instance, report that foreign aid recipients are less likely to initiate disputes and are punished by donors when they do. Similarly, Bown (b, ) finds that countries lacking bilateral retaliatory capacity are more likely to be victims of WTO-illegal trade practices and less likely to participate in dispute settlement. Despite this relatively neat construction of determinants affecting the dispute settlement system, there are disagreements over which—capacity or power— explains more about how the dispute settlement system works. For instance, Guzman and Simmons () and Horn, Mavroidis, and Nordström () argue against the power hypothesis and find instead that developing countries are constrained by their legal capacity. Busch et al. () concur, finding evidence for the role of legal capacity in the initiation of antidumping disputes. But Bown (b), as well as Zejan and Bartels (), find support for the power thesis and little support for legal capacity indicators. And Bown’s () later research supports both hypotheses. These conflicting findings suggest that claims about the determinants of disputing behavior at the WTO are highly dependent upon researcher choices

100

INTERNATIONAL LEGAL CONTEXTS AND STATE POWER

about how to operationalize concepts and statistical models. This is made clear by the frequent reliance on GDP data, in a variety of transformations, as a proxy for either legal capacity (Bown ; Busch and Reinhardt b; Horn, Mavroidis and Nordström ) or power (Zejan and Bartels ), or both (Guzman and Simmons ). Hence Horn and Mavroidis (a) have called for greater sophistication in the modeling of legal capacity and power variables. However, to the degree that crude measures for capacity and power are fundamentally conceptual weaknesses, these issues can be addressed only through the further development of the theoretical understanding of the dispute settlement process and the subtle ways in which power operates through it.

Power Struggles on the Terrain of Law The sociolegal framework developed in Chapter One responds to the shortcomings of received conceptualizations of law and state power by drawing on well-established insights of sociolegal scholars in domestic contexts. Prior analyses of the WTO have presumed that power occurs outside of the institutional forums of the WTO, is a trait of participants, and impinges on the legal order of the WTO. After all, the purported intent of the legalization effort was to vacate power from the processes by which grievances were aired and addressed. Power, in this view, is a malady that distorts markets and trade relationships but which can be treated through a rule-bound system for regulating trade and a legal system for settling disputes: law is the antidote for power. To the degree that the WTO trading system is legalized, power is purportedly banished from its juridical terrain. In short, constructing the debate as between power and legal capacity is fundamentally misguided. This conceptualization of the relationship between power and law is embedded not only in the legal architecture of the WTO agreements but also in much of the empirical research on that system. Thus, when scholars evaluate “power effects” they are looking to see how powerful actors impinge on the legal system from outside. In treating law as a prophylactic to power, the failure of poorer member nations to participate effectively in the WTO system is attributed to capacity issues. This places the onus of inequality squarely on the poorer nations themselves, to be addressed through technical assistance programs and pro bono legal services (Bown and Hoekman ; Shaffer ). This con-

INTERNATIONAL LEGAL CONTEXTS AND STATE POWER

101

ceptualization of the relationship between power, law, and capacity replicates assumptions of modernization and neoliberal theories of development (as well as neorealist and neoliberal institutionalist understandings of power and world order), which view countries as autonomous developmental units that must restructure their societies to follow the developmental patterns of rich countries (Rostow ). In both instances, inequality is seen, not as a product of domination, but as the product of the internal incapacities of poorer countries, and power is seen as a characteristic of a country rather than as characteristic of relationships between countries. This conception of law as ameliorative of inequality sharply contrasts with two primary insights of sociolegal scholarship. The legal authority of the WTO does not exist independently from the social context in which it arises. Law is not a purely autonomous realm, leveling the social, political, and economic playing field. It is a medium or terrain for material and symbolic struggles between varieties of actors, including states, businesses, and lawyers (Bourdieu ; Dezalay and Garth ; Hagan and Levi ; Tomlins ). The “class structure” of the international states system, understood through the history of “development,” provides a context in which inequality between states acquires meaning alongside conceptions of rights and expressions of power (cf. Gessner ; McMichael ). State power is a relational construct rather than a natural property of autonomous states. In terms of the WTO, state power becomes meaningful only in situations of contestation. This relationship is made concrete and meaningful through disputing, where the resources, organization, and expertise for specific disputes must be mobilized for legal skirmishing. Power, in action, is relational and contingent upon the specific fields in which it is mobilized. The legal processes of the WTO are one site for struggles over the boundaries of state power in the context of trade. Central to these struggles are the expertise, personnel, organization, and material resources that can be brought to bear in disputing. The mobilization of WTO law thus reconstitutes state power through institutional, as well as individual and professional, competition. Conceptualizing legal capacity as a competing hypothesis against “power” thus obscures the historical realities of state power and its relationship to law and legal institutions. Examining the impact of unequal power relationships on the process of disputing requires less a distinction between “power” and “not

102

INTERNATIONAL LEGAL CONTEXTS AND STATE POWER

power,” but rather a way of operationalizing power with a more robust, historically sensitive understanding. As such, this analysis distinguishes among trade effects, world economy effects, and legal-institutional effects, each of which is an expression of power relationships. Many key explanatory effects used in this analysis are constructed as “difference” variables by subtracting the value accorded to the respondent from that of the complainant. The rationale for using the difference variable is twofold. The first is derived from the general proposition that legal contexts are constitutive of specific rights, obligations, and by extension the resources and means that are required to claim and fulfill them effectively and legitimately. The second is derived from Galanter’s theorization of how different combinations of ideal-type parties lead to different approaches to disputing (: –). For instance, he argues that serial disputes between repeat players are likely to produce informal bilateral controls with the goal of minimizing legal conflict. Or, such conflicts will be diverted to arbitration forums that allow the parties to avoid legal sanctions. Disputes between one-shotters will occur sporadically, and litigation will be used in an ad hoc manner to repair or terminate a longterm relationship. In both types of cases, the likeliness of litigation is reduced as the parties seek alternative or limited legal mobilization. Disputes between one-shotters and repeat players, in contrast, are more likely to be litigated. As such, it is not the attribute of the participant that matters so much as how those attributes become interactive in a specific dispute. Power is treated as a characteristic of a relationship between countries, as realized in specific disputes, rather than an attribute of individual countries. Modeling power in this way—as constituted in specific legal contexts—more accurately captures the relational dimensions of state power as actualized in WTO disputes. This is not to argue that all attributes of disputes, such as their complexity, are irrelevant. Rather, it is to argue for a more careful assessment of how attributes of countries manifest in specific disputes. To evaluate the determinants of dispute transition from consultations to adjudication, I used a data set of WTO trade disputes that includes information about all disputes initiated between January , , and October , , for a total sample size of  disputes. The dependent variable is a binary indicator of the disputes that are empanelled rather than any other outcome, such as settlement, withdrawal, or abandonment.1 This is an important juncture because it

INTERNATIONAL LEGAL CONTEXTS AND STATE POWER

103

constitutes the full utilization of the legal review process, which has implications for the expense and complexity of continuing to dispute. The duration of a dispute thus affects how the dispute transitions through the phases of disputing. Disputes that are settled quickly are less expensive and often attract less attention. As Busch and Reinhardt (; see also Reinhardt ) have shown, disputes that last longer and proceed through advanced stages of disputing are less likely to be settled, and complainants successful in winning legal arguments are likely to win fewer substantive concessions. Of the  disputes initiated, less than half (n = ) make the transition to panel review. An additional  are settled or resolved in other ways. The rest (n = ) have no official resolution but nonetheless constitute outcomes of the legal system that affect the odds of transition. The independent variables fall into three categories: institutional features of disputes and disputants, trade relationships, and the structural position of countries in the modern world system. Trade Effects The volume of trade, and dependence of a nation on it, have been shown to influence the propensity of member countries to initiate disputes (Bown ; Horn, Mavroidis, and Nordström ; Nordström ; Zejan and Bartels ). Horn et al. () argued that larger trading nations should dispute more often because they are more likely to encounter WTO-illegal trade practices and have the legal capacity to seek remediation (see also Bown ; Nordström ). Zejan and Bartels () found weak evidence that trade dependence decreases the likelihood of a developing country’s initiating a dispute against a developed country. This line of research demonstrates that overall trade volumes influence the likelihood of initiating disputes. Countries who trade in large volumes and for which trade is a significant share of their economy are more likely to () engage in WTO-incompliant practices, () encounter WTOincompliant trade practices by their trading partners, and () initiate WTO disputes than countries who trade less or who are less reliant on trade. This suggests that trade flows may also play a role in why a dispute would transition to panel review. Bilateral trade is a central feature of the WTO’s sanctioning mechanism, which operates through selective increases of tariffs by the complainant on imports from the responding party after the complainant has been authorized

104

INTERNATIONAL LEGAL CONTEXTS AND STATE POWER

to do so through arbitration. The capacity to sanction is considered early in the process of disputing—in the decision whether to seek a panel review—and is thus an important feature of any WTO dispute (see Chapter Four). The ability to sanction, however, is constrained by the relative importance of bilateral trade flows to the economies of the parties to the dispute. To capture this dynamic, I constructed a trade variable, market dependence difference, that accounts for the relative reliance (as share of GDP) of each disputant on the one-way trade flow from respondent to complainant. This one-way flow of trade is what would be targeted for retaliation and thus captures the relative importance of that trade flow to each country. A high magnitude score (either positive or negative) indicates a condition of dependence and suggests that one party has an advantage over the other. If the score is positive, it indicates that the complainant is more dependent on that trade flow than the respondent. In that situation, effective use of the retaliatory measures would be unlikely, and as a result the complainant would be expected to settle or abandon the dispute rather than transitioning to panel review. In contrast, when the value of the market dependence variable is negative, the respondent is more dependent on the trade flow than the complainant. Then, transition to panel review would be more likely, as the complainant would be better positioned to invoke the retaliatory measures should the responding party fail to comply with panel and Appellate Body rulings. As such, market dependence—or retaliatory capacity—is anticipated to be negatively associated with the propensity of a dispute to transition. The analysis also includes several indicators to control for the matter over which a dispute was initiated and any potential differences in litigiousness across economic sectors. World Economy Effects The world systems perspective posits that the totality of the modern worldsystem is a socially structured stratification system historically constituted and spatially defined through the expansion of the European capitalist system (Chase-Dunn ; Wallerstein ). The sources of power and dependency relationships are “unequal distribution and access to productive assets, and the institutionalized power that flows from and reproduces it” (Boswell and ChaseDunn : ). The source of the inequality in the distribution of productive assets is derived in part from the coercive “‘primitive accumulation’ of mer-

INTERNATIONAL LEGAL CONTEXTS AND STATE POWER

105

cantilists, conquistadores, slave traders, and colonialists” (Boswell and ChaseDunn : ) and is reflected in the concentration of economic activities that command a large share of surplus in “core” regions, while relatively low-profit activities are marginalized in “peripheral” zones (Arrighi and Drangel ). A mix of core and peripheral economic activities defines the “semperiphery.” The specific legal capacities of member nations of the WTO are manifestations of these historical processes, whereby the structural position in the world economy is translated, via the relative ability of the state to capture a portion of the surplus acquired or extracted to its territory, into state capabilities and limitations. Core states end up with strong states because of their ability to extract a portion of the surplus accruing to the economic actors in its territory combined with the demand from economic elites for industrial protection and aggressive assertion of trade rights abroad. The strong version of this perspective (Wallerstein ) has been rightly criticized as an economistic, overdetermined view of state structures (Skocpol ) that also ignores other important actors on the international stage (Gessner ). Chase-Dunn acknowledges that “we cannot explain everything about political action and state structures by knowing how and where a country inserted in the world hierarchical division of labor” (: ). Nonetheless, while suggesting that the internal and external strengths of a state are interconnected, he also asserts that it is “generally agreed” that the zones of the world system are generally predictive of relative state strength between states.2 Despite its limitations, conceptualization of the modern world system as hierarchically organized through “zones” of dependency does provide a more nuanced vision of relationships between power and stratification in the world economy than other approaches, especially in the context of trade relationships between states. For instance, Busch and Reinhardt (b) utilize a measure for level of development based on logged gross per capita income. They find that complainants with higher income are more likely to get respondents to concede fully prior to a ruling by a panel, but that there is little effect once litigation gets underway. The ability to induce early settlement is an advantage accruing to rich countries that enables them to better extract benefit out of the WTO legal system than poor countries. That approach, however, treats development as a characteristic of a country rather than as a relationship between countries, as in world systems theory. The world systems approach provides a historical

106

INTERNATIONAL LEGAL CONTEXTS AND STATE POWER

account for stratification in the world economy, which links power to questions of inequality and state capacities. Evaluating the effect of position in the world system rather than shear economic size (as in the use of GDP) provides a more theoretically rich test of the impact of structural inequality in the world economy and thus a more powerful lens to revisit how the “wealth of nations” shapes disputing. Considering the findings of Busch and Reinhardt (b), who argued that rich countries are successful at inducing early settlement, the world system framework leads to the hypothesis that disputes involving core and noncore countries (“mixed” disputes) will be less likely to transition to panel review, as core countries will be more likely to induce early settlement. Prior research has found that rich countries are more likely to participate in the dispute settlement system and so more frequently take advantage of the legal remedies provided by the WTO. This is in part related to trade relationships, as described above, as well as to legal capacity, accounted for below. Since rich countries are more likely to participate overall, the odds of transition will increase in disputes between core countries, as these countries are more likely to mobilize the WTO legal system and less able to induce early settlement in disputes against each other. Legal Institutional Effects Countries with high levels of legal capacity are better positioned to identify trade grievances, to identify and acquire relevant evidence of WTO violations, to formulate strong legal reasoning, to meet filing deadlines, and to endure the duration and overall expense of disputing, among other things. As such, countries with relatively high levels of legal capacity would be expected to have greater capabilities both to apply and to resist the pressures created through disputing, including greater ability to induce settlement as a complainant and resist early settlement as a respondent. A dispute characterized by a complainant with robust legal capacity relative to the respondent should have lower odds of transition because complainants will be able to induce settlement without invoking the cost associated with dispute transition. In contrast, when the respondent maintains a legal capacity advantage over the complainant, it will be less likely to concede, and the complainant will be forced to transition the dispute or drop it, thus increasing the odds of dispute transition. Legal capac-

INTERNATIONAL LEGAL CONTEXTS AND STATE POWER

107

ity is assessed using two measures: () the difference between complainant and respondent in the number of staff present in Geneva offices of national trade delegations to the WTO and () a binary indicator of whether or not a country has a permanent mission to the WTO. Characteristics of disputes may also affect the odds of transition independently of the attributes of the participants. One of the primary stated goals of the panel review process is to arrive at independent and objective determinations about how trade practices may or may not fulfill the requirements of the WTO. This can be difficult even in simple disputes because of ambiguities in the WTO treaty, limited jurisprudence and differences of opinion over standards of interpretation, the complexity of the substantive issues at stake, and difficulties acquiring and assessing relevant trade data, among other uncertainties (see Chapter Three for further discussion). Legal complexity can contribute to the difficulty of obtaining clarification of member nations’ rights and obligations under the WTO treaties. Moreover, as the number of parties invested in a dispute grows, the more difficult it may be to achieve a negotiated solution. As such, increased legal complexity should result in increased odds of dispute transitions as participants are more inclined to turn to panelists in seeking clarification of the grievance at hand. As a case becomes more complex, with more interested parties, the ability to negotiate or coerce a compromise diminishes. Thus, legal complexity is anticipated to be positively associated with the propensity of a dispute to transition. Related to legal capacity, but distinct from it in terms of its sources and implications, experience has implications for the processing of disputes. Galanter () and other sociolegal scholars (Albiston ; Edelman, Erlanger, and Lande ; Epp ; Kritzer and Silbey ) have demonstrated how a formally neutral legal system may perpetuate the advantages of those participants with the resources to participate frequently through accumulation and refinement of institutional knowledge and reasonable expectations. This line of research emphasizes the ways in which law authorizes specific strategic action and resources. Repeat players accrue advantages over time. These advantages are many, including familiarity with the process and ready access to legal specialists, opportunities to develop facilitative informal relations with institutional incumbents, low stakes in any given case and lower start-up costs, the ability to play the odds

108

INTERNATIONAL LEGAL CONTEXTS AND STATE POWER

and adopt strategies to minimize maximum costs, and the option to play for the rules and work toward the long-term development of law. Repeat players are future oriented. They plan in advance, strategize over a series of transactions, seek incremental gains, and influence the rules through the development of case law. Repeat litigants develop expertise that allows them to anticipate which cases are not worth pursuing, which cases should be settled early, and which cases should be pursued with the intent of shaping jurisprudence—and further, which new rules are likely to be significant or merely symbolic alterations to the status quo. One-shotters, in contrast, lack these advantages, are less able to identify a “good” case, and are more likely to enter litigation without strategic ability to affect, or interest in affecting, the ongoing development of law (Albiston ). Instead, the one-shotter seeks to maximize tangible returns from the immediate dispute and have less interest in the development of the law or the implications for future litigation. However, the theory of repeat players operates at a level of greater sensitivity to the substantive features of specific disputes than the current WTO dispute database permits. For instance, it is difficult to track informal relationships between trade delegation personnel and panelists, or the role of private attorneys. While member nations will avoid certain areas of underdeveloped WTO jurisprudence out of concern that a ruling in that area may cause unfavorable repercussions, those areas have not been identified in such a way that they can be accounted for in a modeling exercise (Conti a). Finally, unlike Galanter’s conception of repeat players, which are imagined to be large corporations, of which there are thousands, in the WTO there are basically only fifty players to begin with and only a handful stand out as repeat players. There is a wide range of participation. Of the  members of the WTO, only  have ever participated in a dispute. And of those, there are  countries that have participated only once and another  that have participated twice. The  most frequent disputants, including the United States and Europe, as well as Canada, Brazil, and India, were involved in roughly  percent of all disputes. Figure  shows that the European Community and the United States are hands down the most frequent participants. Brazil—a semiperipheral country—is also a major player at the WTO. Building on theories of repeat players, relatively experienced participants would likely avoid the expense of panel review when they are complainants

INTERNATIONAL LEGAL CONTEXTS AND STATE POWER

109

180 160

Number of Disputes

140 120 Complainant Respondent

100 80 60 40 20

Jap an Ar gen tin a Ch ile Au str ali a Th ail an d Ph ilip pin es Hu ng ar y

ia Me xic o Ko rea

Ind

il Br az

da

Complainant

89

63

13

14

17

13

13

14

14

10

9

1

3

2

Respondent

76

70

25

21

14

12

11

10

9

10

6

11

4

5

Ca

na

EC

US

0

   .  : Fifteen Most Frequent Participants as Complainant and Respondent as of October . Mean =. and standard deviation = .. These were derived from the participation of all  countries that ever have participated in a dispute by the end of the time period of the data. Because the figure sums a country’s participation as complainant and respondent, each dispute is counted twice. Source: Includes data from Horn, Henrik, and Petros C. Mavroidis, “The WTO Dispute Settlement Database,” Washington, DC: World Bank.

and seek to engender a process of disputing that achieves their goals without incurring the time and expense of litigation. By extension, when the respondent is the more experienced participant in a dispute, they will seek to force the complainant to take on those costs, thus delaying negative consequences that may accompany an unfavorable ruling and heightening the potential for incurring dispute fatigue in the complainant. This is because when repeat players are complainants they have the ability to better pick “best” cases that are more likely to settle early, as well as facilitate a process of disputing, as a result of their familiarity with institutional processes, that engenders favorable outcomes without

110

INTERNATIONAL LEGAL CONTEXTS AND STATE POWER

litigation. More experienced respondents, for the same reasons, are less likely to concede and more likely to use their acquired expertise to resist conciliation. The measure for difference in experience represents the difference between complainant and respondent in the number of prior WTO disputes each participant had been, or currently is, officially involved with in any given month. It includes participation as a third party. How this and other variables are constructed is discussed in detail in the Appendix. What is important to know is that the experience variable reflects the difference between the complainant and the respondent in the number of disputes that they have ever participated in, at a given point in time. It is a measure of the particular “match-up” of countries in a dispute, based on the argument that it is the relative expertise that affects how a dispute progresses through the disputing process.

Factors Affecting the Odds of Dispute Transition In interpreting these figures it is important to keep in mind that they represent the results of a logistic regression, where the dependent variable is the transition to adjudication by a WTO review panel versus any other outcome. Therefore, the effect of any given variable should be understood in the context of controlling for each of the others in the model. Several different models were tested and are described in detail in the Appendix. In a test of the impact of structural position in the world economy, all disputes involving core countries proved to generate higher odds of dispute transition. Figure  displays the percent change in odds that results from the involvement of core countries compared with disputes where core countries are not involved. Disputes involving core countries are more likely to escalate to panel review. When two core countries are in dispute, the odds of transition are almost  percent higher and  percent higher when it is a dispute between a core and a peripheral country compared with a dispute in which a core country is not involved. Interestingly, disputes characterized by a core and noncore country are less likely to transition than disputes with two core countries. More generally, the likelihood of transition remains high so long as the dispute involves a core country. The findings of this analysis suggest that disputes are most likely to transition when there are two core countries involved and least likely to transition when core countries were not involved. A similar

50%

Percent Change in Odds of Escalation

INTERNATIONAL LEGAL CONTEXTS AND STATE POWER

111

350.0 300.0

301.9

250.0 200.0 156.3

150.0

157.0

100.0 50.0 0.0 Core v. Core**

Core v. Semiperiphery** Core v. Periphery*

   .  : Effect of Position in the World Economy on Dispute Transition. Significant at ** p