The Trade Stakes of WTO Disputes

The WTO will soon initiate its 500th formal dispute, and discussions of such international litigation are now a media mainstay. Last Thursday, for example, the WTO’s Appellate Body released its latest ruling, upholding most of a set of legal challenges to China’s use of export restrictions on “rare earth” materials, a set of intermediate inputs important for green technologies such as wind turbines, batteries for gas-electric hybrid cars, etc. Other recent examples of formal WTO litigation in the news include the EU’s challenge to Russia’s import restrictions on vans, the US’s challenge to Chinese barriers to autos, and Canada’s and Norway’s challenges to an EU ban on trade in seal products.

Are these formal WTO disputes economically important, or are they merely a high profile media side show? To help address this question, in new research (with Kara M. Reynolds), we collect and assess the trade data arising from more than 300 formal WTO disputes initiated between 1995 and 2011 and identify some novel results (Bown and Reynolds, 2014):

• Not surprisingly, many disputes involve member countries entrusting the WTO to adjudicate disputes affecting large bilateral trade flows. We find that 15 percent of cases involve bilateral trade in disputed products of more than $1 billion per year.
• However, less expected is that there are almost as many WTO disputes covering relatively tiny bilateral trade flows. In particular, 14 percent of cases involve trade in disputed products of less than $1 million per year. This $1 million in trade at stake is based on data used to proxy for export sales revenue (not profit), which is relevant given the start-up costs are estimated to range from $250,000 to $750,000 for developing countries that use private sector law firms to litigate to WTO legal decisions. However, the subsidized legal assistance provided by the Advisory Centre on WTO Law may be a contributing explanation.
• Overall and in the aggregate for 1995-2011, two summary statistics indicate that WTO members asked the dispute settlement system to legally adjudicate policies affecting large amounts of trade:
   
  • WTO dispute settlement cases scrutinized nearly $1 trillion in imports overall. This is an average rate of $55 billion per year, or roughly 0.5 percent of world imports in 2011.
  • Lost imports: WTO dispute settlement cases investigated policies that cover imported products that were collectively $60 billion less than their levels prior to implementation of the policies that are subject to the WTO disputes.