When Weak States Win : Imposing Sanctions at the WTO

It is commonly assumed that economic retaliation increases the likelihood of compliance. Larger states will win concessions in the dispute settlement process because they can make credible retaliatory threats against the offending member. But there is conflicting evidence about the role of economic power. Scholars using GDP as a proxy for retaliatory threat find that developed states win more often at the WTO than the GATT (Busch & Reinhardt, 2003), while other scholars using bilateral trade flows find that developing states benefit from the increased legalization of the WTO dispute process (Bown, 2004). These inconsistent findings suggest that current measures of economic power may not fully the effect of capture retaliatory threats. I test a small set of cases in which economic retaliation is specified by the disputing parties, and in some cases approved by the WTO. This gives us a clear measure of the power of economic retaliation that is applied in each case. In addition, I test whether compliance may also be effected by coalitions, as Mansfield and Reinhardt suggest (2003), political characteristics of the disputing parties and the nature of the market of the disputed product. The results suggest that the size of the economic sanctions does not increase the likelihood of compliance, though the results are difficult to interpret given the small number of cases. This study, instead, suggests that WTO authorized economic sanctions may be used to reward domestic constituencies rather than punish the offending states