Sticking To The Rules: Quantifying the Market Access that is Potentially Protected by WTO-Sanctioned Trade Retaliation

The Uruguay Round agreements involved a substantial expansion in the commitments made by World Trade Organisation (WTO) members. To strengthen the incentives for nations to adhere to these new WTO rules, the multilateral dispute settlement procedures were reformed. A WTO member can now withdraw the concessions it has made to another WTO member that has been found to have broken its multilateral commitments. Thus, it is the threat of bilateral sanctions against a nation's own exports that provides the nation with an incentive not to renege on its obligations at the WTO. I assess the strength of the incentives created by trade sanctions for the twenty largest exporters in the developing world and, for comparative purposes, Japan and the United States. For each of these 22 economies, I calculate the percentage of a nation's market access is effectively protected by the potential for WTO-sanctioned retaliation; taking into account the fact that each nation's trading partners vary considerably in the amount of bilateral trade that they could, in principle, sanction and the fact that the impact of sanctions varies markedly across different types of goods. The findings not only confirm some of the conjectures made in the existing literature, but also point to the importance of some hitherto unremarked upon factors. Most notably, the proportion of market access protected varies considerably across nations, and does not appear to be related to the level of development; which is germane to the discussion of prevailing asymmetries between industrial and developing economies in the WTO's Dispute Settlement Understanding. Another finding is that, as far as the twenty-two large trading nations considered here are concerned, one can identify a clear "WTO enforcement club" of nations whose bilateral trade flows are sufficiently large that they have some clout over several importing nations. Interestingly, it looks like membership of this club does not extend to Africa (even to South Africa), South Asia, the Middle East, and Latin America. A related point is that the data points to a growing potential role for East Asian nations in the WTO dispute settlement.