1 Introduction
What features of the dispute settlement provisions of the General Agreement on Tariffs and Trade
(GATT) and World Trade Organization (WTO) help governments live up to their trade liberalization
commitments? As a government struggles to implement the liberalization commitments made in an
earlier GATT negotiating round and finds itself faced with a trade dispute, are there particular
features of the dispute settlement process that help it credibly commit to freer trade? For example,
do defendant countries rely on the threat of retaliation by the ‘plaintiff’ trading partner? Does the
stigma of a possible legal rebuke by the international community induce economic compliance?
This paper exploits data on formal GATT/WTO trade disputes over the 1973-1998 period to
address these questions empirically for the first time. We focus on trade disputes involving allegations
that the defendant country has either provided an increase in protection to its import-competing
sectors above the maximum level to which it agreed in an earlier negotiating round, or that it has
refused to liberalize in a sector as previously agreed.1 Our analysis looks to determine what economic
and institutional factors influence the economic outcomes of these cases, i.e., what features affect the
ability of defendant governments to follow through with trade liberalization commitments.
International trade theorists have identified at least two efficiency-enhancing roles for trade agreements.
The first, highlighted by Staiger and Tabellini (1987) and Maggi and Rodr´iguez-Clare (1999),
is to provide a commitment device for governments that are unable to commit credibly to liberalization
with respect to behavior of domestic constituencies.2 The second, highlighted by Bagwell and
Staiger (1999), is to provide a commitment device for governments of large countries that are unilaterally
unable to commit to the elimination of trade policies that result in a terms-of-trade-driven
prisoner’s dilemma. The key implication of these theoretical papers is that unilateral policies that are
set in the absence of a trade agreement are suboptimal, and that a government could better achieve
its objectives with access to an external commitment device that would force it to follow through