Bhakta David Nollmeyer
The World Trade Organization is a supranational governmental regime headed under auspices of the United Nations. This confederacy of nationstates came into being as the successor to the General Agreement on Trade and Tariffs more commonly known as GATT. The last round of talks in Uruguay between 1986 to 1984 lead to the creation of the WTO. There is an ongoing continuation of agreements that add to the limited jurisdiction that this international level government has in personem and subject matter jurisdiction. Of the WTO's prime concern are goods. It also has jurisdiction over services. Other areas in which the WTO can arbitrate or judge based on it's rules are competition, antidumping, investment, subsidies, intellectual property, trade facilitation and transparency in government procedures. Of increasing concern are issues confronted by Least Developed Countries or LDCs. The current deadline for negotiations is January 1, 2005.
The current headquarters for the WTO is Geneva, Switzerland. The organization was established January 1, 1995. There were 146 members as of April 23, 2003.
Of particular interest is the complaint process and litigation. Christina Seville has discussed the implications as benefits that winning can have on a specific sector, nation, or firm. These considerations do and will have an impact on the structure and day to day operations of organizations. An insight is that large countries may be constrained as they compete across sectors than small nation states as leveling of the market place occurs through a multilateral organization as the WTO (Seville 1999).
Andrew Guzman has investigated the effect on political economy through the mechanism of the Dispute Settlement Understanding (DSU), which is a mandatory dispute resolution system. His modelling is based on the abstraction of asymmetries of information that should benefit the respondent, but this has not been the case in WTO litigation. The payouts have went to those parties bringing complaints to Dispute Settlement Understanding. Guzman focuses his approach on 262 cases brought from the WTO inception in 1995 to July of 2002 (Guzman 2003).
According to the WTO, the resolution of trade quarrels under the Dispute Settlement Understanding is vital for it's rule enforcement. Countries are permitted to bring complaints if they believe their rights are being violated. This system encourages the parties to settle through consultation. The mechanism has procedures that follow in stages, which include rulings by a panel of experts and appeals. These experts base their judgments on the interpretation of agreements and countries commitments. The WTO cite that this method is successful. There have been 300 cases brought to it's attention in eight years compared to 300 disputes brought to GATT (1947 1994).
Guzman in his studies have found that 90% of the cases he studied resulted in victories for the complainant. The benefit to cost ratio of whether to settle a grievance or bring such to an expert panel gives rise to inferences that could aid modelling that affects business operations (Guzman 2003).
The dispute mechanism is based on Articles XXII and XXIII of the General Agreement. A request for consultations is the first step taken to resolve the dispute. If this process fails to remedy the dispute a formal complaint is made. The 1994 Dispute Settlement Understanding in the WTO Agreement gives jurisdiction to the Dispute Settlement Body, DSB that is composed of representatives from the member states to define the process. Strict time limits are set. Enforcement of the panel's verdict is automatic. A standing appellate body rules on appeals. The Dispute Settlement Body is in charge of surveillance and implementation of it's recommendations and judgments. It is stated,"Neither compensation nor the suspension of concessions or other obligations is preferred to full implementation of a recommendation to bring a measure into conformity with the covered agreements." (Seville 1999).
In degree, a monopoly or asymmetry of information generates successes of close to 100%. In this observation these inferences have credibility in domestic disputes. This approach does not hold well with the mechanism of Dispute Settlement Agreement. The complainant has a deficiency in information. The defendant is better prepared with the information needed to decide on what options to be taken based on costs. (It is to be noted that asymmetries of information modelling does not take into account transactions costs that will constrain behavior). The theory predicts, "that pro complainant cases will fail to settle if the political payoffs from litigation (as opposed to settlement) received by complainants are systematically larger than those received by the defendant." If the opposite occurs naturally the cases will settle more readily to the defendants. Data demonstrates that of 82 cases that have been settled by July 2002, 74 or 90% have gone to the complainant (Guzman 2003).
To conclude in brief, in the international environment one must make the assumption that the complainant is better prepared than the defendants. It is clear if transactions costs are figured in, the outcomes are better to reach a settlement earlier if information predicts a probability of loss. Four entities the United States, European Union, Canada, and Japan account for 50% of the defendants and 62% of complainant's caseloads. One possibility is that in a new system these players have developed sophistication in the new environment and have adequate resources (Guzman 2003).
The complaint process is significant because the countries that have been challenged may need to conform it's policies and laws. This will have a reciprocal affect on those organizations that wish to enter opportunities in these host's countries. It is has been surmised by Reinhardt that a relaxation of trade barriers has occurred by the defendant in 103 of 148 (69.9%) of the cases where there is no panel ruling. The clear avoidance of having a case legally settled can be viewed as a major deliberation of these parties (Seville 1999).
The complaint process is important because the WTO Secretariat has no power to bring any action against parties. The observation according to Seville is "that international trade rules are selectively enforced according to the interests of the countries initiating complaints." The observation or non compliance is particularized by implication of imports and exports with a more pronounced affect on large Greater Developed Countries or GDCs (Seville 1999).
It is interested to note how a theory of games or mini max approach dictates the role and texture in the international environment, which is anarchic but converging. The uses of multilateral mechanisms above the nationstate are a manner in which to reinforce or constrain behavior of a nationstate (Lieber 1988).
In degree if state P brings a complaint against defendant Q under a provision of WTO obligations and assuming both have full information, the ultimate payoffs or losses each could receive should decide each party's behavior. A victory by Q is shared by the status quo and reinforced by such. If Q wins there is a direct payoff of zero to both P and Q. If Q were to lose their losses could be asymmetrical.
Asymmetric payoffs affect the settlement in the following manner. If a victory by P would yield a payout of 150 and losing before the panel will cost 45 to the identification of a minimum settlement offer acceptable to both parties before going to the panel must be discerned. If R represents the probability the P will win at the panel stage and both parties know R; it is assumed that both parties will incur a cost of 45 if the case proceeds to the panel.
P will settle if and only if it's settlement exceeds litigation costs (45), 150 + 45. However Q will settle if and only if it's costs are smaller than going to litigation (45) 50 R + 45. Hence for a settlement to exist 150 + 45 = 50 R + 45. The minimum that P will accept must be less than the maximum that Q will pay.
As R or the probability of a victory increases or gets larger the settlement range decreases to the point where a threshold of 9/10 is reached; the settlement range disappears and the case will go to panel (Guzman 2003).
The pro complainant settlement rate is 90%. Plausible reasons for failure to settle for Q are domestic consequences to political leaders. If the citizens of a defendant country support the issue challenged it is possible for the country to proceed to panel. The political fallout may be deemed greater than any monetary losses. It is also possible to blame a loss on the shortcomings of the WTO itself. The complainant P can argue settling before going to the panel guarantees a benefit (Guzman 2003).
In conclusion understanding the resources available by a nationstate at the WTO, recognizing asymmetries of information and payoffs can affect international and domestic producer's operations. The implication of a global environment comes with increased pressure for universal standards. With these pressures the need for business to adapt to the judgments of the WTO will affect the strategy that organizations will adopt to enter markets. Tariff barriers were initially a focus and now non tariff barriers are coming to the fore in scrutiny. Environmental and health issues have also been seen as giving a comparative advantage or a barrier to parties (Bateman & Snell 2005).
The capitalization of markets also is affected, as the availability of funding is also a concern as the emphasis is to level the field by eliminating government subsidies. The stability of federal reserve banking affects the stability of currency and this is seen as a monetary consideration as the supranational trading blocks as the European Union consolidate currency in issues as the Euro (Ritter & Sibler 1991). The WTO has jurisdiction over 97% of international trade.
The WTO is a good example of international cooperation. The result of asymmetrical payoffs and their implication can shift an advantage with large scale implications for the structure of individual firms and the opportunities that such may pursue. The elimination of retaliation in a fair open opportunity world market is desired (Guzman 2003).
Bateman, T. S. & Snell. (2002). Management: The New Competitive Landscape. New York: McGraw-Hill.
Guzman, A. T. (2003). The Political Economy of Litigation and Settlement at the WTO. Retrieved from the World Wide Web December 2, 2004: http://econpapers.hhs.se/paper/cdloplwec/1080.htm
Lieber, R. J. No Common Power (1988). USA: Forseman and Company.
Ritter, R.S. & Silber, W.L. (1991). Principles of Money, Banking, and Financial Markets. USA: Basic Books Inc.
Seville, C. R. (1999). A Political Economy Model of GATT/WTO Trade Complaint. Retrieved from the World Wide Web December 2, 2004: http://ideas.repec.org/p/erp/jeanmo/p0107.html
World Trade Organization. (2004). Retrieved from the World Wide Web December 2, 2004: http://www.wto.org/english/res_e/doload_e/inbr_e.pdf