Friday, August 17, 2012

Compliance at the WTO - rule based or power based?

It is often emphasised that less developed countries, especially countries in Africa and some developing countries cannot actively engage in the DSU due to variety of factors including legal capacity, costs and lack of long term strategic planning.

Another issue that is central to the DSU is compliance. How do countries comply with decisions of the Panel and Appellate Bodies? What is the record of compliance at the WTO? Since it is a rule based system, not dependent on power diplomacy, do the records show that countries both developed and developing/less developed countries comply in a similar manner? What motivates compliance in international trade law? Is the fear of non-compliance strong enough to ensure compliance?

Petros Mavroidis in a brief note brings out the various challenges to compliance at the WTO. In his briefing paper titled "On Compliance in the WTO Enforcement Amongst Unequal Disputants" he tends to argue that the compliance record at the WTO is not very positive and developing countriea are at a disadvantaged position due to a variety of factors. The realities of trade and unequal trading relations influences compliance to a decision rather than the letter of the law per se.
"The intensity of inducement to comply is a function of the credibility of the threat: it is one thing for the EU to be excluded from the Ecuadorian market and yet quite another from Ecuador to be excluded from the EU market in terms of the impact on the Ecuadorian market. As noted before compliance can be induced on grounds unrelated to WTO because the  ‘big’ guys have more ‘persuasive’ power in that they have more weapons to use when they decide to retaliate which increases their retaliatory power as Bernheim and Whinston (1990) demonstrated in their study on enforcement under the competition law regime."
Thus a country which is has a much more diversified export portfolio and is a stronger trading power would be able to resist the threat of non-compliance than a smaller trading power. The reality of international business takes over rather than the power of the law. Compliance is viewed as another negotiating tool rather than a mandate of law.

Mavroidis makes an interesting point on the ability of developing countries to detect violations of WTO obligations by other countries.
WTO Members possess unequal capacities to detect deviations which is especially true because of the absence of centralised enforcement as present in the EU. Whilst the powerful nations may rely on a highly diversified export portfolio and the presence of trade diplomacy all around the world, the weaker nations are required to rely on the Trade Policy Review Mechanism (TPRM) which offers scattered information on a periodic basis and the notification system which is based on the incentives which support disclosure. Only the member countries which possess better detecting capabilities and more sophisticated administrations are in a better position to act quickly once they identify a deviation, quickly reducing the period of impunity for the deviators."
Thus, compliance depends on the bargaining asymmetries of the parties involved. the DSU is a forum where unequal trading powers are governed by "equal" trading rules. The record of compliance is an interesting aspect of international law, politics and trading relations. In the context of compliance in the Cloves Cigarettes case where the United States and Indonesia are involved, I had raised the issue of compliance here. One would have to go beyond the boundaries of a dispute and the decisions to unravel the motivations and ultimate decision to comply with a Panel or Appellate Body decision. This throws open questions of how "rule based" the system. Does it take us back to the power realities of international trade? Is compliance ultimately dependent on a country's trading power and influence rather than actual non-compliance of international law? If so, how true is to say that the rule based system overrides a power based system at the WTO?

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