How do third parties affect compliance in the trade regime?

Abstract

A core insight of the literature on dispute settlement at the World Trade Organization (WTO) is that third party countries help enforce the organization’s multilateral objectives, including the fundamental principle of nondiscrimination. Little is known, however, about when countries comply with WTO rulings and whether these bystander states play a role. We introduce new data on compliance, measured as whether losing countries make tangible domestic reforms to bring policy in line with WTO rulings. We show that compliance is significantly less likely in disputes with more third parties. Using a variety of estimation techniques, including controlling for nonrandom selection into legal rulings, we demonstrate a robust correlation between third party participation and noncompliance. Our findings highlight a risk of stringent enforcement and suggest that compliance problems threaten to undercut the operation of the multilateral trade regime. © 2021 by the Southern Political Science Association. All rights reserved.