Firms’ Integration into Value Chains and Compliance with Adverse WTO Panel Rulings

Abstract

This article aims to account for the variation in the time it takes for WTO Members to bring compliance following adverse panel rulings. It seeks to answer the question: under what conditions do defendants swiftly implement adverse rulings of WTO panels? I demonstrate that defendants are more likely to comply without delay when the targeted measures involve firms that are integrated into regional and global value chains. When a dispute touches upon the interests of these firms and targets import-restricting measures, they are triggered to mobilize and press for compliance because they rely on foreign imports. In effect, the mobilization of these firms changes the domestic political conditions in favor of timely implementation. I show the plausibility of my argument in a comparative design with four case studies in which the US and Canada acted as defendants in WTO disputes. I control for a number of political factors and also consider legal sources of variation – i.e. the complexity of the form of implementation – that may impact WTO Members’ record of compliance.

The Impact Of Multinational Enterprises On Global Governance: The Protests Movement View

“…In earlier work, Bernard, Jensen, and Lawrence (1995) cited in Walker and Christopher (2014) show that exporters in manufacturing are very different than purely domestic firms. These MNCs sit atop the productivity ladder of all firms, being the largest, most capital and skill intensive, and the most innovative (Yildirim, 2018;Truex, 2014). Among MNCs, as theory implies, there exists variation in where they invest and how much.…”

“…Among MNCs, as theory implies, there exists variation in where they invest and how much. A "pecking order" arises where only the most productive firms invest in all types of foreign locations while the least productive firms invest in only the most productive locations (Yildirim, 2018). Although their numbers are small, they have a large presence within any economy.…”

“…Some research also suggests that MNCs increasingly prefer to have decisions made at the supranational levelthat is, in international institutions like the WTO and IMF or at international tribunals like International Centre for Settlement of Investment Disputes -where they may have even greater influence than domestically (Rommel & Stefanie, 2018; Dan-Jumbo & Akpan, 2018). Other studies show that they are the most likely to lobby for national compliance in WTO Dispute Settlement rulings (Song & Milner 2019;Yildirim 2018). Above all, it is not impossible that for many politicians to emerge winners they usually offer MNCs incentives such as tax breaks, pledges of governmental assistance or subsidized infrastructure, or lax environmental and labor regulations.…”

Global value chains and the political economy of WTO disputes

“…Of particular interest are multinational firms whose production networks are located in different countries to take advantage of lower factor costs and for whom investment protection and legal protection of property rights is especially salient (Kim et al 2019). Of the literature examining how GVCs affect outcomes of WTO disputes, Yildirim (2018) and Yildirim et al (2018) show that countries comply much more swiftly with adverse WTO Panel rulings if the dispute affects sectors characterized by the presence of GVCs. The argument underlying this type of research relies on the assumption that firms that are part of GVCs are less likely to lobby for trade protection (Jensen et al 2015).…”

“…While this research is a huge step forward in better understanding the process of WTO dispute settlement, they also raise the question of why WTO disputes arise in the first place. Both Yildirim (2018) and Yildirim et al (2018) argue that the political influence of GVC interests pushes governments toward compliance with WTO dispute settlement rulings. If this is the case, then how is it that such political influence does not already manifest itself domestically when the trade dispute first emerges?…”