UCLA School of Law Law Economics Research Paper Series Research Paper No 07 14 NEGOTIATE OR LITIGATE EFFECTS OF WTO JUDICIAL DELEGATION ON U S TRADE POLITICS by JUDITH L GOLDSTEIN STANFORD UNIVERSITY and RICHARD H STEINBERG UCLA SCHOOL OF LAW This paper may be downloaded without charge at The Social Science Research Network Electronic Paper Collection http ssrn com abstract 1026023 Negotiate or Litigate Effects of WTO Judicial Delegation on U S Trade Politics Judith L Goldstein Stanford University and Richard H Steinberg UCLA The authors thank Karen Alter Curtis Bradley Andrew Guzman Larry Helfer Judith Kelley and participants in the Duke workshop on International Delegation for their many helpful comments on earlier drafts Since its creation in 1995 critics and supporters of the World Trade Organization WTO agree on two things there has been a surprising amount of judicial lawmaking1 and an equally surprising lack of success at advancing a broad trade deal among members This paper focuses on judicial lawmaking and argues that in some circumstances decisions rendered by court like bodies in the WTO are adhered to even when the same policy would not gain support in multilateral negotiations In this sense the two may be thought of as substitutes Why As U S expectations of reciprocity with developing countries have increased and as the General Agreement on Tariffs and Trade GATT WTO system has expanded in number and type of members consensus building to legislate new deals has become increasingly difficult reflecting the often conflicting constituent interests brought to the table 2 As the prospects for broad legislative rule making have declined judicial lawmaking has become more common especially through interpretation of unclear rules and the filling of gaps in WTO agreements Such lawmaking has been particularly evident in cases challenging subsidies or countervailing measures anti dumping duties and safeguards measures with considerable effects on the steel sector and agriculture Adherence to liberalizing judicial action is even more 1 As elaborated in Part I below judicial lawmaking is defined here as action by a judicial body that establishes new legal rules Such action is usually taken pursuant to a court s perceived authority to interpret legal text A court may take a restrained or expansive stance on interpretation leading to variance in the extent of judicial lawmaking At the WTO judicial lawmaking is done by the Appellate Body WTO judicial lawmaking is treated here as having two dimensions filling gaps in legal text and clarifying ambiguity 2 For a more detailed explanation for increasing stalemate in WTO trade rounds see Judith L Goldstein Richard H Steinberg Unintended Delegation The Rise of Judicial Liberalization at the WTO forthcoming 2007 2 counterintuitive since the same trade liberalization could face domestic resistance in the context of legislative trade negotiations We examine the question of judicial lawmaking and adherence to dispute settlement decisions in the context of overall delegation to the GATT WTO Our notion of delegation is drawn from Moe who argues that the principal agent model is an analytic expression of the agency relationship in which one party the principal considers entering into a contractual agreement with another the agent in the expectation that the agent will subsequently choose actions that produce the outcomes desired by the principal 3 As noted by Bradley and Kelley in this volume the institutional affect of such delegation is to change the incentives of all parties and as they note may lead to a sovereignty cost 4 We consider delegation to the secretariat but focus on dispute resolution in the appellate body we assume that the relationship among the principals of the GATT WTO that is its member nations or customs territories always held some degree of a principal agent relationship with the central administrative structures even though the membership exerted far more oversight over the secretariat than is found in most other international economic agencies Still as we suggest below an agency relationship did develop with a nascent secretariat in the mid 1950s and after 1995 grew with the establishment of the contemporary dispute settlement system What we suggest however is that it is not necessary to think of the relationship as binding It has always been understood that the principals may in practice renege on agreements made by the 3 Terry M Moe The New Economics of Organization 28 AM J POL SCI 739 756 1984 Curtis Bradley Judith Kelley The Concept of International Delegation LAW CONTEMP PROBS forthcoming 2007 4 3 collective including informal opinions by the legal office of the secretariat as well as formal decisions of the dispute settlement process We argue that as opposed to international organizations such as the World Bank or the IMF created in the same period the founders of the early GATT never intended to delegate authority to a central agent Rather delegation was an unintended byproduct of the creation of an underspecified set of rules and procedures first by the delegates who created the GATT in 1947 and later by those that participated in its re invention as the WTO in 1995 There has been no what we refer to as de jure delegation to the regime in the sense that most countries have not given up legal authority under domestic law to maintain trade rules they deem appropriate but there is behavioral delegation meaning that countries have de facto begun to act as if they have given authority to the regime 5 This form of delegation has had lasting effects and the functioning of the secretariat and the dispute settlement system should be viewed in this context In particular we suggest below that it may have enabled judicial activism as an unintended and imperfect substitute for liberalization through legislative action Through judicial action the dispute settlement system and the secretariat s influence on dispute settlement panel reports has been able to define and re define trade rules so as to keep markets open But while the actions of panels the Appellate Body and the secretariat appear to be consistent with their liberal world views the absence of de jure delegation makes the high degree of national adherence to these judicial decisions a puzzle that begs explanation 5 For more on the distinction between formal or de jure sovereignty and informal or de facto sovereignty see Richard H Steinberg Who Is Sovereign 40 STAN
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