Why Is There So Little Litigation under Free Trade Agreements? Retaliation and Adjudication in International Dispute Settlement

Over the past decade, the WTO dispute settlement system has continued to be used extensively, contrasting with the very few disputes taken to inter-state adjudication under free trade agreements (FTAs). This article examines disputes brought to the WTO in 2007-2016 by Members that are also parties to FTAs. Besides specific procedural difficulties in some FTAs, a broader, systemic factor may explain the little resort to FTA dispute settlement: the absence of the collective dynamic that the DSU creates in WTO dispute settlement. Contrary to what is sometimes assumed, retaliation is disciplined and limited, rather than enabled, by trade agreements. Even when formally prohibited, the option to retaliate not only remains alive but is widely reported as having been used in a number of cases. The article argues that, while the WTO remedy of retaliation may be useful as a last resort, the primary utility of adjudication for a complainant lies elsewhere. Adjudication operates as an alternative to retaliation: its added value is provided by the reputational damage, and collective pressure for compliance, that a condemnatory WTO ruling generates. Thus, Members resort to adjudication not in order to retaliate, but to avoid resort to mutually harmful retaliation. An assessment of the practice of WTO dispute settlement between DS1 and DS386 (US – COOL), the last dispute to have reached the retaliation stage, demonstrates that Members settle the vast majority of disputes far before lawful retaliation becomes a concrete threat, and prefer adjudication to retaliation even after the latter is authorized. If this assessment is correct, the little use of FTA adjudication may be explained in part by the fact that, in this absence of collective pressure, an aggrieved party may favor over FTA adjudication not only WTO adjudication but also unilateral retaliation.