The Paradox Of Compliance: Does Legalization Increase Compliance In Trade Disputes?

The theory of legalization postulates that compliance increases with the degree of legalization, facilitated by binding adjudication. However, a simple comparison of dispute settlement under the former General Agreement on Tariffs and Trade (GATT) and the current World Trade Organization (WTO), which has absorbed GATT into its fold, shows that there is no apparent increase in compliance despite a considerable increase in legalization. This chapter argues that such a paradoxical result could come about because of the endogeneity of behavior in bringing disputes to the dispute settlement system and, hence, the endogeneity of adjudication. In part due to legalization, a greater number of cases have been filed under the WTO. Furthermore, data analysis shows that more difficult cases have been filed under the WTO. Hence, the proportion of disputes that have failed to be resolved after adjudication has increased, leading to the abovementioned paradox.