Introduction

The process of resolving disputes under the WTO's Dispute Settlement Understanding (DSU) involves a complex and evolving legal jurisprudence. One foundational element to the WTO legal contract is that WTO adjudicators – that is, panellists and arbitrators – issue formal rulings that might result in changes to members' economic policies. This tight link between WTO dispute settlement and changes to members' economic policy makes it important to understand, evaluate, and continually refine how economic analysis is used to influence the legal–judicial process that is a critical element of the WTO's institutional performance.

Consider two representative examples of DSU panellists' and arbitrators' direct influence on members' economic policies. One is the US–Steel Safeguards dispute in which the prospect (or realization) of a DSU arbitration and authorized retaliation induced the respondent country to comply with WTO obligations by reforming a policy that adversely affected another member's expected market access benefits. In this dispute, the United States responded to the threat of DSU arbitration by eliminating a WTO-inconsistent safeguard and thus decreasing the US import tariff. A second example is the EC–Beef Hormones case; even though the dispute settlement process failed to change the respondent's economic policy and induce compliance, WTO arbitrators established a level of permissible retaliation that authorized the adversely affected complainant to change its economic policy. In this case, the complainant policy change was an increase in the US import tariff. And while these two disputes are examples of induced changes in national trade policies, almost every dispute involves a contested government measure affecting markets or economic incentives, and thus affects some element of a nation's economic policy.