Contesting for fairness or profits? Sectorial trade dominance in WTO trade disputes and the role of the EU

Scholars have been widely studying political and economic determinants of WTO dispute settlement participation since its initiation in 1995. Yet, the role of sectoral trade in WTO trade disputes and retaliation cases remains unclear. Building on previous political economy literature that links political support to trade policy, I argue that the role of sectoral trade impacts the initiation of WTO trade dispute cases through two mechanisms. First, I claim that trade disputes aim to protect domestic sectors against breaches of international trade agreements, and thus, I expect larger trade sectors to increase the likelihood of dispute onset. Second, I focus on the role of bilateral trade and argue that the existence of higher sectoral trade dependency increases governments’ involvement in WTO litigation. Assuming that countries are more willing to bear the dispute’s costs when the stake is high, I study whether these effects become stronger throughout the four dispute stages. I test my assumptions using sectoral trade data from CEPII for 97 sectors and WTO trade dispute cases between 1996 and 2019. I employ bias-reduction binomial response GLMs models and multinomial logistic regression with year (and country) fixed effects on two datasets – panel and dyadic. My findings support the hypothesized positive effect of larger trade sectors as well as bilateral sectoral trade dependency on the likelihood of dispute onset whereas I find mixed support for the escalation of disputes. These results contribute to the literature as they show that governments have a higher incentive to litigate when trade at the sectoral level is higher, and that the association between aggregate trade and WTO disputes is negative. A preliminary analysis for the 27 EU member states suggests that larger trade sectors are a significant predictor of WTO dispute cases initiated by the European Commission.