Trade Disputes among Members of the World Trade Organization

The objective of this dissertation is to explore how WTO members may respond to trade disputes. In chapter one, we empirically investigate whether the WTO DSS is beyond reach of developing countries. We find that while the structure of trade plays an important role in explaining the probability that a WTO member initiates a dispute at the WTO DSS, the legal capacity and the trade retaliatory capacity of a country also affects its participation in the DSS. In chapter two, we aim to determine the impact of smuggling on economic welfare. We build a partial equilibrium model of trade in which we introduce illegal trade and apply this model to the smuggling of avocado in Costa Rica. Our results show that smuggling improves welfare compared to the “no-smuggling” situation. Compared to the “free-trade” situation, smuggling does not always compensate for the negative effects arising from the restrictive trade measure. In chapter three, we use a general equilibrium model of trade to determine whether the United States may benefit from the threat and/or application of strict reciprocity against its main trading partners. We demonstrate that while the threat of retaliation through reciprocal taxes may generate a global gain, its effective application would reduce the United States and the world’s welfare.