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A principle reason for the inability of the General Agreements on Tariffs and Trade (GATT) to serve as the vehicle for international trade liberalization was that it was the protocol for the establishment of the International Trade Organization. It was never intended to become a functioning institution. As such, it did not have a well-designed system for the settlement of trade disputes. At least partially because the GATT was not intended to function as an institution, an arguably excessive reliance on consensus emerged as the vehicle for the resolution of trade disputes. A consensus to accept the recommendations of a dispute panel became the standard for resolution under the GATT. Because the defendant could always object to implementation of the panel's recommendation, thus denying consensus, successful resolution of disputes were relatively infrequent. In the 47 years, during which the GATT was the principle international trade forum, 101 panel reports were adopted. Given that it is possible to file disputes on the basis of nullification and impairment of expected benefits, which is a considerably weaker standard than the allegation of a legal breach, it is apparent that the ineffectiveness of the dispute resolution mechanism was a deterrent to the filing of complaints. As the GATT increased in membership and pressures to address increasingly complex trade issues (intellectual property rights and agricultural subsidies, for example) emerged, it became apparent that the GATT could be undermined by an inability to resolve disputes.

Beginning with the assumption that antidumping laws are used to address adverse shocks in import-competing industries, this chapter provides an explanation for the infrequent utilization of the Dispute Settlement Understanding under the Antidumping Agreement. It does so with a very simple model that represents the shock by a one-dimensional random variable. This is found on an interpretation of the ADA as a de facto escape clause. ADA signatories are homogeneous, which enables the representation of the expected frequency of shocks over each member's import-competing sectors by the binomial distribution with identical parameters. The explanation for the infrequency of utilization of the DSU invokes a repeated Prisoners’ Dilemma with two levels of cooperation in an infinite horizon game. The high level is free trade in all sectors. The low level is the application of ADA duties in sectors incurring the shock in a manner that is consistent with the ADA. The high level of cooperation in all sectors in every period is not sustainable for any degree of patience. A convex combination of the high and low levels of cooperation is sustainable for some degrees of patience under the folk theorem. However, this combination of cooperation is attainable only with the support of the DSU. The extent of importance of the DSU depends on the completeness of information with which signatories are endowed. With complete information, dispute resolution does not occur in equilibrium. However, its presence supports cooperation through its mandate to sanction retaliation. If filing were prohibitively costly, disputes would never arise, and cooperation would be expected to evaporate. In the instance of incomplete information with costless filing, disputes would occur in equilibrium whenever an AD action was taken. In the most realistic circumstance, that of incomplete information and nonprohibitive filing costs, disputes would arise only when the number of AD actions exceeded their (common) expectation. This provides a conceptual explanation for the observations of Tarullo (2002) and Bown (2005) that ADA disputes are infrequent.

Among the primary suggestions for reform of the Dispute Settlement Understanding (DSU) of the WTO has been remedies for noncompliance. Prior literature has considered remedies in the context of deliberate breach of commitments. The WTO increasingly has, however, been negotiating commitments in subjective areas of policy. Thus, we provide a model of the DSU under which members' interpretations of concessions differ. This induces disputes regarding violation of commitments.

The Dispute Settlement Body (DSB) has promoted compliance primarily through authorization of retaliation (prospective punishment) after expiration of a reasonable period of time for the implementation of a verdict. As has been noted, this does not compensate a complainant for a violation of obligations and enables the respondent to circumvent punishment for imposing a cost upon a member of the WTO by reforming its offending policy reasonably promptly. We consider retrospective penalties (compensation for a loss) with and without reinforcement by retaliation as alternative enforcement mechanisms and find that a simple retaliatory punishment scheme is preferable. A penalty is unenforceable, as a member that is unwilling to reform its policy after an adverse judgment can decline to provide compensation. A penalty reinforced by retaliation can reduce compliance relative to a simple prospective punishment by raising the cost of abiding by the judgement.

Remedies also affect the negotiation of commitments. Members are more willing to make and less willing to accept unenforceable commitments. In this regard, the simple prospective punishment scheme is preferable.