From the Outside Looking In: The Effect of Trading Blocs on Trade Disputes in the GATT/WTO

The increasing number and expansion of trading blocs is an important dimension of the contemporary international economy. This study examines the effects of such trading blocs on third parties and on the multilateral trading system. It is argued that trading blocs have negative economic effects on economic sectors in non-members' states. These sectors urge their governments to take political action vis-à-vis the trading bloc. Governments have several policy choices on their menu, and the attractiveness of these policies is determined by domestic and international incentives and constraints. I argue that filing a complaint in the GATT/WTO is an attractive and effective policy tool in the hands of third parties' governments. Thus, I hypothesize that the existence, deepening, and widening of trading blocs result in an increase in the number of complaints filed against their members in the multilateral trading system. I examine these propositions in the context of three important trading blocs—namely, the EU, NAFTA, and Mercosur—in the period 1948–2000. To test these hypotheses a time-series cross-section count model is performed. Controlling for conventional alternative explanations, the empirical analysis supports the theoretical framework.