Measuring the Cost of Privacy: A Look at the Distributional Effects of Private Bargaining

Abstract

Transparency is one of the most contested aspects of international organizations. While observers frequently call for greater oversight of policy making, evidence suggests that settlement between states is more likely when negotiations are conducted behind closed doors. The World Trade Organization’s (WTO) legal body provides a useful illustration of these competing perspectives. As in many courts, WTO dispute settlement is designed explicitly to facilitate settlement throughprivateconsultations. However, this study argues that the privacy of negotiations creates opportunities for states to strike deals that disadvantage others. Looking at product-level trade flows from all disputes between 1995 and 2011, it finds that private (early) settlements lead to discriminatory trade outcomes – complainant countries gain disproportionately more than the rest of the membership. When the facts of a case are made known through a ruling, these disproportional gains disappear entirely. The article also finds that third-party participation – commonly criticized for making settlement less likely – significantly reduces disparities in post-dispute trade. It then draws parallels to domestic law and concludes with a set of policy prescriptions.