Author: Christina L. Davis, Department of Politics, Princeton University
 
Realist scholars of international relations and the NGO groups protesting on the streets of Seattle in 1999 share a common assumption. Both believe that less developed countries are at a disadvantage when negotiating with more powerful counterparts. Smaller market size makes it ineffective for developing countries to use threats of retaliation in order to combat discrimination against their goods. In contrast, retaliation measures taken by larger economies can easily cause severe damage to a smaller economy. This leaves developing countries vulnerable to discriminatory trade policies adopted by their major trade partners.
 
In spite of their apparent lack of bargaining leverage, however, in some negotiations developing countries have been able to achieve positive outcomes – even the overturn of protectionist measures against their exports by the United States and EU. Simply evaluating the relative market power of the two sides in an economic negotiation is inadequate. As Odell (2000) argues, the strategies used in the negotiation process matter as much as the material resources of each participant. In addition, the institutional context of the negotiation can generate pressure for liberalization (Davis, 2003). For trade negotiations, the institutional context is shaped by the the General Agreement on Tariffs and Trade (GATT) and its successor the World Trade Organization (WTO). The GATT/WTO system upholds trade rules that apply equally to rich and poor countries alike and are enforced by a third party adjudication process to settle disputes. The WTO dispute settlement procedures provide developing country members with a distributive tactic that helps them to negotiate the reduction of trade barriers against their products.
 
This chapter argues that the use of legal adjudication allows developing countries to gain better outcomes in negotiations with their powerful trade partners than they could in a bilateral negotiation outside of the institution. There are four mechanisms that are important: guarantee for the right to negotiate, a common standard for evaluating outcomes, the option for several countries to join a dispute, and incentives for states to change a policy found to violate trade rules. Developing countries that use these institutional mechanisms by initiating complaints based on a strong legal case and in cooperation with other states will improve their capacity to gain concessions from other states. In contrast, developing countries that are not WTO members, or members that do not use the dispute settlement system, will often be unable to negotiate any concessions from more powerful states.
 
The first section of the chapter addresses the ways in which legal adjudication provides additional bargaining leverage for developing countries, and it also reviews studies on how developing countries have fared within the dispute system. The following two sections present case studies of negotiations with a small developing country demanding an end to protectionist regulations by a major trade partner. Using the approach of controlled comparison, the case studies were selected as negotiations that raise similar trade interests for two pairs of countries with roughly parallel positions in the international economy. Membership in the WTO is the key variable of difference.
 
The first case represents the options available to a developing country WTO member. Facing European labeling policies that discriminated against its scallops and sardines exports, Peru participated in two WTO disputes that brought about changes in the problematic policies. The second case represents the situation of a developing country that cannot appeal to WTO rules for leverage. As a non-WTO member, Vietnam must negotiate to maintain access for its catfish exports to the U.S. market on the basis of the Bilateral Trade Agreement. Ultimately, Vietnam was unable to prevent the United States from adopting a labeling regulation and anti-dumping suit that effectively exclude Vietnamese catfish from the U.S. market. The two cases are useful to illustrate contrasting kinds of negotiations under conditions of asymmetric power. 
 
The labeling cases raised similar strategies pursued by the United States and EC to protect against fish imports that threatened influential producer groups. The cases are also parallel in that both Vietnam and Peru offered an initial compromise solution that was rejected. Of course, there are important differences between the two pairs of negotiating countries. The economic interests and political institutions of the United States and EC are likely to influence their negotiating behavior. Nevertheless, there is little reason to expect that the EC is substantially more favorable to free trade or more supportive of the WTO than the United States – both represent major trade powers that have a large stake in the multilateral trade system, and both have adopted policies that could be challenged as violations of the WTO rules. One could also question whether Peru and Vietnam are comparable. Politically Peru shifted from dictatorship to democracy in 2001 with the election of President Alejandro Toledo, while Vietnam has remained in the hands of the communist leadership even as the government has loosened state control over some sectors of the domestic economy. Vietnam and Peru are both poor countries, but Vietnam at $430 per capita income is ranked by the World Bank as a low income country while Peru at $2050 per capita income is ranked as a lower middle income country. Yet both clearly lack the market power to counterbalance the United States or Europe and are dependent on access to these valuable markets for their goods. Looking at power alone would lead one to expect that Peru and Vietnam would be unable to prevail over the EC or United States, which were determined to protect their domestic producer interests.
 
The examination of labeling policy is important because internal non-tariff regulations are among the most problematic trade barriers. Food labeling in particular has become controversial. A new set of agricultural trade disputes have arisen regarding the use of geographical indications to recognize regional specialties as distinct products. Trade talks about genetically modified products and food safety have also come down to a debate over appropriate labeling policies. Indeed, concern about implications for this broader set of food labeling issues heightened interest in the two WTO disputes discussed in this chapter.