Trade Dispute: Learning how to make concessions

In any agreement involving two parties that are seeking a mutually beneficial outcome, concessions have to be made for everyone to progress towards a finish line. Parties in trade are often operating with imperfect information (at best) and this means that at least some leeway must be given. The process of dispute settlement is at the heart of moving forward.

Understanding the Role of Concessions in A Trade Dispute

Trade disputes typically occur between members of a multilateral trade agreement. These are usually members of the WTO or GATT. Concessions in these trade negotiations usually include a commitment to reductions in tariffs or various other policy concessions. Institutions have a big role to play in moving concessions forward in a progressive manner, without resorting to other methods of coercion such as retaliation or sanctions. Because of the “realpolitik” nature of international relations today, a trade dispute is not just inevitable but is also par for the course. Rather like a more complicated game of Risk, a trade dispute and its resulting dispute settlement process are meant to be a venue to, essentially and eventually, dissuade harmful barriers to the free flow of trade through a process of granting concessions and dispute settlement.

Goals of Dispute Settlement

When it comes to settling a trade dispute, the dispute settlement process tries to do various things: it is supposed to be able to lift restrictive barriers, especially for countries committed to freer trade policies. Members of a trade agreement can use the process of dispute resolution to “open” or “liberalize” the markets of other members that might be more protectionist. In a trade dispute, the threat of sanctions and international isolation is a very real one and certain vulnerable countries cannot afford to alienate bigger players in the agreement. Dispute settlement also aims to level the playing field, so to speak. So, if one party, known as the “complainant”, is looking for a concession, a respondent party that makes policy adjustments should be extending this policy, applying it to all other members affected by the offending barrier.

In the case of trade negotiations, institutional environments play a big role because, at their core, international institutions affect state behavior. To what extent and depth? It’s difficult to make a blanket statement about this because the context of one country is not necessarily true for another. It makes sense that, when a member nation-state is part of more than one trade agreement, they’re more likely to make concessions.