Standard of proof in WTO dispute settlement proceedings: an applied statistical perspective

ABSTRACT

This paper proposes a statistical framework for establishing prima facie evidence in WTO proceedings in which empirical evidence and statistical analysis play an important role. As our main contribution, we suggest a general guideline for the choice of the significance level in a statistical analysis, in order to meet the requirements for establishing prima facie evidence of a claim. We consider a fundamental asymmetry between whether a complainant’s initial claim is positive or negative. Statistically, a positive claim is one in favour of the alternative hypothesis, whereas a negative claim is one in favour of the null hypothesis. To account for this asymmetry, we suggest using different significance levels for positive and negative assertions, respectively. For positive claims, we suggest using the most commonly applied significance level of 5%. For negative claims, we suggest the less strict (but still commonly accepted) significance level of 10%. Choosing a less strict significance level in the case of a negative claim than in the case of a positive claim accounts for another fundamental asymmetry between the two possible outcomes of a statistical hypothesis test: rejecting the null hypothesis or not. Our framework helps to define reasonable hurdles in WTO proceedings to substantiate claims using statistical methods while leaving enough leeway for the panel and the Appellant Body to make adjustments on a case-by-case basis.

KEYWORDS:

• WTO proceedings
• standard of proof
• prima facie evidence
• hypothesis testing
• null hypothesis
• alternative hypothesis
• significance level

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 B. Garner (ed.), Black’s Law Dictionary (8th edn, West Group 2004), 1441.

2 G. Cook ‘Defining the Standard of Proof in WTO Dispute Settlement Proceedings: Jurists’ Prudence and Jurisprudence’ (2012) 1(2) Journal of International Trade and Arbitration Law 50, 1.

3 Ibid., 2.

4 G. Cook, A Digest of WTO Jurisprudence on Public International Law Concepts and Principles (1st edn, Cambridge University Press 2015), Chapter 7 (citing Appellate Body Report, US – Wool Shirts and Blouses, 14).

5 Ibid. (citing Appellate Body Report, Japan – Apples , para. 157 (citing Appellate Body Report, EC – Hormones , para. 98; Appellate Body Report, US – Wool Shirts and Blouses , 14)).

6 Ibid. (citing Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II), para. 66).

7 For example, in drug approval cases, the FDA normally requires a low significance level, say less than 0.01 in order to support a claim. FDA ‘Statistical Review and Evaluation’ (FDA, 1 May 2009) <http://www.fda.gov/downloads/AdvisoryCommittees/CommitteesMeetingMaterials/Drugs/CardiovascularandRenalDrugsAdvisoryCommittee/UCM196558.pdf> (accessed 13 July 2016).

8 WTO ‘Quantitative Economics in WTO Dispute Settlement’ in World Trade Report (2005), 171–211.

9 WTO, Dispute Settlement Australia – Tobacco Plain Packaging <https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds441_e.htm> (accessed 23 September 2016).

10 WTO, Dispute Settlement Australia – Tobacco Plain Packaging <https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds434_e.htm> (accessed 23 September 2016).

11 WTO, Dispute Settlement Australia – Tobacco Plain Packaging <https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds435_e.htm> (accessed 23 September 2016).

12 WTO, Dispute Settlement Australia – Tobacco Plain Packaging <https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds458_e.htm> (accessed 23 September 2016).

13 WTO, Dispute Settlement Australia – Tobacco Plain Packaging, <https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds467_e.htm> (accessed 23 September 2016).

14 <https://www.wto.org/english/tratop_e/tratop_e.htm> (accessed 24 September 2016).

15 As a specific example of a case involving the effect of a policy measure on trade, the World Trade Report (2005) mentions US – Upland Cotton, where cotton subsidies by the United States were claimed to cause serious prejudice to the interests of Brazil. With respect to the effect of imports on domestic products, among others, the WTO report discusses three cases involving econometric analyses on the effect of alcohol taxation: Japan – Alcoholic Beverages II, Korea – Alcoholic Beverages and Chile – Alcoholic Beverages. WTO ‘Quantitative Economics in WTO Dispute Settlement’ in World Trade Report (2005), 189–198 (citing Appellate Body Report, Japan – Alcoholic Beverages II, Appellate Body Report, Korea – Alcoholic Beverages, and Appellate Body Report, Chile–Alcoholic Beverages).

16 Appellate Body Report, Japan – Apples, para. 157 (citing Appellate Body Report, EC – Hormones, para. 98; Appellate Body Report, US – Wool Shirts and Blouses , p. 14).

17 G. Cook, A Digest of WTO Jurisprudence on Public International Law Concepts and Principles (1st edn, Cambridge University Press 2015), Chapter 7 (citing Appellate Body Report, US – Gambling , para. 309. 14; Appellate Body Report, Japan – Agricultural Products II, para. 137. 15; and Panel Report, Guatemala – Cement II, para. 8. 196).

18 Ibid. (citing Appellate Body Report, Japan – Agricultural Products II, para. 137).

19 Ibid. (citing Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II), para. 66).

20 To be precise, at a certain significance/confidence level, as will be explained subsequently.

21 See, for example, P.D. Ellis, The Essential Guide to Effect Sizes Statistical Power, Meta-Analysis, and the Interpretation of Research Results (Cambridge 2010) as well as J. Cohen, Statistical Power Analysis for the Behavioral Sciences (Elsevier 1988), 56.

22 Since the confidence level is 100% minus the significance level, choosing one is equivalent to choosing the other.

23 G. Cook, A Digest of WTO Jurisprudence on Public International Law Concepts and Principles (1st edn, Cambridge University Press 2015), Chapter 7 (citing Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II), para. 66).

24 D.W. Barnes ‘Too Many Probabilities: Statistical Evidence of Tort Causation’ (2001) 64 Law and Contemporary Problems, 211.

25 To this end, so-called multiple testing methods are available. See, among others, J.P. Romano and M. Wolf ‘Stepwise Multiple Testing as Formalized Data Snooping’ (2005) 73(4) Econometrica, 1237–1282 as well as A.M. Shaikh, J.P. Romano, and M. Wolf ‘Formalized Data Snooping Based on Generalized Error Rates’ (2008) 24 Econometric Theory, 404–447.

26 There is an important difference between statistical and economic significance. For example, statistical significance can also be established for a very small (economically irrelevant) effect if the test has high power; economic significance, on the other hand, indicates whether the finding is actually ‘meaningful’ in practice.