countries eventually subject to WTO dispute settlement, Bown and Reynolds (2015) report that governments have requested the WTO legal system to scrutinize policies that affected nearly $1 trillion in imports over the period 1995-2011. This translates to roughly $55 billion annually or 0.5 percent of world imports in 2011.<sup>3</sup> In this paper, we investigate empirically the relevance of the terms-of-trade theory for enforcement of international agreements and the negotiated outcomes that arise under dispute settlement. While we begin with the Bagwell-Staiger theoretical model, we are forced to adapt its empirical implementation in order to address shortcomings in observability of data that arise in the enforcement setting. For whereas Bagwell and Staiger’s empirical examination of tariff negotiations under WTO accessions had access to data on precisely-measured “before” and “after” trade agreement tariff policy _levels_ , the enforcement setting typically does not allow for direct measurement of the analogous (before and after) levels of the policy subject to the dispute.<sup>4</sup> A simple examination of the caseload clearly reveals that most policy changes that trigger WTO disputes concern allegations of excessive levels of import protection. Nevertheless, governments typically do not impose this protection as a straightforward tariff change, instead implementing the new protection through a nontariff policy. While the timing of such policy changes may be readily observable, the size of the policy movements are notoriously difficult to measure accurately. Our approach is therefore first to reinterpret the theory to account for what we can better observe and measure, which is data on the “before” and “after” _trade volumes_ and _prices_ .<sup>5</sup> Put differently, in order to examine whether the predictions from the terms-of-trade theory also extend to determinants of outcomes under trade agreement enforcement negotiations, we do not attempt to assess the impact of these determinants on the changes to the levels of the _policies_ themselves, but instead to the changes in the trade volumes that result from these policy choices.

We use instrumental variables to estimate the model on data from formal WTO disputes that were initiated and legally concluded between 1995 and 2009 that involve alleged violations over policies that affect goods imports. We present evidence that larger trade volume outcomes are associated with products that had smaller increases to foreign exporter-received prices (terms-oftrade losses) at the conclusion of the dispute, larger pre-dispute import volumes, and a higher ratio of import demand to export supply elasticities. The results hold after extending the model to account for variation across new and institutionally-motivated measures of retaliation capacities

> 3These figures are a lower bound as they are constructed from bilateral trade data for disputes affecting goods imports only and thus do not include disputes affecting exports or services. They also do not attempt to account for the indirect market access implications of WTO dispute settlement arising through jurisprudence or “off equilibrium” impacts of the dispute settlement system. For more on the latter, see Bagwell, Bown and Staiger (2016, Section 7), which surveys the economics literature on WTO dispute settlement.

> 4In the Bagwell and Staiger (2011) trade agreement negotiations setting, the “before” policy was the tariff the country implemented prior to its WTO accession negotiations, and the “after” policy was the negotiated tariff following the country’s WTO accession. In the trade dispute setting that we introduce below, the “before” policy will be the policy change that allegedly violates the WTO rules and which triggers the WTO dispute, whereas the “after” policy is the one imposed by the importing country at the conclusion of the formal process of WTO dispute settlement negotiations and rulings.

> 5Our approach is to impose sufficient structure on the estimation so as to control for other factors outside of the theoretical model that may also influence trade volumes and prices of disputed products for the period of the dispute.

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