I have shown that states attempt to extort concessions from weaker states with dissimilar interests in bilateral settings because have both the ability and the incentive to do so. As a result, these states invest and trade inefficiently to protect themselves from extortion. To allow trade to flourish, states need to credibly commit to respect their trade agreements. This chapter demonstrates that the WTO allows states to do just this, solving otherwise intractable political hold-up problems by increasing the costs of members reneging on their WTO regulated commitments. But although it is widely recognized that the WTO can increase cooperation (Keohane 1984), this chapter incorporates the insight that coercive diplomacy causes political hold-up problems to provide a more nuanced view of the institution's role. I demonstrate that WTO membership improves trade cooperation primarily between states that would otherwise suffer from these hold-up problems.

However, WTO membership represents a trade-off for some states: they must relinquish a powerful coercive tool to reap the economic benefits of cooperation. States often elect to do so to obtain these large economic rewards; for example, the United States's desire to tie its own hands has been cited as a motivation for the GATT's creation after World War II (Yarbrough and Yarbrough 1992, 61–65). Furthermore, when the WTO replaced the GATT in 1995, its improved enforcement capacity was in part due to U.S. efforts to prevent itself from violating the institution's laws. The United States had passed domestic legislation called Section 301 in 1974 that allowed it to unilaterally retaliate against any nation that it deemed to have violated a trade agreement.

It turned to Section 301 with increasing frequency during the 1980s, which reduced other states’ willingness to trade with it (Elliott and Bayard 2004; Goldstein and Gowa 2002). Because the United States exercised discretion over what constituted a violation, it could use the act to further its foreign policy preferences. By strengthening the GATT's enforcement capacity, the United States could encourage other states to trade and invest with it more, benefiting the United States economically.

The WTO's power to reduce its members’ abilities to use their trade policies for coercion is also evident in a variety of states’ WTO accession decisions, as many states enter the WTO to prevent their partners from wielding trade as a coercive tool against them.