The only reason that Valenwood is a part of the Dominion is because of how they overthrew it by putting staunch supports of high elf superiority into power. The general populace of Valenwood won't suffer the Dominion for long.
The Dominion shut out the rest of the world during the Third Era and eliminated all of the Blades from Valenwood from the Summerset Isles and Valenwood. Dropped hundreds of heads on the floor of the palace. Essentially completely destroyed the Empires foreign special forces. But it took them an entire era.
@Empire losing - they didn't lose. Re-conquering the capital was a decisive victory. He didn't have a choice but to sign a peace treaty because the Elf army was decimated and the people didn't want war anymore. You can't force people to continue to war to eliminate a threat. Look at the U.S. in Iraq and Afghanistan. The job isn't done there, but because of public opinion and unrest we're leaving a country we tore to pieces. It svcks, but it's the reality. So he had to concede to the WGC to buy the Empire time to rebuild at a faster pace than the Dominion.