Regional Trade Agreements and the Paradox of Dispute Settlement

Abstract

This paper addresses the paradox of trade dispute settlement in which countries allocate resources to the creation of dispute settlement mechanisms in regional trade agreements even as the WTO's system has become the primary forum for the arbitration of state-to-state disputes. I argue that while the WTO remains the primary insurance against the breakdown of trading relations, these new instruments play a political role in securing the gains of regional and multilateral liberalization (real and potential) against the possibility of multilateral failure. The paper reviews literature on the institutional and conceptual developments in the study of regional dispute processes, develops an empirical study of the rise of regional DSMs over time, and then links this evidence to changing ways of conceptualizing the costs and benefits of trade regionalization. A reinsurance hypothesis goes a ways towards explaining why countries negotiate DSMs that for the most part, they do not use.

Keywords: regional trade agreement, arbitration, dispute settlement, World Trade Organization, international economic law

JEL Classification: F15, K33, K41