Dispute Settlement Mechanisms in Preferential Trade Agreements

Abstract

Preferential trade agreements (PTAs) have increased dramatically in the past several decades and play an important role in the global economy. Dispute settlement mechanisms (DSMs) in these international agreements significantly influence their functioning. In this article, the authors seek to understand what factors determine the legal arrangements of these mechanisms. The authors argue that the confluence of domestic political regime type, emulation incentives, and the development of the multilateral trade regime determines their legal dimension. Using a data set of PTAs between 1957 and 2008, the authors show that (1) democracies are more likely than autocracies to prefer moderately strict DSMs, (2) trading partners increasingly emulate each other by adopting similar legal templates, and (3) the recent trend against legalistic mechanisms is largely driven by the development of the multilateral trade regime. Their findings have important implications for the design of international institutions by highlighting the importance of member-specific as well as macro-level factors.