Is the dispute settlement system, “jewel in the WTO’s crown”, beyond reach of developing countries?

Abstract

Since the inception of the World Trade Organisation (WTO) in 1995, member countries have been heavily relying on the organisation’s Dispute Settlement System (DSS). Exploiting a new database on WTO litigations between 1995 and 2014, this paper describes disputes initiated over this period and identifies potential sources of bias concerning the participation of developing countries. The analysis builds on three different models to determine country i’s probability of initiating a dispute against country j. Either it depends on the two countries’ structure of trade (the rules-based model), or it is also affected by country i’s or country j’s specific characteristics (the unilateral power-based model), or it is also affected by bilateral economic and trade relations between countries i and j (the bilateral power-based model). We find that country i’s structure of trade with j plays an important role in explaining the probability that i initiates a dispute against j under the DSS. We also find clear evidence with regard to the importance of two independent variables: first the legal capacity of i (a variable related to the unilateral power-based model) and second the trade retaliatory capacity of i against j (a variable related to the bilateral power-based). Almost all these results hold when testing for both the likelihood of initiating a dispute and for the number of disputes initiated before the WTO.