The World Trade Organization's Dispute Settlement Understanding: Are All (Un)Equal?

Abstract

The World Trade Organization (WTO) is one of the most visible and contested institutions within the global economic governance architecture. Both proponents and opponents of trade liberalization regularly voice discontent with the institution’s functioning and its effect on the economies of its members. Of particular interest is the WTO Dispute Settlement Understanding (DSU), often described as the organization’s flagship body. The WTO DSU helps parties to settle disputes related to the interpretation and enforcement of the provisions drafted and agreed upon over several trade negotiation rounds. This paper presents a game-theoretic approach to analyze whether the WTO DSU ensures equal access and outcomes to all parties who are part of a trade dispute. It particularly addresses the costs of litigation. The paper argues that due to these issues, developing countries will not reap equal benefits from the usage of the WTO DSU as their developed counterparts. Developing countries will, due to a relative higher cost of WTO litigation, be worse off, both as a plaintiff and as a defendant. They will file less complaints and settle for less beneficial outcomes. We also find that bilateral settlement is a very important feature in the WTO DSU.