Legalization Leap and International Institutions – The Design of the WTO’s Dispute Settlement System

This paper tackles the question why the dispute settlement provisions of the multilateral trading system underwent significant reforms during the negotiations that led to the creation of the World Trade Organization (WTO) in 1995. Why did the leading trading powers accept a highly legalized system that departed from established political-diplomatic forms of settling disputes?  The contribution of this paper is three-fold. First, it complements existing accounts that exclusively focus on the US with a novel explanation combining principal-agent theory and negotiation analysis to account for the observed outcomes. Second, it offers the first in-depth empirical case study based on interviews with involved negotiators and novel archival evidence on the creation of the new WTO dispute settlement system. Third, by unpacking the long-standing puzzle why states designed a highly legalized system, it addresses selected blind spots of the legalization and the rational design literature with an aim to provide a better understanding about potential paths leading toward significant changes in legalization.