Legalization in context: The design of the WTO’s dispute settlement system
| Date | 01 May 2017 |
| DOI | 10.1177/1369148117690890 |
| Published date | 01 May 2017 |
| Author | Manfred Elsig |
| Subject Matter | Articles |
https://doi.org/10.1177/1369148117690890
The British Journal of Politics and
International Relations
2017, Vol. 19(2) 304 –319
© The Author(s) 2017
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DOI: 10.1177/1369148117690890
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Legalization in context: The
design of the WTO’s dispute
settlement system
Manfred Elsig
Abstract
This article asks 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 article is threefold. First, it complements existing accounts that exclusively focus on the
United States with a novel explanation that takes account of contextual factors. Second, it offers
an in-depth empirical case study based on interviews with negotiators who were involved and
novel archival evidence on the creation of the new WTO dispute settlement system. Third, by
unpacking the long-standing puzzle of why states designed a highly legalized system, it addresses
selected blind spots of the legalization and the rational design literatures with the aim of providing
a better understanding about potential paths leading toward significant changes in legalization.
Keywords
Appellate Body, international courts, legalization, World Trade Organization
Introduction1
When in 1995 the World Trade Organization (WTO) opened its doors, the organization pre-
sented a reformed dispute settlement system (DSS). Some observers suggested that the new
system represented the ‘jewel in the crown’ of the organization, others called it a ‘radical
reform’ (Hudec, 1993: 362). Compared to dispute settlement provisions in other fields of
international law, the WTO’s DSS is characterized by a high level of legalization, stream-
lined and timely processes, and a high degree of formal compliance with treaty obligations.
Given the importance of the legal system in the WTO, there is little empirical work
on explaining the creation of the DSS. Thompson (2007) tackles the question: why did
the United States accept a highly legalized international court that has the authority to
demand that the United States (in case of treaty violation) change its domestic laws?
Using a two-level game metaphor, he suggests that US negotiators attempted to tie
World Trade Institute, University of Bern, Bern, Switzerland
Corresponding author:
Manfred Elsig, World Trade Institute, University of Bern, Hallerstrasse 6, CH-3012 Bern, Switzerland.
Email: manfred.elsig@wti.org
690890BPI0010.1177/1369148117690890The British Journal of Politics and International RelationsElsig
research-article2017
Article
Elsig 305
Congress’ hands by using international law as a lock-in strategy. Goldstein and
Steinberg (2008: 265) argue that the United States championed the negotiations ‘con-
tingent on a crucial proviso—that the substantive rules adopted […] had to be adequately
specific and reflect U.S. policy objectives’. For Goldstein and Gowa (2002: 164), the
US support for the new DSS was explained by a loss of credibility that led the United
States to push for ‘an institutional fix to demonstrate the US commitment’. Finally,
Pelc (2010) similarly suggests that the legitimacy of US trade policy had to be improved
through active support of the WTO DSS. While these are all plausible arguments, they
are characterized by an exclusive focus on the United States and by a lack of conclusive
evidence.
This article presents an alternative account to a US-centered argument and focuses on
the context as an important explanatory variable for the observed outcome. Two contex-
tual factors stand out. The article puts forward the argument that in order for a legalization
leap to occur, two conditions are required. First, we need to observe a negotiation envi-
ronment that privileges cooperative forms of bargaining. Second, expectations of key
actors need to converge over time. This process is driven by experiential learning, namely
experience with the existing DSS that leads to an updating of information and in turn to
changes in preferences. I test this argument with new evidence from the negotiation
process that led to the WTO’s new DSS.
Legalization leap: Puzzling reform outcomes?
The term legalization encompasses three components: (1) obligation; (2) precision of
international law; and (3) forms of delegation to the international level (including dis-
pute settlement) (Abbott et al., 2000). Four changes that capture a significant increase
in legalization deserve special mention.
First, the WTO offers a so-called ‘right to a panel’. In the General Agreement on
Tariffs and Trade (GATT) system, parties had to agree on bringing a case and convening
an expert group of three panelists. This led to a de-facto veto over the creation of ad hoc
panels. Second, the WTO created a standing appeals institution (Appellate Body (AB)) on
top of the existing ad hoc panel system, where any of the disputing parties can refer the
case to the AB for an additional review. Third, the findings of the dispute settlement bod-
ies (both panels and AB) are quasi-automatically binding. During the GATT times, it took
consensus by GATT contracting parties for a panel report to be adopted and hence legally
binding. While panel decisions today can be appealed to the AB, decisions by the panels
or the AB cannot be easily overturned. WTO Members would have to agree by consensus
not to accept the ruling (so-called negative consensus) or agree among themselves on a
different interpretation. These are, however, extraordinarily high thresholds for correc-
tion. Fourth, the rulings are implemented through a decentralized sanctioning mecha-
nism. The DSS foresees implementation procedures in which the winning party is allowed
to apply sanctions to remedy the situation in case of non-compliance by the losing party.
In case of disagreement over the exact implementation, the AB (functioning as an arbitra-
tion panel) can again be called upon to engage in a compliance review.
Were these reforms foreseeable? Interviews with involved participants of the negotia-
tions provide ample evidence that the ambitious outcomes could not have been predicted
at the outset of the process. Clearly, the original idea to fix the system and the preferences
of key actors can hardly explain final outcomes. The main GATT official who served the
negotiation group remembered, ‘I was very surprised to see agreement on issues such as
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