Should WTO Dispute Settlement Be Subsidized?

This paper develops a model of the WTO dispute settlement process (DSP) to study the recent proposal by legal scholars to subsidize litigation costs. The high cost of litigation, so the argument, is a major obstacle for developing countries to using the DSP to enforce developed countries’ compliance with WTO rules. The paper shows that this proposal may be misguided. In particular, a reduction of litigation costs may lead large countries to impose larger trade impediments where before they may have raised barriers only a little. Thus, a cost reduction may even weaken the smaller countries’ position in the DSP. Moreover, the model sheds light on the structure of the dark figure of un-accused offenses, suggesting that the observed record of disputes notified to the WTO is systematically biased.