The WTO as Multilateral Diffusion Hub: Institutional Learning in WTO Disputes and the Design of Preferential Trade Agreements

Abstract Institutions are not created in a vacuum—but how do extant institutions influence design choices? Leveraging fragmentation in the global trade order, this paper stresses the relevance of experience and argues that the institutional influence of the World Trade Organization (WTO) extends beyond its jurisdiction through its centrality as multilateral diffusion hub: When states negotiate preferential trade agreements (PTAs), previous dispute settlement experiences in the WTO shape the design of dispute settlement mechanisms (DSMs). National bureaucracies undergo institutional learning processes when participating in multilateral trade disputes and subsequently conclude PTAs with DSMs that are similar to the institutions of the WTO, thus fostering their—decentralized—spread to the network of PTAs. The learning effect is particularly pronounced for states with low bureaucratic capacity. Employing a novel, unitary conceptualization of DSMs in terms of complainant rights shows that the results of this diffusion process generally entail increased levels of complainant rights in PTAs. Importantly, institutional learning is more than mere emulation: States also adapt institutional design to individual context by considering the prior dispute experience of their trading partners. A dual empirical strategy and interviews with PTA negotiators corroborate the learning effect and its relevance during PTA negotiations.