Trade scholars have made considerable progress in explaining why sovereign countries cooperate in trade,but have difficulties in explaining why countries settle and enforce trade disputes with the help of an impartial third party, a ‘trade court’. In the relevant models, typically, the very reasons why institutions are needed are assumed away. We identify and successively relax the implicit set of rigid assumptions underlying these models. We show that theories of (self–) enforcement, besides enforcement capacity, must also consider questions of ‘enforceability’ (observability, verifiability and quantifiability). On the basis of this extended theoretical framework, we find that dispute settlement institutions in trade agreements may assume a variety of roles, including that of an information repository and disseminator, an honest broker,an arbitrator and calculator of damages, an active information gatherer or an adjudicator. We are able to show that the World Trade Organization (WTO) dispute settlement mechanism (DSM) fulfils many of these institutional roles.
Journal of World Trade