This chapter considers three legal ideal types for international economic governance, each with its own dispute resolution approach. The private contract mode of transnational economic governance lets businesses create mutual agreements (contracts), so long as these agreements adhere to basic contractual confines. For transnational business, the private contract model is generally coupled with a form of dispute resolution where the parties choose their dispute settlement preference: mediation, good offices, arbitration or adjudication in a designated adjudicatory system. In essence, business chooses its rules and the judge of those rules, albeit within certain confines. The private contract model is the most decentralized mode of transnational economic governance, and it exists only so far as governments choose to let businesses define the contractual terms for trade and the resolution of disputes.

That multilateralism is at risk has become a truism underlying global politics and, more specifically, the international regulation of trade. Besides the ongoing escalation of measures impeding international trade between trading nations, a decisive and well-recognized risk to economic multilateralism as we know it also stems from the growing emergence of plurilateral regulation formats. Governments are seeking to deepen international regulation in areas where they find common interests – and such progress has proven to be very difficult to achieve in large negotiation formats after the successful conclusion of the WTO Uruguay Round. The most disputed issues fall in an area of international trade law, which is directly concerned with state sovereignty and disciplines on – in the language of the General Agreement on Trade in Services (GATS) – domestic regulation. The rules that are decided and implemented in jurisdictions that regulate economic activities are highly normative political decisions and notoriously tricky to assess with regards to their impact on cross-border commercial exchanges.

Commentators have heralded the widespread agreement among states to permit the monitoring and enforcement of trade rules through third-party dispute settlement as a major milestone not just in the development of international trade law but in the development of international law more generally. The creation of multilateral rules on trade was itself an achievement but the compliance methodology that sought to ensure that states would uphold their commitments was an even greater triumph for a rule-based international system. In light of this accomplishment by governments to agree to such terms, much of the literature of the 1990s praised the institutionalization of trade law with these mechanisms incorporated and subsequent developments in international trade dispute settlement design (Jackson 1997; Schott 1994; Steger and Hainsworth 1998; Thomas and Meyer 1997). At the forefront of these developments was the dispute settlement mechanism of the World Trade Organization (WTO). Scholars viewed the WTO as a model not only in the substance of its foundational agreements, but also in its institutions with committees for dialogue among members and a dispute settlement mechanism premised on democratic norms and the rule of law (Alford 2013; Hamilton and Rochwerger 2005; Katz 2016; Manak 2019; Sarooshi 2014).

In most domestic legal systems, the domestic judiciary has great power over the actors (individuals, business, government entities, and so on) it oversees. By contrast, the international judiciary has traditionally had a more limited role, in part because of the central role of states in the governance of the international legal system (Cheng 1983). States maintain control over their participation in international legal disputes, over the power of the international judiciary to interpret and apply the law, and over the enforcement of international legal decisions. In recent years, however, the role of supranational entities that are hierarchically above states has grown, as international courts and tribunals with a moderate degree of authority have proliferated. While the fears of lost sovereignty expressed by many nationalists are greatly exaggerated, it is true that there has been a slight shift of authority from the national to the supranational through the establishment, by states themselves, of various international dispute settlement bodies.

There often exists a gap between public perceptions about how the proverbial sausage is made, and the reality of sausage-making. Just as often, sausage-makers have an incentive to preserve this gap between facts and perception. This chapter considers the analogous incentives of the various sausage-makers in international judicial settings, with a focus on the World Trade Organization (WTO). I show how recent empirical advances can offer an unprecedented glimpse into the sausage-making of international adjudication.

For the first time since its establishment, on 11 December 2019, the Appellate Body of the World Trade Organization (WTO) did not have the requisite number of Appellate Body Members to form a Division to adjudicate disputes. This date had been long anticipated in international trade circles and was precipitated by an unfortunate sequence of events. At the centre of these, was the dissatisfaction of the United States with, inter alia, the functioning of the Appellate Body.

The demise of the Appellate Body as it existed since 1 January 1995 has reverberated far beyond the WTO’s dispute settlement system. It brings to the fore the delicate balance of ideas and opinions that have been at the core of decision making at the WTO since the Uruguay Round.

There is widespread consensus that investor–state dispute settlement (ISDS) is in need of reform. In late 2018, Working Group III of the United Nations Commission on International Trade Law (UNCITRAL), tasked with considering investor–state dispute settlement reform, agreed by consensus that reforming the current system of investor–state arbitration was “desirable” in order to address concerns relating to: (1) consistency, coherence, predictability, and correctness of arbitral rulings; (2) independence, impartiality, and diversity of decision-makers; and (3) costs and duration of proceedings (UNCITRAL 2018). Since then, delegations at UNCITRAL have started looking at potential solutions in order to address the concerns identified (Sachetim and Codeço 2019; UNCITRAL 2019a).

As a diffuse, sprawling, relatively opaque and increasingly polarized legal order, the international investment regime, with its thousands of largely bilateral investment treaties, ad hoc system of adjudication – called investor–state arbitration or investor–state dispute settlement (ISDS) – and a decades-long legitimacy crisis and backlash against its practice make it a challenging phenomenon to accurately describe and assess. It also makes the identification and prioritization of its most problematic and reform-worthy areas of concern difficult to pin down. Without empirical data, the international investment regime has been, and to some degree continues to be, very susceptible to heuristics based on limited information, anecdote, and surface-level policy prescription.

The international economic law landscape has witnessed a number of significant developments in recent years, with some being gradual while others have been more in the nature of jolts. Among the former are the rise in bilateral and regional trade agreements and their concomitant dispute settlement mechanisms, and an increase in the number of investor–state disputes. Among the latter (‘jolts’) are the US administration’s decisive stance in 2018–19 regarding the WTO’s dispute settlement system – particularly the Appellate Body membership, renewal processes and decision-making – and the rapid increase in reform activities of investor–state arbitration institutions and working groups. Another development has been the so-called US–China ‘trade war’, led by the imposition of tariffs, and the potential role of the security exception in disputes pending at the WTO in relation to such impositions.

Free Trade Agreements (FTAs) include substantive rights and obligations like those set out in the WTO Agreement. Most FTAs also contain provisions establishing mechanisms for third-party adjudication of disputes that may arise between the parties. This leads to on overlap of jurisdiction (Kwak and Marceau 2006), whereby WTO Members could challenge their FTA partners’ measures in the WTO and under the respective FTA dispute settlement mechanism (DSM).