Democracy and Legalization: Evidence from Preferential Trade Agreements 1950 - 2009

Abstract

Dispute settlement in PTAs can range from diplomatic means of negotiation or a highly institutionalized standing court. I ask, what factors influence states to delegate their sovereignty to international judicial bodies? This paper seeks to determine a causal link between democracy and state preference for legalization in preferential trade agreements (PTAs). More specifically, I examine the effect of regime transition on a state’s preference for legalized forms of dispute settlement in PTAs. Scholars in dispute settlement design have previously emphasized the role of legal dispute settlement as a means for states to make credible commitments in conditions of uncertainty. New democracies are noted for being perceived by international actors as uncertain – there is the danger that these democracies will again slide to autocracy. In this paper, I present another argument: that democratic states sign legalized preferential trade agreements because it aligns with domestic norms and values. Thus, states sign more agreements with legal dispute settlement as they consolidate democracy and democratic norms. I test these two viewpoints empirically using a comprehensive dataset of signing patterns of PTAs for 176 countries from 1950 – 2009. I use a monadic state analysis to determine how the “average” state in the international system changes its preferences on legalization as it transitions from autocracy to democracy. My empirical findings support the theory that a state will sign more legalized agreements as they increase in democratic norms. I also add a comparative case study on Jordan and Uruguay to compare two economically similar countries with differing political systems. In addition, I critically examine how each country’s preference for legalized preferential trade agreement varies across time.