Preferential trade agreements (PTAs) are en vogue both as policy tool, as well as research subject. We do not beg to differ. In this paper, inspired by the in-going negotiations between the EU (European Union) and the US (United States) on the TTIP (Trans-Atlantic Trade and Investment Partnership), we ask whether the conclusion of the agreement will, among other things, signal fewer disputes between the two partners before the WTO. This could happen either because there will be a forum diversion (litigate before the bilateral forum with the same or different intensity), or because differences of opinion will be addressed in extra-judicial manner. Our prediction is that, judging from past behaviour, e.g. the amount of litigation between the EU and the US with their preferential partners before and after they had signed an agreement with them, it is quite likely that they will litigate less against each other before the WTO. Without assigning causal relationship to the signature of a bilateral agreement and the amount of litigation between preferential partners, we show that there is inverse correlation between the two. It remains to be seen whether the WTO will profit or suffer from the likelihood of fewer disputes between the two largest trading partners.
A highway Across the Atlantic? Trade and Welfare Effects of the EU-Mercosur Agreement