The role of multilateral institutions in international trade cooperation

The World Trade Organization (WTO) lacks the power to directly enforce agreements. It is therefore important to understand what role the WTO can play to facilitate international cooperation, and whether a multilateral institution can offer distinct advantages over a web of bilateral agreements. This paper examines two potential benefits of a multilateral trade institution:first, verifying violations of the agreements and informing third parties, thus facilitating multilateral reputation mechanisms; second promoting multilateral trade negotiations rather than a web of bilateral negotiations. The model suggests that a multilateral approach is particularly important when there are strong imbalances in bilateral trading relationships. (JEL F13).