Formal International Institutions and the Regulation of Flows of Goods and Services
Summary and Keywords
Trade governance rests upon certain economic assumptions and the ensuing political compromises made possible by the growth of an incremental legal consensus. The main economic assumptions are that trade will deliver upon the objectives of socio-economic development, stable, long-term employment opportunities and poverty reduction. These assumptions are theoretically sound, but are increasingly challenged by the complex political realities of global trade. The study of trade in the field of international political economy (IPE) has deep roots in the postwar disciplines of economics and political science. The literature on the history of trade regulation places the current system, with its emphasis on the legitimizing imprimatur of political power and the significance of binding treaty, into a more nuanced context in which present practices, while sometimes novel, are frequently older than most policy makers realize. In the two decades since the finalization of the Uruguay Round and the creation of the World Trade Organization (WTO), a host of significant issues have arisen as scholars and policy makers attempt to implement the WTO’s mandate and navigate the political waters of trade regulation as it relates to domestic law and policy. These include the set of issues raised by the broadening of trade regulation post-Uruguay Round to include trade related intellectual property rights and trade in services, the contentious issue of trade and economic development, and the issue of WTO reform.
This essay reviews the most relevant literature pertaining to institutions that regulate international trade of goods and services. In particular, it is concerned with scholarly research that places trade governance within its historical, political, economic, and legal context (Ostry 1997; Keohane 2009; Howse 2012). Therefore the review defines formal institutions as organizations constituted and legitimated by state authority which are created to meet a governance need, and which evolve along trajectories influenced by global political and economic change (Strange 1994).
The first section examines a representative portion of the most important theoretical literature cited by scholars of IPE as they study the institutions regulating trade flows. The second section examines the literature pertaining to the long history of trade regulation before World War II. Drawing a line between the regulation of trade before the twentieth century and after may create a false dichotomy where none exists. However, such a division does offer a helpful mental heuristic with which to organize a large body of literature on modern technocratic and multilateral political processes on the one hand, and the practices of previous centuries on the other. This is not to suggest an easy separation within what is essentially a complex web of causation, but rather to make a distinguishing mark, where appropriate, on a large and heterogeneous body of research (Braudel 1980).
The third section examines the most important scholarship of postwar trade governance, focusing on the era from the stillbirth of the International Trade Organization to the successful creation of the World Trade Organization in 1995. Next we move to an overview of competing and complementary trade governance options such as regional trade arrangements (Crawford and Fiorentino 2005; Das 2007; Mansfield and Milner 2010). The article concludes with a short overview of literature that covers evolving governance issues facing international institutions that regulate trade.
Current Theoretical Approaches to the Study of Trade Governance
According to statistical data collected by the World Trade Organization, trade continues to grow at a rapid rate, with worldwide export volumes recently outpacing growth in the global production of goods and services. Indeed, trade is more important to the health of the global economy now than at any other time in human history (Appleby 2010). It almost goes without saying that any social phenomenon as economically and socially significant as the global governance of trade is studied by almost every stripe of scholar, from historians, through sociologists, anthropologists, and legal scholars (Duina 2007). However, we will confine ourselves to the study of formal institutions of trade governance as they are understood by scholars working self-consciously in the multidisciplinary context of an international political economy (Fritsch 2010).
The study of trade in the field of IPE has deep roots in the postwar disciplines of economics and political science. Early research into the ordering of trade flows is frequently traced to Viner (1952), Kindleberger (1951), and a generation later to Robert Gilpin (1975) in the United States and Susan Strange (1971) in the UK, all of whom emphasize the significance of political considerations when studying global flows of goods and services (Cohen 2009; Clift and Rosamond 2009). With the development of a self-organized subfield of IPE in the 1960s and 1970s, debates around theory and methods were perhaps most influenced by the complex interdependence of Keohane and Nye, which became known as neoliberal institutionalism (Keohane and Nye 1977; Cohen 2009). Their work, along with that of Katzenstein (1977) and Cox (1987), among many others, convinced an entire generation of scholars that the governance of economic integration ought to be studied with an eye to both the expansion of global markets and the effects of power politics on economic organization. It is in this formative thirty year period between the 1950s and 1980s that the study of trade and its attendant politics, practices and institutions became central to the scholarly study of international political economy.
Following closely in the footsteps of neoliberal institutionalism, new methods for studying institutions opened up trade multilateralism to scrutiny from other angles (Frieden and Martin 2002). In particular, historical institutionalism suggests that institutions are path dependent and the historical circumstances in which they are created play a significant role in shaping their subsequent developmental trajectory (Zysman 1994; Pierson and Skocpol 2002). The new institutionalism, as it was called, implies that in order to understand the postwar international order, we must understand the political, economic and legal forces that created it, and continue to drive the development of a variety of unique institutional evolutionary trajectories beyond the state (Peters 2000). Such a view suggests that the larger political institutional context that gave birth to the postwar economic order plays an ongoing role in the evolutionary development of intergovernmental organizations today.
In recent years the varieties of capitalism approach argues that the states which are the subjects of international law and the members of intergovernmental institutions have developed different approaches to the nurturing and regulation of capitalism, and these varieties of capitalism influence a state's participation in trade regulation (Cutler 2001; Hall and Soskice 2001; Froese 2010). Such an approach may begin to explain why states take multiple approaches to market regulation and multilateral negotiation.
Most of the past half century has been a continuous refinement of the methods by which IPE scholars (and indeed political scientists generally) approach the study of the convergence of power and wealth at the international level (Cutler 2003). Complex interdependence, the new institutionalism, and the varieties of capitalism literature suggest a certain amount of consensus on the part of social scientists about two basic assumptions, that increased global trade goes hand in hand with other markers of human development and that current modes of global governance are an important next step in an evolving process aimed at ameliorating the political and economic asymmetries that challenge global commercial regulatory processes (Bohanes and Garza 2012).
Even so, other scholars working in realist and radical traditions have leveled important criticisms at the liberal approach to global trade governance. Radical literature argues that institutional scholarship ignores the fact that powerful states press forward a political project in which neoliberal social and economic relations are globalized through the dynamics of multilateralism (Cox 1987). Following Lenin's analysis of imperialism as the highest form of capitalism, they study the ways in which Anglo-American power relations are produced and reproduced through a deeply unjust and inequitable system for governing international economic relations (Panitch and Gindin 2012). Similarly, Neo-Gramscian scholarship has analyzed modern institutions of trade governance as constitutions for global capitalism, suggesting that multilateral trade and investment treaties legitimize global inequality and create a constitutional order for exploitative political economic relations (Gill 1995).
In a separate yet related vein nationalists like Barfield (2001) argue that too much sovereignty is ceded to governance institutions for too few competitive advantages. A softer critical nationalism tends to gain a significant scholarly audience in nations that are heavily reliant upon trade with larger partners. For example, in Canada Clarkson (2002) and Drache (2004) have written a number of books on the perils of deeper economic integration with the United States. The basic argument is that governance mechanisms do not offset the real inequalities in wealth and power that makes integration between unequal partners a possibly lucrative, but inevitably hazardous proposition. These nationalist critiques are closely related to the thought of realist international relations theorists such as Mearsheimer (1994), who argues that an analytic focus on international institutions only serves to obscure the material and political sources of power upon which international relations are built. This critical and realist distrust of international governance institutions is nurtured by, but perhaps less intellectually reliant upon, a number of policy oriented critics. From the right and the left these critics make the point that the outcomes of the current system are unfair, either to the hegemon which is unduly constrained by the politics of lesser partners (Kagan 2003), or the less developed nations which are locked into inequitable patterns of trade (Stiglitz 2006).
When it comes to the study of trade regulation today, complex interdependence and the institutional turn still dominate the discourse, and the insights of economists and legal scholars, always important, are becoming increasingly central to understanding the developmental trajectory of trade governance (Bhagwati 2002; Bown and Hoekman 2007; Bagwell and Staiger 2009). Much of the economic side of IPE is rooted in liberal, neoclassical modes of microeconomic analysis (Bagwell and Staiger 2002; Samuelson 2004; Bhagwati 2007), although institutional and behavioral approaches have made some significant inroads (Tversky and Kahneman 1974; Krugman 1990, 2003; Akerlof and Shiller 2009). Also, the impact of legal scholars ought not to be underestimated (Abbott and Snidal 1998). Important legal scholarship is oriented towards analyzing and explaining the growth of legal mechanisms and case law in the broad field of international economic law (Guzman and Sykes 2008). Critique often comes from sociological approaches to studying law and a number of new and significant debates about the implications of trade governance for emerging forms of global constitutionalism are taking place in the literature on comparative legal functionalism (Trachtman 2011).
Relevant Literature on the History of Trade Regulation
Having covered the waterfront of trade studies in a necessarily fragmentary manner, we move to a discussion of the phenomenon of regulation itself, examining its political and intellectual history, and moving forward from ancient into modern periods before moving into a discussion of the postwar institutional arrangements that dominate the regulation of international trade today. The literature on the history of trade regulation places the current system, with its emphasis on the legitimizing imprimatur of political power and the significance of binding treaty, into a more nuanced context in which present practices, while sometimes novel, are frequently older than most policy makers realize (Findlay and O'Rourke 2007). In the ancient world, as in the modern, the institutions that regulated flows of goods and services were rooted in domestic political authority and developed to meet the needs of political powers that dominated certain regions. In regions where well-developed markets existed, formal institutions were frequently required for delineating trading territory, protecting markets and extending monopoly rights vis-à-vis other market actors (Spruyt 1996). Regulation most frequently took the form of tolls extracted for use of water and roadways. In areas where markets were underdeveloped, such as in portions of the pre-Hispanic Americas, imperial control for the purposes of political and economic expansion took more directly coercive forms (Stanish 1997). Winham (1992) suggests that the formal regulation of trade by political elites is almost as old as long distance trade itself, pointing to evidence suggesting commercial treaties were struck between Babylonia and the pharaohs of Egypt by 2500 BCE (see also Trebilcock and Howse 2005:21).
Much later in the fifth century BCE Herodotus describes a formalized pattern of trade between the Carthaginians and their North African partners, which suggests the development of a number of patterns of trading norms, if not a set of rules regulating commercial interactions in the eastern Mediterranean (Bernstein 2008:21–2). In the ancient world, trade was limited by technology and geography, and these in turn imposed limits on the political control of trade. Even so, trading networks in the ancient world linked China, Central Asia, the near and middle East, the Mediterranean basin, Europe and North Africa. Movement of goods and people occurred slowly by modern standards, but the diffusion of material and cultural goods nevertheless shaped far flung economies in profound ways (for a series of thematic essays on Asiatic and Mediterranean trading routes visit the Archatlas site included in the web resources at the end of the article). For example, by the end of the Roman Republic, the Han Dynasty in China had exerted political control far to the north and west of its traditional territories in an effort to control the lucrative tolls of the Silk Road. Chinese authorities similarly regulated shipping on the Indian Ocean, where regular monsoon winds made seaborne trade between Asia, Africa, India and the Mediterranean much easier compared to the overland route across central Asia.
The politics of trade regulation in the ancient world were rooted in cultural attitudes to commerce, concerns about trade and national security, the ever-continuing debates about the ethical implications of a trade-oriented economic policy and the fraught relationship between political authority and economic power. Long-distance trade made possible a division of labor among trading jurisdictions if only to a limited extent. Plato recognized the value of imports to urban life and suggested that the possibility of trade allowed men to divide their labor according to their preferences (Irwin 1996:13). Even though the Greeks and Romans recognized the economic benefits of trade, they were wary of the security implications of relying upon foreign goods and valued self-sufficiency, although not to the point of autarky. Christian Europe embraced foreign trade with similar reservations (Rowntree 2004). However, European thinkers tended towards what Irwin, following Viner (1952), terms the “doctrine of universal economy.” The doctrine, developed by Stoic philosophers and Christian theologians between the first and fifth centuries CE suggests that Providence arranged the products of the earth in such a way as to require people to come into contact with each other in order to facilitate bonds of sociability and mutual assistance (Irwin 1996:15).
With the decline of centralized authority in the western Roman Empire in the fifth and sixth centuries CE, it has often been assumed that trading contacts between east and west decayed. While it is certainly true that demand for Asian luxury goods declined significantly in this period, other commercial relations, such as the trade in furs between Medieval Europe and the Kievan Rus developed and eventually became the ties that bound western Europe to the central European carrying trade and Russia (Findlay and O'Rourke 2007). Out of this political economic context new forms of trade regulation arose (Spruyt 1996). Between the thirteenth and seventeenth centuries the Hanseatic League (a network of German towns governed by Burghers) negotiated a high degree of political and economic independence (Findlay and O'Rourke 2007:120–2). They dominated the Baltic carrying trade and collected tolls from trade flows between northern and southern Europe. Forging commercial links between the Italian peninsula, the Germanic states, Russia, the Baltic territories and London, the Hansa are significant because for the first time we see the development of a set of self-governing city-states whose trade flourishes because of cooperative arrangements with local princes that replace the heavy hand of territorial dominion with an arms-length arrangement of local self-government in the interests of commerce.
The rise of European imperialism in the sixteenth and seventeenth centuries corresponded with an increasingly popular perception that trade benefited some regions and nations more than others, and that the wealth accrued through trade was essential for the development of a secure state. While mercantilist ideas were not new in this period, economists today agree that they flourished and found their best expression in this period (Spiegel 1991). Mercantilists believed wealth to be finite and therefore nations may use barter to gather and control more of the earth's wealth than other national competitors (Munn  1928). Critics of mercantilist thought saw trade as an inherently peaceful form of competition because both partners may benefit (Semmel 1993).
Yet for rising imperial powers the scramble for trading zones in Asia and the huge profits it represented, seemed to be very much a game in which some countries lost, while others won (McCusker and Morgan 2001). The Dutch and English, in particular, combined the entrepreneurial energies of “companies of adventurers” with the military force of the state to create trading monopolies with the dual purpose of enriching their shareholders while simultaneously protecting national monopolies (Bown 2010).
By the seventeenth century, Grotius, in his seminal work Mare Liberum, reconnected with the doctrine of universal economy, developing a perspective in which open trade is a force for human development (Borschberg 2011). Such a view had significant implications for the political management of trade, suggesting that commerce is part of a larger social pattern that may be distanced from overt political control, yet remains dependent upon public authority in a number of small, yet crucial, ways. Ruling elites were quick to exploit that dependence. Even so, an approach to understanding trade that privileges a natural law basis for the flow of goods and services remained a decidedly minority position; mercantilism still ruled in the world of seventeenth-century trade policy, and would continue to do so well into the eighteenth century (Hamilton 2008).
By the end of the eighteenth century, the limits of mercantilist thought were well documented and scholarly commitment to a newer set of regulatory concepts presaged a more open century to come (Clark 2007; Hont 2010). Adam Smith laid out the concept of absolute advantage and Ricardo (2004) refined it with the theory of comparative advantage. With Great Britain's repeal of the Corn Laws in 1846, trade throughout the empire entered a period of open markets. Britain was first a unilateral free trader and then gradually developed a trade policy ruled by the norms of reciprocity (Bell 2007). With the Elgin-Marcy Treaty of 1854–65, the United States acted upon Britain's unilateral moment to strike a reciprocal trade agreement with the Canadian colonies (Hart 2002). Shortly thereafter Britain signed the Cobden-Chevalier Treaty of 1860 with France, marking the beginning of a new phase in Anglo-French economic relations (Trebilcock and Howse 2005:21). Even so, Nye (2007) challenges the traditional conception of Britain as first and foremost, a free-trade power. Other factors are necessary to explain the evolving nature of state-based trade regulation in this period (Howe 2007).
Britain's acknowledged status as a strategic exploiter of emerging norms and rules for trade presages the issues of trade regulation that galvanize the global economy at the dawn of the twentieth century. The political paradox of trade is that while conflict frequently creates trade contacts and economic opportunity, the resulting density of trade relations does not necessarily reduce the likelihood of future political conflict (Eichengreen and Irwin 1993). In the troubled decades following World War I, national trade governance institutions were heavily influenced by domestic pressures. The Smoot-Hawley Tariff Act of 1930 is perhaps the most widely cited example of beggar-thy-neighbor trade policies that deepened the Great Depression (Schattschneider 1935). However, Irwin (2011) has noted that Smoot-Hawley, while important for understanding the politics of protection in the 1930s, did not raise tariffs as steeply as is often represented. Even so, congress took seriously the lessons of Smoot-Hawley and enacted the Reciprocal Trade Agreements Act of 1934 that delegated certain congressional powers to the president, thereby setting the stage for a number of American-led multilateral initiatives that reshaped the trading system after 1945 (Destler 2005).
The Anglo-American experience with global trade in the nineteenth century bequeathed an important set of challenges to the twentieth century. In particular monetary regulation was a powerful force for trade integration in the nineteenth century, but brought with it structural rigidities that were largely incompatible with twentieth-century governmental forms (Ruggie 1983). Following World War II, the answer was a new commitment to political, rather than structural solutions to the problem of complexity in international economic relations (Mazower 2012). The postwar trading system sought to create a flexible and durable political order for the regulation of trade while simultaneously managing the political intricacy of a growing network of trading relations among nations with different levels of economic development.
Scholarship Pertaining to the Postwar Trading System
There are three reasons most frequently cited for the furthering of global trade relations – economics, peace, and development.
The economic reasons have been discussed above, as has the goal of peace through trade. But it is worth revisiting the functionalist argument, which asserts that nations who trade together may be more likely to avoid war (Tranholm-Mikkelsen 1991). This is the idea that international cooperation in one field of political endeavor creates a basis from which to engage other mutual interests. The functionalist argument is perhaps most relevant for explaining the dynamics of regional integration, but it does highlight the centrality of institution building for the current and future governance of trade. This section outlines the institutional development of trade regulation from the stillbirth of the International Trade Organization following World War II to the successful creation of the World Trade Organization in 1995. We will focus upon the development of a central institutional mechanism for trade governance and the rise of a system of diplomatic rounds in which states reciprocally lowered tariffs, and discuss a number of significant political economic issues surrounding the growing regulatory system in this period (Irwin, Mavroidis and Sykes 2009).
In 1944, the Bretton Woods Agreement established charters for the International Monetary Fund and International Bank for Reconstruction and Development (World Bank). However, trade was left off the table. Recognizing the importance of trade to future global economic stability, US negotiators produced a document titled “Proposals for Expansion of World Trade and Employment,” which proposed the development of a third intergovernmental financial institution for the governance of trade (Lester, Mercurio and Davies 2012:56). By 1947 the US and UK had developed a draft charter for an International Trade Organization, and in November of that year 57 states met in Cuba to finalize the Havana Charter. For reasons having to do with congressional politics, the United States never ratified the charter, and the ITO never came into being. Lester et al. (2012:57) suggest that “the ITO was too ambitious a proposal for the times. The ITO required significant and meaningful commitments for signatories in such areas as dispute settlement, international commodity arrangements, foreign investment, labor standards, and restrictive business practices.” However, the General Agreement on Tariffs and Trade, which had been negotiated alongside and did not require congressional approval to be implemented in the American context, remained (Jackson 1997). As something of an anomaly, it existed for the next 48 years without an institutional home, and without the extensive secretariat support enjoyed by other IGOs.
Twenty-three states signed the GATT, and used its provisions to guide a series of multilateral rounds of trade liberalization aimed at reducing tariffs. Between 1947 and 1960 the first five rounds focused exclusively on tariff reduction and included fewer than thirty countries. By the time of the Kennedy Round in the mid-1960s, the goal of tariff reduction had expanded to include antidumping measures and non-tariff barriers to trade. When the Uruguay Round was launched in 1986, the creation of a new intergovernmental organization to govern trade was not on the table, although it was clear to all parties that the GATT's institutional deficiencies were a growing concern. Jackson (1992:11) notes that among a host of issues, some of the most pressing were the GATT's relationship to domestic law among some of the largest traders, including the US and its ineffective dispute settlement procedures. Of particular concern was its troubled relationship to the World Bank and IMF, where “the GATT has often been treated as a ‘country cousin,’ inferior to the other institutions, and there have sometimes developed certain contradictory policies as between these institutions. There is a feeling that more coherence is called for.” These issues, as it turned out, would be solved by the creation of a formal institution to support the GATT.
According to Winham (1998) the path from the GATT to the WTO was hardly straight. The concept of a new trade organization first came up in 1990, when the European Communities tabled a paper calling for a Multilateral Trade Organization (MTO). The EC was joined by Canada, and both delegations worked on a draft plan. By late 1992 William Jefferson Clinton had won the American presidential election and American negotiators expressed reluctance to support the creation of an MTO. Winham speculates that they feared such a project would serve as a lightning rod for domestic opposition to the Uruguay Round. By the following year, the US leveraged its potential support for an MTO to complete negotiations with the European Union, and proposed that the new institution be named the World Trade Organization. In 1994 the Marrakech Agreement concluded the Uruguay Round and the subsequent Uruguay Round Agreements Act passed by the US Congress assured the WTO's place in the global regulation of trade.
The WTO is an umbrella organization administered by a secretariat which is led by a director general. Its mandate is to administer the trade agreements which include the GATT, and also the General Agreement on Trade in Services (GATS), and the Trade Related Intellectual Property Rights Agreement (TRIPS), both of which were a part of the final undertaking which concluded the Uruguay Round. It is a member-driven organization and its top decision-making body is the Ministerial Conference, which takes place among the delegations sent by its 159 members every two years. Directly beneath this process sits the General Council, comprised of ambassadors and delegates from member countries, which meets several times a year at the WTO's Geneva headquarters. The General Council sits as both the Trade Policy Review Body, which reviews the regulatory environments of member states, and the Dispute Settlement Body, which ratifies the work of dispute settlement panels (WTO 2005).
Interestingly, this ratification takes place through a reverse-consensus mechanism, which means that the work of panels is automatically approved unless there is a consensus among the membership not to approve. The WTO's Dispute Settlement Mechanism has been much studied by scholars and policy makers because it is somewhat unique (Barton et al. 2006). Not only does the reverse-consensus mechanism depoliticize the work of panels, but dispute settlement is binding, which means that contracting parties agree at their accession to abide by its decisions. The system also includes an Appellate Body, which acts as an appeals court to which members may appeal aspects of decisions that they find to be problematic on procedural or substantive grounds (Steger 2004).
Each of these mechanisms, binding dispute settlement, appellate review, and reverse consensus, are designed to increase the legitimacy of the WTO's functions, making the Dispute Settlement Body the premier institution for the settling of trade disputes among nations. This is not to say that states are bound to give their grievances a hearing at the WTO. But rather it suggests that the WTO was designed, to the extent possible, to create a forum to negotiate liberalization, settle disputes, and review trade policy that is equitable, fair, and expeditious in its decision-making processes. Since 1995, a number of critics have voiced doubts about the WTO's abilities to live up to its broad mandate, and indeed there is room for improvement, as we will discuss later (Steger 2009).
The Scholarship of Regional Trade Governance
One of the most important, and unforeseen dynamics in global trade governance to arise alongside the World Trade Organization has been the proliferation of alternative trade governance options, in particular regional trade arrangements. In the larger context this pattern is not remarkable because bilateral trading arrangements have been the norm rather than the exception (Crawford and Fiorentino 2005; Crawford 2007). In the decades following the repeal of the Corn Laws in 1846, Britain preferred to negotiate bilaterally, as did the US before World War II (Destler 2005). In the aftermath of World War II the General Agreement on Tariffs and Trade (GATT) attracted a growing roster of members and multilateralism held sway, at least until the last decade of the twentieth century. Since the launch of the WTO in 1995, regionalism and bilateralism have become increasingly interwoven in the international trading system (Frankel 1997).
As of 2012, 247 current regional trade agreements were disclosed at the WTO. They have proliferated in every major economic region, and with a great deal of trade intensification taking place in Europe, North America, South America, and Asia (Urwin 1991; Roett 1999; Frost 2008). Even in Africa, where vast differentials in wealth and industrialization exist between North and sub-Saharan Africa, there is significant interest in regional trade initiatives (Yang and Gupta 2005). Lester and Mercurio (2009:1) note that prior to the failure of the Seattle Ministerial Conference in 1999, “it was rare for the major trading powers to negotiate and sign bilateral trade agreements. Following the failed Ministerial, all major trading nations (including the East Asian nations) almost immediately launched multiple negotiations.” Social scientists are uncertain about the causes of this return to regionalism, and it has sparked a debate about the benefits and drawbacks of regional agreements. At its heart, the argument against regionalism is rooted in concern about its impact on the multilateral trading system (Bhagwati 2008). There are at least two reasons why regional agreements, which are allowed under Article 24 of the GATT, may undermine the multilateral system. First, they are discriminatory because they create preferential access within their zones of jurisdiction. Second, they undermine the cause of trade policy transparency by creating multiple policies, tariffs and non-tariff barriers for the same goods coming from inside and outside the treaty's jurisdiction (Irwin 2009:263–4).
Lester and Mercurio (2009) suggest that countries prefer bilateral trade agreements at different points in history, for reasons generally related to quality of multilateral trade negotiations. Following the aborted Seattle round of trade negotiations, many of the WTO's members returned to the conventional wisdom that bilateral agreements are simpler to negotiate than big-tent multilateral agreements at the WTO. Irwin (2009) also offers two possible explanations. First, it may be that the trend towards bilateralism and regionalism is somewhat magnified by a large number of agreements signed among former members of the Soviet Union. Second, it is also true that a great many of these regional agreements are “paper agreements,” or treaties that reflect political goodwill and economic aspiration, and regulate very little in terms of actual trade. Even so, paper agreements and post-Soviet realignment do not account for the larger pattern in which the diplomatic momentum in the world of trade governance has passed to regional bodies.
Not all regional trade arrangements are created equal. The differences that arise out of geography aside, most agreements are signed for political reasons, caught, as Galal and Hoekman (2003) put it, “between hope and reality.” Even so, there are concrete benefits to be had through economic integration at the regional level. Aggarwal (2006) shows that there are a number of economic arguments for a focus on bilateralism, such as trade creation. Lowering barriers between two partners creates opportunities to trade. If these opportunities create more trade than is diverted from other partners by the arrangement, both countries will be better off. Lynch (2010) adds that regional trade agreements may promote investment among regional partners, act as a shield against discriminatory trade practices, buttress domestic economic reforms, increase the visibility and political clout of partners in international negotiations, and achieve other, non-trade political goals. Furthermore bilateral agreements may include a more stable framework for trade that includes access to dispute settlement provisions, investment provisions and an opportunity to improve upon previous trade agreements.
For example, Canada's RTAs with Chile and Costa Rica agreements contain “post-NAFTA” provisions that eliminate antidumping disciplines and replace them with safeguard provisions that are more transparent and less prone to abuse (Stephenson 2008:36). Bilateral and/or regional agreements may also be a possible engine for growth and development when they are signed between developed and developing countries. Bilateral trade agreements between large economies and small economies are likely to provide more benefits to the small economy than they do for the large economy. The smaller partner gets access to a much larger export market and a developing country gains access to a much wealthier market. The larger economy's benefits are harder to quantify, but some research suggests that exports to countries with a trade agreement grow faster than trade with countries without one (Holden 2010).
Perhaps most importantly, trade regionalism creates a platform upon which states can address unique developmental, economic, and political factors that are of concern to national publics. As Duina (2007:185) notes, “market officials pursue trade liberalization in the midst of complex social realities … the resulting regional level arrangements seldom represent abrupt or major departures from existing reality.” Regionalism may be a way to address domestic political objectives within shorter timeframes, particularly in the face of the deadlocked Doha Round, of which there are few signs of life. Also, it may be that regionalism is a more effective approach to meeting trade expansion objectives, in particular with regard to specific domestic political targets, such as the expansion of exports or development of markets for strategic industry. In this way, regionalism is a significant compliment to the multilateral system, although it overlaps with, and may at certain points impede the larger cause of global trade regulation (Fiorentino et al. 2007; Gupta 2008; Mansfield and Milner 2010).
Regional Trade Agreements
The following is an illustrative list of regional economic cooperation for regional trade agreements. For a complete discussion of global RTA dynamics, see Lynch 2010.
Africa: African Growth and Opportunity Act (AGOA), African Union (AU), Central African Economic and Monetary Community (CAEMC), Community of Sahel Saharan States (COMESSA).
The Americas: Central American Free Trade Agreement (CAFTA), Central American Integration System (SICA), Central American Common Market (CACM), Common Market of the South (MERCOSUR), North American Free Trade Agreement (NAFTA).
The Caribbean: Association of Caribbean States (ACS), Caribbean Basin Initiative (CBI), Caribbean Community and Common Market (CARICOM).
Asia: Association of Southeast Asian Nations (ASEAN), Asian Pacific Economic Cooperation Forum (APEC), Asia-Pacific Trade Agreement (APTA), South Asian Association for Regional Cooperation (SAARC), Trans-Pacific Strategic Economic Partnership Agreement (TPP).
Europe: Central Europe Free Trade Agreement (CEFTA), European Economic Area (EEA), European Free Trade Agreement (EFTA), European Union (EU).
Russia and the former Soviet Republics: Central Asian Cooperation Organization (CACO), Commonwealth of Independent States (CIS), Eurasian Economic Community (EEC), Shanghai Cooperation Organization (SCO).
The Middle East and North Africa: Arab Maghreb Union (ANU), Arab League (AL), Council of Arab Economic Unity (CAEU), Arab Cooperation Council (ACC), Euro-Mediterranean Partnership, Pan-Arab Free Trade Agreement (PAFTA).
The Pacific Islands: Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA), Pacific Islands Forum (PIF), South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA).
The Literature of Emerging Multilateral Trade Governance Issues
In the two decades since the finalization of the Uruguay Round and the creation of the WTO a host of significant issues have arisen as scholars and policy makers attempt to implement the WTO's mandate and navigate the political waters of trade regulation as it relates to domestic law and policy. This section briefly touches upon three key issues. The first is the set of issues raised by the broadening of trade regulation post-Uruguay Round to include trade related intellectual property rights and trade in services. The second is the contentious issue of trade and economic development. The Doha Round was launched in part as a project to legitimize the trading system in the eyes of developing country governments who were skeptical that trade could be an engine of poverty reduction (Howse and Mutua 2000; Wolfe 2004). Finally, we will look briefly at the issue of WTO reform. With the passing of time it has become apparent that some features of the new institution work better than others, and international legal experts have begun the process of advocating reforms to improve efficacy, transparency, and accountability of the WTO (Rogers 2006).
Issues Raised by the Uruguay Round
The Uruguay Round was unprecedented in the scope of vision for trade regulation and the size of the membership undertaking this political project. The most important new institutional features introduced under the WTO's umbrella were the Trade Related Intellectual Property Rights Agreement (TRIPS), the General Agreement on Trade in Services (GATS), and the Dispute Settlement Understanding (DSU). TRIPS created a tougher enforcement regime backed by the DSU which included longer terms for patent protection up to a full 20 years from the day the patent is granted. This improved enforcement of patents has significant implications for the global sale of medication. In particular, it raises issues about access to drugs to fight pandemics (Park 2002). TRIPS allows the manufacturing of patented drugs by domestic generic suppliers in the case of a national emergency. But for countries without manufacturing capacity, as is the case of many small African nations, IP rules left few options. Article 31(f) of the TRIPS Agreement was subsequently amended in 2005 to allow a third party to manufacture generic versions of patented drugs for a nation without manufacturing capacity (Froese 2010). But the process by which this takes place is cumbersome and bureaucratic, a careful compromise on paper, and difficult to use in the real world (Hestermeyer 2007).
The regulation of trade in services is controversial for similar reasons – policy makers are concerned about the many implications of global regulation from the impact upon public regulation of service providers to the possible political fallout of increased intra-sectoral competition. At this point in time GATS disciplines are extended according to schedules of commitments in which members commit to liberalize trade in certain services by specified dates. To date, few commitments were made under the GATS. Part of the reason for the slow pace of uptake is that regulation of trade in services raises issues about how international service provision will impact both developing countries which do not have well-developed markets for professional services and developed countries who protect certain industries from the impact of international competition for reasons of public health and welfare (Blouin, Drager and Smith 2006).
Dispute settlement is largely considered to be a positive step for the WTO because it increases the political legitimacy of the institution but also raises issues about whether access to dispute settlement is equitable (Chaisse and Chakraborty 2007). Legal capacity plays a significant role in which members use the DSM (Busch, Reinhardt, and Shaffer 2009). Froese (2011) has shown that there is no discernible pattern in how quickly developed and developing countries begin to use the DSM following accession, so the question of the overall quality of access to the DSM is still open. Perhaps the most contentious dispute settlement issue today is the question of incomplete resolution of disputes, long running disputes, and compliance (Jackson 2004). Wealthy members such as the United States are able to foot-drag on compliance or pay the fines associated with non-compliance, thereby undermining the legitimacy of binding dispute settlement.
Trade and Development
The Doha Development Agenda, as the ninth round of trade liberalization is termed, was launched in 2001 in the shadow of the terror attack on the World Trade Center. A previous attempt to launch a round in Seattle in 1999 had proven unsuccessful. The Doha Round promised to address developing country concerns about trade liberalization in the areas of agriculture trade, industrial goods (often termed non-agriculture market access or NAMA), services, trade rules around subsidies and special and differential market access for developing country members, and intellectual property rights. The goal was to forward a liberalization agenda that would be particularly relevant for developing economies looking for market access from advanced industrialized members.
The Doha Round is the trading system's answer to the question of the relationship between poverty and trade liberalization. Economic theory argues that trade is a driver of economic growth and domestic economic expansion and when coupled with appropriate government regulation, is key to driving down poverty levels (Dollar and Kraay 2000). Critics respond that trade by itself cannot be considered good or bad for poverty reduction because too many intervening variables lie between market liberalization and the reduction of poverty at the national level. For example, data showing a rise in economic inequality within rapidly industrializing societies such as China and India suggest that a rising tide may not lift all boats (Milanovic 2007). Stiglitz and Charlton (2007) also argue that while in theory trade-distorting mechanisms are welfare-reducing, incomplete information, the costs associated with market creation, and adjustment costs associated with liberalization require that the WTO focus upon “fair trade” rather than freer trade per se.
Ministerial meetings at Cancun in 2003 and Hong Kong in 2005 proceeded slowly, and the entire round ground to a halt over the failure to agree upon modalities (most importantly, “the formulas and other methods to be used to cut tariffs and agricultural subsidies, and a range of related provisions”) in agriculture and NAMA (WTO 2008). As the world entered a period of prolonged economic instability, little occurred on the liberalization front. In fact, the December 2011 ministerial meeting in Geneva was the first that did not include multilateral negotiations. Instead, it was “devoted to discussion about the role of development and the future of the multilateral trading system” (Steger 2012). Steger goes on to suggest that for the world's largest traders such as the US and EU, the WTO is no longer at the center of trade policy. With 158 members, “the major developed countries feel hamstrung by the very principles they insisted upon at the Uruguay Round, which have not become the mantras of developing countries – the single undertaking and the consensus principle.” Big-tent multilateralism creates too many friction points to develop the momentum necessary for the successful completion of a comprehensive trade round.
Reform of the WTO has been an area of much speculation, and has been addressed twice by the WTO itself in the Sutherland report (2004) and the Warwick Commission report (2007). Recently Steger (2009), who served as the first director of the WTO's Appellate Body from 1995 to 2001, has also edited a volume that comprehensively addresses the key areas for improvement in WTO governance. She argues that each of the international financial organizations are facing legitimacy crises and that given the lack of progress in the Doha Development Agenda, the rise of regional trade agreements and the recent financial crisis, member governments are at an important juncture in the governance of trade. At this point reforms that may increase the legitimacy and effectiveness of the World Trade Organization include improvements in the processes of WTO decision making, better internal management of secretariat responsibilities, enhanced transparency to improve the WTO's legitimacy among democratic publics and business interests and a search for a way forward on the regional trade issue. The relationship between multilateral trade governance and regional trade agreements has been a thorny issue which is unlikely to be resolved in the near future, if only because without a completed Doha Round, the WTO may lack the political legitimacy to make a successful appeal to multilateralism over preferential trading arrangements.
Conclusion: Future Trajectories in Trade Governance Scholarship
This article has emphasized historical, legal, and political institutional developments in the longue durèe of the regulation of flows of goods and services. Trade governance rests upon certain economic assumptions and the ensuing political compromises made possible by the growth of an incremental legal consensus. The main economic assumptions are that trade will deliver upon the objectives of socio-economic development, stable, long-term employment opportunities and poverty reduction. These assumptions are theoretically sound, but are increasingly challenged by the complex political realities of global trade.
Yet, despite the failure of the Doha Round, multilateralism and international economic law, while still characterized as fragmented in a number of issue areas, have become increasingly coherent and cohesive in the area of international trade regulation (Weiler 2000; Koskenniemi 2006). Even the proliferation of regional trade agreements underlines, rather than undermines, the basic conceptual frames required for the international governance of trade flows. In the larger view it may be that RTAs provide a laboratory for regional experimentation, which may cross-pollinate with global governance. They are an established form of political compromise that is not necessarily incompatible with the larger multilateral project.
The breakdown of the Doha Round of trade negotiations need not undermine the legitimacy of the WTO nor weaken its abilities to regulate global trade (Charnovitz 2011). It may be that the end of big-tent trade multilateralism may afford opportunities for the WTO to build upon institutional strengths while developing a number of underappreciated aspects of trade governance. In particular, significant success in the area of dispute settlement has proven the WTO's competence and cemented its political legitimacy, thereby creating a basis for a future institution that plays a valuable role in the expansion of international economic law (Slaughter 2003). WTO governance brings together disparate political and economic agendas, multiple state and civil society actors, and creates a space for deeper political engagement. The case of China is instructive. As China rises as a global economic power, it has engaged actively with WTO governance mechanisms (Gao 2007). In the upcoming decade, scholars are certain to study in a more systematic way the place of non-democratic powers in the trading system as they interact and influence global trade governance institutions.
The WTO appears to have weathered the storm of criticism from civil society that erupted around the first attempt to launch a new liberalization round in Seattle in 1999. The WTO has responded to criticisms of elitism, cronyism, and opaque dealings by enhancing mechanisms that increase transparency. This has been an incomplete process, but continues to be a significant undertaking nevertheless (Marceau and Hurley 2012). Indeed, trade monitoring and the growing oversight of regional trade agreements are areas of governance that highlight institutional leadership. The WTO is now almost twenty years old and all indicators point to a maturing organization. With proper support, administration, and political leadership from the membership it will likely continue upon a trajectory in which its dispute settlement and transparency enhancing functions become increasingly central even as a changing global political economy makes big-tent multilateralism a thing of the past.
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Links to Digital Materials
History of Trade Governance
A visual introduction to ancient networks of communication and exchange may be found at www.archatlas.org/themes/tradeex.php
The WTO and Stanford University maintain an important cache of documents pertaining to the history of postwar trade governance at the GATT Digital Library: 1947–1994 at http://gatt.stanford.edu/page/home
The World Trade Organization at www.wto.org produces statistical databases on global trade trends, reports on the state of trade policy around the world and documentation relating to trade dispute settlement.
For UN reports and statistical databases relevant to developing country trade visit the United Nations Conference on Trade and Development at www.unctad.org
The North American Free Trade Agreement Secretariat maintains databases of regional trade flows and documents pertaining to North American dispute settlement at https://www.nafta-sec-alena.org
The Common Market of the South (Mercosur) maintains a similar site at www.mercosur.int/, as does the Common Market for Eastern and Southern Africa (COMESA) at www.comesa.int/ and The Association of South East Asian Nations (ASEAN) at www.asean.org
The Office of the United States Trade Representative may be accessed at www.ustr.gov
The United States Department of Commerce maintains records at www.commerce.gov
The Canadian Department of Foreign Affairs and International Trade maintains an online presence at www.international.gc.ca/commerce/index.aspx?view=d
European Union's online trade portal may be accessed at http://ec.europa.eu/trade/
Independent Research and Advocacy Groups
Institute of International Economic Law at Georgetown University at www.law.georgetown.edu/academics/centers-institutes/iiel/index.cfm
The Trade Law Guide at www.tradelawguide.com
For the latest development in politics of global trade go to the World Trade Online site at www.insidetrade.com
For commentary on dispute settlement and statistical analysis of trade trends go to www.worldtradelaw.net
The International Centre for Trade and Sustainable Development maintains statistics and news coverage at www.ictsd.org Global Trade Alert monitors the changing state of global trade policy at www.globaltradealert.org