Small States in Multilateral Economic Negotiations

Amrita Narlikar

• Publisher: Taylor & Francis
• Year: 2016
• Print ISBN: 9780415835374
• eBook ISBN: 9781134927036
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

This book addresses the puzzle, Can David take on Goliath in multilateral economic negotiations, and if so, then under what conditions? The question of how the weak bargain with the strong in international politics is exciting theoretically and empirically. In a world of ever-increasing interdependence, and also a time of economic crisis, it acquires even greater significance. With the help of issue-specific case studies, the volume offers new insights into the vulnerabilities that small states face in multilateral economic negotiations, and also mechanisms whereby these weaknesses might be overcome and even used as an advantage. The attention that this volume pays to questions of smallness and negotiation allow it to address a long-standing problem of international politics. The case studies, which cover monetary, financial, trade, and climate change negotiations, ensure a unique and valuable topicality to the volume.

This book was published as a special issue of The Round Table.

Introduction: Small States in Multilateral
Economic Negotiations

 

 

This journal has a long-standing reputation for publishing pioneering, state-of-the-art research on small states. So it seemed only appropriate that in the series of conferences and workshops that have been organised to commemorate The Round Table’s centenary, the first was on Small States in International Economic Negotiations. The workshop was held in November 2009, sponsored by the journal and hosted by the University of Cambridge, and this special issue is a product of the debate that took place there. Its aim is to take stock of research on small states thus far, and focus and develop it further. The central puzzle driving this special issue is how some of the smallest players negotiate in the international political economy, or how the weak bargain with the strong in multilateral economic negotiations.

For the small and vulnerable attempting to influence and secure agreements on favourable (or at least less unfavourable) terms, an analysis of their negotiation strategies is crucial to understanding what works and what does not in their dealings with much larger and stronger counterparts. But the question of their negotiation behaviour is just as important from a theoretical perspective: for scholars of international bargaining and negotiation, small states present a hard test case of whether smart negotiating strategies can make a difference. In this special issue, case studies are drawn on from a diverse set of regimes, ranging over international monetary and financial regimes, trade and climate change, to address collectively the question: Can David successfully take on Goliath in international politics, and if so, then under what conditions?

The four case studies in this collection are preceded by a conceptual essay by Paul Sutton, which addresses the contested issue of the definition of small states. Sutton’s paper demonstrates how matters of categorisation and nomenclature are fundamentally political, subject to negotiation, and with potentially profound distributive consequences. Key actors in this debate are not just the small states themselves, but several international organisations. These include the Commonwealth Secretariat and the World Bank (which Sutton identifies as the ‘champions’ of small states), but also others such as the World Trade Organisation (WTO) and the United Nations Conference on Trade and Development (UNCTAD). Sutton points to the difficulties of defining ‘small’, but concludes by honing in on the two criteria employed by the Commonwealth Secretariat and the World Bank: population size (1.5 million or below in most cases) and vulnerability. He writes, ‘…vulnerability should be seen as the core characteristic of small states in the contemporary international political economy. It sets them apart from most other states and establishes an agenda in many ways unique to their needs.’

The vulnerabilities that small states face in their international negotiations receive considerable attention from several of the contributors to this special issue. While the notion of vulnerability is in some ways intrinsically associated with smallness, the post-Cold War system provides at least three major and additional reasons for concern. First, the end of the Cold War and the decline of competing economic ideologies have meant that no state can risk opting out of the increasingly integrated economic system. Even large developing countries today have learnt to embrace this as they recognise that the costs of opting out outweigh the costs of joining in. For smaller developing countries, the costs of staying out are higher still, given that their BATNA, i.e. best alternative to negotiated agreement, is even more limited, and their dependence on international markets means that they have almost no go-it-alone power (Gruber, 2001). Second, to the extent that the rivalry between the two superpowers allowed ‘big influence’ to ‘small allies’ (Keohane, 1971), the end of the Cold War has deprived small states of an important source of bargaining leverage. Third, as the larger developing countries have risen to greater power, evidenced for instance in the inclusion of Brazil and India in the ‘New Quad’ or ‘Core Group’ in the WTO, they have begun to attract considerably greater scholarship than other developing countries. Their rise entails other risks for smaller states besides academic neglect. Traditionally, some of the larger developing countries had led coalitions involving smaller developing countries, and had assisted in ensuring that their demands were placed on the table. Today, there is a danger that as rising powers make their way into the club of Great Powers, they will no longer regard it as worthwhile to fight the cause of the smaller countries. Indeed, disgruntled mutterings by smaller countries against Brazil and India are audible in the corridors of the WTO (Ismail, 2009; Odell, 2010). Small states now risk finding themselves friendless and alone at a time when they are much more vulnerable as a result of increasing integration in the world economy. The sources of their vulnerabilities need to be clearly identified, and also strategies that they could effectively employ to improve their bargaining position.

Three of the four case studies in this special issue highlight the vulnerabilities that small states face in the current context. Two papers focus particularly on the impact that the financial crisis has had on further reducing the negotiating space for small states. André Broome examines the negotiations of small states with the International Monetary Fund (IMF) in times of economic distress. He argues that although smallness can provide states with some important opportunities (e.g. the development of specialist sectors such as banking), the risks inherent in financial integration also greatly increase their vulnerability to external shocks. Using the case of Iceland’s negotiations with the IMF in the aftermath of the recent financial crisis, he demonstrates that small states encountering the consequences of ‘disaster capitalism’ are likely to face some high costs. For example, the IMF’s involvement in the rescue is likely to come at the cost of economic sovereignty and associated decline in electoral support at home. Further, attempts to improve BATNA by conducting parallel negotiations with other financiers may actually end up increasing the small states’ dependence on the IMF. This is because other states usually make bilateral credit conditional on the recipient state’s ability to adhere to the goals of the IMF programme. Effectively, some states may be able to utilise their smallness to their advantage when times are good, but face some very difficult challenges when the financial going gets tough.

The second paper that examines the consequences of the financial crisis on small states is by Mark Hampton and John Christensen, which focuses on small island economies that have specialised in offshore finance. Interestingly, the authors point to how small states had used successful framing tactics in the past to resist initiatives against tax evasion in the early 2000s. For example, in countering the Organisation for Economic Cooperation and Development (OECD) Harmful Tax Competition initiative, small states successfully used the language of ‘fiscal colonialism’ by the OECD and further framed their fight as one of the small and powerless against the ‘cartel’ of OECD countries. But in the aftermath of the recent financial crisis, Hampton and Christensen argue that although ‘it is unlikely that the initiatives set in motion in 2009 will cause the demise of all tax havens … There is little doubt that the combination of measures by the OECD and EU will restrict the activities of existing actors and radically reduce their ability to resist requests for international cooperation in tackling tax evasion …’ Evolving context and path dependence have a big impact on the ability of small states to negotiate: the international milieu is less tolerant of tax havens in hard times, and ‘… the past actions and policy choices of the small island hosts themselves have contributed significantly to the serious predicament that they now find themselves in, and consequently the extremely limited economic development possibilities that remain open to them’.

The third case study is by Brendan Vickers on small states in trade negotiations. He focuses particularly on small states involved in negotiations between the EU and the South African Development Community (SADC) as part of the process of concluding the Economic Partnership Agreements (EPAs) between the EU and the ACP (African, Caribbean and Pacific) group of countries. Vickers argues, ‘Unlike most other ACP EPA negotiations, SADC’s small states have been caught between a rock (EU) and a hard place (South Africa)’. He attributes the difficulties that small states have encountered in the negotiation to several reasons. Major players in the negotiation from the SADC side have been guided by ‘domestic interests over regional coherence and collective representation’ (with the latter being essential preconditions if the interests of the small and weak are to be safeguarded). South Africa, in particular, ‘appears to have shown insufficient regard for its smaller neighbours’ peculiar challenges’. Add to this the complications and inadequacies of the negotiation process itself, which Vickers traces carefully, and it is not surprising that small states have had a raw deal.

The dangers that small states face in multilateral economic negotiations are thus plentiful, but as all the papers in this issue recognise, there is also some scope for agency. In line with this, one of Vickers’s conclusions is that ‘SADC’s trade diplomats were not hapless victims of the EU’s mercantilist machinations. Instead, their own disarray was partly responsible for the region’s undoing. In other words, judicious agency still matters, particularly for small states.’ Hampton and Christensen, while highlighting the problems that small island economies face under a reformed system of tightened international financial regulation, also illustrate how they had earlier capitalised on the previous regime of weaker regulation and successfully used their smallness to fight against the last wave to curb tax evasion. These findings add to the small but rich scholarship that recognises that smallness, under certain conditions, need not be a disadvantage and may even be a source of strength. At a minimal level, a small state can benefit from what Amstrup (1976) calls the ‘Small State Paradox’: if the existence of a small state is not contested by any of the great powers, then its problem of survival also becomes less acute. In the field of economic negotiation, this advantage would translate into small states being unlikely targets of major dispute actions by large states; it is also unlikely that the major players would subject them to the pressures that they usually impose on larger developing countries to make concessions in trade negotiations. A classic illustration of Mancur Olson’s argument about ‘the “exploitation” of the great by the small’ (Olson, 1965, p. 3) was seen in the operation of the Principal Supplier Principle in the General Agreement on Tariffs and Trade (GATT), when smaller players enjoyed the benefits of tariff reductions negotiated by the major players without having to make reciprocal concessions. As John Odell has argued in a recent article, small states have greater opportunity to serve as chairs of negotiating bodies as ‘this mediator function requires a widespread confidence that the information shared with the chair will not be used against us. A delegate from the United States or EU might be highly respected, but the member has a large range of interests and lobbies capable of bringing pressure on the home government’ (Odell, 2010, p. 562). Richard Benwell’s paper in this issue—the fourth case study—builds on this literature on the advantages of smallness, and takes it further, through an analysis of how small states have emerged as influential norm entrepreneurs in climate change.

Benwell starts off by noting, ‘…while small states can keep above the water, it is still assumed that they cannot turn the tide of international events’. In the issue area of climate change mitigation, small states present a particularly hard test case for agency: the urgency of the risks that they face (in comparison with larger states) and the necessity of collective action to mitigate climate change render them even more vulnerable than in other issue areas. Benwell recognises that the successes of the small states in securing their value-claiming objectives of financing and technology have been limited, but he persuasively argues that to focus only on such objectives would be too narrow; rather, the success of small states in the climate change regime needs to be seen in terms of overall mitigation action. He identifies their principal source of strength as the ‘power of exhortation’ that relies on an appeal to scientific as well as moral principles, and their ability to frame their demands as ‘the principal victim of a common resource problem not of their own making, small states’ power lies in their powerlessness’. Beyond creating awareness of the necessity of mitigation, Benwell further points to concrete gains that small states have managed to achieve through effective negotiation strategies. These include securing recognition for Small Island Developing States as a distinct category in the United Nations, a special seat on the COP Bureau, and also positions of responsibility as chairmen and vice-chairmen in negotiation forums. Benwell’s paper provides us with an excellent illustration of how limitations of hard power notwithstanding, small states can exercise considerable influence in the international political economy.

The papers in this issue together offer new insights into the vulnerabilities of small states, particularly in the aftermath of the financial crisis, but some of the papers also offer grounds for cautious optimism. In some instances, small states have been able to overcome their weaknesses. In others, they have gone a step further and converted their smallness into a source of strength. Even in accounts where small states have ended up with unfavourable results, the authors identify sources of strength that remained unexploited in the negotiation that may still offer some bargaining leeway in the future. This is good news for the small states themselves, but also for analysts of negotiation behaviour who seek to explore the conditions under which effective bargaining (even by some of the weakest and most vulnerable players in the political economy) can alter international outcomes.

Acknowledgements

Thanks are extended to all the speakers, discussants and participants at the workshop for their valuable comments, and particularly Terry Barringer, Gordon Baker, Godfrey Baldacchino, Lorand Bartels, Richard Bourne, Andrew Gamble, Dan Kim, Donna Lee, Alex May, James Mayall, Ian Ralby, Cyrus Rustomjee, Ronald Sanders, Nicola Smith and William Vleck.

Amrita Narlikar

References

Amstrup, N. (1976) The perennial problems of small states: a survey of research efforts, Cooperation and Conflict, 11(2), pp. 163–182.

Gruber, L. (2001) Power politics and the free trade bandwagon, Comparative Political Studies, 34(7), pp. 703–741.

Ismail, F. (2009) Reflections on the WTO July 2008 collapse: lessons for developing country coalitions, in A. Narlikar and B. Vickers (Eds), Leadership and Change in the Multilateral Trading System (Leiden: Martinus Nijhoff).

Keohane, R. O. (1971) The big influence of small allies, Foreign Policy, 2, pp. 161–182.

Odell, J. (2010) Negotiating from weakness in international trade negotiations, Journal of World Trade, 44(3), pp. 545–566.

Olson, M. (1965) The Logic of Collective Action: Public Goods and the Theory of Groups (Cambridge, MA: Harvard University Press).

The Concept of Small States in the
International Political Economy

PAUL SUTTON

Caribbean Studies Centre, London Metropolitan University, London, UK

ABSTRACT This article examines the literature on small states from the related disciplines of international economics and international politics. By accident and design there is no generally agreed definition and characterisation of small states, although those advanced by the Commonwealth Secretariat and World Bank are most satisfactory. The role of the Commonwealth as a champion of small states is examined. Particular attention is paid to the concept of vulnerability and the challenges and opportunities to small states in a globalised world.

Introduction

The problem of defining and conceptualising small states is illustrated with a personal anecdote. In the spring of 1997 I was appointed by the Commonwealth Secretariat as lead consultant for a new study on small states to update the Commonwealth report Vulnerability: Small States in the Global Society (Commonwealth Secretariat, 1985) published 12 years earlier. From the outset I was faced with a problem. The 1985 report defined a small state as an independent country with a population of around one million or less. On that basis 29 Commonwealth states were then defined as small (including both Lesotho and Trinidad and Tobago, which had populations marginally in excess of one million) and were identified as the primary (but not exclusive) subject of the study. If the same criteria were strictly applied in 1997 the around one million cut-off point could reduce the number of states to 26 (excluding Botswana, the Gambia and Mauritius) or even 24 (now excluding Lesotho and Trinidad and Tobago as well). It was clear to me that this would not be politically acceptable so I simply proposed lifting the threshold to one-and-a-half million, arguing in the new report that since 1985 ‘world population has increased and relative upward adjustment of population figures is necessary to take account of this fact’ (Commonwealth Secretariat, 1997, paragraph 2.3). This had the effect of now including these three states plus the ‘exceptions’ in 1985 of Lesotho and Trinidad and Tobago. The Advisory Group to the report accepted this recommendation without dissent. Equally I retained, again on grounds of political unacceptability were they to be excluded, the arguments in the 1985 report on including states within the immediate geographic region with a population of well above one million on the grounds made then that ‘they share many characteristics and also maintain integral links with all small states in their respective regions’ (Commonwealth Secretariat, 1985, paragraph 1.5). The result in 1...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Citation Information
• 1. Introduction: Small States in Multilateral Economic Negotiations
• 2. The Concept of Small States in the International Political Economy
• 3. Negotiating Crisis: The IMF and Disaster Capitalism in Small States
• 4. Looking for Plan B: What Next for Island Hosts of Offshore Finance?
• 5. Between a Rock and a Hard Place: Small States in the EU-SADC EPA Negotiations
• 6. The Canaries in the Coalmine: Small States as Climate Change Champions
• Index