International Trade Negotiations and Domestic Politics

Oluf Langhelle, Oluf Langhelle

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781135090524
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

In spite of many years of negotiation on trade liberalization, progress seems to have stalled. This book explores why resistance to further market liberalization seems so strong, given that the benefits are seen to outweigh the costs.

This volume argues that in order to understand the slow progress of World Trade Organization negotiations, we need to take into consideration the 'intermestic' character of trade politics, that is, the way in which international and domestic aspects of politics and policies have been woven together and become inextricably related to each other. This is a general trend in our globalizing world, and one that is most pronounced in the case of trade politics and policy.

International Trade Negotiations and Domestic Politics therefore presents an in-depth analysis of institutions, ideas, interests and actors in the interplay between international trade negotiations and national negotiating positions. At the international level the authors focus on the multilateral negotiations within the World Trade Organization, together with the plurilateral and bilateral negotiations on free trade agreements. At the regional and domestic level they analyze the trade politics and policies of two established powers, the European Union and the USA; two rising powers, China and India; and a small industrialized country with an open economy, Norway.

1 Towards the intermestic politics of trade

Institutions, ideas, interests and actors

Oluf Langhelle, Hilmar Rommetvedt and
Arild Aurvåg Farsund

1.1 Introduction

After ten years of negotiations on trade liberalization, the members of the World Trade Organization (WTO) who were assembled at the Eighth Ministerial Conference in Geneva, which occurred from 15–17 December 2011, could not avoid concluding that progress was ‘disappointingly limited’ and that negotiations were ‘at an impasse’ (WTO 2011a: 3). According to the conference chairman's concluding statement, the ministers emphasized ‘the value of the rules-based multilateral trading system’ and underscored that ‘the WTO's role in keeping markets open’ was ‘particularly critical in light of the challenging global economic environment’ (WTO 2011b: 1). However, nobody was able to describe how the WTO negotiators could overcome existing trade-related problems. The determination ‘to maintain the process of reform and liberalization of trade policies, thus ensuring that the [multilateral trading] system plays its full part in promoting recovery, growth and development’, which was expressed in 2001 at the Fourth Ministerial Conference in Doha, Qatar, appeared to have evaporated by the Eighth Ministerial Conference.¹

Why? This simple question is the essential issue that we address in this book. When ‘everybody’ appears to be determined to liberalize trade to benefit from the contributions of trade to economic growth, development and employment, why is it extremely difficult to realize these good intentions? Naturally, we do not claim to provide the complete answer to this question. However, we do believe that this answer should be related to an essential feature of modern politics and policy in general and of trade politics and trade policy in particular. In a globalizing world, this crucial feature is that international and domestic aspects of politics and policies have been interwoven and have become inextricably related to each other.

Thus, the point of departure for our study is the intermestic character of trade politics and policy. The creation of the term ‘intermestic’ may be traced to Bayless Manning, who employs this term in an article in Foreign Affairs in 1977, to capture the notion that new economic issues are ‘simultaneously, profoundly and inseparably both domestic and international’ (Manning 1977: 309). Manning predicted that negotiations would increasingly become multilateral rather than bilateral and that new issues on the international agenda would have ‘immediate and profound impact[s] upon domestic interests’. There were two major factors underlying this new development, namely, economic interdependence and a growth in the number of issues that involved economic transactions and regulations. The first factor, economic interdependence, has been described by Manning as both international and inter-local. Although an interruption in the flow of a particular exported or imported commodity would not necessarily disrupt the economy of a nation as a whole, this interruption was nonetheless ‘certain to raise hob with particular domestic regions, industries, farmers or workers’. The second factor in the development of intermestic trade politics related to the prediction that economic issues that were linked to domestic interests would increasingly be placed on the international agenda. Thus, Manning argues that ‘foreign policy practitioners will be crowded with politically pressured negotiations about economic matters’ (Manning 1977: 307).

How do the domestic and international levels of policy interact? One of the most acknowledged theoretical attempts to link these two analytical levels is Putnam's two-level games approach (Putnam, 1988). In the two-games approach, foreign and domestic policies are regarded as fundamentally interconnected aspects of international negotiations. Domestic groups pursue their interests by pressuring the government to adopt favourable policies at the domestic level, whereas national governments seek to maximize their own abilities to satisfy domestic pressures at the international level. The two-level game metaphor invites one to examine the interplay between the factors that exist at these two levels.

However, according to Chorev (2007), two-games do not ‘explain how tensions between conflicting international and domestic pressures are resolved’. To ‘capture this interplay better, it is useful to think not in terms of two distinct levels, one domestic and one international, but rather of one field of action that incorporates both’. Chorev labels this perspective an ‘integrative approach’. In particular, this approach is integrative in the sense that it attempts to demonstrate how ‘factors from both levels shape a particular outcome’ and how the interplay between these factors occurs within a ‘unified field of political action’ in which the boundary between domestic and international considerations is best represented as a ‘fluid divide’ (Chorev 2007: 653, 655, 657).

To understand the current standstill in WTO negotiations, we must consider the ‘intermestic’ character of trade policy (Manning 1977), the ‘two-level game’ character of trade negotiations (Putnam 1988), and the ‘fluid divide’ between international and domestic politics (Chorev 2007). Consequently, in this book, we analyse the interplay between international trade negotiations and the domestic determinants of negotiating positions. In particular, we explore the bilateral and plurilateral negotiations regarding preferential trade agreements (PTAs) and the multinational negotiations that occur within the WTO; we particularly focus on agriculture-related and Non-Agricultural Market Access (NAMA) negotiations. Furthermore, we address the domestic politics and negotiating positions of two established powers, the European Union and the USA; two rising powers, China and India; and the small industrialized country of Norway. The first four of these five entities are among the largest economies in the world and are key players in international trade negotiations, whereas the example of Norway illustrates how a small country that depends on international rules and institutions can operate in this field.

1.2 From breakthrough in Marrakesh to standstill in Geneva

The establishment of the WTO, on 1 January 1995, has been described as a ‘momentous event’ (Narlikar 2005: 22) and as the ‘biggest reform of international trade since after the Second World War’ (WTO 2010a: 15). The WTO was a result of the Uruguay Round of negotiations within the framework of the General Agreement on Tariffs and Trade (GATT). This round of negotiations was concluded in Marrakesh, Morocco, in 1994. Although previous rounds of negotiations had largely addressed trade in industrial goods and tariff reductions, the Uruguay Round expanded the scope of rules that related to trade issues. Agriculture was among the new questions that arose during the Uruguay Round of negotiations. This round was constructed as a single undertaking; in other words, the principle was adopted that ‘nothing is agreed until everything is agreed’. This principle implied that a nation could only become a member of the WTO if it accepted the negotiated package deal in its entirety.

The agreement that was reached in Marrakesh included a ‘built-in-agenda’ with timetables for further negotiations. New negotiations were scheduled to start in 2000 with respect to both agriculture and services. The launch of this new round of negotiations was planned for the Third Ministerial Conference of the WTO in Seattle, which occurred in 1999. However, this conference was besieged by public and riot-like protests. An estimated 40,000 to 50,000 protesters crowded the streets outside this conference to represent a variety of different agendas, including not only anti-globalization and protectionist sentiments but also concerns about issues that related to environmental considerations, labour standards, global justice, developing countries, sovereignty, transparency and a perceived deficit in democracy in the WTO (Ostry 2001; Narlikar 2005; Blustein, 2009). For the first time, ‘the fury of the protesters seemed to be [directed at] the WTO itself ’ (Jones 2004: 21).

Two years later, at the Fourth Ministerial Conference in 2001 in Doha, Qatar, the member states of the WTO reached agreement on a broad mandate for negotiations on a range of issues and concerns; these topics were referred to as the Doha Development Agenda (DDA). The new Doha Round of negotiations was supposed to be concluded by 1 January 2005, but this deadline was not reached. A major setback occurred at the Fifth Ministerial Conference, which occurred in 2003 in Cancún, Mexico, and in 2006, the negotiations were suspended. However, after several turbulent developments, a ‘July package’ was created in Geneva in 2008. The negotiators appeared close to striking a deal regarding this package, but were once again unsuccessful in reaching an agreement. A number of informal deadlines regarding these negotiations have been proposed, but all have elapsed without the achievement of substantial progress. Three broad issues have been identified as major points of contention that prevent an agreement from occurring: the question of whether there should be freer trade in specific sectors that are addressed by the NAMA negotiations, the design of a Special Safeguard Mechanism (SSM) for developing countries to use with respect to agricultural products, and the USA's use of the principle of ‘zeroing’ in anti-dumping procedures (Martin and Mattoo 2011: 15). A number of less fundamental issues also remain unsettled at the present time (Bhagwati and Sutherland 2011).

In the absence of a new WTO agreement, a new wave of PTAs has been negotiated. By November 2011, the GATT/WTO had received notifications regarding 505 regional, inter-regional, and bilateral trade agreements (counting goods and services notifications separately); 313 of these agreements remained in force.² The PTAs have their legal foundation in the GATT agreement, and the WTO has established a Committee on Regional Trade Agreements with the mandate of assessing whether PTAs are in compliance with WTO rules. There is little evidence that this form of regionalism is dysfunctional for the multilateral trade system, and certain indications appear to imply that regionalism is associated with general liberalization; nonetheless, several concerns have been expressed with respect to this development. One of these concerns is that the formation of regional trade blocs with high external trade barriers may hinder multilateralism (Baldwin and Freund 2011: 121). Another concern with the growth of PTAs is that regional trade agreements can divert negotiating energy and resources from multilateral forums; this diversion may have particularly serious consequences for developing countries with limited diplomatic capabilities (Lamy 2006).

Numerous explanations have been offered for the lack of progress in the DDA negotiations. One of these explanations relates to the sensitivity of agriculture (which will be additionally scrutinized in this volume). Another of the main explanations that has been set forth involves a lack of political will or political support for the DDA. According to Bhagwati and Sutherland (2011: 8), the Doha Round ‘is dying of political neglect’, and in the ‘absence of political will’, a deal appears to be out of reach. The lack of political will is also one of the key explanations for the stalling of the DDA negotiations that has been provided by former WTO director-general Peter Sutherland, who has argued that ‘[c]urrent priorities in many capitals simply do not include new trade agreements’. This phenomenon has occurred not only as a result of other pressing issues or priorities but also because of a ‘fundamental deficit in effective political support for the WTO system’. As Sutherland rhetorically observes, ‘Seattle created a generation and a legion of WTO-haters. And they have votes’ (Sutherland 2010: 6).

The Warwick Commission, which was created by the University of Warwick in 2007, presents similar arguments, although the language that the Warwick Commission utilized to frame these arguments differed from the terms that were presented above.³ The primary objective of the Warwick Commission was to examine the governance of the world trading system and to issue recommendations for improvements to this governance. The Warwick Commission's report argues that one of the main challenges that must be overcome ‘if the multilateral trade regime is to succeed in the early 21st century’ is the ‘growing opposition to further multilateral trade liberalisation in industrialised countries’ because this opposition ‘threatens to render further reciprocal opening of markets unduly limited and to weaken a valuable instrument of international economic cooperation’. Although the use of the term ‘industrialized’ in the above quotations eschews the dichotomy between developing and developed countries and thereby avoids the problem of defining these two categories of nations, the Warwick Commission nevertheless regards the aforementioned concern as an issue that was most relevant in the major Organization for Economic Co-operation and Development OECD countries; this limitation is somewhat debatable. The Commission argues that ‘[g]rowing discontent appears to be eating away at the domestic political roots that have underpinned reciprocity in trade relations[,] and it raises important questions about how to restore national political bargains to support openness’ (Warwick Commission 2007: 1f., 9). An in-depth analysis of these domestic changes lay beyond the scope of the Warwick Commission's report.

1.3 From agricultural exceptionalism to behind-the-border measures

The intertwinement of international and domestic (or intermestic) aspects of trade issues is related to a transformation of trade politics and policy that has occurred over the past several decades. During the course of this transformation, a ‘deep trade agenda’ featuring new issues has been developed (Young and Peterson, 2006). The new trade agenda may be regarded as a response to changes in international economic exchange. In particular, international economic exchange has become more diverse and has expanded rapidly since the mid 1980s due to increases in foreign direct investment (FDI) and in trade in services. This increasing economic interdependence caused policies that were formerly regarded as ‘domestic’ issues to become the focus of international trade negotiations and rules (Jones 2006). Domestic rules, or ‘behind-the-border’ measures, were identified as key obstacles to both FDI and trade in services (Young and Peterson 2006). Behind-border measures and domestic rules became aspects of the negotiations within the GATT, and the Uruguay Round of negotiations was markedly different from previous rounds of negotiations (Holmes 2006; Young and Peterson 2006).

In particular, one of the major achievements of the Uruguay Round of negotiations was the inclusion of agriculture within the framework of the WTO. Since its creation in 1947, ‘agricultural exceptionalism’ has been the fundamental underpinning of the GATT; this principle was incorporated into the domestic agricultural policies of many nations, most notably European countries and the USA (Skogstad 1998; Daugbjerg and Swinbank 2009). Agricultural exceptionalism is based on the perception that agriculture is markedly different from most other economic sectors for several reasons. First, agriculture may be impacted by various climatic conditions, such as unstable weather, droughts, and other phenomena. Second, market mechanisms do not function properly in the agricultural sector; low price elasticity and possible over-supply may occur in this sector, resulting in unstable farm incomes. Agricultural exceptionalism also includes the claim that the farming sector contributes to broader national interests and goals; this idea is referred to either as the concept of non-trade concerns or as the principle of the multifunctionality of agriculture (Skogstad 1998; Daugbjerg and Swinbank 2009).

The incorporation of agriculture into the WTO represented a fundamental ‘ideational change’ in the ‘underlying perception of agriculture’ from agricultural exceptionalism to a ‘market-liberal policy paradigm’ (Daugbjerg and Swinbank 2009: 12) that caused the agricultural sector to be placed on par with other economic sectors. According to Krueger (1998: 12), the agricultural agreement was ‘a major step in beginning to dismantle economic inefficiencies in the world's agricultural activities’; this dismantling was to be continued by future multilateral negotiations. However, the agreement regarding agriculture represented an encroachment on the traditional domains of national legislatures and imposed international constraints on the agricultural policies of states.

The new trade agenda, which involves behind-the-border measures, presents challenges to domestic politics and policies in a manner that is not posed by negotiations on tariffs and quantitative restrictions. As argued by Jones (2006: 816), there ‘is an inevitable trade-off between national regulatory sovereignty and market integration’. Domestic regulations are typically enacted to realize a public policy objective; in many situations, these regulations impact trade only as a side effect. The stricter disciplining of trade barriers increases ‘the danger that perfectly reasonable measures will be caught by the rules’. According to Young and Peterson, the challenge that is addressed by trade agendas is therefore to identify ways ‘to address the adverse trade effects of domestic rules’. The deep trade agenda is an effort to find methods at the multilateral level to accomplish this task by ‘agreeing [to] disciplines, usually procedural, on domestic rules’ (Young and Peterson 2006: 798).

The Uruguay Round of negotiations resulted in a marked increase in the legalisation of trade policy (Young and Peterson 2006; Barton et al. 2006). This agreement establishes ‘the legal ground rules for international commerce’ and binds ‘governments to keep their trade policies within agreed limits’ (WTO 2010a: 9). Thus, the WTO is unique with respect to the extent of both its members’ contractual obligations and the enforcement mechanisms that are incorporated into the Dispute Settlement Understanding (DSU) of the WTO structure (Jones 2004). The DSU has been described as ‘the central feature’ (Jackson 1998: 162) and the ‘[j]ewel in the crown’ (Narlikar 2005: 85) of the WTO. A procedure for resolving disputes also existed...