Breaking the WTO

How Emerging Powers Disrupted the Neoliberal Project

Kristen Hopewell

• Publisher: Stanford University Press
• Year: 2016
• Print ISBN: 9781503600591, 9780804798662
• eBook ISBN: 9781503600027
• Edition: 1
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

The world economic order has been upended by the rise of the BRIC nations and the attendant decline of the United States' international influence. In Breaking the WTO, Kristen Hopewell provides a groundbreaking analysis of how these power shifts have played out in one of the most important theaters of global governance: the World Trade Organization.

Hopewell argues that the collapse of the Doha Round negotiations in 2008 signals a crisis in the American-led project of neoliberal globalization. Historically, the U.S. has pressured other countries to open their markets while maintaining its own protectionist policies. Over the course of the Doha negotiations, however, China, India, and Brazil challenged America's hypocrisy. They did so not because they rejected the multilateral trading system, but because they embraced neoliberal rhetoric and sought to lay claim to its benefits. By demanding that all members of the WTO live up to the principles of "free trade," these developing states caused the negotiations to collapse under their own contradictions. Breaking the WTO probes the tensions between the WTO's liberal principles and the underlying reality of power politics, exploring what the Doha conflict tells us about the current and coming balance of power in the global economy.

Chapter 1

Introduction

FOR over half a century, the global economy and its governing institutions have been dominated by the United States and allied advanced-industrialized states. From its hegemonic position in the international system, the US has played a vital role in managing the making of global capitalism as we know it today—from the golden age of postwar reconstruction and embedded liberalism to the contemporary era of neoliberal globalization. Yet the global political economy is currently in the midst of profound change. There has been a significant shift in global economic activity from the advanced countries of the Global North to the developing countries of the Global South, with China, India, and Brazil, in particular, emerging as major players in the world economy. The share of global GDP produced by developed countries has dropped dramatically—from 80 percent in 1960 to 44 percent today—while the share of developing countries has risen from 20 to 56 percent, such that developing countries now account for more than half of global economic output. Just three developing countries alone—China, India, and Brazil—now make up 25 percent of the global economy, whereas the entire Group of 7 (G7) advanced economies (US, UK, France, Germany, Italy, Japan, and Canada) accounts for only slightly more, at 33 percent.¹ China provides the most striking illustration of this change: three decades of sustained economic growth at rates averaging 10 percent a year have made it the world’s largest manufacturing exporter and second largest economy.² India’s growth rates have been nearly as impressive, with it becoming one of the world’s leading exporters of information technology (IT) and IT-enabled services. Brazil has emerged as an agroindustrial powerhouse, threatening to unseat the US and EU as the world’s largest agricultural exporter. These large emerging economies are now major consumer markets, with their own globally competitive multinational corporations, and an important source of outward investment, loans, and aid. As Martin Wolf (2009) declared in the Financial Times, “[F]or the first time since the industrial revolution, economic power is no longer concentrated in Western hands.” Instead, we are seeing the emergence of multiple centers of global economic power. Along with their increasing importance in the global economy, the emerging powers are demanding a greater role in its management, including at the World Trade Organization (WTO), International Monetary Fund (IMF), World Bank, and Group of 20 Leaders’ Summit.

The rise of new powers and the corresponding decline in the hegemony of the US—and of the Global North more broadly—are reshaping the world economy and the institutions charged with its governance. This transformation has been identified as one of the most important in modern history (Ikenberry 2008; Warwick Commission 2008) and generated significant debate about the agendas of the emerging powers and the implications of their rise. This book focuses on how changes in the distribution of power among states are affecting the governance of neoliberal globalization. By neoliberal globalization, I refer to growing global economic integration occurring through the increased movement of goods, services, and capital across borders, propelled by free market ideology and policies, championing open and competitive markets, freed from the fetters of the state. In the prevailing popular discourse, economic globalization is depicted as a spontaneous and agentless economic process, propelled by the ingenuity of markets and the magic of the invisible hand (Friedman 2004; Wolf 2004). Extensive scholarship, however, has shown that globalization is neither a natural nor an inevitable force but a project, driven by specific agents, political struggles, and institutional changes (Chorev 2008; Gill 2002; McMichael 2004). It is thus as much a political as an economic process. Moreover, contrary to its own mythology, neoliberal globalization entails not the removal of economic regulation but the construction of new rules, regulations, and institutions to facilitate the spread and deepening of global markets (Block and Evans 1994; Braithwaite 2008; Fligstein 2005; Levi-Faur 2005; Peck and Tickell 2002). In other words, it is an institution-building project—and one that remains ongoing.

The US has been the primary driver of neoliberal economic restructuring globally (Babb 2009; Cox 2008; Evans 2008; Fligstein 2005; Harvey 2005; Helleiner 2001; Mann 2001). As the world’s largest and most advanced economy, the US actively propelled the liberalization and opening of global markets, as a means to gain access to foreign markets, investment opportunities, and cheaper inputs. Multilateral economic institutions, such as the WTO, IMF, and World Bank, have played a central role in this endeavor, creating and enforcing new rules to govern the global economy, while inducing states to adopt neoliberal economic policies and open their national economies to foreign trade and capital. For their part, developing countries have historically been marginalized and excluded from decision-making in the multilateral economic institutions, while the “Washington Consensus” policy prescriptions they propagated produced economic and social dislocation across much of the Global South and provoked intense protest in many countries (Babb 2005; Shadlen 2005; Wade 2003).

In short, neoliberal globalization to date has been a US-led project, pursued in large part through the multilateral economic institutions and often resisted by the Global South. A key question, therefore, is what impact the rise of new powers from the developing world is having on the neoliberal project. This book sheds light on the nature and implications of contemporary power shifts by analyzing the case of the WTO, a core institution in global economic governance, responsible for setting and enforcing the rules of the global trading system. Changes in the global distribution of power, I argue, have ruptured the WTO’s ability to fulfill its intended purpose in driving forward the process of neoliberal restructuring on a global scale, as signaled by the collapse of the Doha Round of trade negotiations. The rise of new powers has thus precipitated a crisis in one of the central governing institutions of global neoliberalism. Paradoxically, however, the rising powers should not be seen as carriers of a counterhegemonic movement in opposition to neoliberalism. They are certainly counterhegemonic in the sense that they are challenging US hegemony, but not the institutional structures and logic of global neoliberalism. Yet, even if the emerging powers do not represent an antisystemic movement—they are decidedly not seeking to bring about fundamental changes in the contemporary workings of global capitalism or to bring down the governance system that supports it—their rise has nonetheless had powerful, though unintended, antisystemic effects. Ironically, what has disrupted the continued expansion of the neoliberal project at the WTO is not an oppositional countermovement but just the reverse—the wider embrace of the neoliberal trade agenda by emerging powers from the developing world. The emergence of new powers, I contend, has led to the disintegration of multilateralism and a moment of disjuncture in the project of neoliberal globalization, by heightening and bringing to the fore inherent contradictions contained within the liberal international economic order constructed under American hegemony.

Debates about Contemporary Power Shifts

Given the rapidly changing and still unfolding nature of contemporary power shifts, much of the existing literature on this subject has been of a highly speculative nature, attempting to predict the consequences of shifting power. With limited clear data yet available, such accounts have been heavily shaped by prevailing theoretical divisions in the study of international political economy. Different theoretical camps have produced at least three sets of competing analyses and predictions.

The realist tradition of international relations provides a pessimistic view of the prospects for global governance and multilateral cooperation in the context of shifting power. Hegemonic stability theory contends that an open, liberal economic order requires a single hegemonic or dominant power (Gilpin 1981; Kindleberger 1973; Krasner 1976). An international system without a leader is seen as unstable and potentially dangerous (Bremmer and Roubini 2011; Haass 2008). In a context of shifting power, realists foresee conflict, with many viewing emerging powers as holding fundamentally different interests and agendas than those of the dominant powers and, therefore, as system-challengers rather than system-supporters (Gilpin 1981; Kagan 2010; Kupchan 2014). As Stewart Patrick (2010) of the US Council on Foreign Relations states, for example:

The United States should be under no illusions about the ease of socializing rising nations. Emerging powers may be clamoring for greater global influence, but they often oppose the political and economic ground rules of the inherited Western liberal order, seek to transform existing multilateral arrangements, and shy away from assuming significant global responsibilities. The emerging non-Western powers do not share the United States’ view on global governance. The ideal scenario for Washington would be for the rising powers to embrace Western principles, norms, and rules. . . . But the emerging nations are intent on altering existing rules, not adopting them hook, line, and sinker. . . . They believe that they are entitled to reshape international arrangements to suit themselves.

It is assumed that the emerging powers will reject the rules, norms, and principles of the liberal economic order created by the Western powers (Bremmer and Roubini 2011; Castañeda 2010; Kupchan 2014; Patrick 2010). Realists thus expect the decline of US hegemony and the emergence of new powers to weaken multilateral cooperation and threaten the international economic arrangements that support globalization. Realism foresees a possible breakdown of the liberal international economic order, triggering rising nationalism and mercantilism, and ultimately “deglobalization” (Layne 2009; Patrick 2010).

In contrast, liberal institutionalism is considerably more optimistic about the prospects for multilateral cooperation and the maintenance of the liberal economic order in the absence of a hegemon (Keohane 1984). Liberalism envisions a smooth integration of new powers into the Western-made liberal world order. It suggests that emerging powers will be supporters of the existing order, based on the belief that in the current situation of global economic interdependence, all states have an interest in participating in and maintaining the system (Cox 2012; Ikenberry 2011; Nye 2015; Snyder 2011; Xiao 2013). The old and new powers will therefore find ways to jointly manage the international economic architecture and collective action will prevail to preserve an open, liberal international economic system. Liberal institutionalism thus sees multipolarity as congruent with cooperative and successful multilateralism (Bailin 2005; Snidal 1985). Ikenberry (2009), for example, foresees a “post-hegemonic liberal internationalism,” arguing that reform of the global governance institutions to increase the weight of rising powers would lock in their support for an international order based on the Western model (see also Drezner 2007; Zakaria 2008). Many thus argue that the incorporation of new powers would strengthen the multilateral system by making it more inclusive, representative, and legitimate (Vestergaard and Wade 2015; Warwick Commission 2008; Zoellick 2010).

Critical approaches informed by world systems, dependency, and neo-Marxist theory yield yet another view of the potential impact of contemporary power shifts. Critical scholars contend that developing countries are systematically disadvantaged within the global political economy and that its rules and governing institutions have worked to maintain relations of domination and exploitation between the advanced-industrialized core and underdeveloped periphery (Bailin 2005; Chang 2002; Gallagher 2008; Jawara and Kwa 2003; McMichael 2004). Given the particularly harsh effects of neoliberalism in the Global South, many have looked to the developing world as the potential source of an emancipatory movement of resistance to neoliberal globalization (Roberts 2010; Silver and Arrighi 2003). Among critical scholars, there has been a great deal of speculation and debate about whether the rise of new powers from the developing world could rupture the current trajectory of neoliberal globalization and help usher in an alternative form of globalization and a more equitable and progressive global economic order (Arrighi 2007; Evans 2008; Gills 2010; Gray and Murphy 2015; Pieterse 2011; Pinto, Macdonald, and Marshall 2011; Thakur 2014). Arrighi and Zhang (2011: 45–46), for example, raise the prospect that the emerging developing country powers could “lead to the formation of a new and more effective Bandung—that is, a new version of the Third World alliance of the 1950s and 1960s better suited to counter the economic and political subordination of Southern to Northern states in an age of unprecedented global economic integration.”

Certainly, for most of the period since World War II, the Global South has been a fierce source of criticism and opposition to the US-led global economic order. In the 1950s–70s, Third Worldist movements such as the Nonaligned Movement (NAM) and the Group of 77 (G77) called for a radical overhaul of the rules and principles of the global economic system and the establishment of a New International Economic Order (NIEO) (Krasner 1985; Mortimer 1984; Prashad 2012). The new powers emerging today were central figures in and around these movements, and the international trading system was one of their primary targets. Brazil, India, and China “all historically espoused conceptions of international order that challenged those of the liberal developed West” (Hurrell 2006: 3), from the socialist revolutionism of China to the Third Worldism of India and Brazil. Even after the demise of the NIEO, these countries adopted generally defensive positions in relation to the norms of economic liberalization being advanced by the West (Hurrell 2006: 11). Within the international trading system, for example, Brazil and India led fierce resistance from the developing world to the neoliberal agenda pursued by the US and other Northern states in the 1980s and 90s.³

There are thus major debates among scholars, policy-makers, and foreign policy analysts and observers about the objectives and intentions of the emerging powers—whether they will challenge or support the rules, norms, and principles of the existing international economic order—as well as whether their rise is likely to generate conflict or enhanced cooperation in the international system and what its implications are for the management of economic globalization. The case of the WTO provides an important point of empirical intervention into these debates. As I will show, contrary to the expectations of liberal institutionalism, the rise of new powers has created a crisis of multilateralism that profoundly threatens the way global trade governance has functioned for the last half-century. However, this is not for the reasons predicted by either realists or critical theorists: the emerging powers have imperiled the existing institutional order not because they sought to bring about its collapse but precisely the opposite—because they bought into the system and sought to lay claim to its benefits.

The Case of the WTO

The WTO provides a critical case to understand current transformations in global economic governance. With its system of rules and trade disciplines underpinning international economic relations, the WTO has been compared to a constitution for the global economy (Ruggiero, former director-general of the WTO, cited in McMichael 2004: 166). It is a core pillar in the management of economic globalization and the construction of global neoliberalism, since its rules define the “line between legitimate and illegitimate state intervention in the market” (Mortensen 2006: 172).

As one of the only international institutions whose rules are legally binding on states and backed by a powerful enforcement mechanism, the WTO is one of the strongest and most important institutions of global governance. Consequently, the WTO has been a key site of struggle over global power relations. The WTO was one of the first global economic governance institutions in which the new developing country powers successfully disrupted traditional decision-making structures and became core players. Over the course of the book, I provide empirical evidence to demonstrate that a significant shift in power has indeed taken place at the WTO.⁴ This is important because there remains debate among scholars about whether power shifts in global economic governance are real or merely symbolic. Skeptics contend that reports of declining American hegemony have been exaggerated, the US and other traditional powers retain their primacy in the international order, and the emerging powers have yet to exercise significant voice and influence or become a source of initiative and agenda-setting in global economic governance (Babones 2015; Beeson and Bell 2009; Cox 2012; Norloff 2012; Nye 2015; Pinto, Macdonald, and Marshall 2011; Subacchi 2008; Wade 2011). As I will show, however, at the WTO, the rise of new powers has dramatically circumscribed the power of the US and other Northern states and brought an end to their dominance; Brazil, India, and China have not only joined the elite inner circle of power within the WTO but they have also had a profound impact on both negotiations and dispute settlement.

The WTO is also an important case because power shifts occurred there far earlier, in 2003, than in other institutions such as the G8/G20, IMF, and World Bank, which did not begin until 2008. In contrast to the IMF and World Bank—whose weighted voting systems serve to lock in historical power disparities, are stickier and more resistant to change, and therefore are less reflective of the changing balance of power—the more informal and consensus-based system of decision-making at the WTO made that institution more fluid and responsive to shifting power (Narlikar 2013). In addition, the power shift that occurred at the WTO in many ways laid the groundwork for subsequent changes in other institutions. The emergence of new developing country powers at the WTO was groundbreaking and had far-reaching reverberations, giving recognition to these states as important actors in global economic governance and further delegitimizing their subordination or exclusion in other institutions, such as the G8 and the IMF.⁵

In order to understand current transformations in the multilateral trading system, I conducted fifteen months of field research at the WTO in Geneva, as well as in Beijing, New Delhi, Sao Paulo, Brasilia, and Washington. The research involved 157 interviews with trade negotiators, senior government officials, and representatives of industry and nongovernmental organizations; more than three hundred hours of ethnographic observation; and extensive documentary research (see Appendix).

The Rise of New Powers at the WTO

This book analyzes the role that Brazil, India, and China have played at the WTO and assesses their impact on the multilateral trading system.⁶ The central thesis of the book is that power shifts have disrupted the institutional project of neoliberalism—the construction and expansion of rules and institutions to further the advance of globalization and neoliberal market restructuring—at the WTO. However, this is not because the new developing country powers have rejected neoliberalism as the ordering principle of the global economy, as we might expect. Rather, I argue that the emerging powers have embraced the WTO’s discourse of free trade and liberalization and its tools for opening markets and sought to use them to their own advantage. The surprise is thus that a wider acceptance of the neoliberal global economic order—the norms, principles, and institutional arrangements governing the global economy—by the emerging powers has led to the breakdown of one of its core institutions.

This is a story rich in paradox.

Although Brazil, India, and China employ rhetoric that is strongly reminiscent of the era of Third Worldism in the 1950s–70s and its calls for a radical overhau...

Table of contents

• Cover
• Copyright
• Title Page
• Series Page
• Dedication
• Contents
• Acknowledgments
• Abbreviations
• 1. Introduction
• 2. Liberalism and the Contradictions of American Hegemony
• 3. Power, Multilateralism, and Neoliberalism at the WTO
• 4. Power Shift
• 5. Brazil: New Drivers of Liberalization
• 6. China: A Delicate Dance
• 7. India: Balancing Complex Trade Interests
• 8. Conclusion
• Appendix: Data and Methods
• Notes
• References
• Index