Future of the WTO: Judiciary taking the lead?

Richard and Greg's entries offer a stark contrast about where the WTO is heading and what factors are relevant in determining the faith of the institution. Is the future of the WTO determined by power, domestic coalitions or, ultimately, norms and ideas?

Greg calls for the mobilization of domestic interests and ideas about trade liberalism as a solution to the current deadlock. Domestic coalitions have lost their faith in liberal markets. Without domestic support and, consequently, the prospect for political rents, states have little incentives to negotiate new trade deals.

Given the degree of economic interdependence today, one would expect there to be an even more positive domestic political economy story in favor of free trade. Traditionally, we rely on exporters to counter the protectionist pressures generated by import-competing industries. With a dramatic growth in intra-industry trade, pro-trade coalition of exporters should be joined by a large number of domestic producers who rely on imports as inputs or raw materials. In addition, the extent of foreign direct investment (FDI) would be expected to create new interest groups that benefit from free trade. For instance, if the US were to raise trade barriers vis-a-vis Chinese imports, we would expect US exporters and US companies relying on Chinese goods as inputs object the measures. But shouldn't also an increasing number of US companies that are established in China and that export their goods back to their home country rally againts the proposed measures? I agree with Greg that we do not currently see strong interest groups favoring new WTO deals. But the bottom-line is that there are winners and those winners do have a stake in the system. The fundamental political economy rationale of trade liberalization has therefore not changed. Quite the contrary.

I agree with Greg that mobilizing domestic interest groups and reviving the ideology of free trade is crucial. However, I agree with Richard that given the distinctly diffused power structure, it is hard to translate those ideas or domestic preferences (if and when exerting their free trade voice more loudly again) into meaningful multilateral agreements among states. Richard raises the hegemonic stability theory to predict that "the golden age of international law is ending." In the absence of hegemon, we should not expect to see progress in the WTO. While it seems right that the existence of a hegemon can faciliate multilateral trade negotiations, Joel Trachtman's note (linked to my earlier post) that the major achievements within the WTO, including the Uruguay Round, took place without a presence of a hegemon shows the limits of the theory. The structure of international trade has for a good while been bipolar with the EU constraining the US, if not at times tri-polar (Japan). But the underlying idea that a diffused power structure is not as conducive to multilateral trade liberalization remains valid.

Let’s take Richard's assumption about the importance of a hegemon as given for a moment. If we indeed needed a hegemon to provide a multilateral trade regime, we would be very unlikely to see another trade round. There will be no single trade power in the decades to come. Economic power already is, and will become even more, diffused among a heterogeneous group of states. That being the case, Richard alludes to an interesting scenario that parallels developments in the European Union. In the absence of progress in political integration in Europe, the dynamics shifted to the European Court of Justice (ECJ). We saw an activist ECJ that was advancing European integration with bold and lasting steps.

In the WTO, this would mean a shift from a political to judicial trade liberalization process whereby existing deadlocks would be solved by the WTO dispute settlement body (DSB). Richard argues that this would be slow and piecemeal. But so can be the negotiation rounds, Doha being a prime example. And the experience from Europe shows that ambitious and trusted courts can advance economic integration with great leaps and only retreat when the political process catches up. So one scenario for the WTO is an increasingly bold and empowered DSB that takes ownership of the future of multilateral trade liberalization and will push for activist rulings until the political process is prepared to redeem its place as an engine of economic integration through state-to-state negotiations. Whether the DSB-led trade liberalization would be normatively desirable, however, is another matter.