Future of the WTO: Regionalism, Multilateralism, and Global Governance (Richard Steinberg)

Anu’s February 26 post offers some interesting claims and prescriptions in three areas: (1) trade regionalism; (2) multilateralism in other spheres; and (3) improving the G-8-- global governance.

Trade Regionalism.

On trade regionalism, Anu predicts “some competition, but no confrontation” between blocs.  That seems like a sound prediction, at least in the short run, but (like all social scientific predictions) there must be less confidence about it in the long run.  For example, if China builds a web of preferential trade relationships in Asia, and trade and security tensions with China were to rise further, then I would not be surprised to see confrontation with a Sino-centric bloc.

What about using regional blocs as a basis for deeper multilateral deals?   For example, the idea of a Transatlantic Free Trade Area (TAFTA), proposed a decade ago, was promoted partly on the basis that it could be a vehicle for converting US- and EU-centered regionalism into multilateral integration.  Similarly, the strategy of “competitive liberalization” was promoted partly on grounds that after scores of countries had concluded bilateral free trade area (FTA) deals, knocking out protectionist forces in their own countries, multilateral liberalization would be easy.  I am pessimistic about these possibilities.  On the first, cross-regional deals have proved exceptionally difficult; agriculture and many standards-sensitive sectors have generally opposed ideas like TAFTA.  As for the second, multilateralizing any US- or EU-centered FTA means giving China complete access to our respective markets; not going to happen.

So this leaves us in an increasingly Balkanizing world trade system: continued (but perhaps slower) proliferation of FTAs; a sclerotic WTO (as we all seem to agree); greater complexity and higher legal transaction costs in international trade and investment transactions; and the possibility that, in ten or twenty years (or more), a shock results in a serious challenge to multilateralism.  To me, this is not a pretty future.  

Multilateralism in Other Spheres.

Anu raises the interesting question of the prospect for multilateralism in other spheres, aside from trade.  The suggestion is that the demise (or difficulty) of multilateral progress in trade may not be generalizable to other spheres of activity.  At the micro-level, this is probably correct, at least for now.  As I suggested in a previous post, the structure of games (and domestic politics) varies across issue areas.  So, for example, there is likely a common multilateral interest in improving Basel II risk management!

But at a macro-level, and in the longer term, I am concerned that multilateralism is under increasing stress across most issue areas due to the diffusion of global power.  An elegantly parsimonious and powerful insight of structuralism is that cooperation becomes more difficult as global power diffuses because cooperation is more difficult as the number of players increases.  We seem to see this played out in a number of areas as the number of countries required for successful cooperation has grown.  Cooperation problems (more need for it and greater difficulty achieving global Pareto-improving outcomes) are greater now than twenty years ago, not only in trade, but also in monetary affairs (the ECB has not really helped things), security affairs, and fiscal policy coordination.  And there may be greater need now than ever for cooperation on climate change, but the cooperation challenges on that issue (getting China, Russia, India, Europe, the US and others to cooperate meaningfully) are daunting; maybe we should pursue the second best option of geoengineering our way out of global warming (see the just-published Foreign Affairs article by Steinbruner, Victor, et al).

Improving the G-8—and Global Governance.

Finally, Anu suggests an institutional innovation, enhancing the portfolio, use, and size of the G-8, and determining membership according to a measure or index of relative global power (such as GDP).

Continued multilateral efforts through institutions like the G-8 are indispensible, but I fear these efforts may be increasingly unsuccessful, whether or not we embrace the reforms suggested by Anu.  My skepticism about the prospects for G-8-ish cooperation is rooted in the same structural arguments made above about multilateral cooperation generally.

Moreover, expanding the G-8 might make cooperation even harder.  All other things being equal, cooperation becomes more difficult as the number of players increases.

Finally, it may be unwise to assign the same G-8 or G-10 countries to tackle all of the world’s problems because the core group of countries with the interest and capacity to address a particular problem varies across issue areas.  For example, the countries that have the capacity to address the global financial crisis are not the same countries with the capacity to address overfishing.  Across issue areas there is substantial overlap among powerful and interested countries, but each discrete problem is complex enough and cooperation is difficult enough that we might be better off tailoring participation in negotiations to a particular set of countries with the interests and capacity necessary to address the particular problem at hand.

There is one important twist to the claim above: membership broader than a tailored inner core group makes sense if we envision grand bargains with linkage across issue areas.  Linkage and grand bargains may be the best hope for future multilateral cooperation.  In that case, however, the conversation opens up to one of how to modify international institutions to improve global governance, a question that goes way beyond just the G-8.