The University of Chicago Law School Faculty Blog

Future of the WTO: In Conclusion

Thank you for your engagement over this past week Richard, Greg and Daniel. Your critical insights provoked many great discussions in this blogsphere and beyond.

While the tone of the discussion was often pessimistic about the prospect of concluding major multilateral trade rounds, we seemed to agree that the WTO's dispute settlement mechanism continues to constrain the most egregious forms of protectionism that the current economic and political climate breeds. Similarly, none of us suggested that we have come to the end of trade liberalization. Rather, the consensus seemed to be that any new liberalization commitments -- at least in the foreseeable future -- will be undertaken in regional and bilateral settings.  The current financial crisis is unlikely to be particular conducive to even such more circumscribed trade deals, but it is in those more limited settings where we expect states to continue to strike Pareto-improving deals with their key trade partners.

Our discussion covered a range of ideas on how we might revive the WTO as a forum for multilateral negotiations: Domestic politics, liberal ideas, institutional design, judiciary-induced liberalization, linkages across regimes, gradualism, PTAs as building blocks of (eventual) multilateralism and, finally, reciprocity and development in bargaining. Yet the diffusion of power and divergent preferences among the key economic powers tended to weigh heavily on the most optimistic arguments.  Exposing both the agreement and disagreement among us, I trust that the conversation left all of us with a more nuanced appreciation of the opportunities and challenges ahead. 

Thank you again for a spirited exchange!

[Ed. note: or your convenience, all of the posts in this conversation are listed here in chronological order]

• 2/23: Future of the WTO (Anu Bradford)
• 2/23: Future of WTO (Daniel Abebe)
• 2/23: Future of the WTO-Relevance (Gregory Shaffer)
• 2/23: Future of the WTO (Richard Steinberg)
• 2/24: Future of the WTO: End of multilateralism?
• 2/24: Future of the WTO- Liberal Ideas and Domestic Politics (Gregory Shaffer)
• 2/25: Future of the WTO: Noise versus Trend (Richard Steinberg)
• 2/25: Future of the WTO: Judiciary taking the lead?
• 2/25: Future of the WTO: "Death" of the WTO and Hegemonic Stability Theory
• 2/26: Future of the WTO-- Power Diffusion and Regionalism/Bilateralism (Richard Steinberg)
• 2/26: Future of the WTO-PD Games and Deadlock, Financial Crisis, Regional Blocks (Gregory Shaffer)
• 2/26: Future of the WTO: Governing the world economy beyond trade
• 2/27: Future of the WTO: Limited Options
• 2/27: Future of the WTO: Regionalism, Multilateralism, and Global Governance (Richard Steinberg)
• 2/27: Future of the WTO- Institutional Reform, Development and Reciprocity (Gregory Shaffer)

Future of the WTO- Institutional Reform, Development and Reciprocity (Gregory Shaffer)

Thank you Anu for your stimulating post, and thank you Richard and Daniel for continuing to keep us honest. Anu's last post moves us to think of the importance of revised institutional design. We as commentators have been pretty pessimistic. But the world is of action. Things change. Opportunities open. Here are a few points to supplement Anu's post.

First, other fora-- and notably the OECD and UNCTAD (reflecting a developed country/developing country divide)-- have long engaged in complementary work to WTO negotiations and oversight. The larger developing countries now need to be integrated as part of a club of larger economies, as suggested by Anu. Institutional change may come slow (or in spurts) because of path dependencies and entrenched interests, but it is needed. Whatever change comes, such institution can, and must, complement what happens in the WTO.

Second, this being said, the BRICS will likely retain close ties with other developing countries because such coordination should enhance their leverage vis-a-vis the US and Europe. We are thus likely to continue to see them work in parallel through a group such as the G-20.

Third, we have not focused at all on development in this exchange even though the Round is called the Doha Development Round. This likely reflects the exchange's focus on power and its diffusion. Many in the US and Europe disparage the concept of a Development Round because it distracts attention away from the fact that a successful WTO negotiation depends on reciprocal bargaining. Yet there is no reason why development cannot remain an animating concept while reciprocity remains central to bargaining. It means that developing countries will need to engage in the give and take of bargaining, while the WTO and other complementary institutions need to ensure (and the US and Europe needs to accept and help come up with mechanisms in order) that they retain policy space and support for development strategies.

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.

Future of the WTO: Limited Options

Anu's post provides a thoughtful guide for the potential of global governance and multilateralism outside the WTO structure.  Since I share her view that the WTO is unlikely to be the forum for "new, meaningful trade deals" in the immediate future, I just want to add two short comments.

First, Anu's post recognizes that the underlying structural conditions, including the diffusion of economic power and the divergence of economic interests among the powerful states, make cooperation through the WTO very difficult.  She writes: "[i]n the multi-polar world where interests diverge, coercive power against equals is rarely available and where an increasing number of powerful states guard vigorously their sovereignty, the best multilateral governance that can be accomplished will be voluntary."  At the same time both Anu and Greg--in previous posts--are sensitive to the fact that domestic preferences matter, and interdependence has increased the demand for coordinated solutions to global problems, suggesting that the "stakes are too high to give up on multilateralism altogether."

A hard-core realist might argue that if the underlying structural environment for cooperation on trade issues does not exist, norms, domestic preferences and the creations of new institutions (or modification of existing institutional rules) cannot sustain meaningful multilateral attempts at global governance.  But this might overemphasize the role of structure and minimize other factors.   Contrary to the purely realist story, norms about free trade, domestic preferences and institutions sometimes matter; the issue is how the underlying structure conditions the influence of these factors on international outcomes.  As Anu noted in the portion of her post quoted above, we happen to be in a world in which the structural issues among the powerful states are entrenched and limit the influence of domestic preferences and norms on outcomes.In other words, it may be a temporary phenomenon, not a permanent one.

Second, Anu's G-10 proposal appears to reflect the constraints of the current international political environment.  Though it wisely focuses on the distribution of economic power and state interests, she acknowledges that the proposal "may end up being little more than a status symbol and a talking shop."  This might be all we can do now at the multilateral level until the economic interests of the powerful states begin to converge and make it possible for meaningful global governance.  In the meantime, regional or bilateral trade agreements may represent the "second-best" way forward.   

Future of the WTO: Governing the world economy beyond trade

Let me build on Greg and Richard’ assumptions and try to sketch a way forward. We all seem to agree that new, meaningful trade deals will not at least in the near future be struck in the WTO. Instead, negotiations are more likely to take place in the bilateral and regional context. There is less agreement among us on whether bilateral and regional progress will pave the way for multilateral trade deals in the future. We can speculate whether the WTO will be revived or made obsolete through these preferential trade agreements (PTAs). It is possible, and maybe even likely, that the net benefits from new global trade deals will gradually diminish as PTAs continue to proliferate. The opportunity costs of forgoing the WTO negotiation process would inevitably seem lower when the various new regional trade relations become more entrenched.

Acknowledging this shift towards regionalism, Richard asks: “Will we see competition between blocs? Cooperation between them? What will be the implications for multilateralism?” China’s recent effort to build closer trade relations with its Asian neighbors is one of the most interesting developments. That trend is likely to continue. Greg seems correct in doubting the emergence of coherent rival geopolitical blocks. But the most important regional trade deals will be built around the US, EU and China. In addition, we will see a fragmented web of PTAs within, across and beyond the key trade regions.

I would predict some competition but no confrontation among regional blocks. We may see attempts of the “big three” – the US, EU and China – to expand their spheres of economic influence though negotiating PTAs with other states, in particular the energy-rich states in the Middle East, Central Asia and Africa.

Student Blogger - The Myths of Consumer Protection Law

Update: Audio of this talk is now available and video is embedded after the jump.

Professor Omri Ben-Shahar spoke on the "Myths of Consumer Protection" at this year’s annual Ronald H. Coase lecture for first year law students. Ben-Shahar discussed why he believes the modern consumer protection movement is largely misguided. Consumer advocates cite three things that consumers need: information about products, access to courts, and remedies for wrongs done to them. In the eyes of the consumer advocate, a consumer cannot compete with large corporations without these three things. It would be David versus Goliath; and Goliath would always win.

Myth #1: Consumers will be better off if they have more information

Warning labels are on everything. You can’t install a piece of software or use a web site without checking some box guaranteeing that you have read the Terms of Service. Do these forms of disclosure benefit consumers?

Ben-Shahar believes not. Disclosures of information are often technical and hard to digest. People do not want to spend the time to read these disclosures. In a study of online viewing habits, 1/1000 people actually read a site’s Terms of Service, and that single curious individual only glanced at the complicated contract for an average of forty seconds—perhaps just a misclick.

Future of the WTO-PD Games and Deadlock, Financial Crisis, Regional Blocks (Gregory Shaffer)

Anu rightly points out differences between Richard and me, but before we go there, we should explore further parallels in our assessment of the role of power in WTO negotiations and how changes in market power could affect multilateral negotiations. Let's briefly look at game theory. WTO trade negotiations are often characterized simply as Prisoners' dilemma (PD) games in legal academia, but this is a mischaracterization. If that is all they were, then it would be a simple cost-benefit analysis for the players as Joel Trachtman suggests in his side comment to Richard. But WTO negotiations are more than about solving a PD. They are also about the terms of the deal. And once we get to the terms of a deal we are talking about distributive issues (economically and politically). And once we are talking about distributive issues, bargaining power matters. These distributive implications become more salient as we move to non-tariff issues, whether IP, other standards, or GATS. As we see power somewhat diffused (with projections of further diffusion), bargaining for preferred terms becomes more intensive and agreement becomes more difficult, potentially (but not necessarily) leading to deadlock.

Anu rightly raises the issue of the role of the judicial/dispute settlement body in the WTO. It will continue to be a player in the management of liberalization commitments. Even here, however, the member states are far from powerless. To give an example, they can attempt to go outside the WTO to create new international rules in an attempt to affect interpretations of WTO rules by dispute settlement panels. The EU arguably did this, in part, with the Biodiversity Protocol, as well as with the UNESCO Convention on Cultural Diversity. WTO  dispute settlement bodies may not formally take these agreements into account, but they are not blind to international context either. The aim of these agreements of a more "soft law " nature is to "soften" the  judicial  interpretations of WTO "hard law" agreements, as Mark Pollack and I have explored.

Future of the WTO-- Power Diffusion and Regionalism/Bilateralism (Richard Steinberg)

Daniel’s next-to-last paragraph captures well my claim about hegemonic stability theory and the demise of negotiated liberalization at the WTO. My point is not about rigid adherence to one of the variants of HST from the 1980s—it is rather that the US-EU hegemonic duopoly that ran the WTO from roughly 1973-95 is unable to do so anymore. Anu’s post this morning and Daniel’s middle paragraphs rebut the rigid versions of HST from the early 1980s. GATT/WTO evolution has been more subtle: from a hegemonic structure (in the 1957-73 period) to hegemonic duopoly (from 1973-1995) to tripolarity now. [I disagree that the GATT/WTO was ever a US-EU-Japan tripolarity; Japan was never a demandeur, never a real player, even in the old Quad days.] The contemporary deadlock may be due to a divergence of transatlantic interests, as suggested by Daniel, but it is also because the developing world is growing in power (now through coalition behavior; later due largely to catch-up rates of growth). The result is that liberalization is now taking place more through regional and bilateral venues than the WTO. And this is my point about consistency with the structuralist framework of HST.>

But the more complete view would remember Putnam: trade negotiations are a two-level game with the state negotiator in the middle. In so far as it is possible for a US or EU negotiator to craft a domestic coalition favoring liberalization, where is that negotiator more likely to generate a deal with benefits for export-oriented producers—at the WTO or within a regional or bilateral context? The answer is clear. Due to power diffusion and interest divergence in the WTO, and the relative power of the US and EU in their respective bilateral negotiations with third countries, regional and bilateral venues offer better outcomes for US and EU negotiators. This would explain why, since 1995, no significant deals have been struck at the WTO, while the US has struck deals on about 15 FTAs and the EU has enlarged, added about ten FTAs, and is converting the 70+ Lome >country preferences into FTAs.

Video: Symposium Honoring Martha Nussbaum

Earlier this month, Columbia Law School held a symposium honoring Martha Nussbaum's contributions to the scholarship of gender, sexuality and the law. The proceedings will be published in a special issue of the Columbia Journal of Gender and Law, but videos of Prof. Nussbaum's keynote and the symposium panels (one of which featured Chicago's Mary Anne Case) are now available on Columbia's Gender & Sexuality Law Blog.

Future of the WTO: "Death" of the WTO and Hegemonic Stability Theory

Thank you to Richard for the provocative and interesting comments about the death of the WTO and hegemonic stability theory (HST).  Let me address the WTO issue first and the HST question second.

While I am certainly extremely pessimistic about the immediate prospects for breaking the gridlock at the WTO or producing tangible results from the Doha round, I am not sure that it is completely helpful to think in terms of the WTO's life or death.  Perhaps it is better to ask if the structural and political conditions under which the WTO can succeed as a negotiation venue still exist.  I think the answer is no.  If the internal economic differences among the great powers is more pronounced today than in the past, to see any multilateral progress we would need a greater convergence of economic interests.  As Anu noted, "China exports primarily manufactured goods, India services and Brazil agricultural products.  Russia's economy, if admitted to join the club, depends on natural resources."  Moreover, as Richard points out, the China, India, Brazil and Russia share of the WTO's GDP is growing and might approach "multipolarity" in 2025.  If Anu and Richard are correct and about the internal characteristics and my tentative claim about the necessity of shared economic interests among great powers is true, it appears that the WTO's lacks the underlying conditions for success as a negotiation venue.