The University of Chicago Law School Faculty Blog

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.

Future of the WTO: Noise versus Trend (Richard Steinberg)

Of course the claim that the WTO is dead as a location for negotiation was a bit rhetorical, intended to drive home the point (not rhetorical) that the GATT/WTO system is of decreasing importance as an engine for trade liberalization.  Anu, Greg, and Daniel would seem to agree.  Yet I think I am more pessimistic about the WTO than Anu and Greg (not yet sure about Daniel).

Yes, conclusion of the Doha Round is possible—but what a disappointing and modest result it would be. And yes, dispute settlement may help restrain protectionism in the next few years (which is not trivial, when one thinks back to the Great Depression) and advance a process analogous to the ECJ’s “negative harmonization” period in the 1970s and early 1980s—but court-led liberalization is slow and piecemeal. Plurilaterals or a variable geometry in the future? Maybe, but there are disadvantages (as well as advantages) of doing that at the WTO. At best, multilateral liberalization is on a very slow track.

It is not clear that multilateralism is dying at the same rate across all issue areas. The structure of multilateral games varies across issue areas (and linkage across issue areas is usually not part of the story).

Nonetheless, I am pessimistic enough to raise the idea that hegemonic stability theory (which has long thought to have been dead) may have been fundamentally correct. Not in its brittle stalks form (there are lags, of course, as institutions and words matter), but in its basic structural claim that as power diffuses, global regimes will weaken. Power is diffusing, not just in trade, but also in finance and military affairs. [The idea that we live in an imperial or hegemonic world (which was taken for granted by many just eight years ago) is not so easy to defend. In historical terms, Iraq was a small war, yet we are spent. “The most powerful nation in the world” is beside the point. Putin owns the Caucuses and is (diplomatically) pushing the Yalta line in the Balkans. The PRC is building naval capacity at a rapid rate. Nukes are diffusing. . . As for money, do I need to make the argument?]

If hegemonic stability theory is essentially right, then the golden age of international law is ending. Global law-making is harder; more international law-making will be regional or plurilateral. This seems roughly consistent with the story in trade: gridlock at the WTO and the explosion of regional and bilateral free trade agreements.

And if the theory is essentially right, then the examples that Anu gives for tempered optimism about the future of the WTO, and Greg’s proposal for reforming the main decision-making rule and arguments about export-oriented interests still favoring liberalization, look more like noise than the main story-line for the WTO.

[In the next installment, I may have to back away from hanging my hat on hegemonic stability theory alone, but I am kind of curious how much weight the idea can be bear. . .]

Future of the WTO- Liberal Ideas and Domestic Politics (Gregory Shaffer)

I don't think the WTO as a forum for negotiation is dead, unless one believes in resurrection. To me, our generally pessimistic comments raise a series of important issues, but do not mean the end of multilateralism. States still have incentives to engage in multilateral negotiations. The world may have "deglobalized" these last months with economic collapse and a concomitant collapse in trade flows, but countries will remain too economically interdependent to not engage in multilateral negotiations, including trade agreements, down the road. Yes, negotiations with a small numbers of players and with a dominant economic hegemon go more quickly. But they are not conditions for multilateral agreements.

The key challenge now is not simply explained by realist concepts, such as shifts in the distribution of power and their impact on relative gains for countries in competition with each other. The perception of absolute gains still matters. And domestic politics still matter for the formation of national positions (a liberal internationalist position). If export-oriented interests mobilize in countries, including the BRICs, they will push for reciprocal market openings. Brazil, for example, pushed hard for a conclusion of the Doha Round because its agricultural export interests had much to gain. The key challenge now is that domestic interests are not mobilized in key WTO members. They never were in the US and the EU for this round, which limited what US and EU negotiators could do. And as I wrote in my first post, this is not a propitious time to see new domestic mobilization for trade liberalization.

That brings us to the role of ideas, including perspectives of WTO legitimacy as a forum for liberalization, which has not been addressed in posts so far. It is no coincidence that the GATT was signed after WWII following the Great Depression, and that the Uruguay Round was concluded and the WTO created following the Berlin Wall's collapse and the discrediting of socialism. Yet we are now seeing shifts in domestic opinion that will be less favorable to trade liberalization.  Trade negotiations for further liberalization thus do not bode well in the near term. In other words, the economic crisis is not just about political priorities shifting away from trade; it is also about shifting perceptions regarding the benefit of open markets. This loss of faith in liberal markets will affect the constellation of domestic pressures on government negotiators.

Market power matters in affecting WTO negotiation outcomes, as we have all shown in our work. But so does the mobilization of domestic interests and ideas about trade liberalism. Thus, in my view, while the WTO as a negotiating forum is indeed deadlocked, it is not dead in the sense that it is forever gone. We just need to be realistic about what it can accomplish in these times. Acting as a useful shield against protectionism is not insignificant.

Future of the WTO: End of multilateralism?

Richard pronounces that "as a location for trade negotiation, the WTO is dead". Looking at the dismal trackrecord of the the past 7 years of negotiations, current political economy climate, the extent of disagreements among the key trading nations, and the urgency of policy priorities elsewhere, that may well be an accurate projection at least for the next five to ten years. 

Even in the life after the financial crises, the structural problems undermining the WTO prevail, impeding states' ability to reach a consensus that is required for agreeing on any new commitments.  Daniel refers to the variation in internal characteristics among the great powers as a primary reason for the deadlock. While the US and the EU have their differences, those differences are even sharper between the US and the EU on one hand and the emerging and the developing countries on the other.  In addition, BRIC countries' composition of production and trade further ensures that they are not a coherent block and hence less likely to be able to lead a coherent coalition.  All BRIC countries pursue export-driven growth but rely on very different industries in generating that growth. China exports primarily manufactured goods, India services and Brazil agricultural products.  Russia's economy, if admitted to join the club, depends on natural resources.  Thus, what is common among the emerging economies, is their willingness to counter-balance the US and EU created trade order rather than their shared preferences on the priorities of the trade agenda. We are therefore more likely to continue to see them exercise veto-power rather than set the agenda for any new trade rounds.

So have we come to the end of multilateralism?

Future of the WTO (Richard Steinberg)

As a location for trade negotiation, the WTO is dead.

The factors identified by Anu and Daniel-- raw economic diffusion and divergence of interests-- are important. Of the two, divergence of interests among powerful states (or bocs of states) is more important. Perhaps surprisingly, US and EU GDP (respectively) as a proportion of WTO GDP have not changed substantially in the last two decades; each has accounted for roughly 30-34% of WTO GDP, even with the "rise" of the BRICs. China has emerged, but it accounts for only about 6-8% of WTO GDP as of 2006,depending upon how you measure, and it has not been a demandeur at the WTO. Using the Goldman-Sachs data, projecting forward (and making some assumptions about Chinese and Indian growth that are more conservative than G-S), Chinese and Indian shares of WTO GDP will rise substantially so that by 2025 China may have 12-15% of WTO GDP and India, Brazil, and Russia may each have 5-8%. At that point, we can begin to talk about multipolarity. Until then, something else is going on.

Future of the WTO-Relevance (Gregory Shaffer)

Thank you for your opening post Anu and for your follow-up Daniel. Let me add a few things. First, in assessing the Future of the WTO, the immediate question is the WTO's relevance in light of the financial crisis. You both note shifts in power constituting a new world order (the rise of the rest); yet for now, the WTO's relevance is limited more by a shifting attention to other matters-- namely getting ourselves out of the greatest global finance crisis that we have seen since the second world war, combined (for good measure) with the challenges of Afghanistan, Iraq and Al-Qaeda. The WTO is just not the player it was when it spurred the great global protests just a few years ago.

That of course does not mean that the WTO is irrelevant. The invocation by trading partners of its rules got the Obama administration immediately to amend its prize economic stimulus legislation. That shows it still has meaning. Thinking counterfactually, the WTO rules provided tools to domestic political actors to change the most important legislation before this country, tools that otherwise would not exist. We can thus better manage protectionist pressures than we could without the WTO.

Future of WTO (Daniel Abebe)

Anu's very helpful post presents the WTO's challenges quite clearly: how can the WTO in its current form function effectively in light of the rise of new economic powers?  While this post agrees with Anu's analysis, it tentatively locates the problem not only in the failure to modify the WTO's institutional rules to the current distribution of economic power but also in the variation in economic development of the emerging states and the size of their economies.  Anu mentioned the fact that there are “too many trade powers with too divergent preferences” complicating the WTO’s efficacy.  This is correct and also produces a puzzle.  If we assume that the great powers are “great,” in part, because of the size and development their economies, why should we see tremendous variation in preferences among these similar great powers on trade issues?  A realist story would predict that the great powers would collude and coerce the developing countries and, if unsuccessful in economic coercion, they would perhaps exercise military coercion as well.  As Anu described, this is not working in today’s WTO.  It leads me to ask the following questions:  First, how does the increase in the importance of international trade in the post-Cold War affect great power competition?  Second, how should we see this competition reflected in international institutions like the WTO?

What does international relations theory tell us about these questions? Historically, due to the dominance of realist thought the distribution of power has been measured in material terms, i.e., the combination of military resources and economic wealth.  Throughout the twentieth century, this has produced crude measurements of the "power" of the United States and its allies (NATO/the European Union) and the capabilities of the Soviet Union and its satellite states.  Realism has led to predictions about the difficulties of cooperation among states, the irrelevance of domestic politics and the epiphenomenal nature of international institutions and international law.

Future of the WTO (Anu Bradford)

The WTO’s troubles began much before the financial crises erupted. Trade protectionism is on the rise but the institutional foundations of international trade deals have been shaky for several years. The Doha round of trade negotiations, commenced in 2001, has repeatedly stalled as states have failed to reach a consensus on key issues. These difficulties have undermined the efforts to multilaterally reduce remaining trade barriers and shifted the momentum of trade liberalization towards bilateral and regional trade agreements.

Why have multilateral trade deals been so difficult to conclude in the past years? The WTO has been hailed as the most effective international institution that has delivered enormous welfare gains to its members since the GATT Agreement was first negotiated in 1947. In 1995, when the contracting parties of the GATT established the WTO and expanded the institution's mandate to include services and intellectual property rights, the continuing progress towards a truly liberal multilateral trade order built around the all-mighty WTO seemed inevitable.

Much has happened since the conclusion of the Uruguay Round. Most importantly, what has complicated the WTO’s ability to facilitate international trade agreements is the fundamental shift in the balance of economic power that underlies international trade negotiations. At the end of the Uruguay Round in 1995, the United States and the European Union were in the position to dictate the negotiation agenda, facing few constraints from the other contracting parties. Now, in contrast, the talks are frequently brought to a halt by developing countries that vocally resist the imposition of US and EU’s trade preferences on them. Most recently this past July, the attempts to revive the Doha Round in Geneva failed due to the opposition of new trade powers, India and China. The US and EU are facing an entirely different strategic situation whereby their power is increasingly constrained by that exercised by the recently empowered emerging economies.

Discussion: Future of the WTO

This week, the Faculty Blog will host a discussion on the question of how the shifts in the balance of economic power challenge the existing international economic order in general, and the World Trade Organization in particular. Assistant Professor of Law Anu Bradford will initiate the conversation, and she will be joined by Assistant Professor of Law Daniel Abebe, Gregory Shaffer of the University of Minnesota, and Richard Steinberg of UCLA. Feel free to join in the discussion!

Ginsburg and New Website Connect Constitutional Scholars and Drafters

The U.S. Institute of Peace and the Comparative Constitutions Project (CCP) have announced the launch of constitutionmaking.org, a site intended to provide people engaged in constitutional drafting access to essential materials, insights, and expertise.

Constitutionmaking.org was created by a team of scholars and drafters—including the University of Chicago Law School's Tom Ginsburg—with the guiding principle that those writing constitutions should have access to (1) a variety of options for constitutional design and (2) analysis of the consequences of design choices.  To this end, the site features three basic components:

• OPTION REPORTS.  This section includes a series of reports on a wide-ranging set of topics that are central to historical and contemporary constitutions.  These reports provide sample provisions and information on trends and patterns in the use of different constitutional provisions.  The data and analysis for these reports come from an original set of data on the content of constitutions that the researchers have been collecting since 2005.
• CONSTITUTONAL REPOSITORY.  The site also includes a growing repository of constitutional texts.  The researchers have identified the major constitutional changes for each independent state since 1789 and have collected 95% of the documents associated with these amendments and replacements.  Some of these documents are under copyright, but the repository will include all publicly available materials. 
• FORUM.  A third component of constitutionmaking.org features regular commentary from scholars on issues and events surrounding constitutional design. The goal is the same as that for constitutionmaking.org more generally: to connect scholars and drafters.  The forum endeavors to bring to light two sorts of information: (1) reports of constitutional deliberation (and challenges therein) from various corners of the world, and (2) reports of noteworthy research on the subject. The ideas are serious but the tone is direct and lively.  Posts have covered recent constitutional activity in Bolivia, Venezuela, Thailand, and Burma.