This article explains how the institutional context of international negotiations influences their outcomes. I argue that issue linkage counteracts domestic obstacles to liberalization by broadening the negotiation stakes. Institutions bolster the credibility of the linkage to make it more effective. I test the argument in the agricultural sector, which has been among the most difficult sectors for governments to liberalize. Statistical analysis of U.S. negotiations with Japan and the EU from 1970 to 1999 indicates that an institutionalized linkage between agricultural and industrial issues encourages agricultural liberalization in both Japan and Europe. Through case studies of key negotiations, I first examine why countries choose to link issues. Then, I show how the linkage changes interest group mobilization and shifts the policy process to promote liberalization.
In spite of their apparent lack of bargaining leverage, in some negotiations developing countries have been able to achieve positive outcomes -- even the overturn of protectionist measures against their exports by the United States and EU. Simply evaluating the relative market power of the two sides in an economic negotiation is inadequate. I argue that the WTO dispute settlement procedures help developing countries to gain better outcomes in negotiations with their more powerful trade partners. There are four mechanisms that are important: guarantee of the right to negotiate, the use of a common standard to evaluate outcomes, the potential for several countries to join a dispute, and the addition of incentives that favor changing a policy that violates trade rules. The paper compares two case studies about food labeling policies that raised similar trade interests for two pairs of countries with roughly parallel positions in the international economy. The first case represents the options available to a developing country WTO member. Facing European labeling policies that discriminated against its scallops and sardines exports, Peru participated in two WTO disputes that brought about changes in the problematic policies. The second case represents the situation of a developing country that cannot appeal to WTO rules for leverage. As a non-WTO member, Vietnam must negotiate to maintain access for its catfish exports to the U.S. market on the basis of a bilateral trade agreement. Ultimately, Vietnam was unable to prevent the United States from adopting a labeling regulation and anti-dumping suit that effectively exclude Vietnamese catfish from the U.S. market. The two cases illustrate how the institutional context influences the negotiation process and the ways in which WTO adjudication helps to level the playing field for developing countries.
What explains the selection of cases for WTO adjudication? This article explores the business conditions under which industries lobby their home government to use the WTO adjudication process and the political factors that influence government decisions. It explains the industry pattern of selection for international trade disputes as a function of the velocity of the business environment. While WTO adjudication is seen as costly and slow, a positive ruling brings broader benefits in terms of deterrence against future discrimination. Firms in static industries will invest in WTO dispute settlement to achieve these benefits, but firms in industries shaped by dynamic competition have high opportunity costs that make them less willing to pursue adjudication. This argument accounts for why there are fewer WTO cases about electronics industry issues than the likely incidence of protectionist measures. Since Japan is a leading exporter and provides a government report with unique data on potential WTO disputes, it was chosen to test the argument in greater depth. Interviews with Japanese business officials and statistical analysis of an original data set provide support for the argument. The authors conclude that the passive attitude towards WTO adjudication by Japan’s largest export industry, electronics, and the sensitivity of Japan’s diplomatic relations with China have constrained the cases that Japan files. These findings suggest that the effectiveness of the WTO for dispute settlement is conditional upon the time horizon of the industry and the political relations among members.
Agriculture has long been one of the most protected sectors in advanced industrial democracies. The rural biases of electoral systems, high organization by farmer interest groups, and an autonomous policy community have allowed agriculture to resist reform efforts. Over the past decade, however, major policy changes have begun to introduce market principles and partial liberalization. We examine this process in the case of Japan, which has among the highest levels of agricultural protection. Political changes, budget constraints, consumer demands, and international pressure all pushed for a major overhaul of Japanese agricultural policies, but international pressure was necessary to produce genuine reforms. We highlight the role of international agreements to bring domestic reforms in policy areas with strong vested interests.
How do states use economic-security linkages in international bargaining? Governments can provide economic benefits as a side-payment to reinforce security cooperation and use close security ties as a source of bargaining leverage in economic negotiations. I hypothesize that domestic political pressures constrain the form of linkage. First, economic side-payments are more likely to be chosen in areas that will not harm the key interests of the ruling party. Second, involvement by the legislature pushes a government toward using security ties as bargaining leverage for economic gains. This argument addresses existing debates on economic interdependence and cooperation. Evidence from negotiations between Britain and Japan during the Anglo-Japanese alliance of 1902 to 1923 supports the constraining role of domestic politics. Economic-security linkages occurred as Britain gave favorable economic treatment to Japan in order to strengthen the alliance. However, economic competition between the allies made it difficult for Britain to grant asymmetrical economic benefits. In tariff negotiations where business interests had more influence in the domestic policy process, the alliance was used as leverage to force reciprocity.
This article examines the effect of overlapping institutions in trade policy, where the World Trade Organization, preferential trade agreements, and other economic negotiation venues give states many options for negotiating rules and settling disputes. This article argues that overlapping institutions influence trade politics at three stages: selection of venue, negotiation of liberalization commitments, and enforcement of compliance. First, lobby groups and governments on both sides of a trade negotiation try to choose the set of rules that will favor their preferred outcome. WTO rules that restrict use of coercive tactics outside of the WTO generate a selection process that filters the most difficult trade issues into WTO trade rounds or dispute adjudication while easier issues are settled in bilateral and regional fora. This selection dynamic creates a challenge at the negotiation stage by disaggregating interest group pressure for liberalization commitments. The narrowing of interest group lobbying for the multilateral process may impede negotiation of liberalization agreements that could only gain political support through a broad coalition of exporter mobilization. At the enforcement stage international regime complexity creates the potential for contradictory legal rulings that undermine compliance, but also adds greater penalties for noncompliance if reputation effects operate across agreements.
This paper examines the conditions under which countries use international courts to defend their trade interests. Many express concerns that power relations and low capacity prevent developing countries from fully participating in the international trade system. Yet some developing countries have been among the most active participants in GATT/WTO adjudication. Why do some developing countries repeatedly use adjudication to resolve their trade disputes while others do not? We argue that the high information costs for bringing forward a case are a barrier for developing country use of the dispute settlement process. Prior experience with litigation, either as complainant or defendant, lowers the start-up information costs for subsequent initiation. Statistical analysis of dispute initiation from 1975 to 2003 shows that when controlling for economic and political variables, past experience in trade adjudication increases the likelihood that a country will initiate disputes. We also highlight the role of the Advisory Centre on WTO Law, which allows developing countries to pool their common experience to gain the benefits of repeat players in litigation.
Do political tensions harm economic relations? Theories claim that trade prevents war and political relations motivate trade, but less is known about whether smaller shifts in political relations impact economic exchange. Looking at two major economies, we show that negative events have not hurt U.S. or Japanese trade or investment flows. We then examine specific incidents of tensions in U.S.-French and Sino-Japanese relations over the past decade --two case pairs that allow us to compare varying levels of political tension given high existing economic interdependence and different alliance relations. Aggregate economic flows and high salience sectors like wine and autos are unaffected by the deterioration of political relations. In an era of globalization, actors lack incentives to link political and economic relations. We argue that sunk costs in existing trade and investment make governments, firms, and consumers unlikely to change their behavior in response to political disputes.
Hard times give rise to greater demand for protection. International trade rules include provisions that allow for raising barriers to aid industries when they suffer economic injury. Yet widespread use of flexibility measures may undermine the trade system and worsen economic conditions. How do states balance these conflicting pressures? This article assesses the effect of crises on cooperation in trade. We hypothesize that governments impose less protectionism during economic crisis when economic troubles are widespread across countries than when they face crisis in isolation. The lesson of Smoot-Hawley and coordination through international economic institutions represent mechanisms of informal governance that encourage cooperation to avoid a spiral of protectionism. Analysis of industry level data on protection measures for the period from 1996 to 2011 provides support for our claim that under conditions of shared hard times, states exercise strategic self-restraint to avoid beggar-thy-neighbor policies.
Which states join international institutions? Existing theories of the multilateral trade regime, the GATT/WTO, emphasize gains from cooperation on substantive policies regulated by the institution. We argue that political ties rather than issue-area functional gains determine who joins, and we show how geopolitical alignment shapes the demand and supply sides of membership. Discretionary accession rules allow members to selectively recruit some countries in pursuit of foreign policy goals, and common interests attract applicants who are not yet free traders. In statistical analysis of accession from 1948 through 2014, we use a duration model to estimate time to application and the length of accession negotiations. Our findings challenge the view that states first liberalize trade to join the GATT/WTO. Instead, democracy and foreign policy similarity encourage states to join. The importance of political ties for membership in the trade regime suggests that theories of international institutions must look beyond narrowly defined institutional scope. Replication data and files are available at JOP dataverse .
Can governments still use trade to reward and punish partner countries? While WTO rules and the pressures of globalization restrict states' capacity to manipulate trade policies, politicization of trade is likely to occur where governments intervene in markets. We examine state ownership of firms as one tool of government control. Taking China and India as examples, we use new data on bilateral trade disaggregated by firm ownership type, as well as measures of political relations based on bilateral events and United Nations voting data to estimate the effect of political relations on import flows since the early 1990s. Our results support the hypothesis that imports controlled by state-owned enterprises (SOEs) are more responsive to political relations than imports controlled by private enterprises. This finding suggests that politicized import decisions will increase as countries with partially state-controlled economies gain strength in the global economy. Extending our analysis to exports for comparison, we find a similar pattern for Indian but not for Chinese exports and offer potential explanations for these differential findings.
How does economic interdependence shape political relations? We show a new pathway to support a commercial peace in which economic interdependence changes strategies for conflict management. The uncertainty arising from political disputes between countries can depress trade flows. As states seek to protect trade from such negative effects, they are more likely to bring their disputes to legal venues. We assess this argument by analyzing why countries bring cases to the International Court of Justice (ICJ). Using data on 190 countries from 1960 to 2013, we find that countries are more likely to file ICJ cases against important trading partners than against states with low levels of shared trade. A similar logic extends to territorial disputes, where we find trade dependent states are less likely to initiate military action. We conclude that economic interdependence changes the incentives for how states resolve their disputes.
Why do states join international institutions? Existing theories emphasize direct gains from cooperation, while neglecting the role of broader political relations. We argue that geopolitical alignment shapes entry into institutions through information and linkage channels. High levels of trust among security partners reduces uncertainty about compliance, which facilitates making credible commitments for cooperation. By joining institutions together, states build patronage networks to reward and bribe states in their security coalition. We test these dynamics by analyzing membership patterns from 1949 to 2014 in 89 multilateral economic organizations. These organizations represent a hard test for the role of geopolitical alignment given their economic mandate. We demonstrate that geopolitics has a large and significant effect on the probability of state membership in economic organizations. Using a finite mixture model to compare functionalist and geopolitical theories of institutional membership, we find that about half of the membership decisions in our sample of economic organizations are best explained by the geopolitical model. The geopolitical origins of IGO membership represent a new mechanism connecting the security and economic behavior of states.
An effective legal system not only solves specific disputes but also inhibits future violations. This paper examines how the WTO dispute settlment process resolves specific disputes and reduces their future occurrence. First, the process of selecting cases to escalate in the legal venue reveals information about the preferences of defendant and complainant. A third party arbitrator and multilateral membership adds international obligation and reputation as new leverage for compliance. Second, a formal dispute mechanism may have broader impact if the adjudication of one case leads to other countries reforming policies. Each dispute case clarifies interpretation of the law and enhances the credibility of enforcement. This paper examines WTO dispute settlement to assess the role of courts to solve disputes and prevent future incidents. The effectiveness of WTO dispute settlement to resolve disputes is tested with statistical analysis of an original dataset of potential trade disputes coded from U.S. government reports on foreign trade barriers. Evidence shows that taking a dispute to the legal forum brings policy change in comparison with outcomes achieved in bilateral negotiations. In addition, past WTO disputes shape the subsequent pattern of trade barriers. Looking more broadly, the declining frequency of complaints filed by all members from 1995 to 2015 is consistent with the deterrence argument. While some areas of law encounter repeat litigation, standards and new agreements have shown more resilient enforcement. Furthermore, analysis of the filing patterns from 1975 to 2012 suggests that the increase of legalization in the WTO has established deterrence effects that were absent in the GATT period. Looking more closely at individual cases, the paper evaluates how past complaints serve to clarify the law and increase the credibility of enforcement.
Conditional membership may be one of the most important sources of leverage for IOs. What underlies the terms of selection and the willingness of applicants to pay the price of entry? The influence of accession conditions has been studied in the context of EU and NATO, where sizable benefits motivate major concessions by applicants. This paper examines a much less powerful organization, the OECD. The organization provides both public goods in the form of policy information and club goods in the form of status. Through a process of self-selection by applicants and screening by members, the organization has managed gradual expansion while preserving its value as an elite club of like-minded states. Informality of accession criteria has allowed flexibility to raise and lower the bar for entry. Statistical analysis highlights broad conditions related to income, democracy, and geopolitics that correlate with earlier entry into the OECD relative to other countries while there are less clear patterns for the role of trade and financial openness. Case studies of Japan, Mexico, Korea, and the Czech Republic are used to examine how prospective OECD membership motivated reforms in regulatory policies and trade. These countries sought to benefit from the status of association with the advanced industrial democracies. On the basis of shared liberal orientation and geopolitical alignment, these outsiders were accepted into the club. At the same time, a case study of Brazil highlights how its refusal to seek OECD membership reflects a political preference to remain distant from the advanced industrial nations even as its economy and policies are more integrated with these states.