Regionalism and layered governance: the choice of trade institutions.

• Author: Yarbrough, Beth V.
• Position: Contemporary Issues in World Trade

Those of us trained in the post-Second World War period, particularly in the United States, grew accustomed to a world in which the key elements of international relations -- security and trade -- were organized in particular ways. In the security sphere, we were accustomed to bipolarity, under which two well-armed superpowers faced each other, backed by incongruous political-economic systems. In the trade sphere, we were accustomed to what we might call exclusionary multilateralism. The trading system operated under a set of multilateral rules, embodied in the General Agreement on Tariffs and Trade (GATT). However, the GATT was basically a Western group, excluding the Soviet Union and most of Eastern Europe.

Dramatic evidence suggests the realignment of both systems during the last decade. The changing face of Eastern Europe and the demise of the Soviet Union ended bipolar rivalry as we had known it. In trade, new forms of preferential agreements, often called regionalism, bilateralism or minilateralism, now play major roles alongside the GATT. In other words, basic international institutions (or what we might call polarity in the security sphere and lateralism in the trade sphere) have changed.

In response, we hear both sighs of relief and warnings of doom. This mixed response should not come as a surprise given the complex roles of economic, political and social institutions. Bipolar rivalry frequently led the superpowers to intervene in conflicts, but that same rivalry made small wars less frequent and bloody by containing lesser powers and ethnic nationalism.(2) With the end of bipolarity have come regional conflicts -- in Central Asia, Eastern Europe and Africa, along with greater uncertainty about who is responsible for dealing with them. With countries and regions no longer in the camp of one superpower or another, the postwar norms for intervention in civil wars also seem inadequate: Somalia, Cambodia, Kurdish Iraq and the former Yugoslavia are examples.(3) The status quo no longer seems to merit aggressive support as a Schiellingesque focal point for avoiding disaster.

In the trade sphere, the GATT process under U.S. hegemonic leadership resulted in a dramatic lowering of tariff barriers during the postwar period, and international trade burgeoned. Many critics complain, however, that the GATT's focus on tariffs merely encouraged countries to adopt less obvious but more pernicious nontariff barriers. The most ardent devotees of postwar trade institutions such as the GATT now seem to value these institutions and their norms as an end rather than a means of achieving or maintaining liberal trade. They consider departures from postwar institutions or from their underlying norms (especially nondiscriminatory multilateralism) illegitimate. At the other extreme, some scholars see the postwar trade institutions, never more than means to an end, as now overextended, inadequate, tired or outdated.(4) They believe that alternatives such as regionalism may complement, supplement or even take the place of the postwar institutions.

Many theories with which economists and political scientists work are ill-suited to analyze whether and how new institutions should be developed.(5) One approach accepts the form of institutions (such as polarity in security or lateralism in trade) as given or exogenous. These are seen as contexts in which the world finds itself, and the scholar's or policy maker's job is to discover each context's implications. Such theories tend to view relationships between polarity or lateralism and other variables (for example, stability, peace or openness) as timeless. They lead their followers to search for time-invariant answers to questions such as: Are bipolar or multipolar systems more stable? How does preferential trade affect efficiency? Does multilateralism limit protectionism? Is trade regionalism incompatible with openness?

The second approach is more normative. It assumes that polarity or lateralism is a matter of choice, implying that scholars and policy makers must recognize and choose the correct polarity or lateralism to achieve peace or openness.(6) For example, the postwar emphasis on multilateralism often is attributed to deliberate U.S. choice, based on American policy makers' disillusionment with prewar non-multilateral institutions' failure to preserve the peace or an open world economy.(7) Either of these existing approaches alone seems inappropriate or inadequate to explain or predict institutional changes on the scale experienced in the recent past. In both the trade and security sphere, we have new institutions (for example, the North American Free-Trade Agreement and the Commonwealth of Independent States), redefined old ones (the post-Maastricht European Union and the post-Soviet United Nations and North Atlantic Treaty Organization) and new and fluid coalitions (such as those involved in various peacekeeping efforts or in providing aid to economies in transition). In the absence of security bipolarity, relatively broad-based consensus no longer seems unthinkable, at least on a given day and issue. But, at the same time, the absence of clear, identifiable threats and the perceived new links among economic, political and security issues require institutions of great complexity and ability to adapt.(8)

The world political economy as currently constituted cannot be broken down into neat economic, political or ideological categories. "Capitalist versus socialist" no longer suffices, given the number of hybrid systems and countries in transition. Similarly, countries' grossly divergent economic performances render "developed versus developing" a murky distinction. For example, where would one put the newly industrializing economics, or the heavily but inappropriately industrialized economies of the former Soviet Union and Eastern Europe? The most relevant distinctions now seem to depend less on such economic, political or ideological categories and more on what kinds of institutions work in a particular environment, and what kinds of institutions do not.(9) International competition between institutions that work and those that do not is a natural byproduct of growing flows of goods, portfolio finance, foreign direct investment and, especially, information from country to country. Understanding this competition and its implications will require scholars and policy makers to examine institutions more systematically: how we define them, the ways in which they vary, the levels on which they operate and how they interact in the economic, political and security spheres.

Several recent international institutional changes involve shifts in the level at which the action in a particular issue area centers. With the decline of bipolar rivalry, security-related issues have become increasingly regional and internal, rather than global. The regional focus is not inconsistent with postwar institutions, since Article 52 of the U.N. Charter prescribes regional settlement for regional disputes; but it is still unclear what forms regional dispute settlement will take under multipolarity and how effective it will be. Internal disputes have proven even more troublesome, since they pit one set of international norms (for example, non-intervention, national sovereignty, and support for the status quo) against another (for example, humanitarianism, protection of the traditional territorial definition of existing states and the desire for stability and clarity of sovereign status).(10) While security concerns have become increasingly regional and internal, other international issues, such as those related to the environment, have moved from a local to a global level, causing controversy as countries with vastly different environmental conditions, needs and levels of national wealth struggle to negotiate over issues with global impacts.

For issues related to international trade, emphasis has increasingly fallen on regional initiatives, such as the European Union and NAFTA, and how those initiatives and multilateral trade institutions such as the GATT interact. A second major trend involves a blurring of the traditional distinctions between trade and foreign investment policies, between goods, services, and factor flows, and between border policies (for example, tariffs and quotas) and nonborder policies (including antitrust and environmental regulations).(11) One result is that the boundary between so-called domestic and international policies is less clear than it once seemed, raising the issue of the international community's right to information, input and complaint over policies once deemed domestic. Postwar international trade negotiations under the GATT simply grandfathered many noncompliant policies (such as developed countries' policies toward agriculture and textiles) on grounds that they were domestic, but now domestic policy making and international negotiations are more deeply related. In the rest of this essay, we examine some of the questions, dilemmas and policy choices posed by these changes, focusing on trade.

BEYOND THE SIMPLE DICHOTOMY: DEFINING TRADE INSTITUTIONS

A widely accepted goal of trade policy might be characterized as "an orderly world trading system premised on symmetry of rights defined by mutual consent."(12) However, controversy currently surrounds the strategies and tactics for achieving that goal. During most of the five decades since the Second World War, economists, at least in the United States, exhibited remarkable consensus on trade policy. Almost all accepted open trade as the goal and nondiscriminatory multilateralism through the GATT as the strategy. Tactics were left largely to politicians and policy makers, since economic theory devoted little attention to institutions. In the last decade, however, strategic and tactical discussions have taken center stage and become decidedly more factious.(13)

Increasingly trade-policy debates revolve...