Academic

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.

The reason I raised domestic politics (and the interests within it) as well as ideas is that they do matter because we are not just talking about billiard ball states with fixed interests. These states (and parties within them) have interests in gains from trade and they also have distributive interests in the specific terms of deals (including the negative distributive implications for many interests as Daniel points out). The perceptions of these interests also change with context. That is why I raised the deep challenges and probably lingering resonances of the financial crisis. Richard talks about noise and trends. But not only, as a certain K said (not Franz), in the long run we are all dead; I question whether one can call this financial crisis mere "noise." That was the metaphor used to explain market swings by those who contended that markets were rational on average and thus self-correcting. But now most agree that what we are experiencing is more than noise (unless one is talking about a pretty big cycle). And it likely will have lingering effects, and not only structural ones (such as in terms of benefiting China vis-a-vis the US in realist terms). Countries will likely be more cautious before committing themselves to curtail government flexibilities through trade agreements in light of uncertainties (and their experience with them), both for political and economic reasons.

This being said, we are agreed that it does not mean that the WTO is dead as a negotiating forum, and we are agreed that it is not a propitious time for trade negotiations. As concerns the WTO, the Uruguay Round was a dramatic event in international economic relations in the roaring 90s when some could speak of an end of history in ideological terms. Clearly we are not going to see a repeat (nor should we, in my view). The Doha Round has been modest in relation to the Uruguay Round, but it is much less modest than many previous GATT rounds that were "successfully" concluded. We could see future agreements, so long as we are more modest in our expectations, including (potentially) through so-called "critical mass" (CM) decision-making, as under the Information Technology Agreement. CM in reality is a modified form of consensus. Clearly the key players would all exercise their veto powers because they would be affected.

As for serial bilateralism, yes it favors those with market power and we will likely continue to see it, though how the financial crisis will play out here is an interesting question. But many of these bilateral agreements do not matter economically. And much of this is tied to larger multilateral ambitions.

Will we see the rise of regional blocks? The key one would be Asia and there is considerable interest in increasing intra-Asian trade. But the implicit geopolitical suggestion of the emergence of rival geopolitical blocks seems far-fetched at this stage, in particular as regards Asia. There is simply too much rivalry and too many salient historical legacies in Asia to see the rise of a coherent block intended to wield economic power. We will not see it in Latin America either (which in any case would not wield such clout). Even Mercosur (with only a few players, and one relatively bigger one) has been extremely limited in constituting anything resembling a "block."

Full post as published by The University of Chicago Law School Faculty Blog on February 26, 2009 (boomark / email).