The current global financial crisis has overshadowed the vexing issue of the future of the world trading system. Yet the fate of trade liberalization is crucial not only to present debates but also to the future evolution of the global political economy.
This point is especially true in light of the growing interdependence among domestic economic policy, the international system, and social policy. Economists and political scientists emphasize the need to resist calls for trade protectionism as a way of combating the crisis. The Smoot-Hawley tariff has been widely cited as a main cause of the deepening of the Great Depression, and American public policy since the Reciprocal Trade Agreements Act of 1934 and the General Agreement on Tariffs and Trade of 1947 has been ostensibly aimed at avoiding a vicious circle of protection with severe social consequences. This issue is particularly critical as the current financial crisis seems to demand ever more extensive and interrelated forms of policy innovation in order to counter contagion and recession.
Today's debate has been muddied by the stalemate of the Doha Round and the Doha Development Agenda, along with the growing tendency for governments to resort to bilateral, "minilateral," and regional preferential trade agreements (PTAs) to get around this deadlock. In this context, politics may be more significant than economics. How will it be possible to stay on track and maintain long-term trade liberalization in the face of the worst crisis since 1929? Will PTAs derail broader multilateral trade liberalization or contribute to further opening?
A recent conference in Istanbul—"Beyond the Doha Round," organized by the Journal of International Trade and Diplomacy—confronted this issue directly. Anne Krueger, former first deputy managing director of the International Monetary Fund, kicked off the meeting by arguing that whereas economists mainly look at statistics and point out that countries that liberalize trade inevitably gain in terms of economic growth and development, political scientists, in contrast, prefer to examine how a combination of entrenched institutional biases, intergovernmental bargaining processes, the self-interested choices of politicians and bureaucrats, and the crucial role of interest and pressure groups inevitably wins out. The linkage between trade policy and social policy is a thorny dimension of this conflict of perspectives, as trade liberalization is often seen to be politically at odds with "compensating losers" from globalization.
These questions are crucial as the Doha Round stutters and PTAs move to the forefront of the policy agenda. But as Rorden Wilkinson, a political scientist at the University of Manchester, pointed out at the conference, not only is the WTO poorly designed to make innovative leaps but the entire way we conceive of the negotiating process is also flawed.
Successive rounds of trade liberalization, he noted, have worked mainly because their outcomes have tinkered with, rather than overhauled, existing rules. Even the Uruguay Round, which led to the WTO, avoided serious action on areas like agriculture and services. Governments and WTO officeholders need to avoid political controversy and interest group conflict if reforms are to be accepted and implemented. The result is a version of institutional path dependency that locks bargaining processes into increasingly constrictive forms of incrementalism.
As Wilkinson said, however, a crucial obstacle is not institutional but ideological. It is widely believed that if a WTO round fails, the result will be a vicious circle of protectionism, supposedly like the 1930s. This scenario is often represented by the iconic image of the bicycle, apparently first introduced by Fred Bergsten. If the bicycle of multilateral trade liberalization via successive GATT/WTO rounds is not perpetually moving forward, it will topple over altogether and protectionism will bloom.
The bicycle analogy is flawed. In fact, PTAs can play the role of bottom-up, incremental liberalizing factors. For one thing, they all have to conform to WTO standards. Historically, for example, the Reciprocal Trade Agreements Act was itself an expanding network of bilateral PTAs that reshaped the world trading system in the late 1930s and laid the groundwork for the Bretton Woods accords. Today, with American hegemony waning and multilateral processes poorly organized, such an expanding network may prove to be a better mechanism for trade liberalization. In an ever more complex world—with growing linkages among not only economic sectors but also political and policy issue-areas—a more appropriate discourse is required to replace the unstable WTO bicycle.
I propose an alternative image. The trade liberalization process—like the fashionable image of counterinsurgency warfare today—can be seen not as a bicycle but as a series of ink spots. As a drop of ink is absorbed, it expands and spreads across the page. Gradually the ink spots merge.
PTAs can be seen as these ink spots. There are several ways in which they can promote policy convergence, including around socially sensitive forms of trade liberalization: they have to conform to WTO standards; they involve bargains that increasingly draw in transgovernmental networks as well as transnational interest groups; and they are closer to political processes involving domestic social forces and therefore the social policy dimension. WTO rounds can be ink spots too, provided the bargains struck there bring about acceptance and convergence rather than conflict and resistance.
The important thing is that as they are dropped onto the page of the world trading system, however they are reached and whatever their detailed content, these ink spots spread out and increasingly converge.
Moreover, this ink spot process has one major advantage over GATT/WTO rounds. It is inherently multilevel. It can evolve from unilateral liberalization by just one important country. It can be bilateral, minilateral, or regional, provided it leads to some convergence. Such a process is likely to stimulate further liberalization as transnational networks learn the lessons and norms of convergence—of synergy rather than stalemate. Furthermore, it is profoundly political, co-opting a wide range of social and economic forces into a far more pluralistic process.
As the Doha Round drags on in the shadow of the financial crisis, the best way to break the deadlock is to agree on something concrete, at whatever level agreement can be reached—in other words, to start, and to encourage, dropping more and more ink on the page. The ink spots can then spread and converge, going beyond the toppled bicycle and underpinning efforts in other domains—monetary, financial, fiscal, etc.—to counteract the current crisis and to create a more stable basis for an increasingly open and socially, as well as economically, interpenetrated global system.