Category Archives: Globalization III (Institutions)

INTERNATIONAL TRADE MEETS INTELLECTUAL PROPERTY

INTERNATIONAL TRADE MEETS INTELLECTUAL PROPERTY: THE MAKING OF THE TRIPS AGREEMENT

Kennedy School of Government Case Program NR15-02-1661.0

A Summary 

In a Nutshell

Nice example of how international cooperation happens.

Collective action problems overcome as the main beneficiaries were a small group of industries that were able to combine their influence to organize in favour of changing the status quo despite opposition from many quarters. This small group managed to make IP a moral issue. Many developing countries believed that IP protection was just a means of controlling the technologies that would allow them to develop, and that large companies should be compelled to license their technologies domestically. A number of countries were willing concede this point for better access to manufacturing/agricultural markets, and a non-traditional area such as IP probably would  not have been agreed upon had concessions in other areas not been available.

 In a nice example of a two level game, once the UR had broken down, Dunkel presented a draft agreement. Although he was ambivalent about IP he recognized that a proposal would not be successful if it did not take a strong stance on IP, and so he included it in the draft agreement.

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American Trade Politics

THE OLD SYSTEM: PROTECTION FOR CONGRESS

T. Destler

Chapter 2 in American Trade Politics

A Summary 

In a Nutshell

Members of Congress realized in the recent post-depression years of the mid-thirties that the protectionism that had occurred after the onset of the depression, had exacerbated the problems. However, their constituent members would of course give priority to protecting themselves, and thus congressmen faced direct one-sided pressure from producer interests and this prevented them from making good the bad trade law. This is an example of the type of two-level game that Putnam discusses.

 The solution to the problem was the congress legislated itself out of making product specific trade law. This gave them political protection as the buck stopped somewhere else. This was achieved by linking tariff setting to international negotiations which was clearly an executive prerogative. Thus the President could negotiate to reduce tariffs by up to 50%. Yet there remained the belief that under exceptional circumstances American industries ought to have recourse to trade protection. Thus escape clauses were permitted whereby industries could apply for relief if they felt they were unnecessarily injured by US trade concessions. Trade Adjustment Assistance allowed specific workers or firms hurt by import, to apply for government financial, technical and retraining assistance including relocation allowances that would help firms to move to other lines of endeavor (Trade Expansion Act). This is an important example of how to correct the loses from trade, that perhaps we do not see enough of currently.

 Ultimately however, there were industries so badly hurt that rules of exception could not be sufficient. The most important special case was textiles, followed by certain agricultural products. The textile union had sufficient weight to threaten general trade policymaking unless specific interests were accommodated. Unless this key industry was appeased, Congress was unlikely to approve general trade-expanding legislation.

 The advantage of this system was the congressmen were free to make noise and introduce bills to favour certain constituents knowing that nothing was likely to result, thus avoiding final responsibility. They could avoid the choice between good politics and good policy.

 There has been a contraction of the system as the system has become a victim of its own success. This is because as tariffs have been reduced, their importance has diminished which has revealed no-tariff barriers to be impediments to trade. These are somewhat harder to define, and also more divisive and thus harder to remove (environmental regs etc.). Whilst the focus was on tariffs, states could be liberal on cross-border transactions but interventionist at home. But these domestic actions had consequences for trade which became more visible as tariffs reduced. This led inevitable to a re-focus on NTBs.

[Implications

Using Putnam’s theory, and Destler’s examples, a new explanation of protectionism is revealed. This rejects purely societal or realist interpretations to show how trade policy is the result of domestic institutional conflicts. There is not merely one state actor, there are many, and they respond to different pressures in different ways. Thus the level and type of protection is dependent upon how political power is distributed amongst those different actors.

Power was delegated to the President. To a certain extent he stands above the individual distributional conflicts that pressure congressmen. He is concerned with getting re-elected, and the best way to do that is by improving the economy.]

DIPLOMACY AND DOMESTIC POLITICS

DIPLOMACY AND DOMESTIC POLITICS: THE LOGIC OF TWO-LEVEL GAMES

R.D. Putnam (1988)

DV441 LT4

 A Summary

In a Nutshell

Putnam wants to model how domestic politics affects international relations, thus leaving behind purely statist/realist perspectives. He starts from the assumption that international decision makers are concerned both with domestic and international pressures. Additionally, these decision makers, known formally as the “state” are not the unitary actors whose preferences do not change despite successive governments as in the realist formulation. Rather parties, social cleavages, elections etc. affect international relations not merely state actors and institutional arrangements. Central-executives mediate between domestic and international pressures.

 He models the process of international cooperation as a two level game. At the national level politicians win power by constructing coalitions of groups who pressure the government to adopt favourable policies. At the international level governments seek to maximize their own ability to satisfy domestic pressures while minimizing any unwanted consequences of foreign developments. Leaders appear in both games. What may be rational in one game may be irrational in the other.

  •  Level I:                 bargaining between the negotiators leads to tentative agreement
  • Level II:               discussions within constituents as to whether to ratify

 The agreement must be ratified by both sides, and it is either voted up or down, amendments cannot happen without re-opening the Level I discussions.

The wins set of the Level II constituency contains all the Level I agreements that will be ratified. There will be agreement when the Level I agreement falls in the Level II win-set, of both constituencies. The interaction of the two constituent win-sets determines the type of Level I agreement that is possible.

 Win-Sets

  • Larger win-sets make Level I agreement more likely. Small win sets imply a breakdown at the Level I stage. Although repeated action (Axelrod) can make voluntary defection less likely, win-set size determines the level of involuntary defection (from not being able to secure ratification). So negotiator credibility may be low due to inability to deliver on the promises, even if the costs of reneging are thought to be high in terms of repeated interaction theory. Involuntary defection can be as deadly as the fear of voluntary defection.
  • Relative size of respective Level II win sets affects distribution of joint gains from international cooperation. The larger the perceived win set of the other negotiator the more he can be pushed around. So a smaller win set can be a negotiating advantage. “A third world leader whose domestic position is relatively weak (Argentina’s Alfonsin?) should be able to drive a better bargain with his international creditors, other things being equal, than one whose domestic standing is more solid (Mexico’s de la Madrid?).”

 Determinants of the Win Set

  • Distribution of power, preferences and coalitions in the Level II constituents – costs of no agreement will affect different member of the constituency differently, and support may be generic (e.g. those always in favour/against of freer trade). The win set size will depend on relative power of those forces [collective action problems, cleavages predicting preferences, worker skills etc. etc.].
    • If there is homogenous conflict (everyone wants more of something e.g. oil allowances, but there are doves and hawks, so conflict divides how much to push for in international agreement) the negotiator can use implicit threat of hawks to push for better results. However chances of involuntary defection are higher.
    • If there is heterogeneous conflict there is no “more the better” principle. Sometimes cleavages will actually help in international agreement however, as there will be more alternatives in the win set that could get a majority support. It depends on the distribution of the cleavages.
    • It is not clear that all groups will participate in ratification (Gowa) especially when benefits/costs are more concentrated on large groups (monetary policy) rather than small groups (trade policy). Level II games will be much more important in the latter.
    • When negotiating on various proposals, negotiators can compensate losses of certain domestic groups (e.g. by getting access to foreign markets) even if they have to agree on other policies where they lose, and would not thus be possible to implement on a national only level.
    • Size of the win-set depends on Level II institutions – e.g. is two thirds majority needed etc. A large majority rule improves bargaining position but reduces likelihood of cooperation. Not all ratification processes are formal e.g. party discipline can increase win-set. The greater the autonomy of the decision maker from the constituents, the greater the size of the win-set (e.g. central bankers). However, the stronger the state, the weaker the bargaining position internationally as feigning lack of domestic support will be less credible e.g. authoritarian regimes.
    • Size of the win-set depends on the strategies of the Level I negotiators. Efforts to increase (pre-level I softening up of public opinion) or decrease (organizing strikes etc.) the win sets can affect the Level I negotiations. Side payments can be used, and often negotiators are colluding to get ratification in both constituencies. Good will is important and can in some instances expand the win-set. Popularity of each other negotiator is important and should be increased in order to increase the win-set of the other side.

 Uncertainty

  • Uncertainty about the other’s win-set increases concern regarding involuntary defection. Deals can only be done if both sides think the other has the capability to deliver.

 Reverberation

  • International pressures can reverberate into the domestic field to change public opinion and thus win-sets during the negotiation process. Messages from abroad can change minds.

 Role of Chief Negotiator

  • Until now he has been assumed to have no personal policy preferences. Principal-Agent theory reminds us this is unrealistic. His motives may include: enhancing his own standing by winning political resources or minimizing losses; shifting the balance of power at level II toward policies he prefers but might not otherwise be domestically possible (e.g. IMF deals in LA); pursue own conception of the national interest.
  • Even if a deal in in the level II win set if the negotiator is a head of state for example he may not agree at level I, and thus retains veto power. He may be caught in a pattern of policy that means even if a deal is in the Level II win-set; it may be too costly for him to build a new coalition away from the coalition based on previous policy.

BARRIERS OR BENEFITS?

BARRIERS OR BENEFITS?

D. Vogel (1997) pp 38-56

 A Summary 

In a Nutshell

The Krasner theory argues that there will be more cooperation when there is a dominant hegemon. We might question whether this hegemonic power distribution is good or bad for development. There are points to be made on either side.

  • Good:    Hegemon wants trade; trade leads to cooperation, ideas, peace; hegemon can overcome collective action problems by use of selective incentives.
  • Bad:       Hegemon can force openness too soon relative to development status; depends on identity of hegemon; free trade has different effects in different economies; can impose its own organizational structure on free trade (agriculture etc.) that maintains its interests but not the interests of the rest of the world.   

 A hegemon is not necessary for cooperation for Axelrod, what are needed are iterated interactions with an infinite horizon. The tit-for-tat interaction can make it more profitable to trade cooperatively with a partner than the defect strategy which appears more beneficial in a PD game with limited iterations. Institutions are not a necessary component of this type of cooperation.

 Yet institutions may provide the forum for the iterated interactions that make possible the type of cooperation that Axelrod proposes, and realists are skeptical about. They can help solve disputes as to the meaning of cooperation. This includes for example the trade dispute panel of the WTO.

 This text supplies examples which seem to show that in practice there is evidence to suggest that a hegemon is able to impose its own will upon the world trading system. If the developing, or indeed developed world opposes such a move they can use the institutionally arranged dispute settlement process, although in line with the realist prediction, there is no one that can compel the state to adhere to the rules.

 Auto Taxes

The Automobile Tax case where the legality of US environmental tax penalties for certain types of car was challenged by the EC at the WTO is a case in point. Although the ruling was largely in favour of the US regulations, one provision was held to be WTO inconsistent as it discriminated between domestic and imported goods. However, the US refused to change the provision arguing that it had no adverse impact on EU companies. This was a bone of contention in the EC who complained that it did not bode well for the future organization of the multilateral trade system.

 Tuna Dolphin

The Tuna and Dolphin case was related to a US law the banned imports of tuna that had been produced using fishing methods that did not comply with US regulations (enacted to protect dolphin). Mexico filed a complaint with GATT as import restrictions based upon how a product is produced are not permitted. The panel ruled against the US. This ruling outraged environmentalists. The EC and other trading partners were pleased, as they resented the frequent use of unilateral trade sanctions to influence the conservation practices of the US trading partners. The US refused to abide by the ruling.

 A second ruling was similarly ignored by the US. There was a lot of pressure at home from environmental groups – two level games (Putnam).

 Leg Hold Traps

The EC banned imports of fur from nations using leg-hold traps rather than more humane methods. This was response to an intense moral campaign at home. The ban outraged US/Canadians especially as most of the worst affected were indigenous peoples who relied solely on the sale of pelts for their income. The commission decided to postpone the ban in order to allow its partners time to find more humane methods. They were willing to wait for ISO standards (an 80 other countries had already banned them, so action was a lot less unilateral than the US actions on tuna etc.).