Book Talk: What Trade Can Teach Us About Global Cooperation

Your book Delivering on Promises: The Domestic Politics of Compliance in International Courts looks at global trade rules, and what happens when countries decide to break those rules. To start us off, can you share a story that is emblematic of what your book is all about?

The example I start off my book with is from June of 2018, when the United States, particularly the Trump administration, raised tariffs on steel and aluminum imports on a whole lot of different trade partners, including Canada and the European Union, citing national security concerns. However, this ran afoul of the World Trade Organization’s [WTO] trade rules, which the U.S. is a member of, [and which commits the U.S. to] keep trade barriers low, unless there’s a really important national security concern. Here, the case for security concerns was pretty thin, so trade partners of the United States sued the United States at the World Trade Organization.

The dispute wound its way through the adjudication process and as this was going on, the European Union started to pressure the U.S. by imposing retaliatory tariffs on politically sensitive industries, including American-made motorcycles and whiskey. This series of retaliatory measures then pushed the U.S. to retaliate in kind. This is an example of a beginning of a trade war, and one country retaliates against the other in a new industry. This starts to creep across countries’ borders and industries to affect lots of different areas of trade.

This is what the World Trade Organization is trying to avoid. It’s trying to contain the disputes, make them rules-based and limited, so they don’t end up screwing up global commerce. That’s the kind of puzzle that I’m looking at in my book. When does the WTO effectively contain these disputes and come up with a legal settlement? And when does it fail where it starts to spill over into other industries?

Why did you decide to focus your book on trade and the World Trade Organization, and not on other areas where global cooperation and global rules play a big role, like for example, human rights?

When I set out to work on this project, I kept finding that international trade really permeates different parts of our economy and our daily lives as consumers or as employees. It tends to have an effect that we might not notice, but it is pervasive. I kind of wanted to uncover that, particularly how it affects our domestic economy.

When I say domestic economy, I mean what’s going on in the U.S. economy, where we’re importing goods and services from abroad, and it affects the production that happens at home. We see lots of examples about how the World Trade Organization can fundamentally alter the domestic economy in the U.S. A good example comes from when China joined the WTO back in 2001. It opened up a huge amount of global commerce that hadn’t previously been covered by the organization’s rules. This had an effect on consumer goods available in the U.S.—so we can get to cheaper stuff. That can be helpful. But it also had a lot of downsides, including altering domestic manufacturing. In the U.S., Europe, and many other industrialized locations, a lot of manufacturing firms had to downsize their workforces or went out of business. Jobs that maybe paid pretty well or provided a middle-class existence for people, those jobs evaporated. This can be traced back in part to trade.

Political scientists are super interested in this topic, as well as economists, and a lot of people have tried to trace some of the implications from China joining the WTO. They found a lot of really interesting things, including the growth of populism that we see in the U.S. and Europe today. In short, international trade matters.

When I think about global cooperation and global courts, I naturally think about the International Criminal Court. In what ways is it similar to the trade courts and in what ways is it not?

We have a whole lot of different international courts out there. Some deal specifically with trade, like the one I examined, and some deal with issues of human rights or humanitarian issues. The International Criminal Court is an example of a newer international court that has jurisdiction only over the most egregious crimes like crimes against humanity, genocide, or really serious problems that countries can commit. This court is quite a bit different than the WTO in that it has an aim of deterring crimes and punishing leaders of countries after they’ve committed these problems.

The World Trade Organization, by contrast, is much more similar to what we think of as arbitration. Not strictly speaking, but they really worry about settling disputes and trying to contain disputes, so they don’t blow up. A little bit of compromise is necessary there. By contrast, the courts that deal with human rights are really interested in establishing higher standards, and it’s more cut and dry. We don’t normatively accept that there should be compromise or wiggle in war crimes or genocide. We just want to uphold standards of morality that are pretty high.

At the same time, the enforcement mechanisms [of the WTO and ICC] are similar, in that there’s no centralized authority to tell countries: you broke the trade rules, you have to make compensation, or you broke human rights standards, you must accept punishment. In both courts, it’s up to the international community to pressure countries to comply with their standards. The goals may be different, but the enforcement mechanisms are pretty similar.

How common are WTO lawsuits, the World Trade Organization being the international body that resolves trade disputes among member countries? And who are the biggest rule breakers?

Among international courts, trade disputes at the WTO are pretty common. We have a lot of international courts in action. One of them is the International Court of Justice, which is part of the United Nations. They deal with all sorts of disputes, like territorial disputes and military disputes. They’ve been around since 1946 but have only seen 190 cases. By contrast, the World Trade Organization since 1995, when it was set up, has seen over 600 formal disputes.

That said, we can think of these formal trade disputes as the tip of an iceberg of the conflicts over trade that occur between countries. I have looked at data in the United States on this, and U.S. firms filed tens of thousands of complaints with the U.S. Trade Representative alleging violations under WTO rules. They’re making lots and lots of complaints, but only a tiny fraction of those complaints rise to the importance and the political salience that they get prime time at the WTO.

In your book, you found that the WTO can enforce trade rules, and some of the time this enforcement mechanism works. But some of the time, those efforts are blocked by domestic interest groups that are able to lock in policies that favor their industry. Could you walk us through another example of how this has worked in practice?

Yeah, the stories are sometimes the most interesting part of this research. I should say the U.S. and the European Union are the most frequent users of the World Trade Organization so most of my examples come from those countries. The European Union acts as a single entity at the World Trade Organization, so we’ll just refer to it as like one on monolith actor. Even though individual European countries can make their own policies, they work as one group when they deal with the trade rules at the WTO.

That said, a good example comes from Canada. In 2009, the provincial government of Ontario, Canada passed a Green Energy Act. This Act aims to encourage investment in renewable energy production and is implemented at the provincial level. It’s akin to having a state law as opposed to a federal law in the U.S. context. It ran into trouble with global trade rules because there was this domestic content requirement and that basically set better pricing for companies that used equipment from Canadian firms as opposed to foreign firms.

This is a violation of WTO rules. Several countries [including] Japan and the EU, sued Canada at the World Trade Organization. They brought the Canadian government as a whole to task for what the provincial government in Ontario is doing. Canada lost and appealed, and lost again.

Some folks in Canada preferred compliance that would stave off retaliation. [But] at the provincial level, folks strongly favored the legislation, and didn’t want to comply with the WTO orders. They said: these domestic content requirements are good for the economy, they’re favoring Canadian firms, and they’re helping push forward green energy. It created this standstill with many rounds of negotiation between the Canadian federal government and the provincial government, which wanted different things.

Did the provincial level just say, no, we’re not going to do that?

Exactly, yeah. You could see that kind of problem play out when you look at analogies in the U.S. government, where states that are held by one party or represent, say, agricultural interests, say no, we’re not going to move forward with this national plan that we don’t support.

What can the WTO do If they’ve made a ruling and then the response is just, no? I think of parents telling their kid to put on their jacket, and they say no. Okay, what do we do now? What’s the next step?

For a while, Canada laid on the ground and refused to get up and put on the coat. Eventually, the carrots and sticks were that the European Union and Japan threatened retaliation. This is another important thing that sets the WTO apart from other courts is that there’s metered and systematic levels of retaliation that are permitted. That threat actually got the Canadian government to get its situation in line and get some new policies passed. So eventually, Canada did come into compliance, but it took a long time. That delay actually ended up satisfying a lot of what the Ontario government wanted to achieve, which was some subsidies to Canadian firms.

The U.S. has run into trouble with the Farm Bill, which is passed every few years because it sometimes has subsidies to farmers that run afoul of the WTO trade rules. The U.S. subsidizes cotton growers and the WTO has issued rulings that say those subsidies are not permissible.

It’s hard for the U.S. to comply with rulings on this matter, because even if some legislators say, Great, let’s get rid of the subsidies, other legislators, especially from agricultural districts, want to preserve the farm subsidies. It helps their constituents. They’ll vote against any removal of subsidies and the next farm bill. Once you have subsidies in place, it’s pretty hard to get rid of them.

I want to come back to something you mentioned, and it relates to the farm bill, which is that the primary users of the WTO adjudication mechanism or dispute settlement mechanism are rich countries—the countries that created the institution to start with and whose rules benefit these countries and systems the most.

The countries that do not use this mechanism are poor countries, least developed countries. I’m thinking about the farm bill, as an example, where the U.S. is guilty, along with other rich countries, of protecting domestic industry to the disadvantage of poor countries who could, in the absence of those subsidies actually effectively compete on the global market, which would be good for development, which is the goal that the U.S. supports.

When we think about global rules, global institutions, there’s always a question of: who are these rules designed to benefit? In what ways do they reflect our sort of broader values? I’m interested in your reflection on that.

Oh, wow, I love that question and those thoughts on connecting this back to the farm bill example. I think when the WTO dispute settlement system came into play, it was pitched, or at least publicized, as helping to level the playing field between the industrialized West, the wealthiest countries, and the poorer countries. But many people remain skeptical of that characterization.

Many countries that use the dispute settlement system are industrialized, wealthy, and sometimes middle-income countries. We don’t see the developing world often able to use the dispute settlement system, in part because they see the power imbalance and view lawsuits as potentially futile.

Unfortunately, I think the efforts at creating a more level playing field in these trade disputes haven’t really borne out. We do sometimes see exceptions. A fun exception, I thought, was when Antigua and Barbuda successfully sued the United States, won, and got the U.S. to comply. The U.S. is a far, far larger market, but the Caribbean countries were able to gain leverage by threatening to let loose on copyright violations. And that ticks off Hollywood, and then the U.S. said, okay, let’s concede.

What about the argument that smoothing trade disputes can help prevent escalation of conflict between countries? Do you think that the WTO as an enforcer of rules has contributed to that goal?

The WTO is an institution that grew out of a whole series of institutions called the Bretton Woods Agreements. Those were negotiations that happened towards the end of World War II. The folks involved in that said, if we create international organizations to come up with at least a rules-based system and stabilize global economic relations, maybe we can reduce the chance of violent conflict that we saw in World War II. The International Monetary Fund came out of that, the World Bank came out of that, the WTO did too, just much later.

So certainly, it’s an aspiration. From what I’ve seen in its last 25 or so years of performance, I do think it’s succeeded in containing trade disputes and preventing spiraling trade wars. Not perfectly but it can minimize that risk.

I can’t say with certainty, but I am guessing that it has also in turn reduced the risks of violent conflict that might spill out of destabilized economies. That’s the ideal, but again, it’s hard to study. My guess is it helps.

As part of IGCC’s Future of Democracy initiative, we look at the challenge of growing populism and polarization, both here in the U.S. and globally. If protectionism grows among the public, do you think countries will be even less likely to comply with WTO rulings?

I think it may worsen. We may also see a complete disregard for WTO disputes. In a sense, it might look like fewer disputes are filed against the U.S. because countries don’t want to waste their time using legal means that are likely to deliver no good outcomes. We might not see the WTO compliance rate drop per se, but we might see countries resorting to trade wars or ignoring the WTO altogether.

If we see the public prefer leadership that takes a protectionist position, we’re likely to see more spiraling trade wars. We saw some evidence of this during the Trump administration and we’ve also seen examples of this with the vote for Brexit, where the UK left the European Union. It’s been estimated that Trump’s trade war reduced U.S. real income by $1.4 billion per month. That’s a huge amount. Other trade analysts have estimated that consumers in the U.S. economy largely bore the brunt of these tariffs, paying up to $48 billion more for consumer goods. These are huge numbers. Trade wars have a big effect for ordinary people and make it more expensive for them to buy goods, food, and clothes.

It’s interesting that what seems good intuitively, as a voter—bringing industry back to the U.S. and protecting our own economy—can actually have the opposite of the intended effect.

Most of the trade economists that I read suggest that we’re not going to recreate a long-lost golden age of manufacturing in the U.S. We’re not going to unravel economic globalization or roll back automation. Instead, we should invest in growing industries and areas where the U.S. can create more jobs and have a competitive edge. Things like renewable energy technology, where we’ve seen the U.S. government investing. That’s an area that might be a job-creating area.

What do the findings of your book imply for other areas where global cooperation is going to be so important in the coming decades? Has your book made you more optimistic or less?

I’m sorry to say I’m less optimistic about the role of international organizations. Digging into the WTO gave me insight into just how influential private actors are in shaping trade policy. Governments are very sensitive to the demands of firms and special interest groups, certainly in the U.S., somewhat in Europe as well. These special interests can, in some cases, buy the sorts of policies that work best for them, even at the expense of other values, like environmental protections or labor standards.

Reading more about the WTO and international cooperation, I hoped that this trade organization and other attempts at economic cooperation could help pave the way for reduction in violent conflict around the world by stabilizing countries’ interdependence. But the more I read about it, the less optimistic I am that those goals can be accomplished.

One area that I think we really do need international cooperation is climate change abatement. Again, here I see a lot of opportunity for governments to come up with collective solutions that might help achieve this really important and pressing goal. The influence of industries may stand in the way. I am pessimistic that governments will be able to achieve global climate cooperation unless they find ways for corporations and the industrialized West to profit from it.

People need to put into office responsible politicians who actually promote goals like job security or environmental goals or health. If the representatives we’re putting in office are just doing the bidding of firms that want to profit, then we’re not going to be able to achieve things like a safer environment or better public health standards.

We in the U.S. are about to head into a really important election year where the differences between the candidates are likely to be really significant. Trade is one of the issues that gets thrown around a lot on the campaign trail. What message would you give voters based on what you’ve been learning?

On trade, educate yourself about what the real issues are. Don’t get distracted by tangential things, like the culture wars being used to get people all hyped up on issues that don’t ultimately affect their jobs, their environment, the safety of the water that they’re drinking, the safety of the products that they’re putting in their bodies. Get educated on the real issues.

There’s a lot of great information out there, reliable information from groups that do good research on environmental impact, on the effect of trade on certain sectors of the economy. Get educated because if you vote based on knee-jerk reactions to the culture wars, you’re going to let a lot of these important issues get decided by the people with money and power who might not have voters’ best interests in mind.

Thumbnail credit: World Trade Organization