Maastricht Chronicles

FIRST CHAPTER DRAFT
comments warmly welcomed
May 2005



Over the last half century, international trade has experienced unprecedented and accelerating growth. Between 1950 and 2002, the share of global GDP traded across borders more than tripled, from 8% to 29% (WTO 2003). The international legal framework for regulating cross-border trade - the Multilateral Trade Regime - has grown in tandem with trade itself. Its scope has expanded steadily since the 1960s. Slowly at first, and later fast enough to create serious conflict between trading partners, the multilateral regime overseen by the World Trade Organization has expanded into areas of economic policy making that had not before been seen primarily (or even at all) as trade related. The question of just how far the multilateral regime's jurisdiction should extend is what I will call the WTO boundary-setting problem.

The last six years have witnessed unprecedented conflict over this problem, beginning with the riots outside the Seattle Ministerial Conference in 1999 and continuing into the metaphorical riot inside the confidential negotiation room at the Cancún Ministerial Meeting in 2003, when developing country ministers caused the collapse of negotiations rather than agreeing to expand the WTO's jurisdiction further. This dissertation aims to provide a knowledge-based analytical framework to explain the reasons why developed and developing countries find it so difficult to agree on where to set the WTO system's boundaries. In doing so, I hope to clarify a number of issues relating to appropriate distribution of powers between national and supranational governance instances, as well as the interaction between the WTO system and development strategy.

This chapter proceeds in five parts. The first describes the shifting boundaries of the multilateral trade regime over the last fifty years as tariff discussions have increasingly given way to negotiations on non-tariff issues. Part two reviews the rocky history of the current Doha Round of multilateral negotiations, drawing attention to the systematic North-South split over the appropriate extension of the WTO's jurisdiction. The third section constitutes a first approach at theorizing the subject, briefly discussing the unsuitability of traditional international relations theory to the study of the subject and finding knowledge-based international relations theories a more promising avenue. The fourth part introduces the notion of "Economic Traditions" into the debate, as a means of starting to operationalize a knowledge-based framework for analysis of the WTO boundary-setting problem, and examines the role of economic traditions in helping states conceptualize their understandings of "state interest." Section five reviews Ha-Joon Chang's "Kicking away the ladder" argument, focusing on its congruence with knowledge-based views of the WTO boundary setting controversy. I will then conclude with by briefly suggesting how a research design based on in-depth interviews of key "discourse generators" and attitudinal surveys of WTO negotiators can illuminate the questions set out in this chapter.


1.1 The Shifting Focus of Multilateral Trade Negotiations

Multilateral trade negotiations are not what they used to be. When the General Agreement on Tariffs and Trade (GATT) was launched in 1948, the nascent multilateral trade regime (MTR) was thought of as a means of expanding world trade by reducing border barriers. In the late 1940s, and as GATT's name implies, border measures like import tariffs and quotas were the predominant policy instruments states used to regulate international commerce, with tariffs playing the preeminent role. "Tariff abatement" and "trade liberalization" could be and were used as rough synonyms. System participants took it for granted that GATT was predominantly an institutional mechanism for negotiating tariff reductions on a multilateral, non-discriminatory basis. Border barrier negotiations were the bread-and-butter of the GATT system.

From 1947 until 1986, seven rounds of multilateral negotiations were concluded under the auspices of GATT. The first five of these, between 1947 and 1961, dealt exclusively with tariffs. The 1964-1967 Kennedy Round added anti-dumping measures to the negotiations, representing the first incipient expansion in the MTR's remit beyond the realm of tariffs. The 1973-1979 Tokyo Round added non-tariff barriers to trade formally onto the agenda for the first time. However, the non-tariff barrier agreements reached in the Tokyo Round were carefully circumscribed to particular industries (e.g. civil aircraft, bovine meat) and limited to such uncontroversially trade-related matters as export subsidies and customs valuation. Moreover, most of the Tokyo Round's non-tariff agreements were "plurilateral" rather than multilateral: they were voluntary opt-in agreements applying only to some of GATT's contracting parties, not to all (WTO 2005). For the most part, then, the first seven rounds of multilateral trade negotiations (or MTNs) led to agreements that "stopped at the border" - they had only limited implication for the conduct of domestic economic policy by the contracting parties.

With the 1986 Punta del Este declaration that launched the Uruguay Round MTNs, the agenda for world trade talks dramatically broadened. After seven rounds of liberalization, average tariff rates for manufactured goods had already been brought down considerably, from 40% at the launch of the multilateral system to a mere 4.7% after implementation of the Tokyo Round agreements (WTO 2005). As average tariff rates fell, tariffs lost their traditional role as the primary negotiable impediment to cross-border commerce. Not surprisingly, trade negotiators responded by shifting their attention from tariffs to other policies judged to have trade-restricting effects analogous to those of tariffs: a heterogeneous range of policy-instruments grouped under the catch-all term "non-tariff barriers to trade" ( or NTBs.) This shift in focus led to the inclusion, in the Uruguay Round agenda, of a broad range series of policy-areas that had not before been subjected to multilateral disciplines. These included everything from trade in services to sanitary standards to intellectual property rights and a broad range of trade-related investment measures such as technology transfer provisions, local sourcing targets, and minimum export requirements. As Ariff (1999) points out, "the argument that the effects of these measures are similar to those of border taxes and subsidies is relatively new."

This growth in the scope of multilateral negotiations raises a series of concerns quite different from those implied by the original GATT framework. As negotiations on non-tariff barriers tend to displace traditional tariff abatement talks as the daily fare of MTNs, the nature of the multilateral trade regime has changed. A system that once stopped at the border now "extends well beyond border measures and reaches deep into domestic regulatory structure," (Sampson 2001) requiring policy change in broad swathes of formerly domestic economic policy areas to ensure compliance with new supranational disciplines.

So expansive were the Uruguay Round agreements that, as Sampson (2001) notes, "WTO rules now apply not only to the one-fifth of world production that is traded but also to goods and services that may never enter into trade." In the words of Sylvia Ostry (2000), a former Canadian trade negotiator, "the degree of intrusiveness into domestic sovereignty bears little resemblance to the shallow integration of the GATT with its focus on border barriers. (...) The WTO has shifted from the GATT model of negative regulation - what governments must not do - to positive regulation, or what governments must do."

Another way to conceptualize this phenomenon is to say that the Uruguay Round agreements substantially redefined the boundary between national and supranational levels of governance, in favor of the latter. In this sense, the system's name change in 1995 points to a real transformation: the MTR is no longer chiefly an "agreement on tariffs," but rather a world organization, a locus of supranational governance. According to the Consultative Board to the Director-General Supachai Panitchpakdi (2004), as analysis points to the need to extend supranational governance "one could see the WTO becoming essentially an international economic regulatory level of government." Of course, the board members add, this "is a challenge to more traditional thinking about the sovereignty of states."

The shift in negotiating focus towards NTBs has highlighted concerns that hardly arose before the Uruguay Round. Before the Punta del Este Declaration, common-sense understandings of what constituted the proper purview of the MTR hardly appeared in need of elaboration. Since then, questions regarding what belongs within MTN agendas and what does not have acquired increasing salience. The boundary-setting debate has injected an unprecedented degree of conflict into MTNs. Indeed, as I will show in the following section, the boundary setting problem has become one of the most controversial questions in the current round of multilateral negotiations.

Moreover, as scholars of the WTO system have noted, there is no broadly shared criteria for deciding what does and does not belong within the organization's purview (Charnovitz 2002). In addition to the so-called Singapore Issues (analyzed below,) observers have called for environmental and labor issues, human rights, health, and corruption control measures, among others, to be added to the WTO's negotiating agenda. While all of these can be seen as "trade related" in some sense, the proliferation of suggestions starkly demonstrates that the WTO's potential remit is virtually limitless. Almost any aspect of economic policy - and some that are not economic at all - can be interpreted as "trade related." It is not surprising, then, that agenda setting has become one of the most contested aspects of the Doha Round MTNs: negotiations about what ought to be negotiated have increasingly come to dominate the negotiating process.


1.2 From Cancún to Geneva

One practical result of the growing scope of the MTR can be seen on the matter of implementation. The conclusion of GATT negotiating rounds until the Tokyo Round had called for nothing more complicated than altering the tariff rates contracting parties applied to various goods at the border. By contrast, implementation of the Uruguay Round agreements called for a complex and costly process of institutional adaptation across a variety of economic policy areas newly deemed to be "trade related."

The implementation problems arising from the breadth of agreements reached in the Uruguay Round affected developing countries particularly adversely, leaving them ill-disposed to proposals for further expansions of the MTR's scope. As WTO Director-General Supachai Panitchpakdi (2001) acknowledged a lack of effective participation meant many developing countries "signed up to commitments whose consequences and implications were not assessed in terms of their applicability to the least developed countries' levels of economic development." Implementation costs in some cases exceeded the total development budgets of LDCs (Sampson 2001). As a result, UN Secretary General Kofi Annan (2001) could summarize the post-Uruguay Round sentiment in the developing countries saying that "not surprisingly, many of them feel they were taken for a ride." While developed country delegations saw further expansion of the MTR's remit as a natural area for negotiations in any new round of MTNs, the bitter aftertaste the Uruguay Round left in many developing country Members hardly predisposed them to back such a program.

Soon, the prevailing atmosphere of disenchantment in developing country governments created an impasse. On August 14th, 2003, the WTO Ministerial Meeting in Cancún, Mexico, "adjourned without an agreement" - to use the diplomatic euphemism. Talks had deadlocked over a controversy on the inclusion of four new policy areas into the negotiations' agenda. While a group of developed countries led by the European Union, Japan and South Korea insisted on expanding the WTO's remit to include the new areas, the developing countries, led by the newly formed G20 group of developing countries (comprised of Argentina, Brazil, Bolivia, Chile, China, Cuba, Egypt, Guatemala, India, Indonesia, Mexico, Nigeria, Pakistan, Paraguay, Philippines, South Africa, Tanzania, Thailand, Venezuela and Zimbabwe), refused to launch negotiations on any of them. Under such circumstances, the Mexican chair of the talks adjourned the conference, having concluded that no consensus would be possible. Although developing and developed Members certainly disagreed on a wide range of areas, ranging from farm subsidy reductions and further manufacturing tariff cuts to proposals for a special regime for cotton, all sides concurred that the controversy over the inclusion of the four new issues was the proximate cause of the Cancún impasse.

The new issues at the center of the impasse - transparency in public procurement, competition policy, investment policy and trade facilitation - were first proposed as areas for future negotiations in the 1996 WTO Ministerial Conference held in Singapore, and so they came to be known as the "Singapore Issues". At the 1996 meeting, working groups were created at the WTO secretariat to conduct preliminary research into the relationship between each of these policy areas and trade, with the implicit aim of eventually expanding the MTN agenda to include the four areas. But in the following seven years, no consensus was reached on inclusion of the Singapore Issues. Instead, starting with the ill-starred 1999 Seattle Ministerial Meeting, the question of agenda expansion increasingly separated WTO Members until the dramatic collapse in Cancún.

The collapse of the Cancún Ministerial meeting brought the Doha Round to a temporary halt. Kenya's Trade Minister George Oduor, who participated in the exclusive "green room" negotiations where the talks collapsed, was categorical about the central bone of contention: "The Singapore issues were at the centre of the deadlock, all of them. The developing countries say that they are not ready for any of them." Mutual recriminations quickly followed. U.S. Trade Representative Robert Zoellick lay blame on those who resisted expanding the organization's remit, saying "there were 'can do' and 'can't do' countries here. The rhetoric of the 'won't do' overwhelmed the concerted efforts of the 'can do'. 'Won't do' led to impasse." (Guardian 2003)

Developing country delegations were incensed to find that the text presented for agreement at Cancún ignored their consistently articulated opposition to inclusion of the Singapore Issues into the negotiating agenda. Echoing the view of a number of African delegations, Chandrakant Patel, a Ugandan trade official, wrote, "nowhere was the sense of being marginalized and let down greater than with respect to the Chairman's text that dealt with the four Singapore issues. (...) Not only did the text completely ignore the views of a strong majority of WTO’s membership, but also worse, it linked progress on issues critical to their livelihood (agriculture and non-agriculture market access) to Singapore issues, which are of only marginal concern to the EU’s businesses and public. The reaction of African delegations (and most of the other developing countries) was of outrage." (Patel 2003) In his statement to the press, Mr. Oduor was even more direct: "You ask me who is to blame? I would say it is those who have been trying to manipulate the process. Those who have been trying to manufacture consensus. The EU and the US, we believe ourselves, are to blame." (Guardian 2003)

Beyond the immediate recriminations, many saw the collapse at Cancún as heralding a realignment of North-South power relations within the MTR. Alek Erwin, South Africa's trade minister, welcomed the developing countries' newfound negotiating muscle, telling reporters, "this is the first time we have experienced a situation where, by combining our technical expertise, we can sit as equals at the table. This is a change in the quality of negotiations between developing and developed countries." (Guardian 2003)

Behind the scenes, negotiators moved to seek grounds for a compromise that could relaunch the stalled Doha Round. Recognizing that the highly politically charged atmosphere and compressed time-scales inherent to ministerial conferences had contributed to the difficulties in Cancún, negotiations were launched at the General Council level - i.e. among permanent trade negotiators at WTO headquarters in Geneva - with limited ministerial participation. At the end of July, 2004, permanent trade negotiators at the WTO's General Council in Geneva reached a compromise agreement to break the log jam. As part of this compromise (WTO 2004) - which has come to be known as the July Package - the developed countries agreed to exclude the three most contentious Singapore Issues from the negotiating agenda, while developing country representatives agreed to include only the fourth, Trade Facilitation, in the negotiations.

As far as the WTO boundary-setting question goes, then, the July Package must be seen as a victory for the developing world. "Doing away with negotiations on these issues for the time being is a big relief for developing countries, and also a significant gain." (Khor 2003) The inclusion of the Singapore Issues into the Doha agenda would have substantially shifted the boundary between national and supranational levels of governance. Agreeing multilateral disciplines on issues like competition, investment and public procurement would have required worldwide harmonization of national policies on the new issues, constraining the economic policy-making space available to national governments. As a result of the July Package, negotiations are to be launched only on the least objectionable of the Singapore Issues. Trade facilitation negotiations are meant to achieve a degree of uniformity in customs regulations and administrative practices, subjecting them to supranational disciplines with a view to achieving cost-savings and lowering trade costs. Compared to the three other Singapore Issues, trade facilitation negotiations have much less potential to constrain Members in their choice of domestic economic policies.

This compromise on the Singapore Issues was reached as part of a broader agreement, including difficult areas of negotiation like agricultural subsidies and further tariff reductions on manufactured goods. While the overall package, by necessity, included a mix of gains and losses for both blocks of Members, on the boundary setting question the July Package clearly represented a rare reversal for the developed block's position. Despite the concerted push by developed country negotiators, the trend towards an ever-broadening negotiating agenda for MTNs that started at Punta del Este was, at least temporarily, arrested. Key developing countries' ability to extract important concessions were also seen as important. "In the efforts to restart the talks, and get their way on agriculture, the US and EC were forced to recognize that without talking directly with Brazil and India (for the G20) the WTO talks would not move forward." (Raghavan 2003) There is little precedent for developing country priorities on controversial issues to be reflected in agreements in the WTO system.

As shown by the collapse of the Cancún Ministerial, the WTO's Membership is deeply divided over the proper scope of the MTR. Attitudes to the proposal to expand the WTO's purview split the Members according to their level of development. At the same time, this disagreement did not permanently derail progress in the Doha Round. Through the July Package, Members showed their ability to work out pragmatic compromises despite deep-seated disagreements. Moreover, the July Package showed that, armed with sufficient technical expertise, clarity of purpose, and the political will to negotiate together as a block, developing country members can decisively alter the outcome of WTO decision-making even on the most sensitive of policy areas.

Yet, the July Package should perhaps be seen as a truce in the ongoing battle between WTO's developing and developed Members over the proper place for the boundary between national and supranational governance, rather than as a definitive solution. The wording of the Geneva declaration did not permanently exclude the three remaining Singapore Issues from the purview of the WTO; it merely stated that no further negotiations on those issues would be conducted within the framework of the Doha Round MTNs. Although "constructive ambiguity" in the agreement's wording left the issue purposefully nebulous, some Members have interpreted this to mean that ongoing research within the WTO secretariat's working groups may continue, with a view to including the three remaining issues in future rounds. Certainly, developed Members' perceived interest in instituting supranational disciplines on competition, investment and public procurement remains intact, and continue to be advanced in other negotiating fora, such as regional and bilateral trade agreements. Undoubtedly, the excluded Singapore Issues stand every chance of making a return to the arena of MTNs at some point in the future.

Yet the broader question of the appropriate scope for the multilateral trade regime is no closer to being settled now than it was before the July Package. While trade representatives in Geneva reached a politically unavoidable compromise to relaunch the Doha Round, Members have yet to find a broadly shared formula to determine which issues belong within the purview of the multilateral trade regime and which do not. Developed Members continue to perceive that expanding the scope of supranational governance through the WTO mechanism would be beneficial to their interests, while the bulk of the organization's developing Members continue to perceive such a program as a threat.


1.3 Making sense of the gap in positions

The emergence of stable, divergent positions between developed and developing Members on the WTO boundary setting problem is one of the most striking aspects of the post-Uruguay Round MTR. Yet the academic literature has little to say about the problem. Jackson (2003) and the Consultative Board to the Director-General Supachai Panitchpakdi (2004) address the problem in general terms, discussing broadly the considerations that ought to inform "power allocation decisions" generally, but they have little to say about the specific questions surrounding inclusion of the Singapore Issues. Moreover, the north-south divide on the question has received scant attention. Why does one group of countries perceive the expansion of supranational governance as beneficial while another perceives it as prejudicial? This dissertation will seek to set out an analytical framework capable of elucidating the question.

The main strains in international relations theory - realism and internationalism - are of little help in answering such questions. Both traditions assume that states' foreign policy decisions unproblematically reflect their interests. Leading realists like Hans Morganthau and George Kennan "held that states were the central actors in world affairs and that they acted purely in their own self-interest in a single-minded pursuit of political and military security." (Barfield 2001) While it departs from realism on a series of issues, internationalist IR theory shares realism's assumptions that states have little difficulty in understanding their interests and rationally formulating policies to advance them. Institutionalists agree that "states in international negotiations rationally base their goals solely on their own interests." For institutionalists, "rational states can calculate the future benefits and costs of their actions." (Abbott 1989)

While the schools diverge on their views of what constitute appropriate state interests - with realists confining the calculus strictly to defense and security matters and institutionalists considering a broader range of objectives including political stability, wealth, distributive justice, etc. - they coincide on the view that states are the basic unit of analysis, that states unproblematically know their interests, and that states are able to formulate rational policies to advance their interests. Analysis is geared at elucidating how states interact given a pre-existing understanding of what their interests are. This is not surprising, considering that such traditions were elaborated largely to deal with problems of international security where interest can be defined relatively straightforwardly: it would be idle to spend much time questioning why precisely states may have an interest in safeguarding themselves from external attack. For both of these traditions, then, the notion of "state interest" is a given rather than an object of analysis: no complex inquiry is necessary to understand how it is formulated.

Neither realism nor institutionalism can serve as a reliable guide when the focus of analysis shifts to questions as abstract and technically complex as the WTO boundary setting problem. On such a question, "state interest" is far from intuitively evident, and the process whereby states come to an understanding of what is in their interest itself becomes a key matter for analysis. Moreover, even once a state has formulated an understanding of its interest, the causal connections between means and ends is far from self-evident. Again, this is the case particularly on complex technical policy areas. When "state interest" is not intuitively evident, inquiry must be pushed back one level of abstraction: from "how do states pursue their interests?" to "how do states come to formulate a view about what is and what is not in their interests?"

In accepting such a position, this dissertation will adopt the standpoint of constructivist international relations theory, sometimes also referred to as "cognitive" or "knowledge-based" theory. Constructivist theorists criticize realists and institutionalists for "assuming that state identities and interests exist exogenously." (Barfield 2001) Instead, knowledge-based theories hold that state interest formulation must be endogenized, that they must be taken as a key area of scholarly interest. Within a knowledge-based framework, ideas matter in the process of state identity and state interest formulation. As Haas (1990) puts it, "the knowledge that actors carry in their heads and project in their international encounters significantly shapes their behavior and expectations."

The core cognitive insight is that cooperation cannot be completely explained without reference to ideology, the values of actors, the beliefs they hold about the interdependence of issues, and the knowledge available to them about how they can realize specific goals. (Haggard and Simmons 1987)

It is from this substratum of ideas, beliefs and positions that state representatives formulate (or, in cognitivist terms, "construct") an understanding of state identity and state interest, of who they are and what they want.

The WTO boundary setting controversy is a clear illustration of a policy area where state interest is far from intuitively and unproblematically self-evident. Moreover, it is a clear example of an area of deep divergence between different states in their formulation of interest. The history of the MTR since the Punta del Este declaration shows vividly that boundary setting has become a key area of disagreement between developed and developing Members in the WTO. At present, no universally accepted criteria exist to determine which policy areas should be regulated at the multilateral level, and which should be left to national jurisdiction.

This dissertation will argue that state negotiators set out their positions on this question on the basis of perceptions of state interest that are constructed rather than given. But taking into account the considerable complexity of the issues involved such construction must necessarily represent the outcome of long logical chains, of a complex series of calculations, discussions, and persuasions - a process where knowledge and perceptions of relevant causal relationships play the leading role.

In short, the WTO boundary setting controversy is precisely the sort of problem that knowledge-based international relations theories were developed to elucidate. This dissertation will set out a knowledge-based framework for analysis of that problem.

A cautionary note is in order. The constructivist approach has often been criticized for a degree of intellectual sloppiness. Palan (2000) launches one such critique by drawing attention to the heterogenous variety of intellectual traditions knowledge-based theorists claim as their own, calling constructivism "an incredibly broad movement encompassing, among other schools of thought, Weberian interpretative sociology, Symbolic Interactionism, variants of Marxism, Veblenian institutionalism, post-structuralism(s) and hermeneutics." This multiplicity, he argues, has led to serious confusion among those claiming the constructionist mantle. Overall, he holds, "constructivism is not a well-defined sociological approach. Terms such as constructivism, constructionism, and constitutiveness are frequently used in different branches of the social sciences and are, unfortunately, used by different people to describe different things." Self-described constructivists in International Relations disagree over such fundamental matters as what is constructed (is it identities? is it interests? both?) and who does the constructing (state elites? cultures? policy subsystem participants? and, in any case, how is each of these to be understood?) In order to operationalize constructivist insights into a coherent, rigorous framework, clear answers need to be provided to these questions.

My approach will follow the pioneering work of Kingdon, Sabatier and Jenkins-Smith. If, as Kingdon (1984) argues, "elite perceptions of causal relationships can play a critical role in the selection of policy alternatives to which they accord serious consideration," the main task facing us shall be systematically to identify how system participants construct stable understandings of "state interest" on the basis of the key causal relationships they see as relevant to the WTO boundary setting problem. This approach, centered on perceptions of causality and their role in configuring understandings of appropriate policy choices, contrasts with an older vintage of theorizing that centered scholarly interest on the normative orientation of policy makers (Sabatier and Hunter 1989). This focus on causal perceptions seems particularly germane to policy questions marked by technical complexity, where disagreements about the likely outcome of a given policy course weigh more heavily than divergent ideological positions.

The WTO boundary setting controversy appears to be a clear example of such a policy area. The persistence of disagreements between blocks of countries on the matter can then be recast in these terms: In formulating their understanding of national interest, developed countries have come to the view that expanding supranational governance is in their interest, while developing countries have, on the whole, come to the opposite conclusion. Due to the complexity of the policy area, it is not immediately evident how those holding each view conceive of the links between cause (expansion of the WTO's borders) and effect (positive or negative outcomes for the country they represent.) Normative orientation can only very partially elucidate the question. It is perceptions of causal relationships that come to the fore: what chains of reasoning have led each group of state representatives to come to construct their given understanding of state interests? Which causal relationships have they focused on to reach a set of conclusions that allow them to construct a stable and coherent view of state interests?

Given the stability of positions in the north-south disagreement on the WTO boundary setting question, a further set of questions arises. Why is it that participants seem to vary in their conclusions depending on the level of development of the country they represent? Do system participants reach different conclusions from an analysis of the same set of causal relationships, or does the disagreement arise at a more fundamental level? Do they share a framework of perceived causal relationships but disagree on its implications, or do they arrive at their conclusions by reference to different, perhaps even incompatible, sets of perceived causal relationships?

As hypothesis, I postulate that the persistent disagreements between developed and developing countries on the proper extension of the WTO's jurisdiction is rooted at this deeper level. The gap in negotiating positions, I will seek to show, is rooted not in disagreements over the implications of a shared framework of perceived causal relationships, but rather in a more fundamental disagreement over the nature of the relevant causal relationships involved.


1.4 The Role of Economic Traditions in Constructing State Interest

When dealing with an issue as complex as the WTO boundary setting problem, the set of potentially relevant causal relationships that may inform system participants' policy stances is nearly limitless. Expanding the MTR's remit to cover competition policy, for example, would have different, perhaps contradictory, consequences for different firms within a given industry, as well as different industries within any given country. Specific outcomes are far from fully knowable a priori - indeed, the impact of the Uruguay Round's expansion of the MTR's jurisdiction is the subject of heated academic controversy even today, 10 years after they came into effect, and in all likelihood will remain so for years to come. Uncertainty about likely outcomes is pervasive in such a decision-making setting. Nevertheless, participants manage to navigate this potentially endless morass of possible causal relationships and construct stable, coherent views of state interest. How?

They do so, I hypothesize, by referring to pre-established and economically meaningful frameworks of understanding - which I will call economic traditions.

By economic traditions I mean not only the formal theories economists develop, but also the less formalized discourses that emanate from such theories, the patterns of regularity in the reasoning put forth to discuss economic matters. Within a given economic tradition, formal theories will coexist with discourses of varying levels of sophistication and coherence. What is essential is that economic discourses seek to capture the key insights of the formal theories within a tradition, providing a link between the abstract world of economic science and the practical needs of decision-makers.

The relationship between the formal theories that underpin an economic tradition and the discourses that translate them into politically useful insights is complex and problematic. Significant simplification is normally required. Assumptions stated explicitly as part of the theory-building process may be overlooked, and the policy-oriented advice arising from a tradition's discourse may not be borne out by its theory. However, due to the abstract, often contingent nature of economic theory, some process of discursive simplification will be necessary to inform the choices of economic policy decision-makers. This problematic relationship between theory and discourse will be more extensively analyzed in a later chapter.

Developed country advocates for expanding WTO jurisdiction to an expanding set of policy areas usually frame their preference by reference to the Neoclassical Tradition. Rooting their choices in a neoclassical discourse that stresses the welfare-enhancing characteristics of international trade, they strongly favor policy choices they believe are likely to lead to an expansion in trade.

Arguments in favor of expanding supranational jurisdiction are often put forward within the discursive framework of this tradition. In its report on the Future of the WTO, for instance, the Consultative Board to the Director-General Supachai Panitchpakdi (2004) argues in favor of expanded supranational jurisdiction as a means of attenuating market failures arising from the fragmentation of national jurisdiction in a setting of global markets. The drive to launch negotiations on trade facilitation is meant to increase international trade by lowering trade costs. Competition policy negotiations are meant to increase trade by ensuring the contestability of markets. In general, the expansion of supranational jurisdiction over economic policy is advocated as a means of correcting market failures and ensuring the contestability of markets.

Such discoursive trends are evident both in academic and diplomatic treatments of the problem.
Careful analysis of the terms used by system participants serve to highlight the operation of various economic traditions within this transnational debate. In Chen's (2003) formulation, for instance, key neoclassical concerns are put front and center in the analysis.

We are living in a world of global markets for merchandise and capital. Economists have had a common understanding that regulations are needed in case of market failures. International institutions are needed therefore to regulate global market failures when the sovereign national governments are not able to implement regulations in global markets 'efficiently.'

Similarly, in his statement to the Cancún Ministerial Conference, South Korean Trade Minister Hwang Doo-yun expressed the dominant view of the organization's wealthier members by linking the debate on the Singapore Issues to the expanding scale of the global market and the question of market access, both standard neoclassical terms of reference:

The WTO must continue to evolve to keep abreast with the fast-changing global trade environment. The call for negotiations on the Singapore Issues is a response to this challenge. After seven years of discussion, we cannot afford to waste any more time in launching the negotiations on the issues of investment, competition policy, transparency in government procurement, and trade facilitation. These issues are real trade concerns that touch upon the very heart of market access. In order for the WTO to remain relevant in the global economy, the WTO must start negotiations on the Singapore Issues. (WT/MIN(03)/ST/15)

In these formulations, the discoursive emphasis on market failures and the changing nature of the world economy - implying an alteration of the relevant locus for governance to correct them - as well as on the importance of market access, identify flag them as belonging to the neoclassical conceptual family.

In the same vein, for Balasubramanyam and Sapsford (2003) expanding WTO jurisdiction to cover foreign direct investment is necessary to help reduce distortions in factor prices common in economies that receive little FDI due to insufficient institutional safeguards. Stressing the need for international cooperation to counter the effects of supranational market failures, the Consultative Board to the Director-General Supachai Panitchpakdi (2004) argues:

Increasingly often, states cannot regulate effectively in the globalized economy. This is particularly relevant to economic factors that are global and mobile. (...) Yet markets will not work unless there are effective human institutions to provide the framework that protects the market function. Thus, the core problem is the globalization-caused need for developing appropriate international institutions. (...) If market failures need to be avoided or treated then it will increasingly happen at the multilateral level. That is why the WTO plays such a crucial role - for developed and developing countries alike - and why arguments about loss of "sovereignty are often ill-considered and misplaced. (...) Ultimately what counts is whether the balance between some loss of "policy space" at the national level and the advantages of cooperation and the rule of law at the multilateral level is positive or negative. Our view is that it is already a positive for all WTO Members and will increasingly be so in the future.

Even such a schematic outline of the arguments put forth on the question of WTO boundary setting within the neoclassical tradition shines a spotlight on a rich assortment of perceived causal relationships. In the neoclassical view, regulation is warranted only to correct market failures - when such failures occur on a global scale, it is appropriate to seek to correct failures at the supranational level. Analysis is strongly focused on the efficiency gains to be achieved by correcting market failures. The benefits of such a correction are seen as flowing to all trade partners.

As we have seen, such views are common in developed country policy elites, and they have typically led to an expansive view of the desirable scope for supranational governance through the WTO mechanism. The view has become dominant among trade representatives for the developed countries, but has met widespread resistance in developing country governments.

What's interesting is that the reasons usually given to counter the expansion of supranational governance often seem to spring from an entirely different economic tradition. Rather than focusing on problems of market failure and the 'efficient' level of governance for countering it, opponents of an expansive view of the WTO's jurisdiction focus on the twin areas of economic sovereignty and development strategy.

In his initial declaration to the Cancún Ministerial, India's Commerce and Industry minister Arun Jaitley, expressed the views of the group as he set out his reservation on each of the four issues in turn:

The need for a multilateral agreement on investment itself is not clear. It can neither promise additional investment flows nor reduce transaction costs for investors significantly. However, an agreement will certainly curtail the policy space of developing countries. An agreement in this area will not be advantageous to all Members as the benefits of such an agreement will accrue entirely to developed countries from which two thirds of all cross border investments originate. (...) Countries at different stages of development have viewed competition issues differently based on the effects they have on their economies. Convergence in views can arise only between countries at similar stages of development. The WTO membership is too diverse to admit a framework that suits all. (...) Multilateral rules, binding in nature, in respect of trade facilitation and transparency in government procurement would entail high costs for developing countries. (WT/MIN(03)/ST/7)

The view expressed by African trade officials gathered at the Southern and Eastern African Trade Negotiations Institute four months before the start of the Cancún Ministerial echoes a number of these same themes:

Before Doha the developing countries were of the opinion that the WTO membership should in the next years focus on resolving the problems arising from the Uruguay Round and the institutional and systemic issues. However the developed countries pushed very hard to have the WTO expand to incorporate new areas.  Most developing countries were resistant to this, as evidenced by the decisions and declarations of the LDCs Ministerial Conference in Zanzibar and the African Trade Ministers Meeting in Abuja. (...) The more aware our African delegations have become of the issues, the more worried we have become, in that the new obligations arising from the proposed new agreements would limit our policy space and flexibility and could severely damage our present and future development...  (SEATINI 2003)

Some key words spring up at once. The concern with "policy space", for instance, is largely absent from neoclassical discussions of WTO boundary-setting issues. Moreover, the sense that broadening the WTO's jurisdiction could have positive effects for some members and negative effects on others - that WTO expansion could imply a zero-sum rather than a positive-sum game - is altogether alien to neoclassical accounts, where the presumption that trade is welfare-enhancing for all parties is strongly rooted. These two themes, in particular, recur systematically in Listian treatments of WTO boundary-setting issues.

In the Listian view, the neoclassical focus on the need to correct market failures at the supranational level obscures the costs of diminishing national sovereignty in terms of states' ability to pursue appropriate development policies. Expressing a commonly held view, for instance, Corrales (2003) writes:

...if trade liberalization is to be made more supportive of sustainable development, developing countries must have the autonomy to make use of active policies and relevant policy instruments to promote supply-side capacities, enhance learning processes and pursue competitiveness. Whether this entails diversifying production towards higher value-added goods, supporting infant industries, promoting greater inter-firm linkages, or shifting into the production of goods and services with higher knowledge intensity, all developing countries – regardless of their level of development – require more ‘spaces for development policy’ 7 to be able to make trade work for development. (emphasis in the original.)

Similarly, expressing its consensus view after the UNCTAD XI conference in Sao Paolo in June 2004, the UN Conference on Trade and Development Secretariat concluded that,

The ability of Governments to pursue the most suitable development policies should not be unduly constrained. The international trade system needs to allow for legitimate policy space necessary for developing countries to pursue a proactive, strategic mix of trade and development policies suited to initial conditions, dynamic comparative advantage and changing needs and circumstances. It is for each Government to evaluate the trade-off between the benefits of accepting international rules and commitments and the constraints posed by the loss of policy space. (UNCTAD 2004)

This focus on the costs of expanded supranational sovereignty in terms of constricting the spaces for development policy making forms the basis for the developing countries' rejection of an expansive view of the WTO's optimal jurisdiction. Such opinions merely highlight Jackson's observation that, "at times, the controversy over the level on which to place a government decision is truly a controversy over the substance of an issue." (Jackson 2003) This view is common in Listian critiques of WTO expansionism: the sense that, in seeking to broaden the MTR's remit, developed countries seek to impose policies on developing countries that would not be adopted outside a multilateral negotiation setting because they serve only the interests of the developed countries.

From a constructivist point of view, what is relevant about such formulations is that they do not seem to stem from the same economic tradition as the arguments put forth by developed country advocates of expanding the MTR's remit. Implicit in Corrales' and UNCTAD's view is a Listian view of the state's role in economic development, one that stresses the potentially beneficial outcomes of targeted state intervention in the supply side to promote particular industries, and therefore bemoans the constraints that an expansive MTR places on scope of promotion policies at the disposal of developing states. A preliminary textual analysis of each side's position suggests that the question is not one of disagreement on the basis of a single, widely agreed upon economic tradition, but rather a tussle between largely incompatible traditions. It appears, then, that at the center of divergences over the WTO boundary setting questions we find a disagreement over first principles.


1.5 Chang's "kicking the ladder" argument

Pleas for expansion of the WTO's jurisdiction stemming from the neoclassical tradition tend to hold that the growth of supranational governance would be beneficial for all members of the MTR. The overwhelming neoclassical presumption in favor of trade as a welfare enhancing mechanism for all parties leaves little room for consideration of the possibility that the impact of expanded supranational jurisdiction could differ according to levels of development. Naturally, resistance to further expansion of the WTO's jurisdiction come to be seen as grounded on error, whether as a consequence of interest group pressure or generally muddled thinking.

The Listian tradition brings a fundamentally different point of view to the question. In a Listian framework, different sets of policies are appropriate for economies at different stages of development. The distinction is implicit in the basic Listian recipe for special policies in favor of "infant industries" in developing countries. Targetted supply side policy interventions seen as desirable to foster the early stages of an industry's development are, by nature, contingent and temporary policy recipes. Once an industry leaves behind its infancy, the case for policy intervention disappears. In a Listian framework, different, often opposed policy courses are seen as appropriate for countries at different levels of development.

As a consequence, thinkers in the Listian tradition do not see developed country positions on the WTO boundary-setting question as grounded in error in the same way neoclassicists interpret developing country positions on the matter. On the contrary, the expansion of supranational jurisdiction - and the concomitant reduction of spaces for national policy making - come to be seen as a reflection of a policy positions well-suited to serve developed country interests, but not those of developing countries.

This is the insight at the heart of Ha-Joon Chang's (2002) influential "kicking away the ladder" argument. On the basis of a critical rereading of economic history, Chang finds that "virtually all of today’s developed countries...actively used interventionist trade and industrial policies aimed at promoting, not simply 'protecting,' it should be emphasized, infant industries during their catch-up periods." Such interventionist policies included protective tariffs, export subsidies, directed credits, the granting of monopoly rights, support for industrial espionage, investment subsidies, restrictions on foreign investment, subsidies for industrial research, regulation on firm entry, exit, investment and pricing, and a host of others. Clearly, these are precisely the kinds of policies that are ruled out by the progressive expansion of the WTO's remit.

In Chang's view, today's developed countries only switched their policy stance to more orthodox, laissez-faire positions once they had managed to catch-up with the international frontier. But then support for orthodox policies should be seen as a matter of cementing their lead positions in the international economy. To this end, Chang cites the passage from List that gave the title to his book:

It is a very common, clever device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him. In this lies the secret of the cosmopolitical doctrine of Adam Smith, and of the cosmopolitical tendencies of his great contemporary William Pitt, and of all his successors in the British Government administrations. Any nation which by means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to such a degree of development that no other nation can sustain free competition with her, can do nothing wiser than to throw away these ladders of her greatness, to preach to other nations the benefits of free trade, and to declare in penitent tones that she has hitherto wandered in the paths of error, and has now for the first time succeeded in discovering the truth. (List 1885, as cited in Chang 2003.)

In stylized form, then, Chang holds that relatively underdeveloped countries make use of active trade and industrial policy instruments as part of their catch-up strategies, while developed countries find their interests are better served by placing such policy instruments out of bounds for their developing competitors. From this point of view, there is nothing particularly novel about the persistent differences between developed and developing countries on the WTO boundary-setting dispute. It has always been the case that industrial leaders move to protect their advantage by closing down policy spaces developing countries would need to catch-up with them, while developing countries work to protect the policy spaces available to them.

Chang's treatment of the subject is particularly germane because all three of the most contentious Singapore Issues concern policy instruments that were actively used by today's developed countries as part of their development strategies during their catch-up periods. Active interventions meant to limit or channel foreign investment, strategic regulations on firm entry and exit and the use of public procurement budgets to foster specific domestic industries were precisely the kinds of practices developed countries hoped to limit by including the Singapore Issues in the WTO's negotiating agenda. Such practices, in a Listian reading of economic history, are also key instruments today's developed countries used to become developed in the first place.

The Listian economic tradition, then, leads to a more variable conceptualization of "state interest" than the neoclassical tradition. While, in the neoclassical view, the developing-countries' insistence on protecting policy space must be seen as grounded in error, in the Listian view the persistence of the disagreement between developed and developing countries on the proper scope of the MTR is grounded on a divergence between the actual interests of developed and developing countries.

Conclusion
My purpose in this dissertation is not to assess the validity of either tradition, merely to identify the cognitive processes whereby the theoretical insights of each tradition are translated into specific policy proposals, and to measure the degree to which participants in the WTO system do or do not subscribe to the views implicit in each tradition. From a constructivist point of view, the key scholarly concern is to elucidate the mechanism that links the habits of thought of an economic tradition to a relatively small, tractable set of ideas about appropriate policy. Ideas, in this framework, are judged worthy in accordance to the extent to which they "fit" within the basic tenets of the economic tradition. They become meaningful by virtue of their coherence within that tradition. By organizing the multiplicity of economic reality into a tractable number of questions, the tradition focuses attention on a manageable set of issues, and providing a set of guidelines for finding the answers.

In order to test this framework, it shall be necessary to ascertain to just what extent WTO system participants actually do conceive of economic reality in terms of incompatible economic traditions. Chapter three will set out a precise methodology to this end, explaining how the use of in-depth interviews with "discourse generators" and attitudinal (Lickert-scale) surveys of country negotiators can be used to identify and measure the strength of various economic traditions in the thinking of system participants, allowing us to rigorously test the clash-of-economic-traditions hypothesis at the center of this dissertation. If participants are thinking what I hypothesize they're thinking, this dissertation will have provided an new framework to understand the difficulties MTNs have faced in recent years. But before turning our attention to the specifics of research design, it's necessary to refine the theoretical framework that underpins the research program in much finer detail.

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Introduction - This is a Very, Very Early Draft for Comment

The last fifteen years have been a bruising ride for proponents of the standard neoclassical development policy recipe. A now large literature demonstrates that countries and regions that have most closely followed the now standard economic recipe set out by the Bretton Woods institutions have grown less quickly than they had under the previous import substitution industrialization model, less quickly than the developed countries, and less quickly than some countries that have experimented with heterodox development policies (Stiglitz 2002). Empirical studies have failed to show that liberalization strategies can sustain economic growth in the developing world. Even studies on trade liberalization, arguably the least controversial aspects of the standard recipe, have yielded surprisingly ambiguous results. (Rodriguez and Rodrik 2000, UNCTAD TDR 2002). After reviewing recent the growth performance of developing countries in recent decades, UNCTAD (2002) concludes that they "rule out an unequivocal causal link from trade to growth."

Interpreting the reasons for the failure of the standard recipe has become the stock and trade of development economics. In a prominent contribution to the debate, Chang (2002) argues that the historical experience of the now developed countries (NDCs) is fundamentally at odds with the prescriptions of the standard recipe. Documenting the widespread use of active Industrial, Trade and Technology (ITT) policies by the NDCs during their catch-up periods, Chang argues that the current emphasis on liberalization and the efficiency of market mechanisms is based on a misunderstanding of the historical processes that led to catch-up in the NDCs. Such policies, he argues, place obstacles in the way of developing countries seeking to implement the policy regimes that have been most effective in the past. The current orthodoxy amounts, in Chang's suggestive image, to "kicking away the ladder" - denying developing countries the opportunity to apply the types of policies that made the rich countries rich.

Chang's argumentation proceed deductively, from observations of successful catch-up strategies, past and present, to generalizations about the proper conduct of development policy. The analysis, however, has relatively little to say about the specific mechanisms whereby the standard recipe's policies impede development processes.

This dissertation explores one possible set of such mechanisms: those generated by the World Trade Organization trade regime. It will begin reinterpret the current World Trade Organization regime as a product of institutional coevolution in the context of a new technological regime. Drawing on recent research on new patterns of production organization by multinational corporations, it will explore the fit between new production patterns and the global rules of the trade game. The purpose is to identify the mechanisms whereby the new technological regime, and the institutional forms that have arisen to complement it, may serve as obstacles to effective development policies.

Ladder-kicking 101
Chang's argument can be summarized briefly: the standard neoclassical recipe for development is a case of "do as we say, not as we did." While NDCs now insist the market mechanism is sufficient to provide the incentives needed for development, Chang shows that, historically, active ITT policies played a major role in their catch-up strategies. With few exceptions (e.g. Switzerland) NDCs managed to catch up with industrial leaders through a heterodox policy mix including tariff protection for infant industries, export subsidies, technology transfer facilitation, investment subsidies, public research, and a host of other interventions.

Proponents of the standard recipe see this policy menu as wrong-headed from start to finish - so much so, in fact, that substantial portions of it have been banned or substantially restricted by subsequent rounds of multilateral trade negotiations. Chang argues that, in historical perspective, NDC fervor for a laissez faire development model is not at all surprising: while nearly all successful catch-up strategies have entailed use of active ITT policies, once catch-up has been achieved countries have typically shifted positions in favor of liberalization.

Chang shows that enthusiasm for free trade only spread in Great Britain once British firms had achieved technological dominance in a number of key markets, and did not spread to the US, Germany, and other NDCs until they had managed to catch-up with Britain. In this view, internationally competitive NDC firms perceive the world market as an opportunity, whereas less competitive firms in less developed countries tend to perceive international competition as a threat. The resistance in the developing world to a more integrated trade regime is just as "natural," from this perspective, as the enthusiasm for freer trade in the developed world.

Historical perspective in historical perspective
For all its historical focus, Chang's arguments can be criticized for a peculiar sort of ahistoricism: even if one establishes that activist ITT policies were at the center of appropriate development strategies in Europe and North America in the nineteenth century, it does not necessarily follow that such strategies are relevant to today's developing countries. Clearly, the technological and scientific context of production has shifted considerably over the last 200 years, with a number of technological regimes rising and then falling in succession.

Define TR.

The question, then, is whether Chang's insights are applicable given the currently technological regime.To explore this question, it becomes necessary to identify the main features of the new technological regime, and its implications for production organization and institutional structures. The term "globalization" has dominated discussions of the changing nature of technology and production in recent years, yet much debate remains on the specific characteristics of globalization, about what makes globalization truly different. At its most basic, the term refers to closer cross-border economic integration. While the dramatic increase in international trade and foreign direct investment in recent decades is commonly cited as evidence of globalization, skeptics can easily retort that levels of trade and cross-border investment were even higher at the end of the nineteenth century. (Hobsbawm)

From a technological regimes perspective, the question appears to be wrongly framed. Rather than focusing on the degree economic integration, the technological regimes framework focuses attention on the specific features of new patterns integration, on the "how?" question rather than the "how much?" question of globalization. For globalized production to constitute a new technological regime, it must be qualitatively different from the patterns of production that preceeded it: more of the same does not a new technological regime make.

There is, however, evidence that the new, globalized patterns of production organization are indeed qualitatively different from those of the past. A growing literature on multinational corporate strategies bears directly on this question. The key insight of this literature is that trade in intermediate inputs has grown much more quickly than trade in final products in recent years.

Cite a bunch of stats about growing trade in intermediate inputs here.

-Yeats (2001) finds that trade in inputs has grown much faster than trade in final goods, with intermediates counting for 30% of world trade in manufactures.
-Hummels, Ishii and Yi calculate that the increase in exports from Vertical Specialization accounted for a third of world export growth.
-According to the US BEA (2002) in 1999, 93% of exports by US parent firms to their foreign manufacturing affiliates were inputs for further processing.
--> From Hanson, Mataloni and Slaughter (2004)

A bewildering series of competing labels have been proposed in recent years to describe this phenomenon, a sure sign that the activity is growing faster than academic attempts to come to grips with it. Labels range from the clunky (intra-mediate trade -Antweiler and Trefler 1997, International Fragmentation of Production, Helg 2004) to the politically loaded (outsourcing) to the quirky (slicing up the value chain - Krugman 1996) to the psychedelic (kaleidoscope comparative advantage - Bhagwati and Dehejia 1994.) Feenstra (1998) describes the new technological regime as one of "integrated trade and disintegrated production." But the most descriptively useful label was proposed by Yi (2002), who describes the new pattern of production organization as Vertical Specialization.

In vertically specialized production, the ricardian logic of specialization is taken beyond its traditional domain of trade in finished goods and into the value chains for individual products. In a number of industries characterized by discrete, sequential stages in the production of finished goods (e.g. electronics), vertical specialization allows firms to take advantage of cross-country differences in factor prices by locating each production activity in its lowest-cost country. The textbook example here is the Maquiladora industries on the US-Mexico border, where capital and knowledge-intensive inputs are produced in the capital and knowledge-rich US, then exported to labour-rich Mexico for labour-intensive assembly and packaging, with the finished product then re-exported to the United States for final sale.

Vertical specialization constitutes the organizational manifestation of a new technological regime. The breakneck rate of growth in vertically specialized production in recent years has been enabled by a range of technological innovations. At the most basic level, improvements in shipping and transportation have brought down "natural" trade barriers enough to make vertically specialized production practicable. The ICT revolution has lowered communications costs sufficiently to overcome the logistics and coordination challenges poised by vertically specialized production. The internet has received particular attention in this regard. (Gereffi 2001)

Institutional Coevolution: Why the WTO?
Yet, as with every shift in technological regimes, technological change in and of itself is only half the story. The other half, concerning the way the institutional context changes and "coevolves" with the new regime, will be the focus of my dissertation. The new technological regime poses a series of international policy coordination challenges that could not be met with the institutional scaffolding that developed to sustain the old, vertically integrated production regime of the postwar boom years.

In particular, a vertically specialized regime depends on a comprehensive, liberalized multilateral world trade system for institutional viability. Research emphasizes the high sensitivity of vertically specialized production to tariff rates - an intuitively plausible concern, given that inputs in vertically specialized value chains cross borders repeatedly, magnifying the effects of tariffs (Yi 2002, Hanson et al. 2004, etc.). Low tariffs and non-tariff barriers, institutional predictability and liberal investment regimes are key institutional components of the new regime.

Cite a bunch of stats about own-price elasticities of demand for intermediate inputs - Yi, Hanson, Slaughter, Feenstra...

The World Trade Organization can be seen as an instance of institutional coevolution, where new institutional forms are introduced to exploit the full potential of the new technological regime. Whereas previous technological regime shifts had tended to call forth institutional innovations limited to the national level, the Vertical Specialization regime is international in nature. It is not surprising, then, that the new institutional forms that have arisen in tandem with the growth of vertical specialization are themselves international.

Observing the WTO Rule-making Process
In effect, the trade-related rules agreed through the multilateral negotiating framework at the WTO directly impact firms' ability to exploit the potential of vertically specialized production. While no one would deny this, vertical specialization researchers have tended to take the multilateral trade regime as exogenous to the firms engaged in vertically specialized production. Firms, in this model, take the transnational rules of the game as they find them, and adapt their corporate strategy to them.

Anecdotal evidence, however, suggests that reality is a good deal messier, with firms working actively to influence the negotiation process through a variety of channels.

MNCs do not, to be sure, negotiate multilateral trade rules directly. However, by their very nature, they are directly affected by the outcomes of such negotiations. They are certainly large enough to mobilize the resources to lobby the WTO system. And their influence over certain aspects of the current multilateral trade regime have been well documented, the influence of pharmaceutical companies in pressing for adoption of the TRIPs and TRIMs agreements being the most often-cited example.

In some areas of political economy, firms' influence over trade policy decisions has become part of the standard academic model. Grossman and Helpman's influential 1994 model explicitly links tariff levels with firm lobbying activities within a national context. An extensive literature has grown arisen to provide empirical backing for the model, with quite some success.

The question, ultimately, is whether the institutional coevolution of the WTO and new patterns of vertically specialized production act as a kicking away the ladder mechanism, generating obstacles to the implementation of effective development policies in the developing countries.

One can hypothesize a number of routes through which the WTO regime may generate kicking away the ladder effects. Chang argues that in placing a number of active ITT development policies "out of bounds," the WTO accords can be seen as the heirs of the "unequal treaties" forced on peripheral countries by NDCs at the end of the nineteenth and the beginning of the twentieth century.

Recent developments, however, caution against simplistic interpretations of the rule-making dynamics in the WTO system. The collapse of the Seattle and, especially, the Cancun ministerial conferences due to resistance from groups of developing countries to NDC negotiating priorities show that WTO rule-making is not (or is no longer) a matter of rubber-stamping the policy agendas of the developed countries and their MNCs. Already, pressure from developing countries has forced the WTO to strike competition, investment and government procurement policy from the Doha Round's negotiating remit. A successful characterization of the WTO rule-making system, then, must take into account the complex interactions between developed and developing countries in the negotiations.

What is needed, then, is a research methodology able to precisely characterize these complex interactions. We shall adopt the Advocacy Coalition Framework to systematize the study of the WTO policy process.

UNCTAD 2003: "Trade Negotiation Issues in the Cotonou Agreement: Agriculture and Economic Partnership Agreements."

Main question: What should Africa's negotiating stance be in the Doha Round?

1-African countries often lack the "ability to recognize and argue effectively against proposals that are not in their interests and the capacity to articulate and defend alternative and more acceptable proposals." p. 4, (thus, need for tech. assistance to train negotiators.)

2-Development lacuna in Uruguay Round Agreements
e.g. single undertaking, watering down of SD&T

3-Implementation costs
-institutional crowding out
-$150 million compliance price tag as much as typical yearly dev. budget in Africa
-Past promises of technical assistance didn't pan out.

4-P. 6: "Two key elements of a development dimension that one might, therefore, look for in the WTO Agreements would be provisions for dev-oriented institutional capacity building and provisions for enhancing the supply capacity of the LDCs and DCs. This derives from the widely accepted observation that the major obstacle to increased trade and growth in the low-income countries is the inadequate response of domestic producers to market access opportunities abroad."

"The policy-autonomy component of the SDT provisions were under sustained attack during the UR"

Developed country promises on SDT often couched in "best endeavour" language, wishy-washy and unenforceable.

Pre-UR trading system was more dev. friendly than post-UR version.

Sec. B African proposals

Page 7: list of meetings where these ideas were developed.

3 Main Areas of proposals

1-Better market access
2-Development issues are to be tackled "decisively." i.e. Supply side measures.
3-Negotiation and dec. making process need transparency.

also - Taming TRIPs, investment and TRIMs (especially local content requirements)

p. 10: making SPS agreements contingent on contractually binding technical assistance.
On Subsidies and Counterveiling measures: make subsidies for development, diversification and industrial upgrading non actionable.

On decision-making system: Open up the "Green Room"

On Agriculture, 2 main points:
1-Get rich countries to implement commitments they've made already (Marrakesh)
2-Get extra concessions (such as ammending the green box to make it more development friendly)

SDT (p. 11) - Gutted during the Uruguay Round
Mostly it's down to longer implementation times and a Generalised System of Preferences (GSP)
BUT - GSP is unilateral, unstable, and a shaky grounds for development.

Then: Need for Capacity Building for the African delegations in Geneva. "Very intensive training needed"

Sec. C: Agriculture

Get rid of or reduce the PROTECTION, DOMESTIC SUPPORT and EXPORT SUBSIDIES offered now by rich countries.

-> Watch the Green Box like a hawk.

Bring down tariff peaks on key products...like food staples, fruit and vegetables and processed food.

BUT the Green Box has a bunch of NIS-friendly aspects that should be protected (e.g. general services to agriculture like research and extension, pest and disease control)...also crop insurance, income insurance, etc.

Idea: Development Box (p. 18) - a kind of SDT box with a number of Green-Box-like goodies, plus others, available only to LDCs and DCs.

Then GATS discussion

Francisco P. Toro
June 2004
MERIT/UNU-Intech Doctoral Programme

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Proposed Title

Thinking About Technology Policy in the WTO Era: Is the multilateral trade regime
learning about innovation?

Abstract

The multilateral trade regime set out by the World Trade Organization creates barriers to the adoption of a broad range of policies that developing countries have traditionally used to upgrade national innovative capacity. But the multilateral trade regime is not a static system: its rules are renegotiated continuously between member states in a sui generis process of state-to-state bargaining. The literature has so far failed to theorize the nature of the policy process at WTO. The proposed research will explore the policy dynamics of the WTO rule-making system using a learning-based explanatory framework. It will identify key participants in the WTO rule-making system and map their causal and normative beliefs on the impact of innovation and technology policy on economic development. Following Sabatier (1999) and Jenkins-Smith (1991), the research will seek to identify the advocacy coalitions at work on the rule-making system, and to characterize the epistemic communities at their core. The goal will be to propose a theory of the WTO rule-making system that stresses the roles of new technical information, persuasion and policy-learning.

"Politics finds its sources not only in power but also in uncertainty - men wondering what to do. Policy-making is a form of collective puzzlement on society's behalf. "
-Hugh Heclo, 1972

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Research aim

Researchers are increasingly sensitive to the importance of appropriate policies to aid technology transfer and local innovative capacity in the process of economic development. However, views differ sharply on what constitutes appropriate technology policy (Rodriguez & Rodrik 2000, Hausman & Rodrik 2004). Policies praised by some are considered so wrong-headed by others that they have been banned at the multilateral level, as part of the agreements that launched the World Trade Organization in 1995. Innovation-related matters play an ever larger role in trade negotiations, while questions about development have moved center-stage, even lending its name to the latest round of multilateral trade negotiations - the Doha, or "Development" Round.

But how does the WTO rule-making system decide which technology-relevant policy spaces are to be closed to developing countries, and which are to be opened? How does the system "think" about that question? The proposed research will examine the way participants in the WTO rule-making system understand the roles of innovation and technology policy in the process of economic development, and how their causal and normative beliefs on the subject shape the rule-making process.

In contrast with the standard neorealist approach that "presumes that a state's self-interests are clear and that the ways in which its interests may be most efficaciously pursued are equally clear" (Haas 1992) the proposed research will question the processes of agenda-setting and problem-conceptualization within the WTO rule-making system. Using qualitative methods to capture and measure system participants' beliefs and understandings, the proposed research will explore the connection between the "inner world" of policy-making elites and the trade regime that multilateral negotiations configure.

Drawing on the complementary literatures on Advocacy Coalitions and Epistemic Communities, the research will analytically describe (map) the belief systems of the system's participants and track the evolution of those beliefs over time, or policy learning.

In keeping with Heclo's (1972) idea of policy-making as "a form of collective puzzlement", the research will seek to measure the impact of new specialist knowledge on system participants' beliefs. It will explore how policy actors assimilate new knowledge on the links between innovation, technology policy and development, and it will seek to determine under what circumstances this process of policy learning can alter their policy preferences and, ultimately, the policy outcomes at the WTO level.

The overall goal of the proposed research will be to develop a framework for understanding the WTO rule-making system on technology policy issues that emphasizes the role of "persuasion, knowledge and learning as motivating factors in the process of policy change" (Schlager and Blomquist 1996).

Research context

For a generation now, economic researchers have increasingly centered their attention on innovative capacity as a critical determinant of national economic performance (Freeman 1997, Lundvall et al. 2002). Writing from an institutionalist perspective, this school has focused on the National System of Innovation as a key explanatory factor for economic performance. Researchers working within this tradition have put forward increasingly sophisticated formal alternatives to the standard neoclassical model of economic development and growth, emphasizing the role of innovation and technological change (Nelson and Winter 1982, Metcalfe 1994, 98, Silverberg and Lehnert 1993).

Though first formulated to account for the performance of developed economies, the innovation system approach was quickly adopted by scholars interested in development (Lundvall et al 2002, Edquist 1997). A number of studies persuasively credits firms' innovative capacities and the institutional structures that support them for the superlative economic performance of several of Asia's Newly Industrialized Countries (Lall 1997, 2001, Kim 1993, 1999, Johnson 2004.) Others have used the insights of the NIS framework to account for the relative under-performance of Latin American economies since the 1970s (Katz 2001, Katz & Stumpo 2001, Cassiolato 2003, Palma 2003.)

The innovation system approach sees firm competitiveness as a function of the knowledge intensity and innovative capacity of firms. Knowledge-intensity and innovative capacity, in turn, are seen as largely determined by the institutional context firms operate in. As Mytelka and Barclay (2004) put it, "Underlying the system of innovation approach is an understanding of innovation as an interactive process in which enterprises in interaction with each other and supported by institutions and a wide range of organizations play a key role in bringing new products, new processes, and new forms of organization into economic use" The approach emphasizes the multiplicity and variety of the institutional linkages that foster innovative behavior in firms. These include knowledge-rich forward and backward linkages, as well as interactions with universities and public research institutes, financial institutions, government regulatory agencies and near-by firms.

A series of policy proposals stem logically from this heterodox understanding of competitiveness and development. "Conceptually, the innovation system approach acknowledges the role of policies, whether tacit or explicit, in setting the parameters within which actors make decisions about learning and innovation. It recognizes that innovation is not the outcome of a unique policy, but a set of policies that collectively shape the behavior of actors" (Mytelka and Barclay 2004). In contrast with the standard recipes arising from the neoclassical tradition, innovation system scholars are skeptical of claims that market forces, on their own, show an inherent tendency to launch developing countries on a path to ever-rising productivity and development. Instead, they argue policy matters, so states must implement active and selective technology policy instruments designed to foster firms' innovative capacity.

In the developing world, such policies include measures to ease and hasten the transfer of new technologies from developed to developing country firms. The policy mix also includes measures to foster dynamic networks of small firms through local content requirements on foreign firms, as well as technology-transfer requirements on foreign entrants, targeted R&D subsidies and other industry-specific technology policies. Some variant of this policy mix was implemented in each of the Asian NICs. Many obstacles stand in the way of successful implementation of such a policy mix in the developing world today. The proposed research will focus on one: the trade regime set out in World Trade Organization rules.

Trade analysts working from the Innovation System perspective warn that significant portions of the international trade regime managed by the World Trade Organization is incompatible with much of the policy agenda outlined above (Corrales et al. 2003, Singh 2003). The implication, then, is that the WTO regime constitutes a structural impediment to the development of the world's poorest countries.

Many parts of the WTO regime have been questioned in this regard. The Trade Related Investment Measures (TRIMs) agreement is designed to prohibit discriminatory or trade-restricting performance requirements, effectively bars access to a wide range of policy tools that states might otherwise use to increase the knowledge intensity of firms' forward and backward linkages (Corrales et al. 2003, UNU-Intech 2003). The Agreement on Subsidies and Counterveiling Measures bans all industry or firm specific subsidies, closing the way to infant industry protection policies that are seen as particularly important tools to aid enterprise development, clustering and network effects, technology, knowledge and innovation policies, as well as policies for enhancing marketing and design capabilities (Corrales et al 2003, Singh 2003, Hausmann and Rodrik 2004).

In a similar vein, the agreement on Trade Related aspects of Intellectual Property Rights (TRIPs) closes spaces for compulsory licensing to aid the rapid diffusion of new technologies, the 1994 GATT agreement further restricts the use of infant industry protections, and the Agreement on Agriculture restricts some subsidies as well as other mechanisms to provide incentives for firms to improve their performance. Moreover, the current negotiations on the so-called Singapore Issues (Investment, Competition Policy and Trade Facilitation) threaten to introduce new restrictions on developing countries' spaces for implementing critical technology policies. (Corrales et al. 2003)

Taken as a whole, the WTO regime appears to substantially restrict the spaces for technology policy making available to developing countries as they attempt to implement an innovation-system based package of policy reforms. In effect, the current multilateral trade regime is rooted in a series of causal and normative beliefs that are strongly inimical to the use of targeted technology policies to improve national innovative performance, seeing such policy interventions as likely merely to "get prices wrong" and thereby interfere with the market's allocative efficiency. Measuring just how prevalent such views are today, and to what extent they have become contested and open to change will be a central goal of the proposed research.

The WTO regime must not be seen as a static, unchanging entitity. In fact, the current round of multilateral negotiations has seen considerable debate on many technology policy-relevant issues as they impact the developing world, under the broad rubric of Special and Differential Treatment (SDT.) The 2001 Doha Declaration pledges to make SDT provisions "stronger, more precise, more effective and more operational." IISD (2003), Corrales (2003), and Singh (2003) see the SDT debate as the key to enshrining new rules that expand the menu of technology policy options open to developing countries.

From an innovation system perspective, developing countries are likely to face substantial constraints in their ability to implement appropriate technology policies unless the Doha Round yields a substantially expanded scope for SDT that allows for active technology policy interventions. Proponents of the innovation systems approach therefore have powerful reasons to study the rule-making process as it unfolds in the Doha Round. At stake is the possibility of adopting the policy agenda suggested by the innovation system approach.

Research approach

Breaking with the dominant strand of research into decision-making in the international arena, the proposed research will adopt a learning-centered analytical framework, rejecting the central features of the dominant Neorealist tradition of international relations. As Levy (1994) explains, "neorrealist theories emphasize the rational and efficient adjustment to changing structural incentives, whereas learning theorists emphasize significant variations in individual responses to structural changes deriving from variations in cognitive structures, beliefs, and processes."

Neorealists see the individual as a rational, maximizing agent with perfect information and unlimited computational abilities - a model borrowed from the canon of neoclassical economics. "Realists maintain that institutions are basically a reflection of the distribution of power in the world. They are based on the self-interested calculations of the great powers, and they have no independent effect on state behavior." (Mearsheimer 1995.) By contrast, learning theorists rely on psychologically-derived models of the individual as boundedly rational (Simon 1986, Foss 2002).

Designed largely to explain matters of war and peace, the neorealist approach assumes that states' interests are readily apparent to policy actors. Haas (1992) argues that traditional research approaches "ignore the possibility that actors can learn new patterns of reasoning and may consequently begin to pursue new state interests." Burstein (1991) agrees that, in technically complex issue areas marked by uncertainty about the likely outcome of policy initiatives and where knowledge specialists have a plausible claim to expertise, it cannot be assumed that actors know what is in their state's best interest.

Arguing that the multilateral trade regime is marked precisely by such technical complexity and uncertainty, the proposed research will adopt an alternative approach centered on identifying the process whereby actors in the WTO rule-making system come to identify their states' interests.

As Putnam (1988) puts it, "domestic politics and international relations are often somehow entangled, but our theories have not yet sorted out the puzzling tangle." The proposed research will seek to sort out this tangle by drawing on two separate but complementary strands of the literature.

1. The Advocacy Coalition Framework (ACF) sees actors as instrumentally rational, but draws more heavily on work in cognitive and social psychology than in economics. The framework "does not assume that that actors are driven primarily by simple goals of economic/political self-interest." (Sabatier 1998) Instead, it focuses attention "on the inner world of individuals [and on] the structure and content of their belief systems." (Schlager and Blomquist 1996). Instead of assuming individuals' preferences, ACF analysts develop and test empirically verifiable hypotheses concerning actors' belief systems.

The ACF attempts to account not just for belief systems, but also for how they change over time. Sabatier and Jenkins-Smith, who first developed the framework, emphasize the importance of adopting a time horizon of a decade or more in order to capture meaningful shifts in policy dynamics. Following Heclo (1976), advocates of the framework are especially concerned with "policy learning" - the way actors in the policy system adapt and, less often, change their belief systems to incorporate newly discovered technical and scientific knowledge.

2. The Epistemic Communities Approach (ECA). Unlike the ACF, the Epistemic Communities Approach was originally developed to account for instances of international cooperation, particular on scientifically or technically complex matters. On particularly contested areas of policy, the ECA argues, marked by uncertainty and plausible claims to technical expertise by technical elites (Sebenius 1992) state actors may have no direct or readily apparent way to know what "their" interests are, let alone judge the likely outcomes of various policy option. When faced with such problems, decision-makers will seek to "discover" their interest by turning to scientists and technical experts for interpretation. On given areas of technical dexterity, groups of experts who share particular causal and normative beliefs will form Epistemic Communities - "networks of professionals with recognized expertise and competence in a particular domain and an authoritative claim to policy-relevant knowledge within that domain or issue-area" (Haas 1992). Participants in such networks share normative and causal beliefs about their issue-areas, share standards for the validity of new knowledge, and share a given policy enterprise with regard to their areas of professional competence.

There is important conceptual overlap between the concept of an epistemic community and that of an advocacy coalition. Both take as the unit of analysis human groups brought together by ideas about the world, and by a desire to see those ideas crystalize into a given set of policies.

Yet there are also important differences: whereas Sabatier and Jenkins-Smith have carefully developed a precise methodology for carrying out ACF studies, Adler and Haas (1992) describe the ECA as a "methodologically pluralist" approach, reconcilable with a variety of specific research methodologies.

The advocacy coalition concept is certainly broader, including not only scientific and technical experts but also citizen activists, journalists, and state decision-makers. With their privileged claim to be able to generate scientific knowledge, epistemic communities might be considered the technical knowledge kernels of an advocacy coalition.

The concepts were developed to explain different levels of policy making. Advocacy coalitions are normally cited within a national policy-making context, whereas epistemic communities "are not in the business of controlling societies; what they control is international problems." (Adler and Haas 1992) What's more, the notion of competition between coalitions is a basic tenet of the advocacy coalition framework, while competition between Epistemic Communities is not a feature of the ECA.

Due to the peculiarities of the WTO system, the proposed research will seek to include aspects of both the ACF and the ECA. Although the WTO is a multilateral entity that reaches decisions on the basis of state-to-state negotiations, many of its rules concern matters traditionally governed by national economic policy. Domestic political actors - actors that may form part of given advocacy coalitions in the national context - have much at stake in the outcome of WTO negotiations (Gereffi 2003, Katz 2001).

Based on a highly complex and contested explanatory model developed by academic economists, World Trade and the multilateral regime that reglaments it are certainly areas marked by uncertainties and plausible claims to technical expertise. Yet it's clear that not all of the economists and experts at work on the system share a set of causal and normative beliefs about the role of technology policy and innovation in economic development. In other words, there are a multiplicity of expert-networks working on and shaping the debate about the international trade regime. Instead of the domain of a single Epistemic Community, the multilateral trade regime is an arena of competition between Epistemic Communities.

The ACF holds that in order to make the policy, coalitions need to win the debate first. What it means to "win" such a debate, what the necessary and sufficient conditions for a coalition to be successful are subjects of intense debate in the literature. Sabatier (1999) advances two specific hypothesis to account for major policy change. The first - that policy change is unlikely so long as the advocacy coalition that instituted the current policy remains in power within a jurisdiction - is not directly applicable to a transnational negotiating setting devoid of a central state jurisdictional authority. The second - that policy change is unlikely in the absence of significant perturbations exogenous to the policy subsystem - will be examined in detail (Sabatier 1999).

But there is no reason to think this is the only, or even the main, avenue for policy change. A number of alternative hypotheses postulate that policy-change may be endogenous to the policy-making system. Hall (1993) likens the theoretical bases of given economic policy regimes to scientific paradigms, and explains certain shifts in policy-making as stemming from Kuhnian paradigm shifts in underlying causal models. Sabatier and Hunter (1989) agree that causal perceptions are "most susceptible to change over time because, unlike abstract normative orientation, they are susceptible to modification on the basis of experience and evidence," adding, in line with Kingdon (1984), that "elite perceptions of causal relationships can play a critical role in the selection of policy alternatives to which they accord serious consideration" (Sabatier and Hunter 1989). Other suggested explanations for policy system dynamics include "backlashes" against existing policies, policies that generate undesired outcomes and thereby generate an impetus for change, and path dependent policies (Fenger and Klok 2001).

By tracking actors' beliefs as they move through the Doha Round, the research will seek to adjudicate between these competing theoretical accounts of the determinants of policy-change. How do participants in the WTO rule-making system assimilate new technical information into their causal understanding of the link between innovation and development? How open to falsification are their understandings of the underlying causal mechanisms? What role does persuasion play in the evolution of policy-actors' belief systems? Is there an identifiable backlash against the policies of the dominant coalition? Is there evidence that previously established rules have yielded undesired outcomes that, in themselves, produce an impetus to policy change?

Proposed methodology

The proposed research will employ qualitative methods to question the WTO rule-making system participants' causal and normative beliefs about the innovation-technology policy-development nexus. It will track the changes in these belief systems over time though a research strategy that has been carefully developed and extensively applied in the literature on Advocacy Coalitions.

Though qualitative in nature,the research methodology developed by Advocacy Coalition Framework advocates has been consciously designed to meet scientific standards of falsifiability. The approach relies on a series of research avenues designed to capture (map) policy actors' beliefs of the key causal mechanisms in the policy areas they are engaged in. Three data-gathering strategies are dominant in the literature:

1. Textual analysis of documents and/or statements by policy actors that set out their understanding and beliefs about the policy-area under discussion (Jenkins-Smith, et al. 1991) This method is especially valuable as a means of capturing past beliefs.
2. In depth interviews of policy actors using open or semi-open questionaires. (Sabatier & Hunter 1989)
3. Attitudinal surveys of policy actors, methodology to capture causal beliefs. (Sabatier & Hunter 1989)

The proposed research will employ all three strategies. It will begin by identifying a small nucleus of key informants active in the WTO rule-making system and compiling a broader list of policy actors for subsequent study. An attitudinal survey will then be produced to examine actors' causal and normative beliefs about the role of technology and innovative activity in economic development. These will be compared with views revealed through close textual analyses of actors' past policy pronouncements, and the differences between policy views at different times will be used as a proxy for policy-learning.

The proposed research will follow Sabatier & Hunger (1989), who develop a methodology for identifying membership in a given Advocacy Coalition by coding system's participants' beliefs through attitudinal surveys and looking at the "distance" between various members' beliefs. It will then use more open questioning to seek to identify each coalition's policy core beliefs as well as its crieteria for validation.

As the Doha Round negotiations advance, follow-up surveys may be administered to track the evolution in policy actors' conceptualizations of the key causal relationships in economic development. By capturing system participants' views at several different points in time, the proposed research will be well placed to capture and describe the nature of the policy-learning at play.

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