DRAFT – August 26, 2010. Not for citation.
Back to Basics: Power in the Contemporary World
October 1 & 2, 2010
Princeton University
Robertson Hall, Room 015
Friday, October 1
11:15am
Session 3:
Power, International Trade Law, and State
Transformation
Richard H. Steinberg (University of California, Los
Angeles)
1
DRAFT – August 26, 2010. Not for citation.
For Martha Finnemore and Judith L. Goldstein, editors, Power in the Contemporary Era
(forthcoming).
Power, International Trade Law, and State Transformation
Richard H. Steinberg
UCLA School of Law
steinberg@law.ucla.edu
DRAFT: Not for Citation

I am grateful to Marty Finnemore, Judith Goldstein, Peter Gourevitch, Joanne Gowa,
Peter Katzenstein, Robert Keohane, David Lake, Jonah Levy, Tonya Putnam, Joost
Pauwelyn, Kal Raustiala, Art Stein, Dan Tarullo, and John Zysman for their helpful
comments and suggestions on earlier drafts.
2
DRAFT – August 26, 2010. Not for citation.
The conventional view is that liberalization is weakening the state. This position
may be traced at least as far back as David Ricardo's Principles of Political Economy and
Taxation (Ricardo 1996) and there are several contemporary versions-- for example, Ray
Vernon's Sovereignty at Bay (Vernon 1971), Charles Kindleberger's classic statement that
"[t]he state is just about through as an economic entity" (Kindleberger 1971), and much
of the globalization and governance literature, particularly economic arguments that
international trade liberalization is shifting authority from the state to both substate and
supranational levels (Alesina and Spaolare 1997; Mathews 1997)-- all of which have
spilled over into the law literature (Charnovitz 2002; Spiro 2002; Teitel 2002). These
arguments typically rest on activities of nonstate or transgovernmental actors, or on a
market efficiency rationale for reduced state intervention and the consequent competitive
pressure on states to shrink.
Such arguments typically have at least two dimensions: process and outcome.
Economists sometimes suggest (both positively and normatively) a process akin to
Manchesterian voluntarism: efficiency demands liberalization and so states are
unilaterally liberalizing (or should do so). The outcome suggested (expressly or
implicitly) by these arguments is that liberalization and a weakened state are taking some
ideal form prescribed by classical economics and deduced through economic reasoning.
Since the early 1990s, many have pointed to the transformation of state-led and formerly
centrally planned economies, as well as policy changes in developing countries, to
illustrate the standard wisdom.
3
DRAFT – August 26, 2010. Not for citation.
Of course, these claims are contestable. There are credible alternative views of
the process by which liberalization and state change have occurred. For example, Meyer
et al have argued that the form of the state in developing countries is changing, broadly
converging along Western lines, because of sociological microprocesses that operate on
elite norms and cognition, transforming their views of what the state should be (Meyer,
Boli, Thomas, and Ramirez 1997). A third view of the process of liberalization,
presented here, is that global liberalization and its effects on the state are very much a
story of power politics and international law: a complete account of liberalization's
effects on the state must consider material pressures imposed on developing countries by
the world's more powerful countries through the distinctive institutional process of
contemporary liberalization (i.e., the evolving and negotiated nature of embedded
liberalism), with particular attention to the pressures exerted by international trade law—
the substance of which is itself a product of power relations.
The purported outcome of liberalization for the state is contestable as well. If
"state strength" is defined narrowly as the extent to which state action diminishes the
efficiency of economic activity, and trade liberalization is defined narrowly as the
reduction of tariffs, quotas, and non-tariff barriers, then liberalization weakens the state,
by definition. If state strength is conceptualized more broadly, in political and
institutional terms, so that the effects of liberalization on the state must account for
changes in the state's distributive and regulatory activities (e.g., its role in social and
environmental policy), and is measured by such factors as government spending as a
proportion of GDP, then liberalization is not weakening the state (Garrett 2001; Levy
4
DRAFT – August 26, 2010. Not for citation.
2006). Instead, the state is better seen as undergoing transformation (Kahler and Lake
2003), as it has been doing throughout modernity (Tilly 1975; Bendix 1978; Skocpol
1979).
Hence, we need a more complete understanding of how the politics and
institutions of liberalization have contributed to transformation of the state. Consistent
with realist regimes theory (Krasner 1982), contemporary trade liberalization has been a
product of U.S. (and, later, U.S.-European) power, exercised through the creation and
operation of the General Agreement on Tariffs and Trade (GATT) and its successor, the
World Trade Organization (WTO), and reflected in the GATT/WTO's substantive rules
(Steinberg 2002; Barton et al 2005; Gowa and Kim 2005). This chapter argues that those
rules reflect not just U.S. and European trade policy preferences, but also the capacities
and form of the state in Europe and the United States.1 Moreover, the rules have
pressured not just for the abandonment of certain national policies in other countries, but
also for shifts of authority within the state, the creation of new kinds of state capacities,
new processes of policy-making, and development of some dimensions of rule of law-all contradictions of Westphalian sovereignty (Krasner 1999). The GATT/WTO rules
promulgated by Europe and the United States may be seen as a cast of the Western,
industrialized trading state, which has molded the state in third countries in the image of
that model.2
This argument is consistent with David Lake’s assertion that global powers externalize
their domestic structures to the international economy. Lake 1999, 43-48.
2
"Cast" and "mold" are merely metaphors. The paper argues below that we are seeing
bounded convergence in the form of the state, which suggests some measure of
1
5
DRAFT – August 26, 2010. Not for citation.
The result has been bounded convergence in the form of the trading state across
countries. Of course, the extent to which particular states have converged on the
Western, industrialized model has varied. For one thing, GATT/WTO rules have not
been applied evenly across countries: richer developing countries have been pressured
more intensely than poorer ones to abide by the rules, while the poorest countries (with
their small markets) have been largely ignored over the past half century. The result has
been that many of the world's poorer countries have been left behind and others are
experiencing deformation (i.e., defective formation) of the trading state.
Part I argues that GATT/WTO rules and principles, which were shaped by ECU.S. trade bargaining power over most of the past half century, reflect national political
economies and state structures similar to those of the United States and Western Europe.
Part II explains how that international trade law has exerted pressure on weaker states,
transforming them and favoring bounded convergence in the form of the state. Part III
describes five dimensions along which state formation and transformation have taken
place. Part IV considers these changes in national context, with particular attention to
poor countries. Part V concludes by elaborating the role of international law in molding
the state.
imperfection or ambiguity in the "casting" or "molding" processes (i.e., factors other than
the political and institutional processes that are the focus of this chapter are also affecting
the state).
6
DRAFT – August 26, 2010. Not for citation.
I. Casting the Western, Industrialized Trading State
What do GATT/WTO rules and principles, which were shaped by EC-U.S. trade
bargaining power over most of the past half century, suggest about the state and the
structure of the national political economy of each of GATT/WTO member? Not
surprisingly, they assume national political economies and state structures similar to
those of the United States and Western Europe. GATT 1947 rules and principles
presumed that the political economy of each contracting party would be fundamentally
market-oriented. The GATT was built on four cornerstones-- MFN treatment, national
treatment, bound tariffs, and the elimination of quotas-- each of which could be
undermined by the activities of state enterprises or state trading enterprises (Jackson
1989). For example, a state trading enterprise with a monopoly on all imports of a
particular product could undermine the tariff bindings on that product in the country
where the enterprise operates: it could simply import the product, pay the tariff rate
bound in that country's schedule of concessions, then internally resell all units of the
product at price a mark-up that exceeded the tariff paid for each unit. Hence, while
GATT 1947 negotiators expected that some contracting parties might maintain state
enterprises, Article XVII was written to constrain their activities, so that decisions would
be taken according to purely commercial considerations (Wilcox 1972). Yet that solution
has not always been considered sufficient, and the accession of some countries has been
delayed or denied until there was convincing evidence of a trend and commitment toward
drastic reduction in the role of the state in the economy (Steinberg 1998; Clarke 1993).
7
DRAFT – August 26, 2010. Not for citation.
GATT contracting parties were also expected to have relatively few monopolies
or oligopolies engaging in anticompetitive practices. Just as large monopoly state
enterprises could undermine the four cornerstones, so could sizeable private monopolies.
For example, anticompetitive distribution networks could behave in ways that created a
barrier to trade, with effects similar to tariffs, quotas, or denial of national treatment.
Such arguments have frequently been leveled at the Japanese keiretsu and the Korean
chaebol systems (Tyson 1992). The Havana Charter included express provisions against
"restrictive business practices," and while the Havana Charter never came into being, a
shared European-U.S. norm against anticompetitive practices sufficed to limit political
friction over the issue until Japan emerged as a significant economic power in the 1980s.
Since then, the United States, the EC, and other GATT/WTO members have used GATTlegal national laws and agencies aimed at "unfair trade practices"-- such as anti-dumping
law-- to offset and pressure countries that tolerate anticompetitive business practices.
In addition to capacity to act against anticompetitive practices, constituent states
have been permitted by GATT 1947 to maintain other capacities-- regardless of their
trade-limiting effects. GATT Article XXI permits the state to perform military security
functions without constraint. Article VI, Article XVI, and related rules contemplate that
the state may maintain simultaneously agencies that actively subsidize certain sectors
(e.g., agriculture)-- and agencies that regulate other excessive subsidies by foreign
governments. Moreover, in requiring "specificity" in order to challenge foreign
subsidies, GATT negotiators have carefully permitted states to pursue broad social
welfare and social safety net programs, which are presumed to be common to
8
DRAFT – August 26, 2010. Not for citation.
GATT/WTO members and crucial to their domestic politics. Article X, requiring
transparent publication and a means of adjudicating disputes over trade regulations within
each contracting party, demands in effect that constituent states maintain at least some
elements of an operational judicial system. And the Article XX exceptions show that
constituent states are expected and permitted to maintain agencies to protect consumers,
the domestic environment, public morality, and intellectual property. The Tokyo and
Uruguay Rounds further defined GATT/WTO rules and principles, and expressly
acknowledge the role of constituent states in regulating various service sectors, including
telecommunications and financial services.
Not every GATT/WTO member-state was expected to be structured precisely
along the lines suggested by the regime's rules and principles. For example, derogations
have applied to developing countries. And some countries, such as France and Japan,
were able to conduct significant state economic intervention without substantial foreign
complaint, until their economies became large enough to threaten the interests of other
powerful contracting parties (Cohen 1998). These exceptions aside, GATT/WTO rules
and procedures have been drafted with a particular range of permissible state structures in
mind, structures that reflect those of the United States and Western Europe.
II. The Formation of Trading States on the Western, Industrialized Model:
Molding the State in Third Countries
Stephen Krasner has shown many ways by which powerful states have coerced or
imposed state transformation in weaker countries (Krasner 1999). In the past half
9
DRAFT – August 26, 2010. Not for citation.
century, the European Union and the United States have used international trade law to
transform weaker states. GATT/WTO rules and principles have provided opportunities
and incentives for the transformation of the state, particularly in richer developing
countries. As suggested above, the agenda-setting that led to the GATT 1947 and the
1995 WTO agreements was dominated by the United States and Europe, establishing
agreements that demanded relatively little immediate legal or institutional change in
either territory. Yet for most other countries, the procedural and substantive requirements
of joining and participating in the GATT/WTO, and the incentives and opportunities
created by the regime and related activities, have required or favored substantial change
in state institutions. Some important molding mechanisms are intrinsic to the trade
regime itself, while others operate through complementary institutions and processes.
These mechanisms have operated most effectively at important and identifiable historical
moments.
Molding Mechanisms Intrinsic to the Trade Regime
Accession. There have been powerful economic incentives to accede to the
GATT/WTO system. Non-members suffer trade and investment diversion (Viner 1950;
Rosecrance and Stein 2001) and risk losing access to the world's largest markets
(Steinberg 2002). As the GATT/WTO started to grow and integration among its
members deepened, so did these costs of non-membership, creating a bandwagon effect
(Barton, Goldstein, Josling, and Steinberg 2005). Accession also promised to buttress the
domestic political position of liberal-minded reformers in developing countries that had
been pursuing import-substitution-industrialization policies and transitional economies
10
DRAFT – August 26, 2010. Not for citation.
that had pursued central planning (Goldstein 1994). Hence, the regime has grown from
22 members in 1948 to over 150 members by 2009.
For most states, GATT/WTO accession necessitates not only policy changes,
sometimes referred to as "paying the price of admission" (Jackson 1969), but also
institutional changes in the acceding state. For example, consider the substantive and
institutional demands of implementing just one of the GATT/WTO agreements-- the
Agreement on Trade Related Aspects of Intellectual Property (TRIPs). TRIPs requires
each WTO member to enact substantive laws guaranteeing protection for patents,
copyrights, trademarks, and know-how. It also mandates the establishment or
maintenance of various state institutions, such as a patent office. Moreover, by requiring
that each WTO member offer "effective means" of enforcing intellectual property
protection through injunctive relief, civil actions, and other enforcement mechanisms, the
agreement demands that states maintain court systems that operate according to the rule
of law. Institutional form follows function.
Rule Deepening. As GATT/WTO liberalization has deepened, so has the scope of
the demand for state institutional change among members. Over time, the scope and
scale of GATT/WTO obligations have increased. This increase is reflected in the size of
GATT/WTO accession protocols: in 1951, the Model Protocol of Accession to the GATT
was three pages and required adherence to the GATT and the acceding country's schedule
of tariff concessions; in 2001, the package of commitments that constituted China's
Protocol of Accession was several hundred pages long, including required adherence to
the GATT, approximately 400 pages of additional WTO agreements, (de facto) the rules
11
DRAFT – August 26, 2010. Not for citation.
and principles established in GATT/WTO dispute settlement decisions, China's schedule
of tariff concessions, its schedule for services liberalization, and other understandings.
The GATT 1947 and subsequent multilateral trade negotiations prior to the Tokyo Round
addressed largely border measures, such as tariffs and quotas. Since the 1970s, however,
GATT/WTO agreements have concentrated increasingly on behind-the-border issues,
such as services regulation, health regulations and industrial standards, and intellectual
property rights. The Doha Round of negotiations initially added investment regulations,
competition policy, and environmental regulation to the agenda, suggesting a host of new
issues for the future trade agenda. As multilateral integration has deepened, the demands
on GATT/WTO member-states have increased.
Enforcement of the Rules. In the 1970s and 1980s, GATT rules were often
enforced unilaterally, but even that enforcement usually took place in the context of
processes that constituted the GATT dispute settlement system. Since establishment of
the WTO, enforcement has taken place through a highly legalized system (Abbott et al
2000; Goldstein and Martin 2000). Both systems have give powerful states
institutionalized channels for imposing (or threatening to impose) trade sanctions on
countries that failed to adhere to GATT/WTO rules.
The GATT 1947 provided for only a rudimentary system of consultation and
investigation of complaints that a contracting party was maintaining rules that nullify or
impair trade concessions. Those foundational rules were interpreted and elaborated by
the Contracting Parties, eventually yielding a series of understandings that incrementally
legalized the GATT dispute settlement system. Still, the GATT dispute settlement
12
DRAFT – August 26, 2010. Not for citation.
system could never reliably adjudicate all disputes because each important procedural
step could be blocked by the refusal of the respondent to join a consensus to take the step.
In that context, the United States government notoriously employed Section 301
of the Trade Act of 1974 to engage a process of consultation and GATT dispute
settlement, both of which operated in the shadow of a threat to impose trade sanctions in
order to enforce GATT rules. During the 1970s and 1980s, hundreds of "301 petitions"
were filed with the United States Trade Representative, which pursued cases associated
with almost all of those petitions. In addition, under the "Super 301" process, the USTR
had to annually designate those countries engaging in the most egregious patterns of
GATT violations as "priority foreign countries," a designation that triggered a sharplydefined process to pressure change. As a result of these processes, Argentina, Brazil,
Japan, India, Indonesia, Korea, and other countries faced enormous pressure from the
United States to change their trade-restrictive rules and institutions.
Since establishment of the WTO in 1995, rule application and enforcement has
taken place primarily through the highly legalized WTO dispute settlement system. Like
the domestic 301 institution, this process can also ultimately subject states to trade
sanctions for continued non-compliance with WTO rules. Since its inception, the system
has handled about fifty cases per year at the dispute settlement stage and more than twothirds of those decisions have been addressed by the Appellate Body. In addition, for
each one of the scores of cases that have been filed under this system, many disputes and
13
DRAFT – August 26, 2010. Not for citation.
assertions of rule-violation have been resolved through rule-compliant agreements
reached in the shadow of a threat to use the formal system.3
Complementary Molding Mechanisms
These molding mechanisms have been complemented by activities undertaken by
other international organizations and powerful WTO Members. Most of these activities
have taken place-- to varying degrees-- in express coordination with the WTO.
Complementary Pressure from the Bank and the Fund. From the birth of IMF
and World Bank conditionality in the late 1960s, through the mid-1990s, conditionality
policies seem to have been driven primarily by economic orthodoxy. There is little
evidence that these policies were motivated directly by a desire to ensure GATTcompliance per se, or by political pressure from trade ministries. Nonetheless, many
elements of typical IMF and World Bank conditionality packages have supported
compliance with GATT/WTO obligations over the past thirty years, including public
expenditure priorities that disfavor subsidies, tax reform measures intended to generate
revenue internally (instead of tariffs), and policies favoring financial liberalization, tariff
reduction and quota expansion, abolition of import licensing, foreign direct investment,
and privatization of state enterprises.
Since the late 1990s, however, IMF and Bank policies have been consciously
coordinated with WTO rules and priorities. Perhaps the earliest clear case of
coordination took place in 1997, when Indonesia's financial bail-out package included
3
For more background on the GATT and WTO dispute settlement systems, see Hudec
1980; Steinberg 2005; and Barton, Goldstein, Josling, and Steinberg 2006.
14
DRAFT – August 26, 2010. Not for citation.
provisions requiring adherence to specified WTO rules, a shift in IMF conditionality
taken at the behest of the U.S. Treasury Secretary, who had acted in close consultation
with the USTR.
In the same year, the World Bank, WTO, UNCTAD, UNDP, ITC, and IMF
agreed to serve as implementing agencies for a new program designed to integrate the
least developed countries (LDCs) into the multilateral trading system. The Integrated
Framework for Technical Assistance (IF) attempts to deliver trade-related technical
assistance to LDCs and use trade policies to produce development and poverty reduction
strategies. The collaborating institutions seek to ensure that the LDCs will comply with
WTO rules, develop trade policy strategies to maximize their benefits from the Uruguay
Round, and acquire the capacity to scrutinize trade policies. Within a few years of its
establishment, it became clear that the IF was facing difficulties due to differences
between the donors and beneficiaries, weak coordination among the various institutions,
and a management-by-committee approach. In July 2000, the six institutions agreed to
reform the IF operations, resolving to increase resources by devising a UNDPadministered trust fund that would attract $20 million over three years for technical
assistance, delegate to the World Bank responsibility for ensuring that trade issues are
included in a country’s development plans, and establish a WTO-chaired and coordinated
steering committee to oversee the program. As of 2004, the IF had completed or was
nearing completion on thirteen projects with an additional six set to begin in that year
(Agarwal and Cutura 2004; Stiglitz 2002).
15
DRAFT – August 26, 2010. Not for citation.
Technical Assistance. These multilateral organizations have not been the only
institutions to offer developing countries technical assistance and training intended to
support implementation of GATT/WTO rules. Since the late 1990s, USAID, the United
Kingdom's DFID, AUSAID, the European Commission, APEC, and OECD, among
others, have supported trade capacity-building. Dozens of developing countries have
undergone a process in which foreign experts in trade policy, including officials from
foreign governments and international organizations, along with foreign private sector
consultants, have assessed their trade-capacity needs and then attempted to educate local
government officials about WTO obligations, as well as the domestic rules, institutions,
and processes necessary for compliance with those obligations and for participating in
global, regional, and bilateral trade negotiations and dispute settlement processes (Prowse
2002; OECD 2003; Sauve 2004). In many cases, foreign officials and private sector
consultants have helped draft domestic legislation to build trade-capacity and bring the
country into compliance with its WTO obligations. In some countries, such as Ghana and
Mozambique, administration of some trade-related functions that are normally operated
by states have been successfully outsourced to private, foreign consulting firms.
Preferential Trade Agreements. Finally, the molding process has been
supercharged by the proliferation of PTAs, particularly those to which the United States
or the European Union have been parties. PTAs are supposed to be consistent with the
provisions of GATT Article XXIII, liberalizing "substantially all trade" within the PTA.
Generally, PTAs concluded with the United States or the EU contain trade and
investment liberalization obligations that run considerably deeper than those in WTO
16
DRAFT – August 26, 2010. Not for citation.
agreements. Therefore, they demand substantially more state institutional change in
developing countries than is demanded by adherence to WTO rules alone. Hence, the
2004 and 2006 EU enlargement entailed profound changes in the nature of the state in
"new" Europe (Knill 2001; Fukuyama 2005), and conclusion of the NAFTA led to the
most significant reorganization of the Mexican trading state in its contemporary history.
The proliferation of free trade areas (FTAs) with the EU, growing now to over 90 with
the shift from Lome Convention preferences to Cotonou-mandated FTAs, is demanding
significant changes in the state, particularly in ACP countries. Indeed, the negotiation of
these FTAs catalyzed establishment of an EU-supported trade capacity-building program
for ACP countries. Similarly, the U.S. trade strategy of "competitive liberalization,"
launched early in the Bush II administration, led to an explosion of U.S. FTAs with
developing countries, which was complemented by a major expansion of USAID trade
capacity building programs starting in 2003.
PTAs among developing countries tend to liberalize far less deeply than rich
country-poor country agreements, so they demand less state change. However, the
establishment of regional economic cooperation and customs unions among developing
countries, such as the Southern African Development Community and the West African
Economic and Monetary Union, have sometimes resulted in a considerable shift of
member state authority to the regional level and enabled member states to share the
burden of trade-related policy development (IMF 2003; Ivorien Authorities 1998;
Kalenga 2004). The flip side of such developments is that the weaker and poorer
countries in a customs union, such as Lesotho in the Southern African Customs Union,
17
DRAFT – August 26, 2010. Not for citation.
may lose control over important economic policies, such as tariff rates (WTO 1998;
Lundahl et al 2003).
Historical Moments
Molding has been most pronounced and effective at particular historical moments,
most of which are associated with the molding policies identified above. For many
countries, such as Mexico and China, the moment of GATT or WTO accession has
demanded significant state change. For others, such as Argentina, Brazil, and Korea, the
period of intense U.S. unilateralism in the late 1980s helped catalyze trading state change.
For those that have joined a PTA with the United States or EU, the process of concluding
and implementing those agreements has defined a period of profound development of the
trading state. For those that have faced demanding conditionality agreements, such as
Indonesia and Brazil, periods of severe financial difficulties have inspired transformation
of the trading state. And in the last decade, explosive growth of trade capacity building
programs has facilitated substantial state change in some countries like Ghana and
Mozambique.
The most effective development of trading state institutions has taken place at
times when several molding methods were used simultaneously, particularly in the
context of an active, emergent indigenous reform movement. For example, the Brazilian
trading state changed markedly in the late 1980s and early 1990s, when a domestic
reform movement received external support for its objectives in the form of unilateral
reformist pressure from the U.S. government, a host of GATT dispute settlement cases,
and conditionality pressure from the IMF.
18
DRAFT – August 26, 2010. Not for citation.
III. Dimensions of State Formation and Transformation
GATT/WTO rules (and the complementary mechanisms identified above) have
favored a bounded convergence toward some aspects of US/Western European and
GATT/WTO model of the state along five dimensions:
1. Reduced Role for State-Led and Central Planning Institutions. GATT/WTO
rules, and the trade and investment diversion suffered or feared by those countries outside
the GATT/WTO system, have favored reducing the state's direct role in domestic
economic planning-- central planning, state trading enterprise systems, state-owned
enterprises, and state-led capitalism.
2. Elements of New State Capacity. At the same time, the GATT/WTO: (1)
expressly permits, anticipates, and disciplines increased regulatory capacity over sectors
once controlled by-- and fallout from-- dismantled state trading and state-owned
enterprises (especially over competition, financial services, telecoms, labor policies, etc.)
(Vogel 1996); (2) provides opportunities (that combine with strategic trade goals to
become incentives) for strategic trade institutions that can administer anti-dumping,
countervailing duty, and safeguards laws, technology policy (but constrained industrial
policy), export promotion capacity, and technical standards and testing; (3) requires (or is
moving towards requiring) the establishment and maintenance of state institutions
supporting intellectual property rights, environmental protection, and labor rights; and (4)
favors the establishment of capacity for addressing internal spillovers from liberalization- internal revenue generation (to replace revenue previously generated from duties), a
19
DRAFT – August 26, 2010. Not for citation.
social safety net that can address dislocations associated with liberalization, and more
technical standards and testing (to protect consumers, workers, and the internal
environment from damage from imported goods).
3. Shifts of Authority. The GATT/WTO has required or created incentives for
shifts of authority within the state. While formerly state-led and central planning systems
have experienced diminished state authority over the economy, in other countries,
authority over the economy has in some ways become more concentrated in the state: (1)
in federal systems, from sub-federal levels to the central government (so that the state can
negotiate with a single voice and comply with international obligations)4; (2) in
presidential systems, from the legislative to the executive branch (so that the executive
can bargain credibly and secretly); and (3) to trade ministries from other ministries-- or to
the external affairs division of trade and industry ministries-- as previous domestic topics,
such as intellectual property, environment, and labor, have become objects of trade
negotiations.
4. Changes in National Policy-Making Processes. Shifts in state capacity and the
concentration of authority demand new processes of policy-making. For example, if
authority over a particular policy shifts from one agency to another, then the processes of
policy-making must also shift, so that non-state actors can articulate their interests to the
new authoritative policy-makers. Similarly, if authority over a particular policy becomes
shared by two domestic institutions when it was previously controlled by one, policy-
20
DRAFT – August 26, 2010. Not for citation.
making processes must shift, so that the institution previously at the center of a policymaking process can participate in the new and expanded process. As the range of issues
that are the subject of GATT/WTO negotiations has expanded, the domestic institutions
of trade policy-making have adapted, so that broader sets of interests can feed into the
trade policy-making process.
5. National Legal System Changes. The process and outcomes of GATT/WTO
and preferential trade liberalization have favored and been accompanied by: (1) an
expansion in constitutionally acceptable forms of international agreements (e.g., in the
U.S., from treaties to executive agreements and congressional-executive agreements, for
speed, secrecy, and credibility); and (2) marginal increased rule of law along some
dimensions-- formalization, transparency, and independent judicial review (as required
by GATT articles, TRIPs, and accession agreements).
IV. State Change in National Context:
Trading State Formation and Transformation in Poor Countries
The extent of change along each dimension depends on a country's starting
point— in particular, its level of economic development, the extent and form of state
intervention in the economy prior to institutional adjustment, and whether it has enough
market power to help set the global trade agenda. Of course, molding pressures on states
4
EU proposals in October and November 2009 for constitutional change in Bosnia,
including a strengthening of the federal government at the expense of the Republika
Srpska, as a condition for accession, exemplify this point.
21
DRAFT – August 26, 2010. Not for citation.
to adapt in a functional manner are mediated by particular national histories and strategic
choices.
The external trade-related impetus for institutional transformation in the United
States and EC has not been the substance of GATT/WTO obligations, but rather the
exigencies of the GATT/WTO bargaining process, the strategic and tactical advantages of
establishing a particular trade bargaining tool set, and the expanding scope of trade
negotiations. And for them the political vehicle for change has not been external pressure
to comply with GATT/WTO obligations, but rather economic internationalists within the
state and interest groups newly drawn into trade policy by economic spillovers from
deepening integration. In short, the United States and Europe have reorganized to
effectively govern world trade. In these countries/entities, change has been seen
primarily along three dimensions: GATT/WTO negotiations have favored shifts of
authority (e.g., toward trade ministries in the central government) and new state capacity
(e.g., new capacity developed at the EC level so that the Commission could have a full
trade bargaining tool set that includes antidumping, countervailing duty, and competition
law and administration); and the foregoing demanded changes in processes of trade
policy-making (Steinberg 2006).
In contrast, in the wealthier developing countries, the opportunities and incentives
embodied in the GATT/WTO agreements have precipitated change along all five
dimensions. These countries include those that previously followed import substitution
industrialization policies (e.g., Mexico, Brazil, Argentina, India), those that were state-led
(e.g., Indonesia, Malaysia, Korea), and transitional countries (e.g., China). Unlike the
22
DRAFT – August 26, 2010. Not for citation.
LDCs, the markets of these countries have been substantial enough to attract EU or U.S.
interest in applying GATT/WTO rules, which have demanded state institutional change.
Contracting, coercion, and imposition (Krasner 1999) have been used to shape the trading
state in the richer developing countries. They have been the repeated objects of GATT
and WTO dispute settlement cases.
State institutional change associated with trade regime demands has been less
extensive in the poorer developing countries, including the LDCs. In these countries,
until very recently there was little institutional shift associated with GATT/WTO
liberalization across any of the five dimensions. Most of the demands of the
GATT/WTO system have been formally suspended or simply not enforced for these
countries. Many of the world's poorer countries acceded to the GATT as newly
independent colonies that were exempted from the usual process of "paying the price of
admission" by virtue of the sponsorship procedure for accession under GATT Article
XXVI:5(c). In addition, many poorer developing countries have enjoyed non-reciprocal
preferential access to U.S. and European markets through generalized systems of
preferences, special preferential systems (such as the United States' African Growth and
Opportunity Act), or the EU's long-standing series of Lome agreements. These nonreciprocal preferential systems have relieved many poor countries of political pressure to
develop a trading state (Ozden and Reinhardt 2002; Mold 2005). But most importantly,
their markets are so small that the powerful trading states have faced little domestic
pressure to demand changes in the form or capacity of their states. Moreover, in most of
these poor countries, state institutional capacity and political authority structures have not
23
DRAFT – August 26, 2010. Not for citation.
reached a threshold at which trade regime demands would have any meaning. Hence,
there is little motivation or logic for forcing changes in these states, so no GATT or WTO
dispute settlement case has ever been filed against an LDC. In this respect, from the
founding of the GATT through the mid-1990s, the trading state in the world's poorer
countries was simply left for dead.
However, beginning in the late 1990s, and accelerating in recent years, the trading
state has developed significantly in some LDCs and poor developing countries.
Substantial technical assistance for state-building has been provided in recent years by
rich country governments and international organizations. Moreover, starting in the late
1990s, the Bank and the Fund have expressly coordinated their policies with those of the
GATT/WTO by means of the IF. In this same period, PTAs have flourished, most
importantly those with the United States or the EU, especially those being negotiated
pursuant to the Cotonou Agreement.
The motivations for this sudden convergent application of molding mechanisms
are varied. It is clear that the U.S. strategy of "competitive liberalization" and its desire
to work slowly toward a Free Trade Agreement of the Americas, and the EU's
transformation of the Lome system into a set of FTAs, are leading to a radical
proliferation of rich country-poor country PTAs, which is demanding institutional change
in poor country trading states. And when U.S. trade officials have met their counterparts
from some poor developing countries, such as Mozambique, they have reported dismay
that there was no one to negotiate with, so the U.S. government expanded its trade
capacity building program in 2003. South-south PTAs have also proliferated in the last
24
DRAFT – August 26, 2010. Not for citation.
decade, and these agreements have also demanded some state change and enabled shared
trade policy development. In addition, the war on terror has generated a policy objective
of building the state in poor countries to avoid state fragility or failure that could present
fertile ground for terrorists.
Taken together, the resulting molding mechanisms might be beginning to form
and transform the trading state in a handful of poorer developing countries. The extent to
which the trading state is forming in these countries varies highly and appears to depend
on several factors: the country's precise level of economic development; whether it is
participating in a PTA in which it is either a dominant member, or in which the dominant
members are interested in the political-economic stability of weaker members; whether
its geographic position or ethnic mix attracts geostrategic interest that favors foreign
capacity-building assistance; whether it has experienced financial problems that have
required IMF intervention and conditionality; the existence of a domestic reform
movement; and the existence of civil war or general state failure.
Hence, some of the world's poorest countries, with few of the attributes identified
above, such as Lesotho and Congo, have experienced almost no development of the
trading state. Lesotho, for example, enjoys non-reciprocal trade preferences with the
United States and the EU, and its market is so small that it has never been a target of
U.S., EU, or WTO trade policy pressures. Its currency is tied to the South African rand,
so the IMF has not had occasion to exact conditionality from Lesotho. It has not been a
focus of U.S. "competitive liberalization" policy, the war on terror, or any other recent
geostrategic concern, so it has not received any significant trade capacity building
25
DRAFT – August 26, 2010. Not for citation.
support. It is a member of SACU, whose trade policies have been driven almost
exclusively by South Africa's desire to drop the common external tariff, radically
diminishing Lesotho's main source of revenue generation. Lesotho remains left for dead.
In contrast, some poorer countries, such as Bolivia, Ghana, the Ivory Coast,
Morocco, and Mozambique appear to have enjoyed significant development of the
trading state along all five dimensions in the last fifteen years. All have received trade
capacity-building assistance in recent years; most have been a target of IMF or World
Bank conditionality in the last decade; and most participate in a reciprocal PTA with the
EU or United States.
V. Conclusion – The Second Image Mirrored and the Role of International Law
The international system has shaped national political economic structures in
ways that are historically contextual (Gourevitch 1978; Tilly 1975; Gerschenkron 1963).
The contemporary international environment is characterized by an unprecedented degree
of legalization (Goldstein, Kahler, Keohane, and Slaughter 2000), suggesting that
international law could be central to understanding national structures.
In 1938, Hans Morgenthau argued that international law reflected not only shared
norms, but also the interests of powerful states (Morgenthau 1938). In his work on
international regimes, Stephen Krasner added parsimony to the argument, suggesting that
international law might be merely a reflection of underlying power with no independent
effect on international outcomes (Krasner 1982). Almost thirty years later, Krasner’s
suggestion that international law may be epiphenomenal-- the null hypothesis about the
26
DRAFT – August 26, 2010. Not for citation.
effect of international law— still has legs and scholars who make arguments about the
significance of international law must grapple with it.
If that macro-level argument by Krasner suggested limits on the significance of
international law, his work on sovereignty (Krasner 1999) shook its micro-foundations.
Krasner’s argument that sovereignty is a fiction also implied that state “consent” is a
fiction. Beginning with Grotius (Grotius 1814), and culminating with Austinian
positivism (Austin 1831), international law has long been conceptualized as resting on a
foundation of state consent. Hence, the four primary sources of international law—
treaty, custom, general principles, and law generated by international organizations—are
said to be based on consent, expressly or implicity. If consent is fiction, then all of
international law rests on fiction.
Yet Krasner did not deny that international law could have meaning. Early on, he
identified lags and feedback as possible ways that regimes could affect international
relations (Krasner 1982)— what David Lake later called the “afterglow” of hegemony
(Lake 1991). Similarly, while Krasner argued that much of international life is about
bargaining on the Pareto frontier, he never denied that treaties could also be Paretoimproving (Krasner 1991). Even his work on sovereignty suggested that international
law is functional, at least sociologically: sovereignty legitimates the state as the supreme
authority within a territory and as the fundamental unit of analysis in the international
system (Krasner 1999).
27
DRAFT – August 26, 2010. Not for citation.
This chapter suggests still another way in which international law matters.
Consistent with Krasner’s regimes theory, international law reflects policies and state
structures favored by powerful states. But by constraining and mandating substantive
commitments assumed by weaker states and the procedures by which additional
commitments are assumed, international law helps mold the form of the state.
For powerful countries, this export of the form of the state may be both functional
and normatively appealing. Ancient Rome spread its system of law and administration
throughout the conquered dominions that were afforded self-government, which lowered
Rome’s administrative costs and helps explain the empire’s persistence (Doyle 1986).
Napoleon mimicked the Roman approach, imposing his family and the civil law system
on conquered states to facilitate imperial governance (Merryman 2007). Imperial Britain
followed suit, famously governing India through a civil service system modeled on
Britain’s own and imposed on India through conquest (Fergusson 2002).
What these
earlier empires achieved in shaping foreign states through military conquest has been
emulated (albeit to a lesser degree) by the United States in a less costly fashion through
international law.
Global trade liberalization in the post-war period has assumed a distinct
institutional form embodied in GATT/WTO law and characterized by a process of lawmaking that has depended crucially on EU-U.S. cooperation and power (Gruber 2000;
Steinberg 2002; Steinberg 2004). Consistent with realist regimes theory (Krasner 1982),
international trade law reflects the interests, laws, and state structures of Western
advanced industrial countries. The terms of accession to the trade regime, the deepening
28
DRAFT – August 26, 2010. Not for citation.
of GATT/WTO rules, and their enforcement have demanded changes in the trading state
in developing countries. By participating in international trade legal systems, most
countries outside of Western Europe and the United States have accepted rules and
principles that transform them, endowing them with attributes that resemble Western
advanced industrial states. Hence, the structure of trading states in the periphery is
recapitulating that of states in the core.
These factors have been complemented by other mechanisms-- IMF and World
Bank conditionality, trade capacity building assistance, and participation in PTAs-- that
have also helped mold the trading state. Together these molding mechanisms have
precipitated bounded convergence of the trading state along the lines seen in the Western,
advanced, industrialized countries, which wrote the rules of the system. While economic
efficiency favors trade liberalization, ideas and persuasion help explain the establishment
of the liberal trade regime (Goldstein 1994; Goldstein and Keohane 1993), and
sociological microprocesses help explain state institutional isomorphism in many areas of
governance (Meyer et al 1997), this chapter has shown how material pressure, operating
through international trade law, has been crucial to the formation and transformation of
the trading state.
REFERENCES
Abbott, Kenneth W., Robert O. Keohane, Andrew Moravcsik, Anne-Marie Slaughter,
and Duncan Snidal. 2000. The Concept of Legalization. International Organization
54(3): ___.
29
DRAFT – August 26, 2010. Not for citation.
Ackerman, Bruce, and David Golove. 1996. Is NAFTA Constitutional? Harvard Law
Review 108: 799.
Agarwal, Manmohan, and Jozefina Cutura. 2004. Integrated Framework for TradeRelated Technical Assistance: Addressing Challenges to Globalization: An Independent
Evaluation of the World Bank’s Approach to Global Programs. Washington: World
Bank Evaluation Operations Department.
Alesina, Alberto, and Enrico Spolaore. 1997. On the Number and Size of Nations.
Quarterly Journal of Economics 112:1027-56.
Austin, John. 1831. The Province of Jurisprudence Determined. Cambridge:
Cambridge University Press. 1995.
Barton, John, Judith Goldstein, Timothy Josling, and Richard H. Steinberg. 2005. The
Evolution of the Trade Regime: Politics, Law, and Economics of the GATT/WTO.
Princeton, N.J.: Princeton University Press.
Bendix, Reinhard. 1975. Kings or People: Power and the Mandate to Rule. Berkeley:
University of California Press.
Charnovitz, Steve. 2002. WTO Cosmopolitics. N.Y.U. Journal of International Law and
Policy 34:299.
Clarke, Donald C. 1993. GATT Membership for China? University of Puget Sound Law
Review 17(3):517.
Cohen, Stephen S. 1998. Form, Scale and Limits in China's Trade and Development.
Journal of Asian Economics 8(4):615-18.
Doyle, Michael. 1986. Empires. Ithaca: Cornell University Press.
Ferguson, Niall. 2002. Empire: How Britain Made the Modern World. New York:
Basic Books.
Fukuyama, Francis. 2005. "Stateness" First. Journal of Democracy, 16, 1.
Gerschenknron, Alexander. 1963. Economic Backwardness in Historical Perspective.
Cambridge, Mass.: Harvard University Press.
Garrett, Geoffrey . 2001. Globalization and Government Spending Around the World,
Studies in Comparative International Development 35(4): 3-29.
30
DRAFT – August 26, 2010. Not for citation.
______________. 1998. Partisan Politics in the Global Economy. Cambridge:
Cambridge University Press.
Goldstein, Judith L. 1994. Ideas, Interests, and American Trade Policy. Cornell
University Press.
Goldstein, Judith L and Robert O. Keohane. 1993. Ideas and Foreign Policy: Beliefs,
Institutions, and Political Change. Cornell University Press.
Goldstein, Judith L. and Lisa Martin. Legalization, Trade Liberalization, and Domestic
Politics: A Cautionary Note. International Organization 54(3):___.
Gourevitch, Peter. 1978. The Second Image Reversed: The International Sources of
Domestic Politics. International Organization 32(4):881-912.
Gowa, Joanne and Soo Yeon Kim. 2005. An Exclusive Country Club: The Effects of the
GATT on Trade, 1950-94. World Politics 57(4): 453-78.
Grotius, Hugo. 1625. The Law of War and Peace. Whitefish, Montana: Kessinger
Publishing Company.
Gruber, Lloyd. 2000. Ruling the World. Princeton: Princeton University Press.
Hirschman, Albert O. 1945. National Power and the Structure of Foreign Trade.
Berkeley, University of California Press.
Hudec, Robert E. 1980. GATT Dispute Settlement After the Tokyo Round: An
Unfinished Business, Cornell International Law Journal 13:145.
International Monetary Fund. 2003. West African Economic and Monetary Union:
Recent Economic Developments and Regional Policy Issues. Washington, D.C.:
International Monetary Fund African Department (February 21, 2003).
Ivorien Authorities, International Monetary Fund and World Bank Staffs. 1998. Cote
d'Ivoire Enhanced Structural Adjustment Facility Policy Framework Paper, 1998-2000.
February 9, 1998.
Jackson, John H. 1989. The World Trading System: Law and Policy of International
Economic Relations. Cambridge, Mass.: MIT Press.
_____________. 1969. World Trade and the Law of GATT. Ann Arbor, Mich.: The
Michie Press.
31
DRAFT – August 26, 2010. Not for citation.
Johnson, Michael. 1998. European Community Trade Policy and the Article 113
Committee. London: Royal Institute of International Affairs.
Kahler, Miles, and David Lake. 2003. Governance in a Global Economy. Princeton, N.
J.: Princeton University Press.
Kalenga, Paul. 2004. Implementation of the SADC Trade Protocl: Some Reflections.
Cape Town: Trade Law Centre for Southern Africa.
Katzenstein, Peter J. 1985. Small States in World Markets, Ithaca, NY: Cornell
University Press.
Kindleberger, Charles P. 1971. American Business Abroad. New Haven, Connecticut:
Yale University Press.
Knill, Christoph. 2001. The Europeanization of National Administrations: Patterns of
Institutional Change and Persistence. Cambridge: Cambridge University Press.
Krasner, Stephen D. 1982. Structural Causes and Regime Consequences: Regimes as
Intervening Variables. International Organization 36, 2 (Spring).
__________________. 1991. Global Communications and National Power: Life on the
Pareto. Frontier. World Politics 43, 3: 336-366.
_________________. 1999. Sovereignty: Organized Hypocrisy (Princeton University
Press).
Lake, David. 1991. British and American Hegemony Compared: Lessons for the
Current Era of Decline, in History, the White house and the Kremlin: Statesmen as
Historians (Michael Fry, ed.). London: Printer Publishers.
__________. 1999. Global Governance: A Relational Contracting Approach, in
Globalization and Governance (Aseem Prakash and Jeffrey A. Hart, eds.). London:
Routledge.
Levy, Jonah. 2006. Post-Dirigiste France, in The State After Statism (Jonah Levy, ed.).
Cambridge, Massachusetts, Harvard University Press.
Lundahl, Mats, Colin McCarthy, and Lennart Peterson. 2003. In the Shadow of South
Africa: Lesotho's Economic Future. Hants, England: Ashgate, 159-160.
Mathews, Jessica T. 1997. Power Shift. Foreign Affairs 76(1):50-66.
32
DRAFT – August 26, 2010. Not for citation.
McGuire, Steven. 1997. Airbus Industrie. New York: St. Martin's Press.
Merryman, John Henry. 2007. The Civil Law Tradition: An introduction to the Legal
Systems of Europe and Latin America. Palo Alto: Stanford University Press.
Meyer, John W., John Boli, George M. Thomas, and Francisco O. Ramirez. 1997.
World Society and the Nation-State. American Journal of Sociology 103(1): 144-81.
Mold, Andrew. 2005. Taking Politics Out of Preferences: The Need for a New Deal for
Africa. BRIDGES, No. 1, January. Geneva: ICTSD.
Ozden, Caglar and Eric Reinhardt. 2002. The Perversity of Preferences: GSP and
Developing Countries' Trade Policies, 1976-2000. World Bank Working Papers 2955.
OECD. Trade Capacity Building: Critical for Development (policy brief). Paris: OECD.
Ostry, Sylvia. 2004. The World Trading System: In the Fog of Uncertainty, unpublished
speech delivered at Lehigh University, April 2004 (on file with author).
Prowse, Susan. 2002. Mechanisms for Trade-Related Capacity Building and Technical
Assistance After Doha. The World Economy, vol. 25, no. 9.
Putnam, Robert. 1988. "Diplomacy and Domestic Politics: The Logic of Two-Level
Games," International Organization 42, 3, 427-60.
Ricardo, David. 1996. Principles of Political Economy and Taxation. Amherst, New
York: Prometheus Books.
Rosecrance, Richard and Arthur Stein. 2001. The Theory of Overlapping Clubs, in The
New Great Power Coalition (Richard Rosecrance, ed.). Boulder: Rowman and Littlefield
Publishers, Inc.
Ruggie, John G. 1983. International Regimes, Transactions and Change: Embedded
Liberalism in the Postwar Economic Order, in International Regimes, edited by Stephen
D. Krasner. Ithaca, N.Y.: Cornell University Press.
Sauve, Pierre. 2004. Trading for Development: Report from an APEC Workshop on
WTO Capacity Building Best Practices. Santiago, Chile: APEC WTO Capacity Building
Group.
Skocpol, Theda. 1979. States and Social Revolutions: A Comparative Analysis of
France, Russia, & China. Cambridge: Cambridge University Press.
33
DRAFT – August 26, 2010. Not for citation.
Spiro, Peter. 2002. Globalization and the (Foreign Affairs) Constitution. Ohio State
Law Journal 63:649.
Steinberg, Richard H. 2006. The Transformation of European Trading States, in Jonah
Levy, ed., The State After Statism (Harvard University Press).
_________________. 2004. Judicial Law-Making at the WTO: Discursive,
Constitutional, and Political Constraints. American Journal of International Law
98(2):247-75.
_________________. 2002. In the Shadow of Law or Power? Consensus- Based
Bargaining and Outcomes at the GATT/WTO. International Organization 56(2):339-74.
_________________. 1998. Institutional Implications of WTO Accession for China.
IGCC Policy Paper #41. La Jolla, Calif.: Institute on Global Conflict and Cooperation.
Stiglitz, Joseph. 2002. Globalization and Its Discontents.
Teitel, Ruti G.. 2002. Humanity's Law: Rule of Law for the New Global Politics.
Cornell International Law Journal 35:355.
Tilly, Charles. 1975. The Formation of National States in Western Europe. Princeton,
N.J.: Princeton University Press.
Tribe, Laurence H. 1996. Taking Texts and Structure Seriously: Reflections on FreeForm Method in Constitutional Interpretation. Harvard Law Review 108:1221.
Tsebelis, George and Xenophon Yataganas. 2002. Veto Players and Decision-making in
the EU After Nice. Journal of Common Market Studies 40:283-307.
Tyson, Laura D'Andrea. 1992. Who's Bashing Whom? Trade Conflict in HighTechnology Industries. Washington, D.C.: Institute for International Economics.
Vernon, Raymond. 1971. Sovereignty at Bay. New York: Basic Books.
Viner, Jacob. 1950. The Customs Union Issue. New York: Carnegie Endowment for
International Peace.
Vogel, Steven K. 1996. Freer Markets, More Rules. Ithaca: Cornell University Press.
Wilcox, Clair. 1972. A Charter for World Trade. New York: Arno Press.
34
DRAFT – August 26, 2010. Not for citation.
World Trade Organization. 1998. Trade Policy Review--Kingdom of Lesotho, Report by
the Secretariat. Geneva: World Trade Organization.
Rhs:H/documents/articles/Krasner Festschrift/Krasner Festschrift Chap. 8.26.10
35