In contrast to the worries of prominent trade economists, I argue that the proliferation of PTAs is part of the path-dependent evolution of the post-Second World War liberal trade order and enhances its resilience.
With 272 of the 302 preferential trading agreements (PTAs) currently in force adopted after 1995 (Baccini, 2019), the proliferation of PTAs is described as ‘the main change to the international trading system since the mid-1990s’ (Baccini and Dür, 2015, p. 617). Prominent trade economists worry that the proliferation of PTAs weakens the liberal trade order by inducing economic fragmentation (Hoeckman and Sabel, 2019; Schwab, 2011). Jagdish Bhagwati vividly summarised these worries in describing PTAs as ‘termites (. . .) eating away at the multilateral system relentlessly and progressively’.
In a paper that I have recently published in Global Policy, I connect the literature on PTAs to broader theoretical debates in International Political Economy and International Relations. In contrast to the worries of prominent trade economists, I argue that the proliferation of PTAs is part of the path-dependent evolution of the post-Second World War liberal trade order and enhances its resilience. More precisely, the adoption of the GATT in 1947 has triggered an endogenous process of ‘self-reinforcing interdependence’ (Hale et al., 2013b, p. 224). Within this process, increasing levels of transnational interdependence have given rise to growing levels of institutionalisation which, in turn, have set in motion even higher levels of transnational interdependence. Inherent in the logic of ‘self-reinforcing interdependence’ is a gradual shift in rule-making from ‘at-the-border issues’ to ‘behind-the-border issues’, or from abolishing tariffs (‘negative integration’) to making domestic regulatory systems compatible with each other (‘positive integration’) (Hoeckman, 2014). This path-dependent process has therefore endogenously produced distributive conflicts that have increased preference heterogeneity among governments. By implication, it has become increasingly more difficult for states to come to agreement on multilateral cooperative solutions. As a result, ‘legislative gridlock’ characterises the WTO today (Collier, 2006; Narlikar, 2010).
This path-dependent process has therefore endogenously produced distributive conflicts that have increased preference heterogeneity among governments.
The proliferation of PTAs, however, increases the ability of the liberal trade order to accommodate heterogeneous preferences and distributive conflicts. PTAs provide a work-around that help overcome ‘legislative gridlock’ in the WTO by allowing groups of states with comparatively homogenous preferences to pursue cooperative projects that go beyond what is acceptable to the entire membership. They enable states to forge cooperative arrangements without reforming the WTO by adding a layer of new rules. Layering thus enables dissatisfied states to work around the institutional status quo by adding new rules, rather than by dismantling the GATT/WTO system. Thus, the proliferating PTAs enable the continuation of a path of progressive liberalisation that originated with the creation of the General Agreement on Tariffs and Trade (GATT) in 1947. In other words, the layering of PTAs on top of the GATT/WTO system enhances the resilience of the liberal trade order, understood as its adaptability to a changing environment.
Thus, my paper diverges from the widespread notion that the governance of global trade is gridlocked. For Thomas Hale and his co-authors, for instance, the fact that the GATT/WTO system is not able to solve ‘second-order cooperation problems’ implies a complete breakdown of cooperation in this issue-area (Hale et al., 2013a, pp. 154–162). My paper, by contrast, suggests that states have successfully worked around the gridlocked WTO by establishing a plethora of PTAs.
The layering of PTAs on top of the GATT/WTO system enhances the resilience of the liberal trade order, understood as its adaptability to a changing environment.
The argument put forward in my paper has direct implications for the current debate about the consequences of the ongoing trade conflicts for the WTO and the international trade system. It implies that, because of diverging economic and political models, the preference heterogeneity between the US and China may be too great to allow for deep regulatory cooperation between the two states and, consequentially, on the global level (Rodrik et al., 2019). More generally, the preference heterogeneity among the 164 WTO members may make any encompassing agreement that is acceptable to all of them highly unlikely. Actors should therefore work to further increase the ability of the international trade system to accommodate members with diverse economic and political systems.
My argument also implies that the ongoing trade disputes between major economies are unlikely to undermine the liberal trade order. Rather, it suggests that the logic of ‘self-reinforcing interdependence’ has created vested interests in the liberal trade order which make a significant reduction of economic interdependence or even a decoupling’ of major economies politically unsustainable, the current backlash against globalisation notwithstanding. The challenge for decision-makers is therefore to continue building a decentralised institutional structure for international trade which balances the desire to enable high levels of economic interdependence with the recognition that economic and political models around the world are highly diverse.
On a general level, I suggest that decentralised institutional structures (so-called regime complexes) are suitable institutional vehicles for governing the globe in the 21st century.
On a general level, I suggest that decentralised institutional structures (so-called regime complexes) are suitable institutional vehicles for governing the globe in the 21st century. They are more adept at absorbing changes in state preferences than are strong multilateral organisations where preference heterogeneity is a liability. Regime complexes therefore increase the flexibility of global governance by facilitating institutional change in the absence of consensus within major institutions. They make it easier for states to coordinate international action when these have diverse preferences than systems that rely exclusively on strong multilateral organisations. Thus, regime complexes hold the potential to facilitate the reorganisation of other parts of global governance which are equally characterised by increased preference heterogeneity among states. In other words, regime complexes offer a general pathway to overcome gridlock in major international institutions. Especially given high levels of preference heterogeneity in a globalised world, decision-makers should realise their potential to put in place workable governance solutions in the absence of consensus (cf. Hale et al., 2013b). Within regime complexes, the key task for practitioners is to invoke suitable governance techniques such as orchestration and deference to work towards mutual complementarity between layered international institutions. Inter-institutional complementarity is by no means a given, but needs to be deliberately created by decision-makers that work to coordinate the governance efforts of separately established international institutions.
My paper is available open access here.
