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Designing an International Economic Order: A Research Agenda

International organizations, and the post-World War II era of economic globalization face grave threats today. In their recent paper “Designing an International Economic Order: A Research Agenda”, CCD Director Renee Bowen and CCD Associate Director J. Lawrence Broz identify the current threats facing international organizations, discuss solutions to address these threats, and highlight methods of leadership for building a broad base of support in these institutions. Bowen and Broz use the World Trade Organization (WTO), and specifically the recent crisis at the Appellate Body, to illustrate their three main themes. In doing so they outline a promising research agenda for scholars and policymakers interested in restoring vitality to the global economic system.

Threats

The recent wave of populism is perhaps the most serious threat to the international economic system in Europe and North America. In his 2016 presidential campaign, Donald Trump frequently railed against the WTO for being “unfair” to the United States. Furthermore, as president he blocked new appointments to the WTO’s Appellate Body. The Appellate Body is the highest dispute settlement institution in the WTO, but without new appointments its ability to function has been crippled. 

Bowen and Broz view Trump’s actions as symptoms stemming from deeper threats to the WTO from the United States. While it is factually inaccurate to say that the WTO is “unfair” to the US (the US wins most of the disputes it brings to the WTO and loses most of the disputes brought against it--a pattern common across most countries in the WTO), the cases that it loses involve highly salient policies or industries. The most contentious Appellate Body rulings from the US’s point of view involve “trade remedies”. These are policies, such as anti-dumping duties, which allow the US to protect domestic producers from foreign imports. In particular, the US has consistently lost disputes at the Appellate Body which involved “zeroing”, an extremely liberal method of calculating anti-dumping duties. 

Trade remedies, however, typically only impact a very small portion of industries in the US. This raises the question as to why the US is willing to hamstring the entire dispute settlement mechanism at the WTO in response to unfavorable trade remedy rulings. Bowen and Broz present two potential avenues for future research on this puzzle. The first approach is through domestic interest groups. Which industries in the US are negatively impacted by WTO trade remedy rulings, and how does this inform their political activities (particularly in regards to campaign contributions)? The second approach posits that there is a direct link between the economic impact of negative WTO rulings on individuals’ electoral behavior. Are voters who live in politically salient geographic regions more exposed to adverse Appellate Body decisions? And does this in turn influence them to vote at higher rates for populist candidates such as Donald Trump? Bowen and Broz argue strongly for a renewed focus on understanding how domestic political forces interact with international political forces to shape the global economic system.

Solutions

While scholars have proposed many solutions to the ills effects of populism, Bowen and Broz succinctly make the case for focusing on international institutions: “if populism is a threat to the global economic order, and if populism is at least in part a consequence of free trade policies of the WTO, then reform of the WTO must be part of the solution to populism.” The most promising way to reform the WTO according to Bowen and Broz is to change how it handles trade remedy disputes. The United States has shown a willingness to cripple the entire dispute settlement process over these politically sensitive policies, so this is where subsequent research should focus its attention. 

Leadership

How do proposed solutions or reforms to the international economic order get implemented? The answer to this question from Bowen and Broz involves renewed leadership from the United States. In particular, scholars should pay more attention to the role the US Congress plays in promoting international institutions. Bowen and Broz identify five methods by which the US Congress can help revitalize the WTO, and by extension, global cooperation and commerce more broadly. Each method either works to build support for, or reduce opposition against, new trade agreements.

The first is for Congress to delegate more trade agreement authority to the President. Adverse effects of trade are geographically concentrated, which gives members of Congress who represent those regions more inclined toward protectionism. The President, however, represents a nationwide constituency. Because free trade has broadly dispersed benefits across the whole country, with the primary exception of Donald Trump, Presidents are more likely to support trade liberalization.

The second method is reciprocity. Congress should require the President make reciprocal tariff reductions in trade deals with other countries. This would help build broader support for open trade in the US by increasing the positive incentives for exporting industries. 

Third, and directly related to the issue at the WTO, is the use of the escape clause. An escape clause in trade agreements allows the US to suspend or modify its obligations if domestic industries become “materially harmed” from import competition. Examples related to this include antidumping policies--policies which have repeatedly been ruled against the US’s favor at the WTO. Escape clauses help reduce opposition to trade agreements from domestic producers.

The fourth method for reducing US opposition to trade is via notification and consultation. When negotiating new trade deals, Congress should discuss the proposals with private-sector stakeholders. This would help identify industries and regions that may be under threat from reciprocal tariff reductions.

Finally, the US should increase compensation to groups or individuals most impacted by trade liberalization. The concentrated job losses from trade over the past several decades are well documented. These “losers” from free trade agreements should be given extended unemployment benefits and retraining and relocation assistance.

By exploring the threats, solutions, and leadership opportunities surrounding the World Trade Organization, Bowen and Broz lay out a comprehensive research agenda for social scientists wishing to revitalize the international economic system. The most fertile ground for future research lies in connecting international institutions with domestic level politics. In doing so, we will gain a much more complete understanding about how to improve international organizations such as the WTO.