The Trade Policy of Emerging Powers

Strategic Choices of Brazil and India

Laura Mahrenbach

• Publisher: Palgrave Macmillan
• Year: 2013
• ISBN:
  9781137303714
• Topic: Politics & International Relations
• Subtopic: Trade & Tariffs
• Index: Politics & International Relations

As emerging powers deepen their involvement in world trade and global governance, it is crucial to explore the what and the why of their strategic choices vis-a-vis the World Trade Organization. This book does just that, examining the trade policy decisions of two emerging power states, Brazil and India, since 2001. In this timely work, Laura Carsten Mahrenbach develops a broad-based analytical framework which addresses trade policy within EP states, in their regions and on the global level. The findings underline the importance of examining domestic factors when trying to understand strategic decisions by emerging powers. They also have important implications for our understanding of the role of emerging power states in global (trade) governance.

1

Empirical Puzzle, Arguments, and Research Design

Introduction

Emerging power (EP) states like Brazil and India have benefited quite a bit from their membership in the World Trade Organization (WTO). Participation in the WTO and its predecessor, the General Agreement on Tariffs and Trade (GATT), has facilitated access to new markets and stimulated domestic economic growth by integrating these countries more deeply into the global trading system. The principles of non-discrimination and reciprocity in the GATT and the WTO, for example, not only ensure access to a broad variety of markets. Rather, they additionally ensure access to key markets, like the European Union (EU) or the United States (US), thus helping create and maintain some of the most important trade relationships in both Brazilian and Indian trade policy. Further, by using the WTO’s Dispute Settlement Body (DSB) to enforce global trade rules, Brazil and India have taken advantage of an opportunity to ensure the economic gains resulting from all of these trade relationships are protected (Davey 2005, 2009).

In addition, membership and participation in the WTO and GATT has provided diverse leadership opportunities for these EPs. For example, Brazil and India took the lead in establishing the trade G20, a group of developing countries founded at the WTO’s ministerial meeting in Cancún in 2003 to negotiate the end of developed country agricultural subsidies. Leadership opportunities like this, in turn, have boosted them into even more elite groups. These include the Group of Five Interested Parties (with the US, the EU, and Australia), which was responsible for preparing the “July Package” in 2004 (Deese 2008, 153), and, later, the G4 (with the US and the EU), which met to help re-launch the Doha Round in Potsdam in 2007 (Blustein 2009, 241–245). In other words, participation in the WTO and the GATT has allowed EP governments to expand their global economic and political ambitions.

Such benefits, however, do not necessarily ensure Brazil and India will always pursue trade policy goals within the framework of the WTO. Technically, all WTO member governments, including EP governments, face three alternatives when determining their strategic behavior vis-à-vis the WTO. The first and most obvious is simple use. This involves using the WTO as it was intended to be used, that is, for settling conflicts with trade partners and for further liberalizing global trade in a non-discriminatory manner. The second strategic choice is to advocate for reform within the WTO. For example, governments may attempt to alter decision-making or agenda-setting procedures in order to make the WTO more capable of fulfilling valued trade policy goals. The third strategic choice is to use activities outside the WTO to accomplish tasks otherwise accomplished within the WTO. For example, governments may turn to interregional, regional, bi- or trilateral, or unilateral tools of their own creation to settle specific trade disputes or to achieve specific trade liberalization goals.

How do these strategies compare to one another in the potential strategic calculations of EP governments? Research has shown that institutional creation—a frequent variant of substitution strategies—is generally a more expensive strategic choice, economically and politically, than using an already existing forum (Jupille and Snidal 2005, 37; Goldstein and Keohane 1993, 5). Given the “pragmatic,” goal-oriented nature of the Brazilian and Indian governments in recent years (discussed in the next section), one would expect these governments to prefer the WTO as the most cost-effective forum for pursuing trade policy goals. Similarly, research has also shown that states often experience “political inertia” once they begin to benefit from an institution (Lake 2000, 45). In other words, a history of benefits within an institution should provoke institutional loyalty from governments wishing to ensure those benefits continue. Given the economic and political goals which India and Brazil have achieved through their participation in the WTO and the GATT, one would consequently expect high levels of political inertia from these governments vis-à-vis the WTO.

Overall then, government actors in these states should prefer the first two strategies over the third: maximizing their gains via simple use when possible and seeking reform when they perceive the WTO as is cannot provide the desired benefits. Doing so would produce two benefits for EP states. First, it would minimize risk and costs in pursuit of particular trade policy goals. Second, given the protection and rules of the institution, doing so would ensure that any gains made by these states would stick around for quite a while.

The reality, however, is quite different from these expectations. Since the start of the Doha Round in 2001, the Indian and Brazilian governments have increasingly included substitution as a major element of their trade policy program. During this time period, substitution efforts have taken several forms. Sometimes they appeared via the creation of new bodies—like the India–Brazil–South Africa Trilateral Forum (IBSA)—which focus on cooperation in many policy fields, including trade. At other times, substitution strategies focus on establishing new partnerships, like the BRICS,¹ or on deepening old(er) ones, such as Mercosur.² At yet other times, substitution efforts are less broadly cooperative, for example, in decisions to accept unfavorable trade situations or resolve them bilaterally rather than approaching the WTO for resolution. Whatever the form, the inclusion of substitution strategies into Brazilian and Indian trade policy seems counterintuitive. Why undermine a sure thing via the inclusion of riskier, potentially more expensive alternatives? That is to say, what factors can explain the strategic variation in EP trade policy choices since the start of the Doha Round?

This book will answer this research question by examining the domestic foundations of EP strategic trade policy decisions in two democratic EP states. As such, it offers an alternative approach to the international-level analyses at the heart of current debates about these states and their (future) role in global governance. The next section sketches these debates, pointing out their weaknesses in identifying the conditions under which EP governments choose specific forums for their trade policy pursuits. The following section sets out the approach used in this book, which empirically tests theoretical arguments by focusing on the connection between domestic and international policy behavior. The section after that provides the tools necessary to do this, first presenting the relevant variables and then summarizing how they will be operationalized in the empirical chapters. Finally, the chapter concludes by briefly outlining the structure of the rest of the book.

EPs in global governance: Theoretical and empirical debates

What does pragmatism imply for EP global governance behavior?

The empirical debate raging in the emerging power and emerging markets (EP/EMs) literature related to global governance starts from a common assumption. Specifically, authors characterize the nature of EP states as “pragmatic” (Miller 2005, 52; Hirst 2008, 152–154) or “conservative” (Gratius 2008, 15). EP states are said to be rational actors who, aware of their growing but nonetheless limited political and economic resources, seek strategies which minimize their costs and risks while simultaneously maximizing their gains from participation in global governance institutions. This is where the EP debate begins since the implications of this rational behavior are diverse. Scholars disagree as to the motivations and goals of EP states as well as about which factors affect EP government decisions about both of these. Further, they are divided regarding the nature of the relationship between EP motivations, activities, and goals on one hand and the performance of EP states within global governance institutions like the WTO on the other. For example, which factors determine whether or not they will be successful in reaching their goals? Under which conditions do specific motivations lead to specific activities in global governance? And what does the increased activity of EP states within global governance institutions mean for the institutions themselves?

Under the scope of these debates, the EP/EM literature can be divided into two groups: case studies on single or small groups of EP states and literature which addresses EPs and EMs collectively. Each of these strands of the literature corresponds to a different empirical interpretation of EPs and their behavior along the dimensions identified above. In addition, each is embedded largely within a different theoretical framework of international relations (IR).

Starting with the collective EP/EM literature strand, authors in this group see pragmatism as implying a concentration of state resources on the strategic forum expected to best safeguard state interests. Theoretically, this literature aligns with the insights of neoliberal institutionalism. According to institutionalists, institutions enable long-term, mutually beneficial cooperation by lowering the transaction costs of cooperation and increasing the availability of credible information. This process builds trust through the experience that comes with increased cooperative iterations, through the creation of rules which apply equally to all members, by defining cheating, and via the enforcement of relevant rules (Keohane 1984; Fearon 1988, 298–299; Koremenos, Lipson, and Snidal 2001, 781–782; Hall and Taylor 1996, 939). From this perspective, for example, the information gained from regular trade policy reviews of member states’ trade policies combined with the strong enforcement of trade rules by the DSB and the experiential gains stemming from multiple rounds of trade negotiations should all help facilitate stable trade cooperation within the WTO.

Rule-making is particularly important for EPs at the WTO. First, by establishing rules which align with their own long-term trade policy preferences, EPs ensure the material conditions which have facilitated their economic and political rise will continue to be supported in the future. Second, even should their relative position in the broader global system diminish, the rules which they will have institutionalized in the WTO would continue to allow them to exert influence on governance of world trade.

Thus, given the positive benefits India and Brazil have gained from their membership in the WTO and GATT until now, institutionalists would expect simple use of the WTO to continue to be EP states’ primary trade policy strategy. For example, in relation to trade dispute settlement, they may focus on Brazil’s legal victories over the US and the EU in the DSB in reference to agricultural subsidies, or on India’s success in challenging the European Community’s application of the generalized system of preferences (GSP). This successful enforcement of institutional rules should reinforce trust between institutional partners and encourage EPs to continue to focus their trade policy strategies on the WTO. In addition, the successful, albeit non-traditional, use of the DSB for rule-making underlines the variety of means which EP states can use to institutionalize their trade policy preferences within the WTO. For example, whereas the trade G20’s approach to agricultural rules was partly to blame for the dramatic end to trade negotiations at the WTO ministerial meeting in Cancún in 2003 (Bhagwati 2004), Brazil’s legal victory at the DSB in the cotton case addressed similar issues and received a definitive ruling against American agricultural subsidies. Institutionalists, thus, would predict exclusive strategies of simple use, at least in terms of dispute settlement.

Empirical arguments in the collective EP/EM literature group reinforce these theoretical arguments. These studies focus on EP institutional activism, which is seen as a means of both advancing EP interests generally and constraining the institutionalized “Great Powers” (Hurrell 2006; Gratius 2008; Woods 2010, 56). Groups like BRICSAM (Brazil, Russia, India, China, South Africa, and Mexico) or the trade G20 serve both as “engines for institutional engagement” of these states in global governance (Cooper 2010, 74–75) and as a mechanism for ensuring EP concerns are taken seriously within WTO negotiations (Narlikar and Tussie 2004). However, the arguments in this literature group are quick to point out that international economic institutions like the WTO will only retain their usefulness—as well as the patronage of EPs—if they actively integrate EPs into decision-making structures (Armijo 2007; Narlikar 2010; Garten 1997). As Drezner (2007, 4) notes, for example, without incorporation of EPs into positions of prominence within international institutions, the “future of these international regimes will be uncomfortably uncertain.”

As is evident, such institutionalist arguments underline the importance of external factors in influencing policy preferences in EP states. Not only is the weight of these states in the world economic system said to be crucial for understanding their preferences and policy behavior. Rather, these arguments also underline the strong desire by EP states to have their position acknowledged in their international activities.

The strand of the EP/EM literature focused on case studies of single or small groups of EPs delivers quite a different interpretation of the implications of EP pragmatism. In this strand, pragmatism implies that EP states minimize risk and costs not by automatically retreating into the institutional fold but, rather, by diversifying their strategies. In so doing, they are said to be “strategically hedging to maximize their national interests” (Bava 2008, 11). These arguments often fall within the theoretical framework of neorealism.

Competition between existing Great Power states and challengers (like the EPs) stands at the center of neorealist explanations of international affairs. In relation to EPs and trade, neorealists argue that economic achievements, such as an increase in EPs’ relative share of world trade, represent gains in capabilities for these states. These, in turn, cause EPs to alter their trade policy behavior more broadly (Wissmann 2007). As a result, the improved relative position of EP states within the WTO in recent years (Narlikar 2010) simply reflects acknowledgment of the relatively greater capabilities of these states in the global trading system (Echeverri-Gent and Armijo 2005, 16). At the same time, however, neorealist skepticism vis-à-vis the WTO (as well as all other global governance institutions) makes total reliance on the WTO—despite these gains in relative position within that institution—unlikely. After all, EP states simultaneously pursuing greater influence and consistent policy autonomy (Sennes 2001, 84) are unlikely to stick around should a better—or quicker—trade policy opportunity present itself outside the bounds of the WTO. Thus, neorealist theoretical arguments would predict continued diversification of EP trade strategies as a means of best advancing EP power pursuits within the international system.

In line with these theoretical predictions, empirical work in the case study strand of the EP/EM literature focuses on EP activities inside and outside institutions like the WTO. Additionally, it explores the burgeoning relationship between these two types of activities (Lima and Hirst 2006; Lechini 2007). For example, some authors argue EP foreign policy is a “holding game” (MacFarlane 2006, 57): EP states operate within global governance to maximize their gains from the current system and its institutions while simultaneously working to ensure their international status and preferences are recognized in any future world order (Foot 2006; Ikenberry 2008). Others emphasize the importance of extra-institutional activities in facilitating institutional influence (Hirst 2008) and maximizing EP gains. These scholars focus on traditional neorealist capabilities, including relative power or status gains within the international system (Zhuplev 2008; Goh 2006).

Once again, such arguments primarily focus on the systemic motivations of EP policy goals, for example, relative status or relative market share. However, the case study literature, unlike the collective EP/EM literature and despite its neorealist tendencies, additionally acknowledges the impact of non-international factors on EP behavior in global governance. For example, strategic diversity in general foreign policy may also be affected by cultural factors (Lima 2008a; Tymoshenko 2007; Nayar and Paul 2003), by interest group pressure (Yadav 2008), or by the impact of regime style on state decisions (Faro Castro and Valladão de Carvalho 2003).

The weaknesses of the existing EP/EM literature

As is evident from the summary above, despite valuable contributions to the literature, neither the collective group nor the case study group of EP/EM literature is capable of determining the conditions under which multiple EP states choose specific trade policy strategies vis-à-vis the WTO. On one hand, the collective group’s prediction that EP state interests would be best served via a continued focus on the WTO as its primary forum of trade policy fails to acknowledge the strategic diversity which has been evident in at least Brazilian and Indian trade policy since the start of the Doha Round. Further, its adherence to international-level analysis ignores that various dome...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Tables
• Acknowledgments
• List of Abbreviations
• 1 Empirical Puzzle, Arguments, and Research Design
• 2 Brazil: Context and Trade Liberalization
• 3 Brazil: Dispute Settlement and Conclusions
• 4 India: Context and Trade Liberalization
• 5 India: Dispute Settlement and Conclusions
• 6 Conclusions, Revised Framework and Implications
• Appendix: Interest Groups Arranged by Country and Sector
• Notes
• Bibliography
• Author Interviews
• Index