THE CENTRAL THESIS: INVESTMENTS IN LEGAL CAPACITY MATTER

Gregory Shaffer’s new book, Emerging Powers and the World Trading System: The Past and Future of International Economic Law sets a new standard in international trade law scholarship in various dimensions. He seeks to explain how emerging powers—in particular, Brazil, India, and especially China (the major economies in Latin America, South Asia, and East Asia respectively), in exerting an increasingly assertive role in multilateral trade negotiations, formal state-to-state dispute resolution proceedings, and trade remedy litigation—have led the major established developing powers, especially the United States, to question the viability of the very trade regime that they largely created in the postwar years. He seeks to explain this apparent incongruity in large part by the large investments these three countries have made since the creation of the World Trade Organization (WTO) in 1995 in legal capacity, expanding the role of lawyers in government ministries and agencies concerned with trade policy and developing major public-private partnerships or networks with external think tanks, private law firms, industry associations, and academia, each of which also invested heavily (often with strong government encouragement or support) in an increased legal capacity.

This expanded legal capacity enabled the governments of these emerging powers to play a more effective role in ongoing trade negotiations (especially during the Doha Round), mount formal trade disputes that often effectively challenged developed countries’ agricultural policies and trade remedy regimes, defend their interests more effectively in disputes involving claims by other states against them, and bring or defend trade remedy actions (anti-dumping, countervailing, or safeguards). Increased reliance on legal expertise was also required in all three countries (most dramatically, in China) in amending domestic laws to ensure compliance with new WTO rules and to take advantage of any flexibilities that these rules had provided in a complex recursive interaction between transnational and domestic legal orders. In addition, all three countries developed legal and institutional innovations for regulating foreign direct investment as alternatives to conventional bilateral investment treaties.

Shaffer develops his thesis by drawing on two decades of related research and more than two hundred interviews, in collaboration with country-specific expert co-authors, with key personnel in governments and associated public-private networks in each of the three countries that are the focus of his book, with special attention to China and the sources of its trade conflicts with the United States. This methodology yields granular descriptions and analysis of trade policy formulation on the ground that is largely unmatched in contemporary trade policy scholarship. This scholarship is, for the most part, either legal—explicating, rationalizing, and interstitially critiquing existing rules or interpretations or applications of them—or unabashedly normative. In the latter case, normative views of the international trading system or globalization differ widely—from robust defenses (mostly by economists—see, for example, Clausing Reference Clausing2019); to a wide range of critiques (such as that contemporary trade agreements unduly constrain domestic political sovereignty and democratic decision making—see, for example, Rodrik Reference Rodrik2011); to unfairly jeopardizing long-standing manufacturing jobs and dependent communities in developed countries, to exacerbating economic inequality in the latter by facilitating outsourcing, off-shoring, and tax arbitrage by footloose multinational companies; and, finally, to excessively protecting intellectual property rights and insufficiently ensuring adherence to core labor standards, thus generally tilting the scale in favor of capital over labor (Roberts and Lamp Reference Roberts and Lamp2021).

Many of these normative critiques are not rigorously empirical, although some economists have empirically documented the impact of the rise of China as a manufacturing powerhouse (the China Shock) on labor markets in the United States (Autor, Dorn, and Hanson Reference Autor, Dorn and Hanson2013.) In contrast to much of this scholarship, Shaffer’s work is rigorously empirical but focuses not on the impact of international trade on particular sectors of the economy but, rather, on the forces and factors that shape trade policy formulation on the ground over time. He is, of course, sensitive to background legal doctrine and to a wide range of disciplinary perspectives—for example, law, economics, politics, international relations, and sociology—but neither legal doctrine nor normative debates about the virtues and vices of free trade are the central focus of his book.

However, the book compels doctrinalists (like myself) and various normative critics of the international trading system to confront the question of what actually shapes trade law and policy on the ground over time, and, in this respect, it challenges many existing strands of scholarship on international trade law and policy by its essentially legal and policy realist perspective. It particularly challenges armchair trade law and policy scholars who have only a tenuous appreciation of the trade policy formulation processes in their own countries, let alone other countries, and will surely reshape trade policy scholarship and practice going forward. In short, it is a tour de force and may well prove to be a field changer in future international economic law scholarship and the practice that it stimulates. The following observations, while prompted by Shaffer’s book, are not so much criticisms of the book or of shortcomings in it but, rather, are stimulated by it.

INVESTMENTS IN LEGAL CAPACITY MATTER: BUT WHO IS THE CLIENT?

First, Shaffer’s central focus on investment in legal capacity in the three emerging powers of principal interest to him prompts lawyers as a profession and trade lawyers in particular to ask themselves what particular comparative advantage do they possess over the many other actors in the trade policy formulation process. Lawyers often conceive of themselves as masters of form and process rather than of substance, which is largely dictated by the needs and objectives of their clients. Obviously, as in many other negotiating and litigious contexts—public and private, national and international—form and process in negotiations and dispute resolution are important and often reflect established conventions or “logics of appropriateness,” where a lack of intimate familiarity can seriously compromise effective utilization of these forms and processes. But, with respect to substance, it is not nearly as clear what law, as a professional discipline, can bring to the trade policy formulation process beyond explicating, rationalizing, and synthesizing existing rules along with interstitial references to the purported normative rationales for such rules (or proposed alternatives to them).

As in many other contexts, lawyers take instructions from their clients as to what they seek to achieve in negotiations or litigation and advise them on alternative strategies or processes for advancing their objectives. However, in the trade policy formulation process, it is often not clear who the client is. In some cases, this will not be problematic—for example, when a business association hires or employs lawyers to advance their interests in trade negotiations or litigation or when they are lobbying government ministries or agencies on behalf of their interests—but when lawyers are representing governments in this process, who do they take instructions from, given that policy making is often dispersed over several ministries and agencies of government, all with their own agendas, sectoral sensitivities, and competencies.

The oscillations that Shaffer describes in his book by Brazil, India, and China over the relative emphasis on market-led development and state-led development, and, indeed, the increasing recognition among many economists that there is no firmly settled paradigm of long-term economic development that can be applied to all countries irrespective of the particularities of geography, natural resources, infrastructure, health and education status, history, politics, and culture (see, for example, Rodrik Reference Rodrik2008; Banerjee and Duflo Reference Banerjee and Duflo2019), renders more acute the question of who lawyers take their instructions from in representing governments in trade negotiations or litigation. Lawyers per se have no theory of why international trade is good or bad, fair or unfair, unless they develop interdisciplinary expertise or enlist interdisciplinary collaborators (as Shaffer has often done throughout his career). For lawyers, it is one case (or battle) at a time, uninformed by any overarching strategic theory. One is often left with the disquieting thought that many of the legal initiatives taken by the three emerging powers in the trade policy context over the past several decades, as described by Shaffer, have been informed by little more than a crude form of mercantilism (not unknown also to developed countries), in which exports are good and restrictions on them are to be challenged, while imports are suspect and may warrant restrictions on them on vague grounds of preserving “policy space” for developmental state policies. If practiced by every country, such a beggar-my-neighbor strategy reduces international trade to a zero sum game.

THE FRAGMENTATION OF THE INTERNATIONAL TRADING SYSTEM: DOES MULTILATERALISM HAVE A FUTURE?

A second set of observations are prompted by Shaffer’s account of increasing efforts by the three emerging powers that are the focus of his book and, indeed, by many other countries—developed and developing—to diversify away from the multilateral trading system to various regional trading blocs, preferential trade and investment agreements, and bilateral investment treaties (further taxing the legal capacity of many developing countries, it should be noted), most dramatically exemplified by China’s Belt and Road Initiative. Shaffer, in the conclusion to his book, speculates about whether this fragmentation in the international trade regime has resulted in the increasing irrelevance and perhaps demise of the WTO. It is true that the paralysis of the political organs of the WTO, exemplified by the relative failure of the Doha Round after fifteen years of negotiations and the paralysis of the quasi-judicial dispute resolution body by the refusal of the United States to agree to new appointments to the Appellate Body, does not augur well for the future of the WTO.

While the WTO Agreement provides for voting rules governing various issues, the consensus principle seems now deeply entrenched among its current 164 member states and is not easily displaced.Footnote ¹ To move to majority voting on major issues would be strongly opposed by the major trading powers out of a concern that they will be routinely outvoted by a gaggle of small, mostly developing countries. While trade-weighted voting (as is done on some issues within the European Union [EU]) may allay this concern, it is likely to trigger opposing concerns by smaller countries that large, mostly developed countries—for example, the EU and the United States, will impose disciplines on them that they will find uncongenial. The increased fracturing of any kind of normative consensus on the case for free trade exacerbates these tendencies to institutional paralysis (Roberts and Lamp Reference Roberts and Lamp2021).

However, I remain cautiously optimistic that there is an important role for multilateralism going forward, while cognizant of the observation of John Kenneth Galbraith that economic or any other kind of forecasting makes astrology seem respectable. My cautious optimism is predicated on the irrefutable fact that none of these regional trading blocs is likely to be remotely self-sufficient in terms of either imports or exports (as exemplified by the EU experience), so that some form of multilateral trade regime is likely to be required to structure relations between and among blocs. In this respect, I have argued in previous writing for greater scope within the WTO for plurilateral agreements among subsets of members (“coalitions of the willing”) either with respect to specific issues, such as subsidies, or more expansive trade and investment agreements, with such agreements being open to subsequent accession by member states willing to take on comparable commitments to the initial signatures (a form of a conditional most-favored-nation principle, subject to some form of arbitral mechanism to resolve disagreements on accession terms). To this end, I would remove the current requirement that recognition of plurilateral agreements within the WTO requires the consensus of all member states, whether they are parties to such agreements or not. I would also amend the WTO Agreement to permit parties to regional trading blocs or preferential trading agreements the option of designating the WTO dispute settlement body as the dispute settlement body under such agreements. In this scenario, the WTO would increasingly become a forum for inter-bloc negotiations and open-ended plurilateral agreements (Trebilcock Reference Trebilcock2015, Reference Trebilcock2021).

In short, we need a new supranational economic institutional architecture that strikes a more sustainable balance between multilateralism, on the one hand, and policy and legal pluralism, on the other. The architects of the Bretton Woods Agreement and, subsequently, the General Agreement on Tariffs and Trade (GATT), in designing the postwar international economic architecture, were no doubt inspired in part by a vision of a common set of ground rules regulating trading relationships among all countries in the world, first, on the premise that such rules would give full play to theories of comparative advantage undistorted by discriminatory relationship-specific sui generis trade rules and, second, on the premise that such rules would mute tendencies to geopolitical factionalism of the kind that precipitated the Second World War.Footnote ² However, this was never more than an aspiration, as exemplified by the fact that only twenty-three countries in the world were initial signatories to the GATT, and, even at the high water mark of one-size-fits-all multilateralism at the end of the Uruguay Round in 1993, only 127 countries were signatories to the Uruguay Round agreements (which initially excluded Russia and China and about seventy other countries).

Among both signatories and non-signatories, the end of the Uruguay Round sparked (not coincidentally) the proliferation of preferential trade agreements (up from about seventy in 1990 to over four hundred today) and bilateral investment treaties (up from about four hundred in 1990 to about three thousand today) that continues to this day. Simply uplifting US and EU domestic policies into a multilateral trade regime (in Shaffer’s words), as the Uruguay Round agreements largely did, with other countries expected largely to fall into line and amend their domestic laws accordingly, is no longer a viable strategy in a multipolar world. The global economic terrain is much more uneven than the more euphoric fin de siècle views of authors such as Francis Fukuyama (Reference Fukuyama1992) and Thomas Friedman (Reference Friedman2005), who assumed that the world was converging on some form of liberal democratic capitalism.

WHY GLOBAL STATE CRAFT STILL MATTERS

This idea leads me to one final observation. Before we give up on multilateralism as a lost cause, rather than seeking creative ways to reorient and reconcile it with policy and legal pluralism, we cannot avoid the painful reality that two of the most existential threats of our time—global pandemics and global climate change—require novel and unprecedented forms of global cooperation. Vaccine and climate change nationalism are a recipe for global disaster. Trade policy is implicated in effective responses to both these threats—whether in terms of the status of intellectual property rights or export restrictions on essential medicines, in the case of pandemics, or border tax adjustments or climate clubs, in the case of climate policy. Giving up on the WTO at this time, rather than reconceiving its mission, would be the worst possible signal to the world that multilateralism is an unattainable ideal. The future of the planet may depend on rejecting this kind of fatalism.

While these two issues are touched on only lightly in his book, I worry that the recursive interactions between local, national, and international legal orders that Shaffer describes and that have led to a dramatic decline in the commitment of the postwar economic and military hegemon to multilateralism, along with the concomitant rise of multi-polarity in international economic relations, raise major challenges in confronting global existential threats such as pandemics and climate change. However, against the backdrop of two world wars, a pandemic, and the Great Depression, the architects of the Bretton Woods Agreement and the GATT, the International Monetary Fund and the World Bank that it spawned, were able to muster the far-sighted leadership qualities required to imagine a better world going forward. We face a similar challenge. Cataclysms sometimes produce great leaders, although no empirical research of past trends in policy making of the kind that Shaffer pursues in his book provide a confident basis for future predictions (as few would have predicted the trends he analyzes over the past several decades at the time of the creation of the WTO in 1995). Without a recommitment to global statecraft, we are left with the quip often attributed to Groucho Marx: “Why should I worry about posterity? What has posterity ever done for me?”