Global trade rules that focus on protectionist trade barriers are limited and targeted, addressing a specific problem: protectionism. In doing so, they maintain a balance between international oversight of domestic policies on the one hand, and domestic regulatory autonomy on the other. Countries are free to take whatever actions they want, as long as they are not being protectionist.
By contrast, many trade disciplines go beyond this traditional focus on protectionism and intrude deeply into domestic policymaking. Countries vary considerably in relation to their views on issues such as the proper scope of intellectual property protection, the idea of regulatory expropriation, and obligations akin to due process such as ‘fair and equitable treatment’ for foreign investors. A set of international rules establishing a uniform framework for these issues prevents governments and citizens from developing their own approaches and experimenting with different policies. When global trade governance moves into these areas, it limits domestic policy autonomy greatly.
Expanding global trade governance in this way holds significant risks for the trading system and has been criticised from both sides of the political spectrum (Rodrik 2011, Barfield 2001). There is certainly a push by business groups for these new rules, but ordinary people are not sold. In recent years there have been some high profile rejections of international initiatives of this sort, such as the Anti-Counterfeiting Trade Agreement. It may be that this kind of global trade governance simply goes further than what can currently be achieved, even though some aspects of it may be beneficial.
One line of thinking, however, suggests that the balance between national and international governance should be revisited in the light of so-called ‘global value chains’.
Do supply chains need governance?
Baldwin (2012a), for example, argues that the rise of supply-chain trade means that the WTO needs to expand its global governance role, beyond its traditional focus on protectionist trade barriers. For Baldwin, supply-chain trade refers to an international network of production in which tangible and intangible assets are sent offshore, partly to take advantage of low-wage labour. Goods, services, people and capital must then be able to move freely between the production, innovation, and sales facilities. This is in contrast to the more traditional trading pattern of producing in one country and selling in another.
He argues that there needs to be an understanding between companies and governments: companies will offshore factories and technologies if governments provide assurances that tangible and intangible assets will be protected.
He suggests that these assurances have been provided through deep regional trade agreements (known as RTAs), bilateral investment treaties (known as BITs), and autonomous reforms. By contrast, the WTO has not been very active in this area. To keep the WTO relevant in today’s trading world he calls for a ‘WTO 2.0’ that will take on these issues. Specifically, he calls for “deeper disciplines on the WTO-covered areas of services, TRIPs, TRIMs, and customs cooperation, and beyond-WTO disciplines on IPR, investment assurances, and the free movement of capital”.
But reading his explanation closely tells us that global governance may actually not be necessary on these issues. The specifics of how supply chain governance evolved outside of the WTO provides its own alternative to a proposal for more global governance: ‘autonomous’ or ‘unilateral’ reforms. In essence, many governments have reformed their domestic regimes on their own in order to give investors more confidence that assets will be protected.
