Power Politics and the Free Trade Bandwagon

Abstract

What explains the world's newfound enthusiasm for free trade? Are government leaders integrating their economies to achieve Pareto-improving gains? Or is it because a critical mass of pro—free trade governments has acquired the capacity to “go it alone,” leaving would-be protectionists with a choice between a bad option (opening their markets at very high political cost) and an even worse alternative (incurring the still higher political costs of exclusion)? This article suggests that in practice, mutual-gains-seeking motivations are frequently dominated by defensive ones. The North American Free Trade Agreement is a case in point: Without in any way being bullied or coerced, the Mexican and Canadian governments agreed to take part in a multilateral arrangement that the evidence suggests neither much liked. Although hard to reconcile with the political economy literature's positive-sum model of international cooperation, this finding is consistent with the broader “power-politics” model introduced here.

Pathways from Preferential Trade

“…Yet, while power asymmetries may account for the lopsided nature of NorthSouth FTAs, they do not necessarily explain why developing countries choose to sign such agreements in the first place. To this quandary, analysts have advanced a range of explanations, including the role of ideology, the strength and influence of export-oriented interests, the demonstration effect and fear of marginalization, plus the benefits of signing agreements based on less than full liberalization that serve to exclude the most politicallysensitive sectors from trade reform (Gruber 2001;Ravenhill 2003;Phillips 2005;Shadlen 2008;Gallagher 2008).…”

Negotiating Against the Odds

“…For instance, during the EPA negotiations the EU withdrew Cotonou trade preferences, which meant that the status quo option was no longer available to some African, Caribbean and Pacific (ACP) states. Alternatively, the status quo option can be eliminated if large states enter into FTAs with competitors, leaving the smaller country 'out in the cold' (Gruber 2001). The FTA between the United States and Singapore was one of the main reasons that Thailand sought an FTA with the United States.…”

Editorial: Small States in Multilateral Economic Negotiations

“…For smaller developing countries, the costs of staying out are higher still, given that their BATNA, i.e. best alternative to negotiated agreement, is even more limited, and their dependence on international markets means that they have almost no go-it-alone power (Gruber, 2001). Second, to the extent that the rivalry between the two superpowers allowed 'big influence' to 'small allies' (Keohane, 1971), the end of the Cold War has deprived small states of an important source of bargaining leverage.…”