Trading Gains for Control: International Trade Forums and Japanese Economic Diplomacy

Abstract

The explosive proliferation of trade forums poses fundamental questions about why states forum-shop as they pursue liberalization. We advance a novel argument linking the institutional design of international trade forums directly to domestic politics. If industrialized democratic states have to appease conflicting forces in the domestic political marketplace as economic liberalization proceeds apace, they should prioritize forums that allow them to exert greater control over the pace and scope of liberalization. This prioritization is influenced by a tradeoff between two critical dimensions that combine differently across all international trade forums: the gains dimension, which determines the extent to which states can increase economic welfare based on the forum's rules; and the control dimension, which determines the extent to which they have power to set the forum's rules in line with their political concerns. We use the case of Japan to demonstrate the importance of the gains-control tradeoff.Why do states forum-shop in international trade? More specifically, the explosive proliferation of regional and cross-regional preferential trade agreements urges us to ask, what makes states gravitate away from a multilateral forum toward alternative regional and bilateral ones that intrinsically offer lower economic gains? Research in the field of international political economy (IPE) has thus far concentrated on issues such as the origins, impact, and more recently, design of Authors' note: We are grateful to the following people for their constructive criticism and advice:

Unlikely Pivotal States in Competitive Free Trade Agreement Diffusion: The Effect of Japan's Trans-Pacific Partnership Participation on Asia-Pacific Regional Integration

“…As the Doha Round exhibited difficulties in the 2000s, a hedging strategy became necessary for Japan (Munakata 2001;Pempel and Urata 2006). Meanwhile, the Japanese government began to prioritise control on the trade negotiation agenda over gains from trade by negotiating bilaterally with smaller countries where it could limit its agricultural concessions and avoid domestic backlash (Pekkanen et al 2007). Second, there was a call from Japan's big businesses demanding that Japan not miss the FTA boat (Yanagihara 2004;Yoshimatsu 2005), especially to avoid the deleterious effects of trade diversion (Solís 2003).…”

The Trade Policy of Emerging Powers

“…Starting with substitution, the presence of autonomy in the policymaking situation provides the strongest argument linking political ideas with substitution. Governments will have more autonomy within a context they create or organize (substitution) than in one created or organized by someone else (reform/simple use) (Pekkanen, Solís, and Katada 2007). Consequently, government actors interested in autonomy could sell substitution activities to domestic voters as a means of freeing their country from external restrictions imposed, for example, by WTO membership.…”

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“…At the other end, a bilateral FTA often yields very small gains from trade and usually increases transaction costs by producing idiosyncratic sets of rules. But at the same time, a large state of Global South, can acquire a high level of control in terms of partners, issues and agenda selection, and sectoral exclusions or inclusions based on domestic political needs (Pekkanen, Solis, & Katada, 2007). One can contend that industrialized of aggregate economic gains in the interest of national welfare (largest in multilateral forums) or seeking control over rules in line with political interests (greatest in bilateral forums).…”

“…Yet, this sort of vague statement fosters uncertainty for domestic actors at home in uncompetitive sectors like agriculture and in several cases, for example in European Union and Japan trade officials need to show that they have more concrete control for political reasons-an element more credible in a bilateral setting than a multilateral one (Pekkanen, Solis, & Katada, 2007). Leading investor states negotiated also a web of bilateral investment treaties (BITs) (Radice, 2015).…”