How can international institutions help overcome obstacles to international cooperation in the global economy?

Howcaninternationalinstitutionshelpovercomeobstaclestointernationalcooperationintheglobaleconomy?

Achieving international cooperation in the global economy is not, and arguably never has been, a simple task. Grieco argues that ‘no state can afford to depend on any other, for today’s ally can become tomorrow’s enemy’ (1990:47). In an anarchic international system, it is widely accepted that each state is the sole guarantor of its security. In the absence of a supranational authority to enforce compliance, reluctance to enter into cooperative arrangements or alliances with other states is therefore understandable. However, since 1945, increasing levels of economic interdependence has led to growing opportunity for friction and discord to occur between states, significantly complexifying the lengths states must go to in order to achieve cooperation. Whilst this has led most political scientists to acknowledge that some form of institutional framework is required to facilitate cooperation in the global economy, significant contention arises between the realist and liberal institutionalist schools of thought, when considering the extent to which international institutions are capable of overcoming these anarchic forces. This essay ultimately agrees with the liberal institutionalist perspective, which will be outlined later in the essay; and concludes that international institutions are highly effective at overcoming obstacles to international cooperation. It will reach this conclusion through careful examination of the mechanisms employed by the GATT/WTO and the IMF and examine how; through increasing the flow of information between states, linking disparate issues, altering transaction costs and moving from a ‘politicised process to a more legalised one’ (Martin & Goldstein, 2000:630), international institutions help overcome obstacles to cooperation in the global economy.

Before addressing the intricacies of this question, the term ‘international institution’ must be considered. Despite the importance of international institutions, scholarly literature lacks a widely accepted definition, with scholars employing a range of largely non-overlapping conceptions, contributing to a fragmentation of the literature (Duffield, 2007:1). Whilst North defines institutions as ‘rules, enforcement characteristics of rules, and norms of behaviour that structure repeated human interaction,’ (1989:1321) March and Olson, refer to them simply as ‘frozen decisions,’ or ‘history encoded into rules’ (1984:741). However, for the purpose of this essay, I will be using Krasner’s definition – ‘implicit or explicit principles, norms, rules and decision-making procedures around which actor’s expectations converge in a given area of international relations’ (1982:186). 

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The inherent difficulty in addressing this question can be partly attributed to the complexity of the academic debate surrounding the effectiveness of international institutions. On the one hand, realists have adopted a ‘pessimistic analysis’ (Grieco, 1988:1), arguing that the absence of a sovereign authority ‘creates opportunities for states to advance their interests unilaterally and makes it important and difficult for states to cooperate with one another’ (Jervis, 1999:43). They argue that institutions are false remedies, because states will only seek to establish an institution, if it will enable them to advance their position relative to other states. By contrast, liberal institutionalists contend that realists are wrong to discount the potential of international institutions in facilitating cooperation, and contend that they can effect Pareto-superior outcomes that would not have been possible in their absence (Martin, 1992:781).

In ‘European Integration and Supranational Governance’, Sandholtz argues that ‘uncertainty about the preferences, intentions and reliability of other actors makes agreements difficult to execute and enforce’ (Sandholtz & Sweet, 1998:87), thereby reducing the probability of state cooperation. This uncertainty is generated primarily by state concerns over security-issues as well as cheating and free-riding, which are made possible by a lack of overarching sovereign authority. However, Dreher and Voigt argue that membership in international institutions, induces ‘a delegation of competence to an outside authority,’ (2008:327) which shifts the relative balance of power from the national to the international sphere. This is further supported by Chorev, who suggests that by altering the political influence of actors, ‘institutional arrangements determine whether domestic or international factors are prioritized’ (2007:653). This highlights the fact that international institutions help to reduce state uncertainty by ensuring compliance with international agreements. Thus, by comparing the GATT’s weakly legalised procedures, with the more formal WTO, it is credible that the increased scope of the institution’s binding mechanisms post-1994, which reduced the level of autonomy of state actors, and enhanced international authority, provided a key mechanism for overcoming obstacles to international cooperation in the global economy.  

Although GATT rules were always obligatory in a legal sense (Martin & Goldstein, 2000:604), ambiguity regarding international obligations remained significant, with certain states using this to their advantage. Moreover, the ability of powerful states, particularly the US, to evade GATT regulations, was another consequence of its less formal structure, and a major obstacle to international cooperation in the global economy. As the US increasingly turned to unilateral remedies for perceived trade infractions, such as Section 301, other members grew concerned that GATT was powerless in preventing unilateralism and not strong enough to provide effective enforcement (Martin & Goldstein, 2000:623). However, the Uruguay Round of multilateral trade negotiations resulted in greater legalisation of GATT. This was primarily achieved through the formation of an effective legal system at international level and a strengthening of the institution’s dispute settlement mechanism, which increased the extent to which governments are ‘obliged to maintain their liberal commitments’ (Martin & Goldstein, 2000:604). The WTO’s enhanced ability to enforce compliance, encapsulated by its Dispute Settlement Procedure, not only reduced state concerns about cheating, but helped curb the influence of more powerful states, thereby increasing the likelihood of cooperation. Martin points to how multilateral rules of trade were extended into new and difficult areas, such as intellectual property, as well as how ‘the procedures for retaliation and compensation were made more precise and limiting’ (2000:623).  For instance, WTO members possess the ability to withdraw trade concessions from a defecting country, and according to Maggi, several scholars have suggested that Article XXIII of GATT provides for the possibility of expelling a repeatedly offending country (1999:191). Similarly, under Article VII of the IMF, a ‘surplus country that declined to replenish the IMF’s repeated holdings of its currency, risks finding its exports discriminated against with the sanction if the IMF itself’ (Hirsch, 1967:433). This ability to enforce compliance effectively makes the trading system more secure and predictable, ultimately enabling states to commit themselves to levels of cooperation that would not be credible in the absence of institutions. 

Information failures, or ‘problems of information’ (Sandholtz & Sweet, 1998:87) has been widely cited by political scientists as a barrier to international cooperation. When a state lacks essential information about the aspirations of another state, or is uncertain as to how that other state will proceed, it is less likely to cooperate for fear of being undermined. Thus, states become trapped in a prisoner’s dilemma. In his 1984 seminal work ‘After Hegemony Cooperation and Discord in the World Political Economy,’ Keohane argues that ‘problems of information’ refers not only to situations in which both states are equally lacking in information, but more commonly refers to ‘systematically biased patterns of information’ where one state has considerably more information than the other (1984:93). Instances of asymmetrical information greatly inhibit potential state cooperation in economic affairs. Where the information asymmetry gradient is high, it is possible to make significant profits by cheating others. Grieco further emphasises the problems associated with asymmetric information by examining the reluctance of the European Community to cooperate with GATT. He explains that ‘as a result of the rules all would enjoy some level of absolute gains in terms of increased information about one another’s subsidies, but non-European Community states would receive greater information about European Community programs than the reverse.’ (1990:218-219). This effectively emphasises the importance of a balanced exchange of information as a mechanism for facilitating international cooperation.

According to liberal institutionalists, international institutions can help overcome these ‘problems of information’ by increasing the flow of information between member states, and thereby enhancing transparency. This allows states to escape from the prisoner’s dilemma trap. Whilst private information creates incentives for states to misrepresent their true interests in the bargaining process (Fearon, 1995:381), institutions can help reduce the probability of this occurring through the ‘provision of objective information about each side’s capabilities, resolve, and interests’ (Abbott and Snidal, 1998:5). As information becomes more readily available, asymmetry of distribution is likely to decrease, which, in turn, reduces state uncertainties, and increases the prospect of state cooperation. Through his examination of the information provision element of the UN Environmental Programme, Haas effectively highlights how supplying balanced information leads to effective international cooperation. By publicising the problems of marine pollution, UNEP helped persuade Mediterranean governments to accept the new goal of environmental protection, even encouraging them to make nominal economic sacrifices to accomplish it (Haas, 2002:87). This clearly supports the argument that increased access to information encourages cooperation. 

International institutions further assist overcoming obstacles to international cooperation in the global economy by ‘orchestrating mutually advantageous trade across issues’ also known as issue linkage. Defined by Sebenius as ‘the simultaneous discussion of two or more issues for joint settlement’ (1983:287), issue linkage increases the probability of states reaching a negotiated agreement and incentivises states to remain committed to such agreements. In ‘Negotiationarithmetic: addingandsubtractingissuesandparties’ Sebenius argues that linking together disparate issues sometimes opens up possibilities for mutually acceptable arrangements by creating opportunities for the international equivalent of logrolling and the formation of package deals (1983:306). As economic issues frequently overlap with other issues, such as those concerning human rights, security and the environment, states often consider these matters together, leading to the creation of what is essentially a package deal. Issue linkage most often occurs when states are willing to concede on a matter, in exchange for something that is more important to them. This is highlighted by Odell through his explanation as to why the Doha Package ‘paradoxically included anti-dumping rules’ – an issue which was so heavily contested by the US, that it initially refused to negotiate the matter. However, the Doha Package was eventually completed when Washington traded its anti-dumping concession for gains in other areas, namely the reduction of barriers to American farm and service exports (2009:284).

In ‘After Hegemony: Cooperation and Discord in the World Political Economy’ Keohane introduced the idea that international institutions can alter the transaction costs associated with negotiating international agreements (1984:93). Essentially, international institutions reduce the transaction costs of legitimate bargains and increase the transaction costs of illegitimate bargains, through ‘reducing incentives to violate regime principles.’ This significantly reduces the likelihood of states breaking the terms of an agreement, thus increasing state certainty and encouraging cooperation.

On a more rudimentary level, international institutions help overcome obstacles to international cooperation in the global economy by making it is less costly for states to negotiate within an institution than outside it, through the provision of a forum. Institutions also enable states to ‘take advantage of potential economies of scale’ as once an institution has been established, the cost of dealing with additional issues is reduced (Krasner, 1984:90). Moreover, international institutions incentivise states to cooperate, by offering membership benefits. For example, only members of the IMF can borrow from the Fund (Krasner, 1984:74).

To conclude, international institutions employ a range of mechanisms to help overcome obstacles to international cooperation in the global economy. Through a comparison of the weakly legalised GATT, with the more formal WTO, it is evident that institutions have become increasingly effective at this task, successfully evolving to meet the challenges posed by increasing economic interdependence post-1945. Through more effective legalisation, increasing information flows, issue linkage, and altering transaction costs, international institutions have altered the framework within which states cooperate, providing an overarching coordination and direction, which didn’t exist previously. This in turn, has enhanced the overall level of trust in the international system, reducing state uncertainty and thereby encouraging cooperation. Essentially, by transforming the international trade regime from a ‘single-play prisoner’s dilemma’ (Young, 2006:77) to a reiterated game, in which Fearon’s ‘shadow of the future’ influences state behaviour, international institutions increasingly help overcome obstacles to international cooperation.

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