Crisis, Compromise and Institutional Leadership in Global Trade: Unfair Trade, Sustainable Trade, and Durability of the Liberal Trading Order
Chin. Polit. Sci. Rev.
Crisis, Compromise and Institutional Leadership in Global Trade: Unfair Trade, Sustainable Trade, and Durability of the Liberal Trading Order
Jens L. Mortensen 0
0 Department of Political Science, University of Copenhagen , Ø ster Farimagsgade 5, 1550 Copenhagen , Denmark
The transformations of the current liberal order is fiercely order debate among liberals and realists in International Relations (IR). The article examines how the liberal claim of institutional leadership, even in complex networked orders, is challenged by realists and the reality of forum-shifting and institutionalized hegemonic power. Yet, the article advances the constructivists argument that order and leadership rests on the compromise of social purpose and power, even if much IR tends to prioritize the domestic sources of leadership at the expense of international sources of institutional leadership. The substantive issues discussed in the article concerns the current trading disorder of fragmented, unsettled and uncertain trade relationship. The article discussed the future of the trading order in the context of new articulated demands for tougher regulation of environmental and social sustainable trade, and in light of recent modernization debate in Europe on the desirability of US-style enforcement provisions in future EU trade agreements.
International trade policy; Sustainable trade
If people are not willing to renegotiate in good faith and promote fair trade …
then [Trump] will have some tough decisions to make and I think he’s up to
the challenge of whatever he believes is necessary to make sure we get fair
negotiations and fair treatment in these world bodies, including walking away.
Leadership in international trade is in crisis. Leadership has been possible during
past crisis but such leadership have always relied on robust, vibrant and effective
institutions. Leadership in an era of contested or distrusted institutions is difficult.
This article revisits the question of leadership sources in times of crisis. The trade
crisis is acute. Existing trade-related institutions, the regime complex of global
trade, have been orbiting around the World Trade Organization (WTO) for more
than 30 years. The centrality of the WTO is challenged by the shock result from the
US election, the contestation of the Transatlantic Trade and Investment Partnership
(TTIP) and the annulment of the Trans-Pacific Partnership (TPP). In contrast, the
Regional Comprehensive Trade Partnership (RCEP) initiative is not seen as
evidence of the declining order
. Although cracks in the liberal
trading order have been exposed, the depth of these cracks is difficult to gauge at
this moment. As world trade appears heading into an era of disruptions, uncertainty
and fragmentation, the salience the liberal trading order is inevitably questioned.
The social purpose and institutional form of multilateralism, especially its dispute
settlement mechanism, is at the center of the controversy. The cracks in the order
could grow into a paradigm shift of the order. The substantive issue explored in here
relates to trade-related sustainability requirements, understood as social and
environment-related requirements to exports, production and investments. It asks
whether soft, multilaterally embedded and promotional approaches to sustainable
trade is being replaced by a hard, conditional and unilaterally based approaches by
the trading powers, possibly involving the use of sanctions.
Sustainable trade is a crucial terrain in which the clashes between the
posthegemonic, pre-Trump, liberal trading order and the turbulent, post-Trump
trading disorder is played out in. It is testing the WTO to the limit
and Cimino-Isaacs 2015)
. This policy discussion is inevitably linked to the
politics of designing institutions. Should trade sanctions be used to effectively
promote certain global policy goals, or to safeguard an economy against unfair
competition? An increasing number of Americans and Europeans think so. The
rather technical issue of designing appropriate, effective dispute settlement
mechanisms in trade agreements has resurfaced dramatically. Liberal
institutionalists see the controversy as an issue of facilitative leadership involving complex
negotiations on different institutional blueprints. Yet, the paper suggests, the
controversy on sustainable trade is best understood as a potential order
transformation, a collapse of the transatlantic bargain upon which the WTO
was built, reflecting a deep-rooted clash between competing designs, scripts and
frames on how to govern trade, and how to determine what ‘fair trade’ is. It is a
clash between softer facilitative leadership, understood as communicative and
promotional modes of trade leadership against the harder, uncompromising mode
of trade leadership, involving enforcement by possible use of sanctions. In the
absence of an international compromise on sustainable trade, evident in the
paralysis of the WTO as well as the International Labor Organization (ILO), the
unilateral approach to ensure ‘fair trade’ is gaining much domestic policy
attention in the ‘declining’ trade powers, especially in the US but possibly also
This article starts by revisiting the current liberal order debate among liberals
and realists in International Relations (IR), before it examines how the liberals
stresses institutional leadership, even in complex networked orders, is challenged
by realists expectation of forum-shifting and institutionalized power. Yet, the
article advances the constructivists argument that order and leadership rests on the
compromise of social purpose and power, even if the domestic sources of
leadership tends to ignore the international sources, namely institutional
leadership. Preexisting scrips and domestic policy frames are important. These issues are
subsequently discussed in the context of new demands for tougher regulation of
sustainable trade, on environmental and social sustainability, and in light of recent
modernization debate in Europe on the desirability of US-style enforcement
provisions in future EU trade agreements.
2 IR Theories on Trading Orders
Current trade relations is in turmoil. There is a leadership void. This could spell a
disruption of the liberal trading order, even if an ‘unfair trade war’ remains a
remote possibility. It is undesired by business linked up in global production and
trade. It is, however, increasingly demanded by the domestic constituencies of the
‘declining’ trade powers. The pace and scope of the reorientation amongst US
policy makers towards economic nationalist policy positions has shocked the
existing trade policy community. Until now, liberals have pointed to international
trade as the foundational stabilizer of an otherwise troubled American order
(Ikenberry 2015; Guille´n 2016)
. Facilitative leadership has been possible precisely
because it is institutionalized. The world is not only multiplex but also
interdependent (Acharya 2014). Disorder is not so much a reflection of the
decline of the US, but about the rise of other powers
. It will be an
order without a center of gravity
. The liberal order is not an
sing hegemonic order (Sørensen 2011
) but rather one of liberal restraint, and
driven by reason, even without leadership. It is, however, characterized by
frequent legitimacy struggles. It has not reverted into an imposing,
sovereigninsensitive, hegemonic order but evolved into a more loosely fragmented but still
rule-based liberal order
. Even such moderate liberal optimism
challenged by IR realists
foresees the twilight of the
liberal order, echoing the concerns of IR realism on multipolarity. This debate
illustrates the deep-rooted preoccupation with the IR discipline with the problem
of the declining hegemonic power of the US. However, the liberal trading order
has proven itself remarkably resilient in the past.
3 Facilitative Institutional Leadership or Institutionalized State Power?
Trade can cause problems. Cooperation can be difficult. Trade regulation is about
balancing sovereignty concerns with common policy commitments. As such, this
article shares an understanding of ‘an international order’ with the English School in
(Buzan 2016; Dunne and Flockhart 2013)
as well as constructivist-minded
(Ruggie 1982, 1995; Abdelal and Ruggie 2009)
. Beneath the disorder is a
robust set of invisible (or ‘primary’) institutions, which transcends disorder of the
observable (‘secondary’) institutions. The trading order has always been fragmented
and yet remained surprisingly stable. The non-discriminatory WTO norms,
expressed by GATT article I and III (the so-called ‘national treatment’ and
‘most-favored-nation’, respectively), seen in context to other norms, such as rule of
law, formal sovereignty and reciprocity. Legal procedures must be followed. Formal
sovereignty must be respected. Yet, cooperation is also premised on a negotiated
balance of rights and obligations, as reflected in the texts of the WTO agreements. A
shared sense of reciprocity among states is a precondition of facilitative leadership.
In contrast, leadership is to realists all about by power projections, securing
control over outcomes. State power over institutions is a function of the size,
position, domestic preferences, negotiations skills and resources of the particular
state. Power thorugh institutions is slightly different. Many liberals largely accept
that the decisive source of leadership is domestic politics of the dominant powers.
The structure of the system may be a constraining factor. To realists, institutions
matter if they advance the leadership. States seek possession of institutionalized
hegemonic power. Control over an institution solidifies their future power position.
Liberals see institutionalized facilitative leadership as an important moderator on
such brute exercise of power. It is facilitative power since no coercive power is
transferred to international institutions. It encompasses entrepreneurial and
, referring to individual skills, agenda-setting power
and learning dynamics within and centered on a particular site. The source of
leadership is defined through the interaction between the international and the
domestic, structured by institutionalized processes of governance. States not only
invest in institutions to gain control over future outcomes but also wants to ensure
that others live up to the bargain. States rely on effective solutions to common
problems. Institutionalized power leadership in a multilateral order is rare.
Multilateralism is an institutional form of facilitative leadership, demanded by
most states, precisely because of its inability to be controlled by the larger ones.
Facilitative leadership is not only about state leadership
(on facilitative leadership,
see Zhimin et al. 2017)
. It is also about assurances for sustained facilitation of
cooperative leadership. The institutional form of facilitative leadership matters. It
assures functionality, legitimacy and durability. The long-term realization of
common goals requires robust, effective and legitimate institutions, beyond the
To ensure facilitation of an acceptable consensus on difficult cooperative
problems, as evident in the unfair trade debate, firm and durable institutions are
needed. Institutions are equipped with specified disciplines, permanent
communication channels and operational conflict resolution mechanisms. Not all
institutions work. Some do, however. This has precisely been the case on trade. The
trading order has evolved from an intergovernmental GATT regime centered on the
American postwar order, reformed into the WTO in 1993, custom unions and
bilateral agreements towards a more complex system containing plurilateral
agreements, inter-institutional regulatory arrangements, private market
arrangements and possibly mega-regional trade arrangements. The density and diversity of
institutions, their substantive coverage and geographical scope have transformed
what was a simple system of treaty-based regime, easily controlled, into a more
complex network of forums, some of which contain hard governance by enforceable
treaties, primarily the WTO, and complemented with softer forms of governance,
including marked-based corporate social responsibility (CSR) initiatives.
Institutionalized leadership under such circumstances is difficult. State control is
impossible. An institutional complex represents an informative step away from
thinking in terms of a hierarchical-based power order. Despite the current crisis on
trade, liberal institutionalists remain convinced that a fragmenting complex is a
more accurate description of the present order. Fragmentation, complexity and
diversity do not necessarily produce decline and conflict. Each brings something of
its origins and identity into the complex. Each component is formed by and
accountable to different constituencies. Each domain coexists. Complexes are
fragmented in their very nature, and incoherencies in governance practices can
persist. Complexes link national, international and transitional domains together.
The emphasis is on positive (or negative) learning rather than conflictual
decisionmaking. Complexes are persistent because of their looser organization and lower
transaction costs. However, the research agenda downplays conflicts, be it political
or legal. It is an extension of regime concept, rebranded as the ‘regime complex’
approach or ‘contested multilateralism’
(Orsini et al., 2013; Keohane and Morse
2015; Morse and Keohane 2014; Meunier and Morin 2015)
. Yet, liberal
institutionalists fail to specify precisely how conflicts between legal subsystems
are mitigated within this network of institutional subsystems. How stable will the
conflict be if frequent clashes and shifts between differently equipped legal systems
Realists have criticized the concept for downplaying power politics while
overstating the persistence of institutions
free trade agreements
(FTAs), WTO and other trade-related institutions constitute a whole, a complex
within which different trade-related institutions communicate with each other,
sometimes cooperatively, sometimes competitively. It is silent on direct
confrontations. Liberals tend to assume that institutions produce cooperation. The
establishment of the WTO in 1993 epitomized this belief. Although the stalled Doha Round
(2001-) questioned the relevance of liberal optimism, it never contradicted it.
Systemic protectionism failed to materialize after the financial crisis. The liberal
optimism is challenged today. Echoing
: 5), the WTO has
proven itself to be ‘… a reflection of the distribution of power in the world’ and
ultimately ‘…based on the self-interested calculations of the great powers.’’
‘Institutional realists’ have reemerged on the scene; the proliferation of formal
institutions produces less cooperation. Drezner (2009: 66) pointed out that regime
complexity dilutes regime ‘focal points’, i.e., the norm, rule or procedure around
which actors’ expectations converge
(recalling Krasner 1982)
. Overlapping legal
mandates undermined the sense of legal obligation necessary for an institutional
order. Initiatives such as TPP, TTIP and RCTP demonstrated that the WTO no
longer is ‘a focal point’ in global trade. The trading powers are reorienting
themselves. The construction of competing focal points is part of a rational
leadership strategy, constructed by trading powers demonstrating leadership.
Control of an institution is a power resource. Forum shifts are to be expected in
an asymmetrical trade order. Institutions, including dispute settlement systems, only
work as long as the powerful want them to work. If not, they are abandoned.
As the WTO no longer serves the interest of the powerful, ‘better’ trade
institutions are being constructed. In other words, institutional leadership is
transformed into institutionalized leadership. The source of this leadership
transformation is located in the domestic politics of trade power. The trouble is
that the number of trade powers are multiplying. The liberal trading order is
replaced by a multipolar trading disorder. Trump’s threat of exiting the WTO is,
therefore, not irrational, to the realist institutionalists. It is, from this perspective, a
rational leadership strategy in response to perceived loss of institutionalized
leadership. Trump appears to conclude that the WTO no longer reflects the concerns
of the US.
If major trade powers are convinced that bilateral liberalization offers a more
attractive, cost-effective route to trade liberalization, institutionalized leadership in
specific sites in global trade is a better way of controlling future outcomes. To
institutional realists, it is essential to understand how the new trade agreements can
be designed as more effective market access for their constituencies, equipped to
settle regulatory conflicts in favor of the regulatory competitiveness of businesses in
the powerful economies. Global trade will not be deregulated as such. It will
continue to be regulated, or rather re-regulated. The interesting question is on whose
premises. The paradox is that the demands of global businesses are being ignored.
Exporters have no interests in fragmented regulation of global trade. It is costly,
disruptive and unpredictable. Much of the current turbulence in trade is caused by
this clash between the national and the transnational economy, perhaps most visible
in the US, but the underlying tension between the territorialized and
deterritorialized economy can be observed everywhere.
3.1 Re-reading Polyani: Leadership as ‘Fusion of Power and Purpose’
Yet, the cracks in the current trade order is not just about the collision between
domestic and international sources of leadership strategies. It is also a clash between
economic (and foreign policy) interests and prevailing ideas and convictions of
maintaining the order. Orders are the result of will and capability to construct and
maintain effective institutions. It is, however, helpful to relax the sharp separation
between interests and ideas. Constructivist do so, by offering an ‘embedded
which focus on the compromise between
ideas and interests struck by power-holders in the economy, domestically and
internationally, stressing the extent of societal support for trade cooperation.
Facilitative leadership requires domestic demand and international supply, so to
speak. Leadership are two sides of the same coin, a convergence of power interests
and ideational convictions. Orders are manifestations of power and purpose. This
interpretation sees a transformation driven by normative reorientations of the
dominant states. The apparent retreat of the US from the liberal trading order is a
worrisome signal. However, an alternative coalition of normative-aligned
government can counterbalance the retreat of the Americans. It is difficult, however.
History matters. The evolution of compromised liberalism in trade built on the
transatlantic fusion of state power and social purpose of the 1940s, influenced by
Keynesian ideas and US liberal foreign policy thinking, and later negotiated updates
of that. Everything in the WTO is, from this perspective, about defining the scope of
legitimate state interference in the global marketplace. It is not just a substantial
norm; it is also an implicit institutional norm, defining the power of the institution
itself. Compromised liberalism hinges on the process of hammering out the balance
between market liberalization and authority. The two are in constant tension.
Embedded liberalism1 can be read in different ways. Yet, the essence of the
argument is that the liberal trade order rests upon its societal legitimacy. Free trade
cannot be separated from the regulation of markets. Market liberalization contains
the seeds to its own self-destruction, if left unregulated. It creates a societal pressure
for reregulation. Polyani issues a warning about the disembedded market, but he
also seem to suggest that it will be balanced by some form of political intervention:
‘‘… the positioning of markets within a broader set of social and political rules and
cultural understandings that make the market work not only more efficiently but also
more equitably, with greater security for market and non-market participants and in
tune with a variety of other social purposes…’’
(Carporaso and Tarrow 2009: 598)
Translated into here, Polyani informs us that globalization must be regulated by
legitimate as well as effective forms of authority and leadership. This inspired John
G. Ruggie to apply the concept to the Bretton Woods institutions (1982, 1995); the
General Agreement on Trade and Tariffs (GATT) represented a fusion of
international power and domestic societal norms of the dominant states of the
immediate post-war era, the US and the UK. Embedded liberalism captured an
essential feature of the GATT; that its substantive rules legitimize policy practices
intended to cushion the domestic sphere from the destabilizing effects produced by
international market liberalization.2 The GATT norm was described as ‘Smith
abroad, Keynes at home’. Moreover, the compromise dictated a state-centered,
diplomatic mode of western-dominated multilateral governance. It rested upon a
separation of ‘the domestic’ and ‘the international’. The compromise on embedded
liberalism, in this interpretation, was never about protectionism. There was about
1 The notion of embedded liberalism originates from the historical analysis of the ‘dual movement’ that
led to the breakdown of 19th century liberal economic order. By ‘dual movement’, Karl Polyani (1944)
meant that that move towards unregulated market liberalization, whereby the economy was disembedded
from its social compound, was accompanied by a political counter-move towards regulating market
2 [T]he common tendency to view the post-war regimes as liberal regimes, but with lots of cheating on
the domestic side, fails to capture the full complexity of the embedded liberalism compromise’’. Ruggie
legitimate exceptions, accepted as an overarching social purpose, to trade
liberalization. It specifies situations and procedures whereby protectionism is
permissible to restrict protectionism. The price for trade liberalization is the
tolerance of certain forms of protectionism. Compromised liberalism is about
limited trade liberalization. Ruggie focused on the domestic and negotiated origins
of the compromise, the US and UK, and excluded other potential sources of a
What appears missing is the autonomous power and operative design of those
institutions hammering out the balance between markets and societies in the liberal
. Institutional leadership was neglected. Societal domestic
support to a compromise, explained by distribution of grains from trade, is one part
of the equation. The choice of institutions also builds on frames generated by
experiences with multilateral trade, and convictions of what script to follow.
Interests, purpose and design are mutually constitutive. The fusion of international
power and social purpose within the GATT was until the 1970s complemented by a
deliberately weakened design of the GATT institution. This proved unacceptable to
the Americans. Effective market access grew into a major concern. From 1970s, the
US pushed for a new bargain. From 2003, the US has followed a bilateral path. Yet,
the governance design itself of the liberal order must be seen as legitimate. The
clash of different national scripts and frames are not just the result of national
traditions, but also learning in the GATT/WTO institution.
Both power politics and domestic trade preference of trade is an insufficient
explanation of what trade agreements look like. Constructivism can explain why. Trade
diplomats do not operate in a vacuum. Calculations of future gains and pains from trade
are wracked by uncertainty. Trade diplomats are embedded in intersubjective
preunderstandings, worldviews and normative convictions. Uncertainty and complexity
complicates the conversion from political intentions to expected effects of different
designs. This puts knowledge at the center of the process. Law and by extension, the
design of the legal system, offers a simplifying frame for decision makers on complex
. Legal decision making is a sense-making exercise, a
subtle form of power, a vehicle of transmitting and consolidating social learning
processes. Diplomats employ designs that mirror what is already in place.
‘‘[FTAs] offer continuity with what is in place in a specific region and remind
us of the powerful human tendency to mimic what others are doing. [FTAs]
are like trees with deep roots in the ground. And they are social products,
designed by people who receive their inspiration from, and are influenced by,
what surrounds them’’
(Duina 2010: 113)
The choice of institutional design is about making sense of the world by relying
on experience-derived tools of interpretation. Trade diplomats are aware of other
free trade agreements, providing them with pre-set instructions about how to solve
problems. Scripts are, especially if consistent with the national frames, mimicked by
trade diplomats. Institutional bargains are not so much about what is best for trade
liberalization or the national interests, but shaped by paths, continuities and
expediency. There is no guidebook on how ‘best’ to achieve free trade. For instance,
a ‘national legal traditions’ explanation focuses on how legal cultures and
experiences filters through to the diplomats as frames and scripts as diplomats draw
on district national experiences in trade liberalization in the negotiations
themselves. Trade agreements are the end product of specific frames,3 cognitive
filters through which diplomats interpret the world and solve problems encountered.
Frames work as cognitive filters that determine how trade diplomats approach the
problem of market liberalization. Designers of trade agreements also follow distinct
scripts,4 understood as specific solutions to problems that reflect what is seen as best
or most appropriate institutional choice.
If scripts and frames matter, the rational choices of designing an agreement is
especially sensitive to different national experiences with free trade. Frames on the
legal design have produced two scripts, the interventionist script, i.e., establishment
of stronger courts and a minimalist script, i.e., ad hoc tribunals. The civil law frame
sees the design choice as a legal problem that calls for a legal solution. Diplomats
operate with a pre-designated problem identification of legal harmonization, they
automatically identify a need for legal intervention between diverting legal systems.
Institutional designers focus on the production of definitional and normative
principles as ‘an almost instinctive reaction’
(Duina 2010: 110)
interventionist courts is the dominant script. Permanent courts with autonomous powers
signal certainty, order and authority. Court-like designs broaden the presence of
trade agreement in the eyes of the public, amplify its presence in the public sphere.
A more formalized rule of law system reassures a concerned public.
These two scrips stem from different historical experiences. These
predesignated ‘models’ of legal designs in free trade agreements can help explain
why a new institutional bargain is so difficult to strike. The Europeans follows their
script, constructing more interventionist courts, which makes perfect sense in a
European civil law frame. It not only entails a preference for stronger international
courts but also a stricter observance of international law, especially respecting the
territorial limitations of enforcement provisions. Dialog is preferred over
enforcement. The Americans follow their script, pushing for ad hoc tribunals and
minimalist legal intervention of international courts. Yet, domestic courts are—in
theory—intended to enforce extra-territorial commitments.
The harder American stance on the enforceability, including use of trade
sanctions, on environmental and social issues makes sense as ‘leadership’ from this
perspective. It is rooted in distinctively different historical experiences with how to
solve the clash between different legal systems and traditions. It reflects two
different meta-scripts, visible legal activist-minded courts operating in the open, and
pragmatic, ad hoc and ‘secretive’ tribunals tackling specific trade problems as they
materialize. Yet, the historical experience of free trade is not confined to the
national sphere. Past experiences with multilateral trade liberalization also shapes
the institutional design choice. The practice of ensuring a balance between
3 ‘Collectively shared and accepted ways of interpreting situations and problems in life. Frames help
individuals simplify and make sense of the world’
(Duina 2010: 99)
4 ‘Socially available, specific instructions or codes for how to behave in certain situations or respond to
particular problems as they arise. Scripts are less about interpreting the world and more about responding
(Duina 2010: 100)
sustainable trade aspirations and respect for the sovereignty norm has defined the
past EU position on sustainable trade. The clash of different national scripts and
frames are not just the result of national traditions but also learning in the GATT/
3.2 Future Conflicts: Fair Trade, Sustainable Trade
Much of contemporary trade order hinges on the process of determining precisely
what the legitimate exception to free trade is. Sustainable trade is precisely about
that. Trade governance is the process of hammering out the meaning of ‘the right to
regulate’ of the state. It is knowledge intensive, resource demanding and case
specific. It builds on the 1947 GATT agreement, article XX. TTIP chapters on
regulatory cooperation or investment also refer to that principle and to WTO case
law. Governments need to demonstrate that their policies are necessary, impartial
and as least trade restrictive possible. Governments who possess the legal and
analytical resources not only stand a good chance of winning their cases, they also
influence the accumulated body of knowledge on what the law actually means, they
tend to take the lead in other negotiations, pre-empt potential problems using these
frames, offer solutions and shape the mindset of others to accept their particular
framing of the issue at a later point. States uses their legal knowledge, the desired
legal framings and classifications instrumentally. Other actors also employ legal
expertise in the new trade game, NGOs for instance on TTIP. To paraphrase
Schaffer (2003, 2006), most of what happens in trade takes place in ‘the shadow of
As mentioned, one of the cornerstones of the WTO is GATT article III, the
national treatment principle. Article III (1) establishes a general principle that
internal taxes and regulations ‘‘should not be applied… so to afford protection to
domestic protection’’. The national treatment principle is a necessary supplement to
the other foundational principle, the most-favored-nation clause (MFN, GATT
article I). Any concession granted to a WTO member must be extended to all WTO
members. The important exception to national treatment is the ‘general exception’
clause, GATT article XX. GATT art III (4) obliges members to treat ‘like products’
alike in their domestic market. Article XX then determines how to separate
legitimate domestic legislation or administrative practices from a disguised trade
restriction. The purpose of GATT article XX is clear: disguised trade barriers are
illegal, but the WTO agreements also defends the right of states to protect
themselves, to set the level of regulation irrespective of what other states do, as long
as these do not function as hidden protectionism. The problem is that the WTO
agreements do not—and cannot—specify exactly what constitutes a legitimate
concern. Fairness cannot be unilaterally determined. Article XX is kept ambiguous.
The interpretation of article XX has long been a source of controversy. The precise
meaning of article X is lost without extensive references to the GATT/WTO case
law on the subject. For instance, it requires trade-related environmental policies to
be ‘necessary’ for the policy objective, and not amount to arbitrary and unjustifiable
discrimination’. But what does the word ‘necessary’ actually mean? What does
‘arbitrary and unjustifiable discrimination’ look like in reality? In the past, the exact
meaning of the deliberately ambiguous WTO rules is hammered out on a
case-bycase basis, but actually producing case law. As it will be shown below, the WTO has
been asked to fill out the void on environmental sustainability, but not social
sustainability. Institutionalized facilitative leadership builds on institutionalized
consensus, reflecting a critical mass of converging societal consensus amongst the
power holders in world trade.
3.3 Environmental Sustainability: The Institutional Leadership of the WTO
It was only by the early 1990s it emerged on the agenda, largely because of the
infamous Tuna-Dolphin case. The Uruguay Round agreement put ‘sustainable
trade’ into the preamble of the WTO agreement. Yet, the article XX texts form 1947
remained unchanged. The word ‘environment’ was not changed. Only through
GATT and WTO case law has it acquired a meaning. It is beyond the scope of this
paper to outline the legal history of this. Suffice to say here is to emphasize that the
issue has today been integrated into WTO law by legal decision-making, panel and
appellate body rulings on some of the most dramatic WTO cases such as
ShrimpTurtle, GMOs, asbestos, hormone-treated beef. The WTO did establish a
negotiation group on sustainable trade, the Committee of Trade and Environment.
Sustainable trade emerged not because of well-reasoned policy inputs, but
because states filed WTO cases against each other on the issue. The WTO had to
deal with the problem. Today, negotiations on sustainable trade has had a comeback
in the WTO. This is the result of a number of remarkable mixture of policy, law and
power. The WTO is the venue for plurilateral negotiations on the liberalization of
environmental goods (EGA). However, the WTO is challenged on this by the
negotiations on TTIP, TPP and other bilateral agreements, all of which includes
chapters on sustainable trade. Sustainability has become a lucrative market, and
treated as strategic priority in the struggle for future competitiveness. Climate
negotiations can forge a link between trade and climate governance (Pikkerty 2016).
The new trade agreements, launched prior to Trump’s election, were less
threatening to the WTO. It is actually supportive to the WTO, for better or worse. A
look at what the EU are proposing in the TTIP negotiations on sustainable trade are
illuminating. Art 1. reaffirms a commitment to promote sustainable trade in
international trade and investment. Art 3. sets outs the right to regulate, recognizing
the right of each Party to determine its sustainable development policies and
priorities, to set and regulate its levels of … environmental protection. The right to
regulate shall ‘be exerted in a manner not inconsistent with … the environmental
agreements’. Art 10. recognizes ‘the value of global environmental governance and
rules’, issues a promise to not only strive towards further ratification of Multilateral
Environmental Agreements but also acknowledges ‘‘that nothing in the Agreement
should prevent either Party from adopting or maintaining measures to implement the
Multilateral Environmental Agreements to which it is a party, provided that such
measures are not applied in a manner that would constitute a means of arbitrary or
unjustifiable discrimination between the Parties or a disguised restriction on trade.’’
This concluding sentence is taken from WTO law, word by word repeating the
chapeaux of GATT article XX.
It is about soft law, rule promotion, fostering cooperation, communication and
policy learning. It is not about enforcement.5 The CETA text (and, for what it is
worth, the proposed TTIP on sustainable trade) is not directly challenging the WTO.
TPP had direct enforcement provisions, TTIP reflected the European mode of policy
dialog. More importantly, the proposed texts accepted the supremacy of the WTO
law. Sustainable trade is encouraged throughout the emerging regime complex by
soft governance techniques on a specified list of target issues.6 Sustainable trade is
not to be enforced by the letter. It also reaffirms the protection of environmental
policies derived from WTO law. It addresses the ‘race the bottom’ fear. Art 17.
affirms that the parties can uphold their chosen level of protection, recognizing ‘‘that
it is inappropriate to weaken or reduce the levels of protection afforded in domestic
environmental or labor laws to encourage … trade or investment’’, ‘‘shall not waive
or derogate from, or offer to waive or derogate from, its environmental or labor laws
as an encouragement for … trade or investment’’. It accepts everything from WTO
case law. States can defend their level of protection, if they demonstrate what is
asked by GATT art. XX. By extension, the US and EU cannot enforce this upon
other countries. Instead, article 18–20 suggests that transparency, sustainability
reviews and CSR measures encourage the spread of sustainable trade practices.
This ‘flaw’ has not gone unnoticed amongst TTIP or TPP critics, however. In a
letter from October to the Congress, urging its members to vote no to the TPP, a
transnational green policy NGO-coalition also demonstrates the power of legal
reasoning in policy debates. TPP’s sustainable trade chapter should ‘‘… be judged
by whether its provisions are strong enough to have a meaningful impact on the
ground in TPP countries and whether the obligations will be enforced’’.7 They
demand obligations to ‘adopt, maintain, and implement its obligations under the
5 For instance, art 13 on ‘‘sustainable management of forests and trade in forest products ‘‘sets out a ‘‘…
commitment to sustainable forest management’’ which recognise ‘‘the importance of international rules
and agreements in these areas such as such as CITES, UN Forum on Forests or the International Tropical
Timber Organisation‘‘. It is a binding treaty text with no mention made of possible sanctions. The US and
EU commit themselves to a) ‘‘implement effective domestic policies and measures to combat illegal
logging and related trade, including as appropriate with respect to third countries, and exchange
information in this regard; b) encourage the use of wood and derived products from sustainably managed
forests in their markets and trade thereof…’’; c) ‘‘identify and discuss policies to combat illegal logging
and related trade …’’, d) ‘‘exchange information on trade-related actions taken with respect to third
countries … ‘‘; e) ‘‘cooperate with each other and with third parties to identify capacity-building needs to
combat illegal logging and associated trade’’; and f) ‘‘cooperate as appropriate in relevant international
fora such as CITES, UN Forum on Forests, International Tropical Timber Council, FAO and the UNECE
Committee on Forests and forest-based Industries’’.
6 The CETA text, and the EU proposal to the TTIP chapter on sustainable trade lists in art 11–15 the
different agreements targeted; biological diversity (art 11.), CITES (art 12.), sustainable forest trade (art
13.), sustainable fishing trade (art 14) trade in environmentally sound management of chemicals and
waste (art 16.).
7 It continues: ‘‘Strong obligations with weak or no enforcement would render the chapter meaningless.
Our organizations are … extremely concerned that the provisions agreed … will not be enforced. The
United States has never once brought a trade dispute against another country for failing to live up to its
environmental obligations in trade deals even when there has been documented evidence of
noncompliance with environmental obligations’’.
following specified agreements’, and suggest that CITES or the Montreal Protocol
should be supplemented by Whaling Convention, and insert enforceable
prohibitions on trade in the covered areas, from illegally sourced timber to trade in illegal
4 Social Sustainability: Towards Possible Sanctions in the EU?
Social and environmental sustainability has been integrated in the EU trade
agreements, reflecting the UN definition. In contrast to environmental sustainability,
WTO jurisdiction over social sustainability is extremely limited. This is not a
product of negotiations. It derives from past institutional leadership. On social
rights, only GATT Article XX e) explicitly put a ban on exports ‘‘relating to the
products of prison labor’’. New demands were put forward on the issue after the
establishment of the WTO (1994) but the Singapore meeting (1997) effectively put
an end to the social rights agenda in the WTO
. Instead, it referring
the issue to the International Labor Organization (ILO) rather than establishing a
designated WTO committee. The US enabled harder enforceability of social rights
in their trade agreements, from NAFTA to bilateral FTAs, although systematic
oversight and enforcement practice on FTA-related social rights provisions never
(McBride et al. 2002)
It is no secret that the US more explicitly uses the threat of sanctions in their
bilateral trade relations than other trade powers. The US effectively abandoned the
multilateral approach in 2003 by igniting a wave of bilateral trade agreements that,
among others, including the use of sanctions on non-complying partners. Violations
of trade-related sustainability provisions can—in theory—result in trade sanctions
in US trade politics. Whereas the US script has been consistently followed, the
domestic frame has changed. Demands for fair competition had gained power. The
2016 presidential campaign revealed how powerful these concerns have grown is
the US. Both Republicans and Democrats moderated their traditional free trade
stance in response to the growing domestic discontent with actual enforcement of
‘‘Lack of enforcement by both Democratic and Republican presidents and
other flaws with the treaties have allowed countries with weaker laws and
standards and widespread labor and environment abuses to undermine treaty
provisions, leaving US workers and other interested parties with no recourse’’
In contrast, the EU have traditionally represented a multilateral approach to the
issue. Yet, in response to domestic pressures, the EU is now rethinking their
‘‘While standing for openness and cooperation, the EU cannot be naive in its
approach to globalization. There are situations where rules exist but are not
respected. Closing the loopholes in global rules and raising standards may take
time. In the interim, the EU must have the instruments at its disposal to restore
a level playing field and act decisively against countries or companies that
engage in unfair practices. This starts with better enforcement of existing
agreements and rules in such areas as trade, labor standards, climate and
(European Commission 2017a)
The word ‘enforcement’ is left underspecified by the text. The meaning of
enforcement is debated in the European Parliament today. While the EU
Commission still negotiates trade agreements, exclusively on behalf of all the EU
Member states, the European Parliament’s approval is required for ratification. This
includes trade sustainability chapters as confirmed by a recent European Court of
Justice ruling (known as Opinion 15/2). The domestic voices demanding a tougher
European stance on unfair trade are getting louder, within member states as well as
the European Parliament.8 In their recent non-paper,
the EU Commission (2017
opens up for the debate on harder enforceability of sustainability requirements in
future EU trade agreements. The EU Commission continues to align with the
existing EU script: progressive labor and environmental conditionalities are not
enhanced by a turn to unilateral, hard enforcement such as in the American trade
agreements. Instead, cooperation and promotion of sustainable trade is best
achieved by ‘‘continuous and long-term engagement with partner countries to create
ownership at government and civil society level and inclusive reform processes’’
(European Commission, 2017b: 4)
. It continues: ‘‘In implementing and enforcing
the obligations, the Union recognizes the primary role of international instruments
both in terms of standards and compliance mechanisms. … The EU efforts focus
during a first stage on incentivizing the partner country to work with the Union. This
is addressed through structured dialogs on sensitive issues, launching joint projects,
enhancing interaction with international bodies and setting-up dedicated
institutional and civil society structures.
The Commission explains that sustainability requirements are not enforced.
Enforcement is subject to state-to-state consultations, expert panel examinations,
publicized panel reports, extensive monitoring of the implementation. The EU
approach does not include sanctions. Yet, the debate has opened up in Europe. The
European Parliament has continuously pushed for more effective implementation.
The Commission non-paper is nonetheless acknowledging its critics. It discusses
two future models for EU trade agreements. An assertive model and a
sanctionbased model. The assertive model is consistent with the EU (and WTO) script. The
EU continues to work with an integrated sustainability policy but aspires to
strengthen its policy by, for instance, improving monitoring of implementation,
prioritize quicker responses to allegations of non-compliance, enhancing
transparency of complaints, improve precision and priorities of country-specific
8 For instance, in their recent comments on the modernization of EU trade agreements (in this case the
Chile-EU agreement), the draft of parliamentary International Trade Committee recommended that: ‘‘…
to ensure that the modernized [EU trade agreements] contains a robust and ambitious [Trade and
Sustainable Development chapters] that includes binding and enforceable provisions, subject to dispute
settlement mechanisms, with the possibility of imposing sanctions in case of breach; considers that the
TSDC should cover, among other things, the parties’ commitment to adopt and maintain in their national
laws and regulations the principles enshrined in core ILO conventions and to effectively implement
up-todate ILO instruments’’
(European Parliament 2017, section x, 13.6.17)
strategies, step up monitoring at government level, and adopting a ‘result-oriented,
regular dialog’ with trading partners. These elements of a more assertive EU is in
essence quite consistent with the EU script. It is also consistent with the WTO order.
It still reflects the postwar consensus on trade in Europe. Sustainability benefits from
dialog with internal and external stakeholders and consultations between
governments, following a more flexible, differentiated approach, rather than confrontation
and hard enforcement.
Yet, the Commission admits that existing trade-related sustainability instruments
can be used ‘more assertively, including dispute settlement’
(EU Commission 2017:
. This category of potential improvements remains unspecified. This is discussed
in the latter part of the paper, under the heading of the sanction-based approach. The
scenario is that the EU in the future may introduce a dedicated dispute settlement
mechanism on sustainability issues, including state-to-state consultations, a panel
procedure, a public report, and the possibility to apply sanctions in case of
noncompliance. It suggests the possibility of adopting the US script, making it
mandatory to enforce domestic labor and environmental laws, and inserting clauses
prohibiting the lowering of relevant sustainability standards. This would, admits the
Commission, lead to a better and faster handling of stakeholders’ complaints on
TSD implementation. Upon reflection, the non-paper remains skeptical towards the
actual effectiveness of such an approach.
A sanction-based approach would undermine the current EU strategy of
reinforcing the work within the relevant multilateral institutions relating to
sustainable development. It would bypass the ILO supervisory mechanisms. It
would undermine existing partnerships as well as trade agreements. It would
provoke many developing trading partners, who would be inclined to perceive these
as ‘confrontational tools’ and thus ‘jeopardize long-term links with partners’.
Nonetheless, the Commission also concludes that a shift towards sustainability
sanctions could make trading partners ‘‘… more willing to strengthen legislation or
improve effective implementation of labor and environmental standards if there was
a risk of economic consequences. The history of WTO dispute settlement in general
shows that such consequences can have an impact. This aspect of effectiveness of
sanctions in the context of an FTA would require further analysis.’’
. The domestic sources of EU leadership on sustainable trade have changed.
Contrary to the US, the frame of multilateral trade liberalization and the script of
cooperative promotion rather than sanctions remain intact. Yet, the policy room for
institutional leadership seems to be narrowing in Europe on the issue.
The clear definition of legitimacy, authority and procedures in the liberal WTO order,
by separating states from non-states in the trade governance, especially in
enforcement, is blurring. This could reflect a deeper transformation of the institutional
compromise between multilateral, sovereignty and market liberalization.
Institutionalized hegemonic leadership, understood as control over a particular site beyond the
liberal order, may overshadow institutional facilitative leadership, meaning global,
consensus-based cooperation within the liberal order. It is still much too early to tell
whether this is the case in global trade today. The dominant source of leadership
appears to have returned to the domestic sphere, marginalizing international courses of
leadership. The precise design on the new generation of FTAs is at the time of writing
unclear. Cracks are emerging but the complex is also robust. The EU appears firmer
orientated towards the liberal WTO order, So far, the enforcement provisions on
sustainable trade standards on third parties seems firmly conditioned by the order. The
wording of existing EU trade agreements are kept at a WTO-consistent, non-binding
format. It accepts the absence of consensus on the issue. It acknowledges the concern.
However, there is a growing crack between the soft, multilateralist-minded
approach of the Europeans, shared by most other trading WTO members, and the
harder approach of the Americans. Again, two trade agreement scripts appear
colliding. While the domestic sources of EU leadership on sustainable trade is
transforming, it has not transformed yet, and it is most likely to remain consistent
with the past leadership, if European integrations stays on path. The Europeans
continue to defend a sovereign-sensitive method in a WTO-consistent manner,
compared to the US under President Trump, but the current policy debate points
towards serious reconsideration of the EU script, inspired by the US sanction-model
of enforceability. A complete order transformation, a turn to forum shifting, remains
a potential danger. The turn to unilateralist, even neo-mercantilist, sentiments in
especially US trade politics, and subsequent threat of renegotiating of all US trade
agreements, may well pit the American script of preferred route, with its
domestically controlled hard legal powers up against the multilateralised,
courtmodeled and more diplomatic-minded European script.
What is increasingly evident is that the learning dynamics of the system is
changing. The international sources of leadership appears bypassed in the current
trade disorder. Institutional leadership can ensure workable compromises on e.g.,
legitimate exceptions to trade liberalization, subject to ‘necessity test’ of the GATT
article XX that stipulates precise legal requirements of justifying a departure from
the international rulebook. Certainty about such legitimate policy exceptions are
needed. The domestic sources of leadership cannot be ignored. All states have the
right to regulate market liberalization, although not all states are in a position to do
so. It is importance to foster mutual learning, enhance transparency and devise
solutions to common problems by nurturing institutional leadership. In this case, an
important source of leadership on sustainable trade has been WTO case law, ILO
monitoring and CSR reporting, signaling precisely what the legitimate exceptions to
market liberalization are, to ensure that domestic policy expectations are made
compatible with international commitments.
Jens L. Mortensen is Associate Professor at the Department of Political Science, University of
Copenhagen. He holds a Ph.D. from the European University Institute, Florence. His research interest lies
in global trade issues relating to EU, the WTO, sustainable trade and bilateral trade negotiations. He has
also publicized work on soft power, two-level games, climate politics, and the legalization of trade
governance. He is frequently contributing to the trade debate as commentator and expert on trade issues.
Relevant publications include ‘‘WTO oversight over bilateral agreements: from a notification to an
(in TTIP in a multipolar world—Global impact of an evolving transatlantic
relationship, Ashgate, 2014)
, ‘‘Responding to new powers: The EU and global trade policy’’, European
Policy Brief, 2014), ‘‘Seeing like the WTO: Numbers, Frames and Trade Law’’
(New Political Economy,
vol. 17, no. 1, 2012, pp. 77–95)
, and numerous Danish publications on EU trade politics, in particular
TTIP and CETA.
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