7
This book has been concerned, above all, with the pressing threat of climate change. But the central themes we have explored throughout—from the failures of uniform, global solutions to the urgent need for more context-sensitive and accountable experimentalist policies—bear on a far broader range of problems. In this final chapter, we examine how international trade, facing many of the same challenges as climate change, is beginning to develop experimentalist responses as well. We conclude by calling for a new globalization, arrived at piecemeal, in which greater openness to cooperation in the fight against climate change goes hand in hand with more attention to the dislocating effects of trade.
The parallels between climate governance and trade governance are striking. We have argued that the real work of climate change is done in sectors; the same is increasingly true in trade, as we will see in a moment. Moreover, the top-down consensus decision-making that has stifled adaptation in climate change governance has slowed adaption in trade even more. In both domains, the failures of global diplomacy and presumptions of technocracy have left pressing problems unsolved, and bred public mistrust of global institutions. The Paris Agreement greatly loosened those constraints in climate, but it did not create anything approaching a complete, workable alternative. A similar—if less dramatic—movement to loosen the grip of consensus has been unfolding within the WTO as well, and in the WTO, this rejection of the old regime is going hand in hand with the construction of a new one.
At the same time, pressure for the more direct integration of trade and climate regimes is increasing. As commitments to decarbonization in the advanced countries become more and more ambitious, and public pressure for enactment grows, so too does concern that investments in green products and production technologies will be undercut by imports of dirty technology. Alongside episodic efforts to establish penalty defaults, energy-intensive sectors such as steel, cement, and fertilizer have been organizing a systematic demand for a trade regime that conditions market access on respect for the evolving green standards.
How this integration should occur, if at all, is an open question. At one extreme, the imposition of green standards could be little more than a pretext for maintaining the protection of vulnerable domestic producers against lower-cost foreign competitors. At the opposite extreme, an experimentalist process of exploratory standards setting could be adopted sector by sector, using the institutional capacities for continuous monitoring and self-revision needed for decarbonization to remedy the accountability as well as responsiveness problems that beset globalization today. In between these two poles might be a purpose-built trade regime that harks back to Kyoto, and—ignoring what we see as its failures—uses market mechanisms to recover from dirty foreign producers the difference between what they spend on pollution reduction and what they would have spent to meet the higher standards of the export market.1
Our vote, of course, is for the experimentalist solution: an integration of trade and climate change adapted to uncertainty, and accountable to a public rightly suspicious of technocratic elites. Linked in this way, a trade and climate regime contains the germ of an alternative globalization that takes to heart the failures of the current one.
Globalization and Its Discontents
Kyoto was an expression of the international interval—brief, as it turned out—between the fall of the Berlin Wall and the rise of China as a great power in which it seemed plausible that in matters of global scope, the world should be subject to a single set of binding rules, administered by experts and responsive to markets. The formation of the WTO in 1994 marked both the high point of this movement and the end point of the postwar economic order’s progression from cautious avoidance of the beggar-thy-neighbor policies that deepened the Great Depression of the 1930s to aggressive support for global free trade.
Yet almost from the moment it was put in place, the WTO came under attack from those that feared the disruptive effects of expanded trade under technocratic direction. The most vociferous and sustained opposition came from the “losers” of globalization: working-class communities in advanced countries that collapsed as jobs were outsourced and cheap labor was integrated into global supply chains. In time, the frustration of these communities, and their disappointment with the elites and political parties, coalesced into a populist revolt that is reshaping politics in advanced democracies.
In fact, the technocrats did fail these communities. Experts were confident that the overall gains of globalization would outweigh the costs—and that the losers were best compensated by ex post facto redistribution, not inefficient protection of their jobs and markets, which would only reduce the surplus available to them. Confidence in what theoretically had to happen dulled curiosity about what actually did. And even as the decline of industrial communities became unmistakable, trade was manifestly not the only cause. Technological development played an important role too as routine jobs—often an important rung on job ladders in mass production factories—were automated away.2 Though it is now clear that trade dislocations—particularly exposure to Chinese imports—had an independent and detrimental effect on industrial communities in the United States, for a time it was hard to know whether trade was much of a problem at all.3 Either way, whether from overconfidence in their own claims or professional scruples about the ambiguities in the data, political and economic elites neglected the trade dislocations that decimated the towns and cities of the old industrial economy. Poverty and hopelessness exploded in these communities. Older, male workers were scourged by “deaths of despair” through drugs, alcohol, and suicide.4 Historians of the future will have the grim task of understanding how this could happen in country after country whose elites vaunted their commitment to democracy and shared prosperity at home even as they hoped that global trade would benefit the world’s poor.
An Inevitable Disaster: The Globalization Trilemma
On a deeper view, though, the devastations of globalization were not just an accident waiting to happen, given the inattention of the elites, but rather a catastrophe foreordained by the incompatibility of the goals of a technocratically managed commercial world order.
This is the thrust of economist Dani Rodrik’s characterization of globalization as a trilemma, which says we cannot have democracy, globalization, and the nation-state all at once.5 The trilemma starts with nation-states, governed more or less democratically. Recognizing that global markets, like all markets, require a regulator to specify the minimum characteristics of the products allowed into commerce and the processes by which they are made, the nation-states authorize the creation of the WTO. As the global regulator, the WTO can be either democratic, reflecting the plurality of values that historically condition commerce in the democratic nation-state (the equity of partners in an exchange, and a concern for the environment and other externalities), or technocratic, focused on minimizing market friction.
This spare framework is enough to demonstrate that if we pursue globalization, we must sacrifice either democracy or the nation-state. Suppose the global regulatory regime is centered in a technocratic body, established by treaty among states, but only remotely accountable to them. In this case, the nation-state persists, but democracy must defer to the technocratic decisions that foster globalization. This is the condition that approximates what we actually have. Rodrik calls it “hyperglobalization”: the global market becomes almost as uniform as a domestic one and therefore cannot accommodate the plurality of values that legitimate exchange in different places.6
Alternatively, imagine that the global regulator is democratically responsive to a global polity. In this case, there is global trade and (global) democracy, but the nation-state as we know it disappears, for the global polity has supplanted the nations. If we choose to safeguard democracy in the nation-state, finally, we must sacrifice global trade as there is then no place for a global market regulator, and no workable market without one.
Given these inherent limits of globalization, Rodrik argues, the real choice we face is between the current technocratic regime—and the waves of antiglobalization it provokes—or a return to pre-WTO rules of trade, which prevented the cascades of protectionism that destroyed world trade in the 1930s, but otherwise left each nation-state largely free to regulate itself. On this view, it will often (but not always) be in the self-interest of a nation to reap the benefits of specialization that come with trade. But either way, it is the nation that decides—market by market, not as an all-or-nothing choice between joining a uniform, global trade order and economic isolation—when trade makes sense, and it is the nation, not the other countries of the world, that bears the consequences of its decisions.
Where does the international response to climate change fit in this scheme? Although self-interest generally leads nations to participate in trade, Rodrik asserts, free rider and other familiar collective action problems cut the other way in climate matters. Precisely because the atmosphere is a commons and nations are not directly exposed to the consequences of their actions, Rodrik contends, they will do nothing in the absence of an agreement that binds them all. Correcting the excesses of hyperglobalization would thus require the reconstruction of the trade regime, and if there is the global political will for it, the creation of a climate regime alongside it. For better or worse, addressing the problems of trade leaves the problem of climate change untouched.7
The Decline of Tariffs and the Rising Importance of Nontariff Measures
As we see it, this understanding of trade is incomplete, and this partiality obscures possibilities for reform that could increase the national control of trade agreements as well as put the authority and resources of the WTO behind the global response to climate change. Indeed, at the same time that the trade regime came under massive pressure from outsiders, it was being changed from within by its very negotiating successes, and reshaped by the changes in the organization of the form and nature of the regulation described in chapter 3. Together these changes are refocusing trade on sectoral concerns in ways that respond to the accountability problems highlighted by the globalization trilemma and that facilitate the institutionalization of experimentalist decarbonization regimes of the kind portrayed throughout this book.
Regulatory concerns traditionally play second fiddle to tariffs and fees as factors in trade negotiations. Their relative insignificance is reflected in their generic characterization as nontariff measures. Successive rounds of trade negotiations, beginning in the early postwar period, well before the formation of the WTO, and continuing under its auspices, however, have reduced tariffs to nuisance levels, which the WTO glosses as so low that the cost of collecting a tariff exceeds the revenues. Meanwhile, the speed of innovation along with the growing complexity of products and supply chains have heightened the risks of latent hazards, exposing the regulation of international commerce to a distinct form of the same kinds of pressures faced by domestic regulators. Trading partners have found ways to address these concerns, but their solutions fit poorly within the formal structures allowed by the WTO, and the tension between the growing need for accommodation and the rigidity of the response generates pressure for reform.
At a minimum, to address nontariff measures, partner countries have to agree to formally list these kinds of risks as requiring attention and update their lists as circumstances change. But beyond this agreement, monitoring trade requires mutual confidence that dangerously nonconforming products trigger appropriate alarms. The inner mechanisms of regulatory systems—their inspection routines, incident reporting systems, and recall alerts—must come to similar conclusions about similar situations, regardless of the differences in working methods. To achieve this kind of demanding, regulatory equivalence, trade partners regularly review one another’s inspection practices or carry out joint reviews—the kind of peer reviews by which, as we saw in chapter 3, organizations learn from their differences. For example, in a particularly well-developed variant—the 2011 Bilateral Air Safety Agreement between the European Union and United States—each regulator can certify conformity to design requirements or maintenance standards on behalf of the other. This experience is the basis for mutual influence in standard setting, yet each party, after exhausting a complaint and review mechanism, can withdraw approval (of a part) of a standard with whose development it has come to disagree.8
Such peer review regimes have emerged in areas like food safety, civil aviation, and pharmaceuticals, where the concern for hazards is most acute. They have also arisen between advanced countries, particularly the United States, Japan, and the member states of the European Union, where the public demand for safe products typically outruns the requirements of the international standards that govern trade in a specific product. Most often regulatory equivalence is established among members of a preferential trade agreement (PTA): a regional trade bloc whose members impose higher standards on themselves and exclude goods from nonmembers that do not meet them. The European Union is an exemplar in this regard, having expressly established agencies to use contrasting, national regulatory practices to establish and continually update unitary frameworks for equivalence in the single market, such as in food safety.
But the WTO, as the guardian of a single, integrated trading system, has made it difficult to form PTAs. WTO rules require that PTAs involve “substantially all” the trade among potential members. In effect, the agreements are meant to be as comprehensive regionally as the WTO aims to be globally. PTAs are agreed on after years of negotiations and countless horse trades, usually conducted in secret under expedited or “fast-track” conditions to make it difficult for damaged interests to coalesce against the deal. This secrecy, though, has made PTAs the emblem of the unaccountability of large trade deals. Negotiations that were unwieldy to begin with are frequently today a political impossibility.
All together, these developments—the obstacles that consensus decision-making poses for responding to nontariff measures, the intrinsic difficulty of entering into PTAs, and the political opposition they currently provoke—are redirecting efforts to reform the world trade order. With much of the WTO hamstrung by geopolitical conflict and the weight of outlived routines, the initiative is passing to small groups of willing innovators, concentrating on adjustments in sectors or problem areas rather than comprehensive agreements among many actors. At the WTO’s December 2017 Ministerial Conference in Buenos Aires, this shift became public as groups of member states launched “joint statement initiatives” in e-commerce, the domestic regulation of services, investment facilitation, and measures to build the capacity of micro, small, and medium enterprises to utilize trade opportunities. The activists were small, sophisticated countries such as New Zealand, Switzerland, and Singapore, which live by trade and have often been at the forefront of movements for the reform of international standards.9 Parties to these initiatives will restrict the imports of goods that do not meet the requirements they are setting without first obtaining the approval of all 164 WTO members, as the organization’s rules would normally require.
The Buenos Aires meeting thus quietly marked the same break with top-down, consensus decision-making celebrated in climate change two years earlier in Paris. But where Paris, as we saw, ended by declaring the bankruptcy of the Kyoto approach, leaving the construction of an alternative for later, Buenos Aires went further; in practice, the joint statement initiatives are concretizing a new kind of trade instrument—the open plurilateral agreement (OPA)—that can address the accountability deficits of globalization and revitalize the WTO. This same platform could be used to construct sectoral, experimentalist regimes for decarbonization.
Open Plurilateral Agreements: Resolving the Trilemma
OPAs are bi- or multilateral agreements authorizing regulatory authorities in a particular domain to open the domestic market to the goods or services of other member countries—provided that the traded goods meet evolving national standards and that countries that do not yet meet the shared requirements may become parties to the agreement when they do.10 Beyond breaking with the WTO’s consensus requirement, OPAs differ from PTAs in three key ways, each of which can help restore public confidence in trade negotiations under WTO auspices.
First, OPAs are domain specific, not comprehensive trade deals like PTAs. There is no possibility for a lobby to protect its interest in one sector by securing a concession in another, and because such horse trades are impossible, there is no reason to guard against them by keeping trade negotiations secret. If public values are being sacrificed for commercial interests, the public will see it happening and can react.
Second, where PTAs are detailed agreements—fixing the terms of trade for the foreseeable future, subject to marginal adjustments—OPAs establish frameworks for continuing the reciprocal review of existing regulatory standards and their implementation. These institutional routines will bring the unexpected and troubling effects of trade agreements on communities and industries to light, or at least make it less likely that elites, in a repetition of the recent past, are more or less accidentally inattentive to the consequences of their advocacy.
The third difference between PTAs and OPAs concerns their openness to new members. To accede to a PTA, a new member must agree to all the terms of the elaborate compromise struck by the original signatories. PTAs are thus in practice closed agreements.11
By contrast, because they are domain specific, accession to OPAs requires of a candidate country only the narrower commitment to meet the regulatory requirements that apply to the particular class of goods and services for which it seeks market access. That commitment, too, can be tailored to reflect the candidate’s circumstances. As members of an OPA require only equivalent performance—not identical procedures or institutions—in conformance testing, standards setting, and enforcement in each domain, candidate members can achieve the required regulatory outcome by the process best suited to their own traditions and conditions. Similarly, they can enter an OPA stepwise—establishing the equivalence of methods in one product, then another, and another—so that trade expands and collaboration deepens even when the full equivalence of regulatory systems is a distant goal. To aid the entry of new members, OPAs also provide technical support. Under the Trade Facilitation Agreement, a precursor to the joint statement initiatives concluded in 2013, developing and least developed countries falling behind the implementation deadlines for improving customs practices can evaluate their own difficulties. An expert secretariat then reviews this self-assessment to determine eligibility for support.12 The procedures are similar to those used by the MLF to support the transfer of ozone-safe technology to developing countries under the Montreal Protocol and could, as noted in the last chapter, serve as a model for the provision of technical adjustment assistance under the Paris agreement as well as in OPAs.
Acknowledging the legitimacy of OPAs could gradually transform the nature of the WTO itself. Today the WTO is a forum for preparing the (re)negotiation of comprehensive trade deals that arouse public suspicion, with a dispute resolution system in the Appellate Body, whose legitimacy is questioned by key member states. This could change if regulatory differences continue to gain importance in trade agreements and the WTO becomes hospitable to OPAs—not just recognizing their legality, but reviewing and guaranteeing the integrity of their operation, and creating facilities for technical support services to candidate members. For example, the Appellate Body could review decisions by the current members of an OPA to reject a candidate’s methods as not equivalent to their own; the precedents thus established could accumulate into a jurisprudence assuring that OPAs are truly open to new accessions. In this way, a WTO hospitable to OPAs could, gradually to be sure, become less the impresario of suspect deals administered by its own technocrats and more the guarantor of trade relations that nations enter into deliberately, knowing that misjudgments can be caught and corrected.
These three features also make OPAs ideal platforms for the development of experimentalist decarbonization. First, in both trade and climate regimes, the basic organizational unit is the sector—conceived of as a flexible problem-solving unit whose exact configuration depends on the (changing) nature of the problem to be solved. For some purposes and in some circumstances, for example, steel, cement, and fertilizer might be grouped in a single OPA. Second, the framework character of OPAs—and their congenital openness to revision—make them particularly well suited to the collaborative, technology-forcing standard setting at the heart of experimentalist innovation at the frontier. In both trade and climate regimes, standards support both coordination and exploration, and they are made to be revised. Finally, the support and new member provisions of OPAs resonate with the experimentalist destabilization of the status quo through penalty defaults in coordination with technical aid. Trade and climate regimes recognize that mastering novelty is hard. It must be learned rather than simply willed; there will be mistakes and delays along the way.
Beyond Sovereign Self-interest
Piecing together a trade regime from sectoral OPAs points then to the beginning of a resolution of the globalization trilemma asserting the incompatibility of national states, democracy, and orderly global trade. A regime of OPAs breaks with the uniform rules of hyperglobalization. There is no single, global regulator which, if technocratic, displaces democracy, or, if democratic, displaces the nation-state. In globalization by OPAs, regulation is negotiated market by market, under conditions that allow and encourage each state to make deliberate, democratic decisions about whether and under what conditions to trade.
But in restoring sovereign control over participation in global trade, a regime of OPAs does not fully return to a world of jostling sovereign nations, connected only by the temporary coincidence of their interests and constantly at risk of sliding into unregulated chaos. Invited to join an international order that it can in some measure shape to its condition and ambitions, a nation is called to consider what it could and will be as much as what its history and values command. The burdens and opportunities of interdependence can thus enlarge the traditional understanding of sovereign self-interest. The sovereign state is prodded to see itself neither as an unconstrained actor, answering at best to its people, nor as part of a postnational cosmopolitan order. Instead, it is part of a community of nations struggling to make sense of their differences as they define common projects.
The searching process by which China came to adhere to the Montreal Protocol in the early 1990s, described in chapter 2, was a flash-forward showing of how engagement with an accommodating world can favor this enlarged understanding of national self-interest. With the Chinese government itself deeply divided on joining the treaty, the national environmental regulator was asked to convene a comprehensive review. Finding that adjustment would be valuable but costly, and that phasing out ODS would strain the government’s capacities, China made its agreement to the treaty conditional on the provision of financial support coupled with technical assistance in institution building. Those demands, backed up by similar demands in many other emerging countries, culminated in the creation of the MLF and its provision for collaboration in improving the “policy” and “institutional” frameworks of developing country parties to the treaty. What China, with its substantial resources and foresighted government, did exceptionally would become more universally accessible and routine in a world of OPAs, especially if support is provided in the early phases of the adhesion process.
We understand of course that the availability of more accommodating trade and climate regimes does not ensure their acceptance. No one today needs to be reminded of the ease with which democratically elected governments reject cooperation with outsiders as a betrayal of their values and a threat to their integrity. But even if some countries summarily reject OPAs as another ruse of technocracy, others will welcome, or be unable to avoid, the opportunity to ventilate domestic political differences; having gone that far, some will convince themselves to join the new arrangements. Their example will make it harder for subsequent holdouts to dismiss discussion out of hand. A regime that creates the pressure and opportunity for such national discussions is, in any case, much to be preferred to the current one, which all but incites rejection by forcing a choice between cooperation at the price of national values or the assertion of those values at the price of isolation.13
The trade regime and the climate change regime are at the same crossroad. Global solutions based on uniform rules under the direction of technical elites have failed in both. Our hope is for an alternative, pieced together from partial, more nearly local experiences, and more accountable and effective than the current regimes because it encourages deliberate, broad, and collaborative searches for solutions to urgent, concrete problems—and because it recognizes that those solutions too will need to be corrected in light of the experience of those who live under them. This book has tried to give a name to this organized combination of open-minded determination and humility in our dealings with the planet and one another: experimentalism.