The growing rate of international trade is the most visible indicator of international economic interdependence with the overwhelming success of Liberal International Economic Order (LIEO). Alongside, states have become worried that this interdependence may lead to compromise their sovereignty. As international trade relates to international negotiations, international treaties and the trade policy decisions of these sovereign governments, a large number of political factors have an enormous impact on the pursuit of gains from trade.
International trade is an extension of the reasons for trade within a nation and the most obvious reason is specialization. Individuals specialize in the jobs they do, firms specialize in the goods they produce as well as countries specialize in certain goods they produce. Then countries tried to maximize gains through international involvement in trading with each other. British political economist, David Ricardo, claimed that when all states specialize in goods in which they have a comparative advantage, a net gain for both partners will result. This law of comparative advantage has become the most important factor for explaining the benefits of free trade and economic interdependence among national economies. Liberal economic theory emphasizes the cooperative side of human nature, commitment to free trade and minimal government intervention.
At the international level, a liberal international economy have a moderating influence on international politics as it creates bonds of mutual interests and a commitment to the status quo. (Gilpin, 1987) However, “invisible hand”, a metaphor used by eighteen-century political economist, Adam Smith, can only maximize efficiency to pursue gains from trade. It does not mean that these gains will be equal. In fact, the gains from international trade may be distributed unequally.
This inequality issue leads to an important debate about the politics of World Trade Organization (WTO), an organization that was created to monitor the implementation of trade agreements and settle disputes among trading partners. Since the late 1940s, a series of multilateral trade negotiations were conducted under the sponsorship of the General Agreement of Tariffs and Trade (GATT). It is designed to promote and protect free trade that rests on the most-favored-nation (MFN) principle. It says that a trade concession granted to one member must be granted to all. As a result, countries had to agree to apply the MFN principle towards others when they became members of GATT and its successor, WTO. (Kegley & Wittkopf, 1997) Nevertheless, MFN principle facilitates the exercise of power by the richer states to the poor countries. As a result, the idea of developing countries that have consented to what is done in their name in the WTO is questionable. (Bromley, 2004)
Indeed, consent is the basis of domestic politics and at the domestic level; the nature of politics is based on either consent or co-ordination. In contrast, the nature of politics is based on coercion by the powerful at the international level. Moreover, states are sovereign and the international system is a combination of these sovereign states. So it is clear that sovereign states have the rights to determine their domestic affairs and they have no dependence on international rules that have not consented to. However, it was argued that the creation of international rules have intervened into some areas of the sovereign states. (Narlikar, 2004)
Moreover, unlike domestic politics, international political structure is based on the relative power of the states. There are three conventional models of power such as sovereignty model, commodity model and repressive model. The sovereignty model equates power with rule and law; the commodity model casts power as tangible and transferable and the repressive model assumes the action of power to be only negative and repressive. (Brown, 2006) Among them, the sovereignty model is the common political notion of power and it is thought to be exercised over others by sovereign individuals and institutions. So international politics basically involves states striving for coercive power and there is no government order to overarch authority internationally. Indeed, it is characterized by anarchic system.
According to Waltz’s theory of international politics, anarchy leads to the logic of self-help in which states seek to maximize their security. Self-help is the principle of action in an anarchical system where there is no global government. (Dunne & Schmidt, 2005) Waltz created a realist model that developed the structure of international politics. For him, the principle of organization is hierarchical at domestic system; however, there is no hierarchy between and among states. He also suggested that market relations and specialization and vulnerability they entail operate best under a kind of protection (Bromley, 2004). Subsequently, he mentioned that international political system is given by the distribution of powers across the states. So it can be claimed that the rules and institutions to regulate state interactions are determined by power structures.
In terms of pursuit of gains from trade, this model can clearly explain why there has been a frequent failure of co-operation to make and implement trade rules in the context of trade liberalization. Trade liberalization refers to the reduction or abolition of barriers to trade such as tariffs, quotas and other trade restrictions (Bhattacharjea, 2004) In fact; the imposition of trade restrictions actually imposes double distortion on the economy. When domestic price level deviates from the price level at which the economy can trade with the rest of the world, the economy produces at a sub-optimal production point, leading to income loss. Moreover, it also leads to a sub-optimal consumption point and further reducing the welfare level (Marrewijk, 2007). To avoid these distortions, multilateral trade negotiations have taken place since the signing of GATT and various attempts have been conducted to reduce trade restrictions. WTO was born from the eighth in a series of these negotiations.
However, trade liberalization actually leads to more poverty gaps and social disruptions. As state interactions within WTO activities are determined by power structures, as Waltz’s model shows; the richer states have become winners and the powerless states losers. Furthermore, the framework of trade-liberalization is rule-bound, rather than simple co-operation. As a result, there has been the frequent failure of co-operation on the pursuit of gains from trade. Waltz’s model accounts for this frequent failure with two implications.
The first implication is related to sovereignty and interdependence. As the gains from cooperation arising from specialization, it can create a condition of interdependence that may compromise the sovereignty and security of the states. In fact, interdependence is a condition of mutual sensitivity and mutual vulnerability. Sensitivity means that changes in one society can be easily transmitted to another through mutual interactions and governments do not have an immediate impact on these reverberations. Accordingly, vulnerability also means that changes in the rules and regulations of one state affect another. (Keohance & Nye, 1989) So it is clear that the worries of state to be threatened by interdependence limits to the successful international co-operation.
The second implication is related to the distribution of relative power. According to Waltz, it can be claimed that even the prospect of large absolute gains among parties do not elicit their co-operation so long as each fears how the others will use its increased capability (Waltz, 1979). States that have to guarantee their own self-preservation may not have a willingness to co-operate if the outcomes will decrease its relative power.
Therefore, it is obvious that a large number of political factors may have an enormous impact on pursuit of gains from trade. Liberals like Adam Smith, David Ricardo promote free trade among nations and structural realists like Waltz identified the limits to international co-operation. In my point of view, the most important essence is the political decisions of the states whether to compromise sovereignty and security for gains from trade.
References
Bhattacharjea (2004) “Playing by the rules? Developing countries in the world trade regime” in Bromley, Machintosh, Brown & Wuyts (eds) Making the International: Economic Interdependence and Political Order, London: Pluto Press
Bromley (2004) “International Politics: States, anarchy and governance” in Bromley, Machintosh, Brown & Wuyts (eds) Making the International: Economic Interdependence and Political Order, London: Pluto Press
Brown (2006) “Power after Foucault” in Dryzek, Honig & Phillips (eds) The Oxford Handbook of Political Theory, Oxford: Oxford University Press
Dunne & Schmidt (2005) “Realism” in Baylis & Smith (eds) The Globalization of World Politics: An Introduction to International Relations, 3rd edition, Oxford: Oxford University Press
Gilpin (1987) The Political Economy of International Relations, Princeton, N.J: Princeton University Press
Kegley & Wittkopf (1997) World Politics: Trend and Transformation, 6th edition, New York: St.Martin’s Press
Keohance & Nye (1989) Power and Interdependence, 2nd edition, Glenview I11: Scott, Foresman/ Little Brown
Marrewijk (2007) International Economics: Theory, Application and Policy, Oxford: Oxford University Press
Narlikar (2004) “Who makes the rules? The Politics of developing country participation and influence in the WTO” in Bromley, Machintosh, Brown & Wuyts (eds) Making the International: Economic Interdependence and Political Order, London: Pluto Press
Sloman (1999) Economics, 3rd edition, Prentice Hall