Dani Rodrik, Joel Trachtman and domestic policy space - Yes and a No?

I have often raised the issue in this blog about WTO  and domestic, regulatory policy space. Do the WTO Agreements unreasonably restrict policy space for nations to implement their policies? Are the restrictions to policy space justified? Is there sufficient scope within the contours of the various agreements to pursue one's domestic agenda? Do the provisions in the TRIPS Agreement , Agreement on Agriculture  and SCM Agreement  violate a country's sovereign control over domestic policy making? Critics of the WTO argue that the nation state's influence is withering away due to globalised trade rules and are losing their power and significance. They challenge multilateral trade rules as an infringement of sovereignty and democratic governance.On the other hand, supporters of the globalised, rule based multilateral system argue that these rules are not unreasonable and do not infringe upon country's ability to govern. They only reduce the barriers to trade and restrict unfair "protectionism" which is detrimental to the globalised economy.

Prominent amongst the critiques of unhindered globalisation is Dani Rodrik  who argued that hyperglobalisation, democracy and national autonomy cannot go together. I have blogged about his views earlier here and here. In his book "TheGlobalisation Paradox" the central argument, although not framed as such, operates as a critique of international law. He advocates a strictly limited role for international law relating to globalization, providing “traffic rules” for international trade, but avoiding other constraints on national policy prerogatives. Joel Trachtman  counters this by arguing that WTO as an institution as well as the multilateral legal framework does allow nations to pursue their domestic policy choice to the extent that they are not discriminatory or protectionist. I found several paras in this response  of Joel Trachtman that addresses some of the issues of the trade-off between multilateral rules and domestic policy choice.

"Rodrik suggests that today’s World Trade Organization is heading toward this kind of domination in order to promote hyperglobalization, in which domestic economic management is made subservient to international trade and finance. This seems seriously overblown. The WTO is not a “them,” but an “us”; in the vernacular of Geneva, it is a “member organization.” It is composed of states, and no treaty rules are established unless each state agrees. Each state agrees through its own system of ratification, which incorporates the democratic accountability that that state determines is needed. What is the mechanism by which this will result in an imperial WTO, suppressing the autonomy of its member states?

Existing WTO rules are far more respectful of national autonomy than Rodrik concedes. WTO rules only selectively constrain domestic economic management, only do so in ways that states have agreed, and have only very small impacts on policies that are neither protectionist nor mercantilist (by “mercantilist,” I mean government policies that are designed to promote exports).

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It is entirely natural, efficient, and consistent with national autonomy that states contracted with one another to reduce the scope of policy externalities where the national intervention is not motivated by ordinary domestic goals, but by opportunities to achieve domestic protectionist goals at the expense of foreign persons. This is the “virtual representation” role of international law. The purpose of trade law in this context seems to be to allow states to agree to avoid creating these inefficient policy externalities, not to force all states to dance to the same tune.Furthermore, as suggested above, the entry of states into the WTO was an expression of their democratic politics. Moving forward, states may withdraw from the WTO at any time, so the continuing membership of states in the WTO is, in a sense, a continuing expression of their democratic politics. Finally, and perhaps more importantly, the structure of remedies for violation of WTO law allows states to simply violate their WTO commitments in exchange for suspension of concessions or other obligations in a substantially equivalent amount—the remedy is simply a re-establishment of a reciprocal level of liberalization. Democratic politics is empowered to change its mind, but you cannot keep concessions that you do not pay for with reciprocal concessions.

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In conclusion, it is necessary to recognize fully that international law can be understood as a servant of national autonomy, and of national welfare maximization. Of course, there are circumstances in which international law is formed in a way that seems coercive or ill-considered, but then it is incumbent upon us to address the underlying coercive structure or the analytical basis for international law initiatives, rather than to suggest that international law should not be used. Its potential as a tool of welfare enhancement is too great for states to abjure its use."

Do the WTO Agreements give adequate policy space to countries to maintain domestic regulatory independence? It is necessary to analyse each of the various multilateral agreements to come to a conclusion either way. While there is no doubt that on certain principles (national treatment and most favoured nation treatment) domestic policy space is restricted, the Agreements do give countries the flexibility to act based on their perceived "national interest" as long as the measure is not "protectionist" or "discriminatory" between imported and domestic goods. 


Can these provisions be considered as some examples of exercise of domestic policy space within multilateral trade rules:

1. General exceptions under Article XX of GATT and other exceptions under various Agreements 
2. Anti-dumping measures
3. Safeguards Agreement
4. Non-actionable subsidies under the SCM Agreement
5. Legitimate objectives under Article 2.2 of the TBT Agreement

In other words, though unreasonable restrictions to trade and protectionism is prohibited under various provisions of the WTO Agreements,there are various provisions which provide for countries to take measures to protect domestic interests. If one perceives raising tariffs or imposing quantitative restrictions or providing export subsidies as per se a sine qua non of domestic policy space, then the WTO would be viewed as infringing these rights. However, if reduction of barriers to trade and removing unfair conditions of competition are considered apriori necessities, then the Agreements do have an element of providing sufficient policy space to regulate. Further, in many areas of domestic policy space like education , health, public provisioning of infrastructure the WTO has no say and influence. The State can continue to implement policies that suit its local needs and are considered approriate. For example, how much and what kind of public investment in education as well as to what extent the State should provision it is outside the realm of the WTO. However, subsidies (when they relate to exports or favouring local content vis a vis imported goods) come within the purview of the WTO rules. Hence, when we speak about domestic policy space we need to qualify our statement that in certain areas of domestic regulation the ambit of multilateral trade rules do have a bearing. This is not to imply that the WTO has a hegemonic influence on all national, domestic policy imperatives. To imply that would be simplistic. Supporters of the multilateral system as an effective instrument of international law would argue that the State is after all a willing party to it and has come in with consent and has "contracted" out part of its sovereignty.  Critics would nevertheless say that the issue of how much this "consent" is free or driven by 'circumstances" is debatable. 


Nevertheless, the Dispute Settlement mechanism (DSM) is another example wherein a rule based system overpowers power relations. In the DSM a developing country can win a case against an influential developed country which could result in a "domestic" policy choice of a developed country being overturned. Ofcourse there are issues on the efficacy and efficiency of the remedies under the DSM, but it is recognised that it is one of the cornerstones of the WTO. Well, coming back to the question - does the WTO restrict domestic policy independence. The answer is perhaps a yes and a no? We need to tread the middle path once again?