I posted a new working paper drawn from years of archival research that disrupts contentions that Cold War-era trade institutions fail to offer stability or predictability in the global economy due to advanced economies’ economic security strategies. The history is rich and exciting, and a future post may offer a summation of my redescription of the making of the postwar global economic order and its early tests with the elevated tensions between the Soviet bloc and Western free-market countries. Such historical analyses show a delicate sensitivity to state insecurities with trade multilateralism and reveal how such interferences were core to this system, not acts of violation or evidence of its impotence.
But I want to stick to the present. The WTO need not face its death just because governments are reimagining global economic integration. Instead, policymakers should move away from questions about the reviewability of the security exceptions and break down questions of self-sufficiency, conservation, and defeating foreign economic competitors within the multilateral trading system.
Economic security may be the paper that covers rock. It is far broader, abandoning any notion that economics and security are antinomies. Nor does it demand governments dwell on legal assessments between what is a rule and what is an exception in WTO terms. In the face of rising unilateral trade actions, the WTO defined ‘economic security’ as ‘resilience’ and ‘the ability of a system, including households, firms, and governments, to prevent and prepare for, cope with, and recover from shocks.’ The emphasis on prevention and preparation collapses notions of wartime, peacetime, or the transition period in between. No longer compartmentalised by ‘exceptional’ times, economic security stretches how security interacts with trade policy. States that refer to economic security emphasise ongoing evaluation and management of economic action in the highly integrated global economy, whether it is firms’ market power, technology transfers through foreign investments, or even classic efficiency gains from trade. The legal consequences of sustained economic security trade actions for the multilateral trading system remain unknown. However, any member may challenge the legality of ongoing strategies based on benefits being ‘nullified or impaired.’
I have developed a conceptual framework for economic security based on my historical assessment. I divide economic security into four buckets: two short-term and two long-term categories.
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Short-term (ST): urgent, temporary responses to known threats that do not seek to alter existing markets. |
Long-term (LT): preparedness and potential of unforeseen contingency; responses suggest governments do not take market structure as given. |
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ST1: Re-arming Trade restrictions related to ‘hardcore’ military interests, such as arms, ammunition, and implements of war. |
LT1: Self-sufficiency Trade restrictions to develop the resiliency of a domestic economy. Lt1A: Domestic productivity (inward) Lt1B: Trade diversification; Multiple supply sources (outward) |
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ST2: Insecure Supply Trade restrictions related to an urgent event that demands a temporary workaround to address essential short-supply issues. |
LT2: Breaking and Re-making Markets. Trade restrictions to weaken/slow economic opponents or to prevent a state (or its firms) from dominating the design, production, distribution, or trade of critical materials. LT2 measures aim to break and structure global markets, requiring future planning that can engage LT1 and ST2 measures to rebuild market structures or supply chains. |
Some buckets fit neatly within existing institutional structures and rules. However, one bucket does not. Long-term economic security strategies of members that resolve to break and remake global markets are – at the roots – about members reacting to another member’s success within the globalised economy. Rather than complain to reverse restrictions, amend arbitrary or unjustifiably discriminatory practices, or countervail unfair trade practices, this long-term strategy focuses on powerful members remaking the markets that drastically reduce that member’s capacity. Underlying this bucket is the idea that long-standing economic competitiveness justifies severing supply chains – a deliberate, permanent choice to eliminate MFN treatment to another member. Members further pull these long-term actions outside the conventional ‘legal’ world into ‘non-law’ purgatory to escape an MFN violation. I use the word choice of purgatory deliberately, signalling a gap in WTO institutions. Within the paper, I identify these actions as LT2.
Members need not respond to a present threat when invoking economic security within this LT2 bucket. Governments emphasise the potential for unforeseen contingencies and speak to government anticipation of circumstances giving rise to economic security concerns. It speaks to state intervention for broad preparedness and potential, tethered to states’ dynamic views of economic security. Some explanations are the monopolisation of strategic markets or their contribution to excess global capacity, which impairs other states’ markets. Governments may push this further to assert that another state has a monopoly on production due to the exploitative activities of a dominant firm. As an example, the United States’ sweeping measures to bolster its competitiveness with China follow a political logic that views China as a ‘challenge to the international order’ and a significant threat to international rights and the goal of advancing democracy globally. Beyond the obligation to invoke security according to a member’s good faith obligations, there is nothing within WTO rules and institutions to effectively manage actions that thrust WTO commitments into purgatory. As LT2 strains the MFN principle, its crucial WTO members supplement the gap with other norms and principles to structure their actions and coordinate trade within the global economy. In other words, simply raising security exceptions leaves too much government policy as ‘untouchable.’
Within the paper, I detail an early experiment with international government coordination on the short supply of critical materials. Within the bounds of infant institutions for the multilateral trading system, the ‘free world’ economies used the Korean invasion in 1950 to drive what one official described as a temporary, urgent ‘super-government cartel’ for critical supply chains. Inbuilt into the newly established global economic order was an inherent contradiction regarding the permissiveness of state interferences in producing and trading goods. Rather than break the MFN norm and exist in violation of the GATT, the US-led ‘free world’ controlled the supply of materials informally, collectively, and under the principle of equitable allocation. A shared interest in critical materials for defence facilitated this contradiction, giving states a temporary legal foothold in the loosely held-together rules-based trading system. Equitable allocation would develop a double meaning for “free world” economic policymaking: it promised these countries a voice on distribution and interlocked production to US military preparedness. Although the GATT would reconstitute a global economy rooted in international legal structures, informal structures embedded within US military demands divided the global economy, too.
Where does this leave us? For one, WTO members can reimagine the idea of equitable allocation as the contrary force to equality of treatment (already captured within the existing WTO agreements). One pathway I found convincing was the work of green economy collaboration by Emma Aisbett and her co-authors that emphasise mutuality and conservation to dictate the contours of state intervention – a dramatic reorientation from US militarism.
At first glance, it might seem the notion of equitable allocation is alarmingly unhelpful (and if one looks over the bridge to the investment law world, there are many precedents to support issues with equitable treatment). However, I argue that international norms ground institutions and there is an apparent absence of norms settling relations when one speaks of LT2. Consider it this way: current dispute settlement reports where one member has invoked GATT Article XXI reveal only one key finding – the relations between the members must be near or at complete breakdown. There is, thus, nothing to help members come back from deterioration. Ungoverned, LT2 actions may only encourage governments to act alone and deny economic globalisation. If WTO members reimagine globalisation, as perhaps towards global public goods and mitigating climate change, they must have the legal infrastructure to do so.
I’ll be brief here, but another potential pathway is to evolve the economic underpinnings of the multilateral trading system and establish dynamic, collective governance on materials that speak to the global challenges many members need to prioritise (in addition to their domestic interests!). To shift LT2 actions away from unilateral actions focusing on abuse and coercive practices, members may coordinate on select materials or goods they conclude no single member may dominate global capacities. An involved new form of governance entails negotiating new schedules and submitting to warning mechanisms that effectively let WTO members prepare for and manage supply chain dominance (as they define it). This entails significant reimagining of transparency and notification requirements and greater demands for providing reasons for, among other things, domestic capacity targets and purchasing powers on a rolling basis.
Many developing countries understand economic integration as vital to their economic security because of the role of trade in reducing extreme poverty and inequality. Even if the economic security strategies do not threaten the foundations of the system, efforts to shift multilateral trade governance to a new agenda set by industrialised economy members’ economic security strategies fail to address what Sylvia Ostry described as developing countries' ‘unfinished business of past negotiations.’ Just as there is a concern among advanced economies that existing legal structures are blind to the risks of economic integration, unilateral actions in response to these risks threaten developing countries’ growth capabilities, with risks of fractured global value chains and increased trade costs, particularly in agriculture and services. In this sense, the normative power of economic security strategies chokes the deliberative functions of the WTO.
The WTO remains an important forum for all governments to connect and deliberate on the supply of goods and services. Yet, WTO members must take great care in recommending ‘better’ management as the solution without a robust and clear articulation of the problem. Focusing on a solution to chase a problem fails to match the institutional form to the problem institutions are meant to address. Members must first articulate what domestic economic security policies aim to do, what (and whom) they protect, and what international coordination should achieve.
