Trade Scholarship Must Evolve

Trade Scholarship Must Evolve

The following piece is a part of NULR of Note’s “Bring Back The ‘90s” initiative, aimed at exploring the evolution of legal thinking over the past three decades. For more, click here.

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Twenty-four years ago, when I wrote Trade Without Values, the international trade regime provoked substantial scholarly and public debate. Legal scholars embraced the legalistic approaches of the newly created World Trade Organization, and vigorously debated issues such as standing and the scope of its jurisdiction. Public debate, on the other hand, concentrated on whether free trade would help or hurt the ordinary citizen. Then-presidential candidate Ross Perot famously predicted a “giant sucking sound” as thousands of jobs flowed south into Mexico. Public debate also examined the extent to which prioritizing free trade would damage local undertakings to promote deeply held values.

In Trade Without Values I warned that the global trade regime could not survive without public support, and I suggested that the dispute settlement process should be flexible with respect to local values. For many years the trade regime was flexible, economies grew, and trade slipped away from public and scholarly debate.

Trade briefly returned to the public conscious with China’s negotiations for, and eventual accession to, the World Trade Organization. It was not clear how a state-controlled economy could join a regime based on free-market theories. Nonetheless, China joined, the world did not end, and trade again subsided from mainstream public scrutiny.

And then the world did almost end. Not literally, and not because China joined the World Trade Organization. Rather, a devastating global recession inflicted profound damage on the global economy. The agonizingly slow recovery from the recession highlighted growing disparities in income and wealth, and also revealed that the benefits of economic growth had long been unevenly distributed.

Thus, trade once again finds itself a contentious issue. Countries around the world have elected protectionist governments. A very slight majority of British voters approved leaving the world’s largest free trade organization, knowingly rejecting the benefits of unfettered trade so that they could exercise control over other matters.

By far the most visible rejection of the free trade regime has been by the United States. The United States withdrew from negotiations on a trans-pacific trade agreement, weaponized tariffs as its international relations tool of choice, imposed duties on allies and competitors alike by abusing a seldom-used provision in the international trade regime, and has unilaterally gutted the World Trade Organization’s dispute settlement process by refusing to cooperate in the appointment of judges. The United States has notified the World Trade Organization that it will not be “straitjacket[ed]” by the dispute settlement process, essentially walking away from the very purpose of a trade regime.

Some scholars have proclaimed the end of the liberal order. That is an easy claim to make from the lofty perspective of political science, which sees the world as comprised of nations, or from legal scholarship, which sees the rules and relationships as ending at borders. In the real world, however, business is so deeply entangled across borders that it is difficult to believe that countries could actually recreate Cold War, isolationist policies. The real world will continue to need a global trade regime, and legal scholars should participate in its re-creation.

To do so, legal scholars must take into account at least three aspects of international trade: the trade regime encompasses very disparate economic systems, trade is inextricably intertwined with other aspects of society, and trade is part of an economic system that has underserved many of its constituents.

The Annual Report on Economic Freedom of the World can serve as a rough comparison of the extent to which polities’ economies have been liberalized. The fifty-seven most liberalized economies, as one might expect, are all members of the World Trade Organization. Less expected, the other end of the index is also populated by supposed adherents to the global trading regime. Indeed, the polity judged by the Fraser Institute to have the least liberalized economy in the world, Venezuela, has been a member of the World Trade Organization since its inception. Of the ten least liberalized economies, five are members and three have observer status; of the next ten least liberalized economies, eight are members and the remaining two have observer status. China, which has a largely state-controlled economy, is, along with the United States and the European Union, one of the three largest economies in the world and has become an active member. Scholarship must appreciate a variety of economic systems.

Trade scholarship must also recognize that trade does not occur in a vacuum. Trade interacts with other aspects of society in myriad ways. If, for example, goods may freely cross borders but workers may not, then reducing benefits given to workers creates a competitive advantage but upsets economic equilibria. If people in a society choose not to consume goods made in ways that exacerbate gender discrimination they may do so through laws, which might violate trade rules. And trade by its very nature affects things like the environment. Rules must continue to take other social issues into account.

Trade also affects economic well-being. The reasons for the uneven distribution of economic benefits are undoubtedly complicated, and implicate far more economic distortions than trade alone. Trade experts, including legal scholars, probably do not alone have the expertise necessary to even identify, let alone address, these issues. What legal scholars can contribute is the crafting of rules that enable the World Trade Organization to work with other bodies that have other types of expertise, and to help craft rules that prioritize not just the movement of goods but also the distribution of benefits.

Recrafting the global trade regime will require clear eyes. State-controlled economies will not be transformed into liberal markets simply by signing a trade agreement. Workers will not lead better lives just because the goods that they make can freely cross customs borders. The environment will not be made cleaner, and gender inequality will not dissipate, just because there is a global trade regime. But—and this is critical—the absence of trade will not make those things better either, and would probably make them worse. The world does not need less trade; it needs better trade. Creating the rules for such is an area ripe for legal scholarship.

Philip M. Nichols is the Joseph Kolodny Professor of Social Responsibility in Business and a Professor of Legal Studies and Business Ethics at The Wharton School of the University of Pennsylvania. Professor Nichols served as Co-Chair of the American Society of International Law’s International Economic Law Interest Group, and currently serves as Chair of the Anti-Corruption Law Interest Group. His most recent publication is Bribing the Machine: Protecting the Integrity of Algorithms as the Revolution Begins.

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