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Institutional Linkage: Transcending “Trade and …”

Published online by Cambridge University Press:  27 February 2017

Joel P. Trachtman
Joel P. Trachtman*
Affiliation:
The Fletcher School of Law and Diplomacy
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Extract

“Trade and … ” linkages arise when nontrade issues are linked to trade. Thus, if the United States declines to trade with Myanmar until it complies with certain human rights or democracy standards, this is a “trade and … ” linkage. All “trade and … ” linkages are constructed, in the sense that the decision to link trade to other issues is always a political decision and is not otherwise determined by the nature of things. Governments link trade concessions to the satisfaction of other, nontrade policy interests, either politically or legally, whenever they find such linkage useful to the achievement of their goals.

Type
Symposium: The Boundaries of the WTO
Information
American Journal of International Law , Volume 96 , Issue 1 , January 2002 , pp. 77 - 93
Copyright
Copyright © American Society of International Law 2002

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References

1 Lawyers may answer positive questions about laws and institutions for linkage that already exist: for example, whether and how trade rules and environmental rules are currently combined at the WTO. That has been done in many analyses and in decisions of WTO panels and the Appellate Body. It is not the subject of this essay.

2 See Mangabeira Unger, Roberto, What Should Legal Analysis Become? (1996)Google Scholar.

3 Note that for our purposes the term “institution” is meant to include (1) formal organizational institutions such as legislative, executive, and judicial bodies and the organizations they comprise; (2) formal rules from constitutional rules down to normal legislation; and (3) informal (nonlegal) institutions composed of organizations or rules that lack legal effect. A more elegant definition is provided by North: “Institutions are the humanly devised constraints that structure human interaction.” North, Douglass C., Economic Performance Through Time, 84 Am. Econ. Rev. 359, 360 (1994)Google Scholar. Some authors distinguish “institutions” from “organizations.” See, e.g., North, Douglass C., Institutions, Institutional Change and Economic Performance (1990)CrossRefGoogle Scholar; Khalil, Elias L., Organizations Versus Institutions, 151 J. Institutional & Theoretical Econ. 445 (1995)Google Scholar. In this essay, an organization will be treated as a type of institution.

4 Of course, linkage problems sometimes take the form of debate about precisely what a trade matter and a non-trade matter are. These semantic debates are necessary to determine what fits within the Commerce Clause of the U.S. Constitution or the common commercial policy of the European Union, or what was appropriate for negotiation in the Uruguay Round. They operate interstitially to determine the scope of application of a particular institutional linkage; for example, to determine the extent to which the Commerce Clause power allows the U.S. federal government to legislate in the field of environmental protection or gun control. This essay will not focus on these questions about the scope of particular institutional linkages.

5 Understanding on Rules and Procedures Governing the Settlement of Disputes, Art. 22.3 [hereinafter DSU], Marrakesh Agreement Establishing the World Trade Organization, Apr. 15, 1994, Annex 2, in World Trade Organization, the Legal Texts: the Results of the Uruguay Round of Multilateral Trade Negotiations 354, 370–71 (1999).

6 For more on this analogy, see Dunoff, Jeffrey L. & Trachtman, Joel P., Economic Analysis of International Law, 24 Yale J. Int’l L. 1, 12–28 (1999)Google Scholar.

7 See Kronraan, Anthony T., Contract Law and the State of Nature, 1 J.L. Econ. & Org. 5, 9 (1985)Google Scholar (analogizing international society to the preproperty rights state of nature).

8 For applications of property rights theory to internationaljurisdiction over the seas, see Eckert, Ross D., The Enclosure of Ocean Resources: Economics and the Law of the Sea (1979)Google Scholar; Biblo-wit, Charles, International Law and the Allocation of Property Rights in Common Resources, 4 N.Y. Int’l L. Rev. 77 (1991)Google Scholar.

9 See Joined Cases 89,104,114,116,117, & 125–29/85, A. Åhlström Oaskeyhtiö v. Commission, 1988 ECR 5193, 4 Common Mkt. Rep. (CCH) ¶14,491 (1988) (“Wood Pulp”) (finding that the implementation of an offshore cartel through pricing activity within the European Community was within territorial jurisdiction).

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11 See Hardin, Garrett, The Tragedy of the Commons, 162 Science 1243 (1968)Google Scholar; Rose, Carol M., Expanding the Choices for the Global Commons: Comparing Newfangled Tradable Allowance Schemes to Old-Fashioned Common Property Regimes, 10 Duke Envt L. L. & Pol’y F. 45, 47 (1999)Google Scholar.

12 See Baxter, William F., Choice of Law and the Federal System, 16 Stan. L. Rev. 1, 22 (1963)Google Scholar (suggesting a “comparative impairment” approach to choice of law).

13 See Ayres, Ian & Talley, Eric, Solomonic Bargaining: Dividing a Legal Entitlement to Facilitate Coasean Trade, 104 Yale L.J. 1027, 1033 (1995)Google Scholar; Scott Johnston, Jason, Bargaining Under Rules Versus Standards, 11 J. L. Econ. & Org. 256 (1995)Google Scholar.

14 Agreement on the International Dolphin Conservation Program, May 21, 1998, as amended, at <http://www.iattc.org>.

15 The locus classicus is Tiebout, Charles, A Pure Theory of Local Expenditures, 64 J. Pol. Econ. 416 (1956)CrossRefGoogle Scholar. There is a vast literature, both theoretical and empirical, on the Tiebout model. For a review of some of the literature, see Bratton, William W. & McCahery, Joseph A., The New Economics of Jurisdictional Competition: Devolutionary Federalism in a Second-Best World, 86 GEO. L.J. 201 (1997)Google Scholar.

16 Trachtman, Joel P., Regulatory Competition and Regulatory Jurisdiction, 3 J. Int’l Econ. L. 331 (2000)CrossRefGoogle Scholar.

17 Gramlich, Edward M., Cooperation and Competition in Public Welfare Policies, 6 J. Pol’y Analysis & Mgmt. 417 (1987)CrossRefGoogle Scholar; see also Breton, Albert, The Existence and Stability ofInter jurisdictional Competition, in Competition Among States and Local Governments (Kenyon, Daphne A. & Kincaid, John eds., 1991)Google Scholar.

18 Ronald Coase, The Firm, The Market and the Law 95–185 (1988) [hereinafter Coase, The Firm] (incorporating and commenting upon earlier work, including Coase’s seminal articles The Nature of the Firm, 4 Economica 386 (1937); The Problem of Social Cost, 3 J. L. & Econ. 1 (I960)); see also Coase, Ronald, The Nature of the Firm: Influence, 4 J. L. Econ. & Org. 33, 33 (1988)Google Scholar; Trachtman, Joel P., The Theory of the Firm and the Theory of the International Economic Organization: Toward Comparative Institutional Analysis, 17 Nw. J. Int’l L. & Bus. 470 (1996)Google Scholar. Coase’s theory of the firm suggests that we choose between the two principal types of organization of production—the market and the firm—on the basis of the relative transaction costs involved in each: we choose the cheaper. While this approach is not operational, it provides insight into the choice of organizational form. In the international setting, we can use it to suggest why states might engage in one-off arrangements (the market) as opposed to allocating jurisdiction to an international organization (the firm).

19 For an introduction to the rules-versus-standards discussion in law and economics, see Kaplow, Louis, The General Characteristics of Rules, in 5 Encyclopedia of Law and Economics 502 (Bouckaert, Boudewijn & de Geest, Gerrit eds., 2000)Google Scholar [hereinafter Kaplow, General Characteristics]; Kaplow, Louis, Rules Versus Standards: An Economic Analysis, 42 Duke L.J. 557 (1992)CrossRefGoogle Scholar. See also Sunstein, Cass R., Problems with Rules, 83 Cal. L. Rev. 955 (1995)Google Scholar. In international trade law, “standards” has a specific meaning, referring to product standards. This meaning is separate from the sense in which “standards” is used here.

20 Trachtman, Joel P., The Domain of WTO Dispute Resolution, 40 Harv. Int’l. L J. 333 (1999)Google Scholar.

21 The rules-versus-standards analysis builds on incomplete contracts analysis. Prof. Hadfield applies an incomplete contracts analysis to statutes, which we in turn can apply to treaties. Treaties may be optimally incomplete with appropriate instructions to decision makers to complete the “contract” in particular cases. The parameters to consider include (1) the costs of advance specification, (2) the degree to which the future is unpredictable or stochastic, (3) the ability to customize to particular facts in specific cases, and (4) the potential value of diversity of compliance techniques. See Hadfield, Gillian K., Weighing the Value of Vagueness: An Economic Perspective on Precision in the Law, 82 Cal. L. Rev. 541, 547 (1994)Google Scholar; see also Ayres, Ian & Gertner, Robert, Strategic Contractual Inefficiency and the Optimal Choice of Legal Rules, 101 Yale L.J. 729 (1992)CrossRefGoogle Scholar.

22 See Hadfield, supra note 21, at 550 (citing Cohen, Linda R. & Noll, Roger G., How to Vote, Whether to Vote: Strategies for Voting and Abstaining on Congressional Roll Calls, 13 Pol. Behav. 97 (1991)CrossRefGoogle Scholar).

23 Johnston, supra note 13.

24 See Kaplow, General Characteristics, supranote 19, at 511.

25 For examples, see Trachtman, supra note 20.

26 United States—Import Prohibition of Certain Shrimp and Shrimp Products, WTO Doc. WT/DS58/AB/R (Nov. 6, 1998).

27 See Trachtman, Joel P., Tradeand.. .Problems, Cost-Benefit Analysis and Subsidiarity, 9 Eur. J. Int’l L. 32 (1998)CrossRefGoogle Scholar.

28 This is stated or implied in each of Articles 3(2), 3(5), 7(1), 11, and 21 (5) of the DSU. The mandate and professional responsibility of panels and the Appellate Body is clearly to apply as law only the covered agreements, although there is room for construction of the covered agreements, as in any judicial or quasi-judicial process of interpretation and application. Furthermore, given the specific and presumptively exclusive amendment provisions in Article X of the WTO Agreement, there is little room for argument regarding implicit amendment by virtue of execution by WTO parties of other agreements. This said, it is clear that in interpreting WTO law, panels and the Appellate Body must “take into account” other international law. Vienna Convention on the Law of Treaties, opened for signature May 23, 1969, Art. 31, 1155 UNTS 331. It is also clear that states remain bound by any non-WTO international legal commitments that apply to them; it is only that these norms are not directly applicable in WTO dispute settlement. But see Pauwelyn, Joost, The Role of Public International Law in the WTO: How Far Can We Go? 95 AJIL 535 (2001)CrossRefGoogle Scholar.

29 North American Free Trade Agreement, Dec. 8, 1992, Can.-Mex.-U.S„ Art. 104, 32 ILM 289, 297 (1993).

30 There is complexity here, too. The single undertaking principle did not extend, for example, to the schedules of concessions—each state established its own, and thereby negotiated a separate “undertaking.”

31 See Thailand—Restrictions on Importation of and Internal Taxes on Cigarettes, Nov. 7, 1990, GATT B.I.S.D. (37th Supp.) at 200 (1991).

32 For a discussion of the relationship between the WTO and the IMF, see Roessler, Frieder, Domestic Policy Objectives and the Multilateral Trade Order: Lessons from the Past, in The WTO as an International Organization 213 (Krueger, Anne O. ed., 1998)Google Scholar.

33 Coase, the firm, supra note 18 (incorporating and commenting upon earlier work, including Coase’s seminal articles The Nature of the Firm, supra note 18; The Problem of Social Cost, supra note 18); see also Coase, The Nature of the Firm: Influence, supra note 18.

34 See Giancarlo’ Spagnolo, Issue Linkage, Credible Delegation, and Policy Cooperation (Center for Econ. Pol’y Research, Discussion Paper No. 2778, 2001).

35 Simon, Herbert A., Organizations and Markets, J. Econ. Persp., Spring 1991, at 25, 29CrossRefGoogle ScholarPubMed.

36 Id. at 41–42.

37 Path dependence in this context is a formalized version of the idea that history has consequences, that the institutional structure that exists influences our choice of institutional structures prospectively. See Margolis, Stephen J. & Liebowitz, S. J., Path Dependence, in 3 The New Palgrave Dictionary of Law and Economics 17 (Newman, Peter ed., 1998)Google Scholar.

38 See Ryan, Michael P., The Function-Specific and Linkage-Bargain Diplomacy of International Intellectual Property Lawmaking, 19 U. Pa. J. Int’l Econ. L. 535 (1998)Google Scholar; Guzman, Andrew T., International Antitrust and the WTO: The Lesson from Intellectual Property, 2000 Berkeley L. & Econ. Working Papers No. 2, Art. 9, at <http://www.bepress.com/blewp/default/vo!2000/iss2/art9>>Google Scholar.

39 Buchanan, James M. & Tullock, Gordon, The Calculus of Consent 153 (1962)Google Scholar.

40 See Butler, Henry N. & Macey, Jonathan R., The Myth of Competition in the Dual Banking System, 73 Cornell L. Rev. 677 (1988)Google Scholar; Scott, Kenneth E., The Dual Banking System: A Model of Competition in Regulation, 30 Stan. L. Rev. 1 (1977)Google Scholar.

41 See Butler, Henry N. & Macey, Jonathan R., Externalities and the Matching Principle: The Case for Reallocating Environmental Regulatory Authority, 14 Yale L. & Pol’y Rev. 23, 33 (1996)Google Scholar; Esty, Daniel C., Toward Optimal Environmental Governance, 74 N.Y.U. L. Rev. 1495 (1999)Google Scholar.