Racing to Regionalize: Democracy, Capitalism, and Regional Political Economy 9781685857523

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Racing to Regionalize

International Political Economy Yearbook Volume 11 Kurt Burch, Robert A. Denemark, Mary Ann Tétreault & Kenneth P. Thomas Series Editors Board of Editors

Jonathan D. Aronson University of Southern California Richard Ashley Arizona State University Valerie J. Assetto Colorado State University William P. Avery University of Nebraska James A. Caporaso University of Washington Christopher Chase-Dunn Johns Hopkins University Robert W. Cox York University Joshua Goldstein American University Keith Griffin University of California, Riverside W. Ladd Hollist Brigham Young University Raymond F. Hopkins Swarthmore College Takashi Inoguchi University of Tokyo Barbara Jenkins Carleton University Stephen D. Krasner Stanford University

Robert T. Kudrle University of Minnesota Kate Manzo University of Newcastle Sylvia Maxfield Yale University Bruce E. Moon Lehigh University Lynn K. Mytelka UNCTAD Henk Overbeek Free University of Amsterdam V. Spike Peterson University of Arizona David P. Rapkin University of Nebraska D. Michael Shafer Rutgers University Christine Sylvester Australian National University William R. Thompson Indiana University F. LaMond Tullis Brigham Young University Raimo Väyrynen University of Notre Dame

Racing to Regionalize Democracy, Capitalism, and Regional Political Economy edited by

Kenneth P. Thomas Mary Ann Tétreault

b o u l d e r l o n d o n

Published in the United States of America in 1999 by Lynne Rienner Publishers, Inc. 1800 30th Street, Boulder, Colorado 80301 www.rienner.com

and in the United Kingdom by Lynne Rienner Publishers, Inc. Gray’s Inn House, 127 Clerkenwell Road, London EC1 5DB www.eurospanbookstore.com/rienner © 1999 by Lynne Rienner Publishers, Inc. All rights reserved

Library of Congress Cataloging-in-Publication Data Racing to regionalize : democracy, capitalism, and regional political economy / edited by Kenneth P. Thomas and Mary Ann Tétreault. p. cm.—(International political economy yearbook ; v. 11) Includes bibliographical references and index. ISBN 1-55587-582-3 (alk. paper) 1. Trade blocs. 2. Regionalism—Economic aspects. 3. International economic integration. 4. Capitalism. I. Thomas, Kenneth P. II. Tétreault, Mary Ann, 1942– . III. Series. HF1418.7.R33 1999 337.1—dc21 99-19296 CIP

British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library.

Printed and bound in the United States of America

∞

The paper used in this publication meets the requirements of the American National Standard for Permanence of Paper for Printed Library Materials Z39.48-1984.

5 4 3 2 1

To the memory of Phurbu Dolma Elsenhans (1969–1997), who came from Tibet through India and Germany to New York, where she so much loved the culture of respect and tolerance among people of different origins

Contents Introduction Kenneth P. Thomas and Mary Ann Tétreault 1 Theories of Integration in a New Context: The Gulf Cooperation Council Fred H. Lawson

2 Assessing the “New” Integration: The Mercosur Trade Agreement Barbara Jenkins

3 Foreign Direct Investment in the Context of Regionalism: The Case of APEC Davis B. Bobrow and Robert T. Kudrle

4 Who Got What and Why: Constructing North American Free Trade William P. Avery and H. Richard Friman

5 Trade Liberalization and Environmental Regulations: Regional Interests and Ideas in Europe and North America Erik Beukel

6 Citizenship Policy in a Global Framework: The Case of the European Union Antje Wiener

7 Democracy, Human Rights, and the Transformation of Civil Society: The Case of the New North America Laura Macdonald

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1 7 33 57 87 113 141 167

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Contents

Commentaries

8 Regional Integration and Critique: Raising the Possibility of Counterhegemony Teresa Healy

9 The Middle East: Eternally Out of Step with History? Paul Aarts

10 On the Politico-Economic Conditions for Maintaining Accountability and Sovereignty in the Era of Globalization Hartmut Elsenhans

List of Acronyms Bibliography List of Contributors and Commentators Index About the Book

193 201 211

221 225 259 263 275

Kenneth P. Thomas Mary Ann Tétreault

Introduction Evidence that nation-states are rushing to regionalize accumulates in the form of an intensifying growth in and of regional organizations in the 1990s. The North American Free Trade Agreement (NAFTA), the Asian Pacific Economic Cooperation Forum (APEC), Mercado Común del Sur (Mercosur), and the “Europe Agreements” between the European Union (EU) and neighboring states in Central and Eastern Europe are prominent examples of this trend. The EU has pioneered efforts to deepen the regional integration process, as crowned by the Maastricht Treaty with its goal of economic and monetary union. The EU also is notable for the attention it has paid to social issues, such as gender and family policy, and for its increasing concern with the changing meaning of citizenship in a world where the capacity and efficacy of nation-states appear to be shrinking. At the same time, many regional integration efforts seem to have provoked what might be called a “Polanyian” backlash. As Karl Polanyi argues (1944), pure market allocation of factors of production and the goods and services they generate does more than aggravate economic inequalities. It also severs the intimate connection between human beings and their habitations in particular landscapes and destroys traditional bonds that formerly wove extended families and patterns of fealty and loyalty into social formations and complexes of culture. As a consequence of the disruption and acute economic insecurity that are normal features of unmediated markets, Polanyi sees a predictable social reaction. Both together he terms the “double movement.” This encompasses on the one hand the spread of “market society” governed by instrumental relationships among self-regarding actors, a self-replicating process with a high momentum. On the other hand, it refers to a countermobilization of individuals and groups who fear or actually experience losses arising from the restructuring of the political economy. “Double movement” may be an apt description of the dynamics producing both the widening and deepening of regional economic integration, and the popular (and elite) movements against these changes conducted in what historian Carl Schorske (1980:119) calls “politics in a sharper key.” Schorske is referring to the politics of fin-de-siècle Vienna, with its virulent 1

2

Introduction

anti-Semitism, class conflict, and such cultural hysterias as the attack by bourgeois moralists on Secession movement art. We can see an analogous politics in our own, global fin-de-siècle: ethnic warfare, religious fundamentalism, and, in the United States, the fulminations of Jesse Helms. During both of these periods, the spread of market relations was opposed directly. In our era, much of this has taken the form of opposition to regionalization such as we find exemplified in campaigns against NAFTA and the Maastricht Treaty. Advocates of unfettered marketization believe that the prime beneficiaries of economic integration are consumers. Polanyi cautions us to look more closely in order to see the far smaller group of political and economic entrepreneurs who acquire new rights under integration and, at the same time, a greater capacity to evade and avoid obligations to workers, communities, and the governments that provide the infrastructure that makes their operations possible. In the EU, for example, critics of Maastricht charge that such long-standing social policies of European governments as unemployment and retirement insurance, universal health care, and high levels of social services are being sacrificed to the convergence criteria for a single currency. These criteria require that member states reduce their budget deficits to 3 percent of gross domestic product (GDP) and their total debt to 60 percent of GDP at a time when unemployment rates are at historic post–World War II highs. In North America, opponents of NAFTA argue that its implementation is threatening wage levels and social protections in the United States and Canada without providing compensating benefits to the average Mexican. Some observers worry that the state itself will be the primary casualty of the myriad forces loosely collected under the term “globalization.” States appear to be challenged not only by multinational corporations exercising a newly invigorated “global reach” and citizens increasingly unwilling to pay the cost of state services, but also by competition from such subnational and transnational sources of identity and loyalty as ethnic and religious groups, along with the regional institutions and practices that form the focal point of this volume. For example, reflecting concern about these issues in Europe, in 1995–1996 the University of Amsterdam’s political economy faculty sponsored a year-long series of lectures and seminars on the problem of “state collapse.” Even earlier, other analysts had begun to consider how EU institutions could be made more responsive to the needs and desires of citizens of member states, in part because they perceived those states as experiencing difficulties in protecting the interests of their citizens and mediating adequately their citizens’ relationships with the community. In this view, the “positive state” that had developed in tandem with the spread of industrial capitalism is shrinking in importance and rele-

Introduction

3

vance as its rivals absorb many of its functions and supplant it as the primary source of political identity and belonging. Proponents of the expansion and deepening of regional integration see these changes as far more positive than negative, pointing to increases in economic efficiency and consumer welfare from enlarging markets for goods and for factors of production as examples. They also emphasize Europe’s political successes, not simply in fulfilling the dreams of EU godfathers like Jean Monnet that the community could over time generate enough of a “peace interest” (also a Polanyian term) to prevent another continental war pivoting on Franco-German rivalry, but also in fostering democratization in formerly authoritarian states like Portugal, Greece, and Spain. Indeed, it is the combination of peace, prosperity, and democracy that makes EU membership the political equivalent of the Holy Grail to leaders and populations of formerly communist states in Central and Eastern Europe. To men like Vaclav Havel (1998:44), membership in NATO is both an institutionalization of that longed-for peace interest and a stepping-stone to EU membership, envisioned as the reinstatement of the forgotten half of Europe to its rightful status in the politics, society, economy, and culture of the continent. However, not all contemporary regional integration regimes have evoked conflicts of this type. APEC, for instance, remains very much an informal organization whose goals for a free trade area lie more than ten years in the future. Some would argue that the Gulf Cooperation Council (GCC) has enjoyed some success in achieving regional cooperation on internal security measures if not in economic affairs. Yet, even with respect to security, the GCC has experienced member dissent and resistance both to encroachments on state sovereignty and to individual member demands for assistance. Mercosur, though far more market-oriented than the Latin American regional integration efforts of the 1960s and 1970s, has yet to generate the widespread opposition seen in North America and Europe. Even so, this and other regions may experience the reactive phase of the double movement in the future. Should economic integration increase income disparities and social dislocations in those areas as it seems to be doing in Europe and North America and clearly did in such failed attempts at integration as the brief union more than a generation ago of Syria and Egypt in the United Arab Republic, there is little reason to doubt that anti-integration reaction will develop in Latin America as well. The chapters in this book explore various issues associated with regionalization as a process, looking at selected regional groupings as case studies. These essays are written from a variety of perspectives. Several contributors focus on the prospects for increasing regional and global welfare and are sanguine about the prospects for regional groupings in general

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Introduction

as well as any deepening of the particular projects they examine here. Others are less optimistic, questioning the impact of regional agreements on the welfare of disadvantaged social groups and the likely effect of regionalization on democratic institutions and practices. As Polanyi reflected in his analysis of the creation of national economies, the pessimists see regionalization as effecting a similar functional integration of the economies of sets of nation-states. Just as national economic integration shifted political power away from local bodies to national institutions (Parrington, 1927, esp. vol. 3), these contributors fear a similar loss of national democratic control to less-than-democratic regional institutions. Unlike the situation in Europe in the early modern period, however, there is yet no political-institutional framework analogous to the nascent nation-state (Tilly, 1985) available to mobilize a complement of economic and social clients and create a new political economic regime. Some contributors look explicitly at this problem and how regional political elites and popular forces are organizing to solve it. We recall Polanyi’s analysis here for a number of reasons. One is that, as we note above, his metaphor of the double movement seems apt on several grounds. Most efforts at regional organization have been characterized by an initial rapid expansion of intraregional economic activity and institution building. The principal beneficiaries adjust most rapidly to the new order, and this adjustment in itself boosts their capacity to benefit further. Those left behind seek to halt the advance of integration or even to roll it back, their resistance opening a space for what Robert O’Brien (1997) calls “the democratic impulse.” Within this space, individuals and institutions mobilize to demand civil, political, and social rights as citizens in addition to whatever rights are conferred by the market on various economic units (Marshall, 1950). Thus, the rush to regionalize is twofold. It includes both claims to a larger area within which economic agents and their political patrons can carve out a protected space for their activities and the consequent counteroffensives mounted by social forces seeking to extend democratic participation in economic decisionmaking and protection for territories and populations encompassed by the expanding boundaries of integrating markets. In Chapter 1, Fred Lawson analyzes the Gulf Cooperation Council in the context of theories of regional integration. He argues that regional integration in the GCC can best be understood as occurring in “bursts” touched off by the need of GCC members to respond simultaneously to internal and external threats. This, he contends, is a more fruitful framework for analyzing GCC institutionalization than focusing on the role of states in general—and the Saudi state in particular—or concentrating on the role of multilateral institutions. Here, the stately progress of integra-

Introduction

5

tion is less a response to citizens’ demand for protection than to member states’ concerns about eroding sovereignty and subordination to a potential regional hegemon. Barbara Jenkins addresses yet another Polanyian theme in Chapter 2. Her analysis of Mercosur shows that although its rhetorical underpinnings glorify “spontaneous” markets, the reality is that the agreement is very much a political creation whose continued survival depends on substantial deviations from its supposed ideal of an unfettered market. Here, protection of citizens and protection of states seem to underlie the gap between words and deeds. Davis Bobrow and Robert Kudrle analyze APEC, focusing on its treatment of foreign direct investment (FDI) issues. They illustrate well the informal nature of APEC decisionmaking in the tensions over FDI policy and development strategies more generally. The slow institutionalization of this foreign direct investment regime reflects state attempts to moderate the impact of investment integration on national economies, thereby reducing the likelihood of adverse political reactions. William Avery and Richard Friman tackle the domestic politics of regional agreements, in this instance the battle over U.S. ratification of the North American Free Trade Agreement. Their analysis provides a detailed examination of the role of key interest groups in the passage of NAFTA in the United States, demonstrating the utility of Robert Putnam’s (1988) two-level game model for understanding this process and providing readers with a wealth of empirical evidence showing the impact of regionalization on democratic practice. Erik Beukel, Antje Wiener, and Laura Macdonald address the issues most advanced in the evolution of regional integration. Beukel considers the environmental tensions that arise in the course of expanding regional agreements to include middle-income countries—Mexico in the case of NAFTA and the Central and Eastern European countries in the case of the Europe Agreements. He shows how political alignments on this issue vary between the two regions, with labor and environmentalists in Europe far less worried about expansion than their counterparts in North America. In both regions, however, Beukel identifies an “anticipatory adaptation” to the higher environmental standards of NAFTA and the EU by potential new members and thus is more optimistic than Avery and Friman about the positive consequences of including social provisions as elements of regional agreements. Antje Wiener discusses the paradoxical creation of citizenship rights by a nonstate, the European Union. As she shows, these actions are a kind of state building in and by the EU, a process through which rights to autonomous political agency are being created simultaneously for the

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Introduction

community and for individuals. This analysis offers an unusually benign vision of the second half of Polanyi’s double movement, one that Polanyi himself might be surprised, if pleasantly so, to see. More in keeping with the tone of Polanyi’s evaluation of the “great transformation,” Laura Macdonald questions whether NAFTA will lead to a strengthening of human rights and democracy, not merely in Mexico, but in Canada and the United States as well. She argues that in the short-to-medium term, all three countries are likely to experience a deterioration in human rights, an increase in inequality, and serious threats to the quality of democratic practice. In the longer term, movements such as the Zapatista rebellion in Mexico and resistance to NAFTA in the United States and Canada could develop in unexpected ways, making a simple extrapolation of short-term trends unreliable as a predictor of the future. The chapters of this volume of the Yearbook bring us full circle: They consider the economic and political processes that lead to the initiation of regional integration agreements; analyze various patterns of institutionalization and development; and, from the vantage point of the present, speculate about the future of these regional redoubts of states and populations seeking to protect and advance their interests in spite or because of globalization. The volume concludes with a set of short commentaries by scholars who have read all seven case studies. Teresa Healy, Paul Aarts, and Hartmut Elsenhans engage directly with ideas presented in the seven chapters, thus beginning what we hope will be a continuing dialogue on these critical issues and what they portend for the future of the global political economy.

Fred H. Lawson

1

Theories of Integration in a New Context: The Gulf Cooperation Council Regionalism has a long but checkered history in the Arab world. For most of the twentieth century, efforts to promote integration among Arab states have been predicated upon the emergence of a dominant leadership capable of orchestrating immediate, comprehensive unification (Bishara, 1983– 1984). Such an approach characterized the short-lived United Arab Republic (1958–1962), as well as less successful experiments such as the stillborn Federation of Arab Republics (1971–1972) and the abortive Syrian-Iraqi union of 1978–1979 (Mufti, 1996). Much rarer have been projects designed to accomplish regional integration in a gradual, incremental fashion. Of the latter, the most successful to date has been the Cooperation Council for the Arab States of the Gulf, commonly known as the Gulf Cooperation Council (GCC). The GCC has managed not only to survive a succession of severe challenges since its founding in the spring of 1981 but also to lay a fragile foundation for greater unity among its six memberstates: Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates (UAE), and Oman. Why has the GCC managed to survive, when so many other arrangements failed to do so? The obvious answer, that the six GCC members constitute a select club of rich, oil-producing states (Ayubi, 1995:151–152), raises more questions than it answers. In the first place, the economies of the GCC states are virtually identical, putting them in a fundamentally competitive rather than complementary position relative to one another. A shared interest in coordinating oil policies might indeed have given the six an incentive to form an entity such as the GCC, but the degree of collaboration with regard to petroleum production and pricing has remained just as minimal in the years after 1981 as it had been before (Troxler, 1987:18). Second, despite the abundance of capital at their immediate disposal, GCC governments have undertaken remarkably few joint economic projects. In fact, several of the most important multilateral economic enterprises in the 7

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region predate the establishment of the council (Nye, 1978). Finally, longstanding rivalries and suspicions, compounded by persistent territorial disputes, continued to divide the rulers of the six member-states throughout the first decade and a half of the council’s existence. Rather than taking steps to create mechanisms capable of resolving such antagonisms, member-states permitted them to fester. By the early 1990s, simmering intraGCC tensions—particularly boundary conflicts among Bahrain, Qatar, and Saudi Arabia—threatened the viability of the GCC itself. In this chapter I propose a new way to explain why the GCC appeared and why it persists. I begin by assessing two conventional explanations for the council’s developmental trajectory. These arguments, which can be labeled structural and historical institutionalist accounts, were originally proposed as explanations for the dynamics of regionalism in Western Europe, but each claims to provide a more general theory of the origin and development of integration among sovereign states. I then sketch a more satisfactory explanation for the peculiar shape that regionalism has taken among the smaller Arab Gulf states. This argument, derived from studies that highlight the utility of two-level games as a means of understanding the dynamics of discontinuous international processes, not only offers an innovative perspective on the GCC but also provides insight into the sources of and prospects for multilateralism in other parts of the world. Structural Explanations for the GCC

Structural arguments, also called intergovernmentalist or neorealist accounts, explain the formation and consolidation of regional institutions in terms of the security interests of sovereign states interacting in an anarchic environment. In general, structuralists claim that integrative arrangements arise and flourish in ways that promote the autonomy and prosperity of individual member-states (Moravcsik, 1991; Garrett, 1993; Lange, 1993; Grieco, 1996; Baun, 1995–1996). More specifically, structural explanations for the appearance and consolidation of regional institutions have taken two complementary tacks. Such arrangements can be expected to arise whenever there exists a dominant regional power, willing and able to cover the costs associated with heightened integration. Regional hegemons not only provide the “political-military and diplomatic resources needed to establish the institutions through which [substantial] interdependence can be attained” (Grieco, 1997:173) but also exercise the leverage necessary to compel hesitant partners to collaborate. According to this line of argument, the comparatively high levels of integration that characterize the North American Free Trade Agreement (NAFTA) and Mercado Común del Sur (Mercosur) can be attributed to the dominant positions occupied by the

The Gulf Cooperation Council

9

United States and Brazil in North and South America, respectively (Grieco, 1997:173–174; Cohen, 1993). Persuasive as this chain of reasoning may appear on its face, Joseph Grieco (1997:174) conclusively demonstrates that “the presence of an overall regional hegemon appears to be neither a necessary nor a sufficient condition for the emergence of regional economic institutions.” Explaining why sovereign states take steps toward integration in structural terms therefore requires a second line of argument, which Grieco christens “the relative disparity shift hypothesis.” The hypothesis is at once concise and compelling: “when the relative disparities in capabilities within a region are shifting over time, disadvantaged states will become less attracted to institutionalization and the latter will become less likely to occur.” In an anarchic environment, states are primarily interested in preserving their own autonomy. Whenever their strategic positions start to deteriorate compared to others, “they might be concerned that the enhancement of regional economic ties brought about by institutionalization could accentuate regional imbalances in capabilities even further in favor of the relatively stronger partners.” Consequently, states whose fortunes and prospects are declining can be expected to resist the consolidation of regional institutions that might subordinate them to “a more domineering partner in the future” (Grieco, 1997:176). Only when states enjoy stability in their relations with one another and when they expect that stability to persist into the foreseeable future are they likely to risk locking themselves into collaborative arrangements. According to this logic, the initial formation and subsequent longevity of the GCC owes a great deal to the predominance of Saudi Arabia in Arab Gulf affairs (al-Alkim, 1994:44). The kingdom’s armed forces make up the core of the GCC Rapid Strike Force, formed in late 1984 and headquartered at the Saudi military complex at Hafr al-Batin. Saudi Arabia provides the largest share of capital investment mandated by the Arab Gulf Organization for Industrial Consultancy (AGOIC), which was established in November 1976 to oversee the evaluation and implementation of proposed industrial projects in the region with an eye toward “avoid[ing] duplication of effort among the member states” and reducing local “dependence on foreign consulting firms” (Nye, 1978:8; Beseisu, 1981:48). And the Saudi capital Riyadh serves as the command center for the extensive infrastructure that supports coordinated operations on the part of internal security services throughout the region. It is thus no accident that the GCC SecretariatGeneral has from the outset been located in Riyadh, nor that Saudi authorities have played the decisive role in selecting successive secretaries-general. Conversely, one might argue that the GCC only took shape after Saudi Arabia’s primary rival for leadership among the Arab Gulf states, Iraq, finally disqualified itself for membership in a regional security arrange-

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ment by launching a precipitate attack against the Islamic Republic of Iran in September 1980. More important, the persistence of the GCC results from the remarkable degree of consistency that has characterized the relative capabilities of the six member-states. Saudi Arabia not only continues to occupy a hegemonic position vis-à-vis its GCC partners but also accounts for a virtually constant proportion of the combined gross domestic product of the GCC as a whole (see Table 1.1). By the same token, the rank ordering of the six members exhibited little if any change during the decade from 1987 to 1996, despite a string of severe disruptions in Gulf affairs. Because it is patently unlikely that the agencies associated with the GCC will do anything to alter the regional distribution of power, weaker member-states harbor few qualms about maintaining the institutions that bind them to their stronger partners. Table 1.1

Distribution of Gross Domestic Product Among GCC Member-States (in percentages of GCC total)

Saudi Arabia UAE Kuwait Oman Qatar Bahrain

1987

56.8 16.5 14.7 5.8 4.0 2.1

1988

58.5 15.3 14.2 5.8 4.0 2.2

1989

55.9 16.8 15.4 5.8 4.0 2.2

1990

59.8 18.8 9.5 5.9 3.8 2.2

1991

63.4 18.4 5.7 6.1 3.7 2.3

1992

60.7 17.4 9.8 6.1 3.8 2.2

1993

59.1 17.0 11.7 6.4 3.6 2.2

1994

58.9 17.1 11.6 6.6 3.6 2.3

1995

57.9 17.7 11.9 6.8 3.5 2.3

1996

57.3 18.3 11.6 6.9 3.5 2.3

Source: Economic and Social Commission for Western Asia, Statistical Abstract of the ESCWA Region, 16th issue (New York: United Nations, 1996), p. 208.

Structural arguments therefore explain the successes of the GCC over the last decade and a half. But they do so in a way that predicts much greater integration than has in fact occurred. If stability in the distribution of capabilities among member-states were what precipitates the emergence and deepening of regional institutions among sovereign states, then the GCC should by the mid-1990s have exhibited a considerably higher level of multilateralism, perhaps one matching that of the European Union, whose members have had to contend with the uncertainties generated by the reunification of Germany and the de facto disintegration of Italy’s national economy (Grieco, 1997:179–181; Ohmae, 1995). What is most puzzling from a structural perspective, therefore, is not the longevity of the GCC, but its evident failure to achieve a greater degree of unification.

The Gulf Cooperation Council

Historical Institutionalist Explanations

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A quite different explanation for the emergence and consolidation of regional integration assumes that states are incapable of anticipating all the ramifications of the policies they adopt. Any institutional arrangement that comes into existence is certain to produce unintended consequences that in turn exert a significant influence on subsequent events. Therefore, even if the security interests of sovereign states do play a major role in determining the shape of “the grand interstate bargains that are the favorite subject for intergovernmentalists,” during “the intervals between these agreements, . . . where much policy actually evolves, the ability of member states to control the process is likely to be weaker” (Pierson, 1996:137). What determines the course of integration in the lengthy periods from one grand bargain to another are factors that confer “partial autonomy” upon multilateral institutions. These include the restricted time horizons of state leaders, idiosyncratic “rules of the game” that inhibit institutional transformation, and “sunk costs and the rising price of exit” entailed by previous commitments (Pierson, 1996:135–148). Integration may also be either hindered or furthered depending upon “the sequencing of decisions,” that is, the ways in which established decisionmaking procedures affect policy outcomes (Garrett and Tsebelis, 1996). In short, historical institutionalist accounts promise to illuminate “the ‘stickiness’ of institutional arrangements; the constraints placed upon radical policy change; and the distinctive institutional and policy circumstances across states” (Bulmer, 1993:369; Sandholtz, 1993). In historical institutionalist terms, GCC agencies promote regional integration in at least two key ways. First, the requirement that all decisions in the council’s primary policymaking bodies, the Supreme Council and the Ministerial Council, be taken unanimously not only makes it hard to adopt proposals but also and more crucially raises the difficulty of reversing initiatives once they have been implemented (Scharpf, 1988). “In such cases,” observes Mark Pollack (1996:438), “a single actor preferring the status quo can block institutional reform, lending [GCC] institutions an additional degree of stability uncommon to majoritarian institutions.” Confronted with periodic external shocks that have demanded unequivocal commitments to regional unity, most notably the 1980 Iraqi attack against Iran, the 1984–1985 tanker war, and Iraq’s 1990 invasion of Kuwait, Arab Gulf rulers have authorized the establishment of a variety of multilateral institutions. After each crisis passed, these institutions proved virtually impossible to dismantle. One member-state or another always expressed an interest in maintaining the new arrangement. Thus Kuwait has advocated the creation of a single Gulf currency and Bahrain champions the abortive GCC

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customs union, whereas Saudi Arabia continues to sponsor the moribund Rapid Strike Force. Because GCC institutions cannot be abolished, they eventually gain strength (Gould, 1996). Second, even the oil-rich Arab Gulf states can be expected to think twice before they abandon the investment they have made in multilateral institutions. Pulling out of such arrangements as the Bureau for the Association of Gulf Ports, the protocol regulating shrimping and fishing in the Gulf, and the agreements that enable GCC citizens to obtain professional employment in any member-state, not to mention the intimate connections that have grown up among the six internal security services, would almost certainly turn out to be inordinately costly. Furthermore, the expansion of multilateral institutions has accompanied a gradual reorientation of regional trade: John Anthony (1997:5) reports that thanks to the concerted efforts of “economic, commercial and industrial planners” in the six member-states, “the level of intra-GCC commerce, starting from a low base of approximately 3% of their total external trade, has experienced a six-fold increase.” Exiting the network of collaborative institutions that has grown up around the GCC is therefore far from cost-free, and the costs of exit may well have become prohibitive in the wake of the stagnation in world oil prices that took shape in the mid-1980s (Faour, 1993; Gause, 1994). Rising costs of exit have accompanied a steady growth of functional commissions operating under GCC auspices. By the fall of 1996, the trend toward closer cooperation among member-states was clearly evident in the events hosted by the Secretariat-General in Riyadh. October of that year saw not only the regular gathering of GCC finance ministers but also meetings of the six information ministers, transportation ministers, and trade ministers. Meanwhile, in the Omani capital of Muscat, GCC ministers of justice approved a draft unified personal status law, planning ministers agreed to coordinate their respective five-year development plans by the year 2001, and the Permanent Committee for Industrial Licenses “reviewed a number of newly licensed industrial projects, expansions, beginning of production, scrapped projects, etc.” (GCC News, October-November 1996). GCC defense ministers met at the Secretariat-General in early November, shortly after the heads of civil service deliberated means of implementing a Supreme Council directive “according equal treatment to any GCC State civil service member working in another GCC host country” (GCC News, October-November 1996). The six interior ministers gathered in Muscat that same month, as did the agriculture ministers, who discussed various amendments to the common agricultural policy. Bahrain’s capital, Manama, hosted the third GCC banking conference and the third meeting of GCC deans of medical colleges in October, and Kuwait welcomed the ministers of municipal affairs at the beginning of November. Consequently, the comparatively “low politics” of day-to-day regulation

The Gulf Cooperation Council

13

evidences a secular trend toward more comprehensive integration among GCC member-states. This dynamic is particularly apparent in such areas as transportation, communications, education, and property rights. It has accompanied a marked expansion of the Secretariat-General, which by the mid-1990s was publishing a number of periodic reports and bulletins, as well as representing the GCC at international conferences and serving as intermediary between European and regional representatives. Whether or not the contemporary Arab Gulf states contain influential constituencies that have “develop[ed] a vested interest in the maintenance of [GCC] policies” remains an open question (Pollack, 1996:442). Government officials at all levels regularly take part in blue-ribbon GCC committees and informal working groups; AGOIC-sponsored projects take pains to emphasize the importance of private investment and entrepreneurship; and local chambers of commerce actively cooperate with the Secretariat-General in sponsoring workshops and trade fairs. But further research will be necessary to determine the extent to which such activities represent “multilevel governance” inside the GCC (Marks, 1996). Similarly, it would be useful to investigate the relationship between GCC governments and the Secretariat-General as an instance of principal-agent interaction (Pollack, 1997; Martin, 1993). Since formal oversight mechanisms remain rudimentary, GCC officials are left comparatively free to extend the range of activities concerning which they possess privileged information. At the same time, the proliferation of commissions operating under the auspices of the Secretariat-General has compounded the overall density of the GCC network, significantly reducing member-states’ capacity to monitor and sanction unauthorized activity. In general, historical institutionalist arguments suffer from two major deficiencies. First, they generally spend far too much time recounting the history of whatever arrangements happen to exist while devoting too little effort to explaining why institutions exhibit one set of features rather than any others or why they appeared (or changed) at one time rather than at another. Second, they tend to treat “institutions as intervening rather than independent variables,” thereby focusing on the “process” of regional integration instead of its “ultimate causes” (Pollack, 1996:454). Theoretically astute proponents of historical institutionalism recognize these conceptual shortcomings but tend to trust that further empirical work will be sufficient to overcome them (Thelen and Steinmo, 1992; Zysman, 1994). Two-Level Games and GCC Integration

Although conventional explanations for regional integration illuminate some aspects of the history and development of the GCC, they fail to deal

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satisfactorily with others. In particular, neither the structural nor the historical institutionalist perspective offers a compelling explanation for the GCC’s peculiar developmental trajectory, which has taken the form of a limited number of discrete bursts of heightened multilateral activity separated by long periods of dormancy—a pattern analogous to Stephen Jay Gould’s notion of “punctuated equilibria” in evolutionary biology (Gould, 1980:182–185). More or less continuous dynamics, such as marginal shifts in the regional distribution of power or the gradual consolidation of multilateral institutions, cannot account for the fits and starts that have characterized the course of regionalism among the smaller Arab Gulf states. A more satisfactory explanation for the punctuated development of the GCC can be formulated by conceiving of regional integration as the unintended consequence of simultaneous bargaining across two or more distinct political arenas. Sharp discontinuities in the emergence and subsequent development of multilateral institutions can be traced to the fact that the policymakers involved in creating such arrangements find themselves engaged in at least two ongoing bargaining processes. On the one hand, state officials confront the representatives of rival states. On the other, leaders interact with their respective domestic constituencies, whose support or acquiescence is required if multilateral agreements are to be implemented or “ratified” (Putnam, 1988; Martin, 1993). Current studies of the intersection between these two arenas highlight the ways in which impediments to action in one game produce bargaining leverage in the other (Evans, Jacobson, and Putnam, 1993). Nevertheless, there is another, more significant dimension to the dynamics of “two-level games,” that is, the ways in which overlapping bargaining arenas create synergies that facilitate collaborative outcomes that had been previously unrealizable. Robert Putnam (1988:446– 448) suggests that such synergies entail the processes whereby unanticipated international agreements dramatically increase the likelihood of ratification, without altering either the initial preferences or payoff structures of domestic constituencies. But the concept might equally denote those occasions when unexpected domestic circumstances generate international arrangements that turn out to be wildly at variance with past trends. More specifically, the synergies associated with the establishment of multilateral institutions grow out of two mutually reinforcing dynamics. First, leaders manipulate negotiations with other states in such a way that “the results of international bargains . . . strengthen the political and economic position of supportive domestic groups and weaken that of opponents, with the ultimate aim of permanently changing domestic interest structures” (Evans, 1993:416). This objective is most often accomplished by negotiating agreements that promise to provide some kind of collective good, but that in fact offer opportunities for actual or potential supporters

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to accrue individual benefits without having to take part in “a hard-to-win, zero-sum game” vis-à-vis their domestic adversaries (Evans, 1993:417). Second, leaders who confront powerful domestic opposition find themselves able to accede to no more than a narrow range of international agreements. The inflexibility that accompanies such a shrinkage in the possible “win set” of a threatened regime confers substantial bargaining strength upon the leadership in its dealings with other states (Putnam, 1988:448– 450). Consequently, multilateral arrangements that facilitate the provision of collective goods—such as unrestricted trade, monetary union, or political integration—tend to appear sporadically and reflect the interests of those member-states whose leaderships are confronting the most severe domestic challenges. The orderly, incremental deepening of multilateral institutions that is predicted by structural and historical institutionalist arguments takes place only among polities that enjoy an extraordinarily high level of internal political stability. Despite the emergence of a handful of multilateral agencies and institutions toward the end of the decade, the level of economic integration among the six smaller Arab Gulf states remained minimal throughout the 1970s (Nye, 1978; Beseisu, 1981). Regional defense initiatives assumed a decidedly bilateral form during these years as well (Lawson, 1989:127–129; E. R. Peterson, 1988:73–75). Only in the aftermath of Iraq’s September 1980 invasion of the Islamic Republic of Iran did bilateral security arrangements begin to give way to multilateral ones. The six rulers used the occasion of the eleventh Arab summit in ‘Amman that November to initiate serious discussions concerning the shape that a unified regional security organization might take. Deliberations continued when the rulers gathered in the Saudi city of Taif the following January for the annual conference of the heads of state of the Organization of the Islamic Conference. Erik Peterson (1988:99) observes that by the time of the Taif summit, “the fundamental question of membership was resolved formally; the organization was limited to the [six smaller] Arab Gulf states and did not include Iraq, in principle because of Baghdad’s status as a belligerent in the [Iran-Iraq] conflict.” Also excluded from potential membership was the Yemen Arab Republic, which did not share the “identical systems, identical internal and foreign policies, identical ideologies, identical aspirations and identical human, social, and political problems” that characterized the Arab Gulf littoral states (E. R. Peterson, 1988:103–104; Priess, 1998). At the beginning of February 1981, the foreign ministers of Saudi Arabia, Kuwait, Bahrain, Qatar, the UAE, and Oman met in Riyadh to jump-start the process of security and economic integration. The ministers Inaugurating the GCC

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appointed a Committee of Experts to spell out the steps whereby unification might occur; the committee began work later that month, basing its deliberations on two quite different proposals. The first, submitted by Kuwait with Saudi backing, envisaged the immediate implementation of a wide range of measures designed to promote regional economic integration; the second, sponsored by Oman, accorded higher priority to military cooperation, particularly in defense of Gulf sea-lanes. Despite their disagreements over the relative importance of economic and military collaboration, all six states agreed on the necessity of enhancing combined efforts to ensure internal security. Consequently, even as the Committee of Experts opted for the Kuwaiti proposal, a Saudi-sponsored Gulf “national security council” took charge of coordinating the activities of security services throughout the area (Christie, 1986:4; Cordesman, 1984:627). On May 24, 1981, the foreign ministers of the six prospective GCC member-states met in Abu Dhabi in the UAE to nominate an experienced Kuwaiti diplomat, ‘Abdullah Y. Bishara, to be secretary-general of the proposed council; the next day the six rulers arrived in Abu Dhabi to sign the GCC Charter (GCC, 1983–1984a). Immediately after constituting themselves as the Supreme Council of the GCC, the rulers promulgated a Unified Economic Agreement (UEA). This document pledged the signatories to establish a uniform system of tariffs on goods entering local markets, to practice nondiscrimination among GCC member-states in drawing up regulations governing the flow of labor and capital across their common borders, “to co-ordinate their policies with regard to all aspects of the oil industry,” to harmonize their industrial development programs, to take steps “to unify investment in order to achieve common investment policy” and other principles (GCC, 1983– 1984b). The rapid adoption of the UEA convinced several outside observers that economic rather than security considerations lay behind the formation of the council (Priess, 1996:150). This impression was reinforced by the July 1981 appointment of a more activist head of the AGOIC; the new AGOIC secretary-general authorized plans to construct a regional tire factory in Kuwait and an aluminum rolling mill in Bahrain, among other collaborative projects. Furthermore, the six set up a Gulf Investment Corporation to promote the diversification of the regional economy (AlFayez, 1984–1985). In addition to these economic initiatives, the Supreme Council formed a permanent committee of GCC chiefs of staff to coordinate strategic planning and arms procurement. By January 1982, this committee had drawn up the outlines of a collective defense arrangement and passed it on to the GCC defense ministers for approval (E. R. Peterson, 1988:202). At the heart of the scheme lay plans to integrate the air defense systems of the six member-states. More ambitiously, the chiefs of staff agreed two months

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later to organize a unified military formation. At its meeting that November, the Supreme Council approved plans to integrate regional air defense, earmarked funds to finance the construction of a new air base in southern Bahrain, and sanctioned the first GCC combined military exercises. But the six rulers tabled the draft collective security arrangement in the face of Kuwait’s insistence that the Arab League charter already provided a sufficient basis for mutual security within the Arab world (Kechichian, 1985:858–859; Lawson, 1989:131). The combined exercises, held in October 1983 in the UAE, involved not only air and ground maneuvers but also command and communications operations (E. R. Peterson, 1988:203– 204; Christie, 1986:10). Moves to coordinate internal security policies received even higher priority than did combined military operations. Efforts to coordinate the activities of Gulf security agencies predated the formation of the GCC (Troxler, 1987:5; Guazzone, 1988:137–138). But in the wake of the signing of the GCC Charter, member-state interior ministers set up new channels to share intelligence concerning internal security matters (Harb, 1986:239; Ispahani, 1984:160; Kundi, 1989). The security services of the six GCC states initially concentrated on monitoring the activities of foreign workers residing in the Gulf. But following a December 1981 coup attempt in Bahrain, they started devoting greater attention to local political dissidents, indigenous Shi’i communities, and Iranian expatriates (Nakhleh, 1986:39; E. R. Peterson, 1988:208). Meanwhile, state officials took steps to standardize travel documents, harmonize immigration procedures, and centralize police records. Such measures were strongly advocated by Saudi Arabia and firmly opposed by Kuwait, whose leadership construed them as detrimental to Kuwaiti sovereignty (Nakhleh, 1986:46). This sudden burst of multilateralism can be traced directly to efforts on the part of Arab Gulf governments to parry a combination of severe internal and external threats simultaneously. A wave of active domestic opposition swept the smaller Gulf states in the months surrounding the 1978–1979 revolution in Iran. Popular demonstrations organized by adherents to the Islamic Action Organization and Islamic Guidance Society erupted periodically across the villages and towns of Bahrain during this period, culminating in a succession of large-scale marches in support of the newly established Islamic Republic of Iran in the spring of 1980 (Middle East Contemporary Survey, 1979–1980:397–398). Smaller merchants in Kuwait City closed their doors in February 1979 in response to an appeal by the Ayatollah Khomeini for a general strike to show sympathy for the revolutionary movement in Iran; two prominent local preachers began delivering politically charged sermons at mosques and mourning houses in the city that summer; these activities precipitated a number of large-scale pro-Iran demonstrations on the part of Shi’i activists (Lawson, 1992:14–15). At the

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same time, sporadic rioting erupted among the Shi‘a of Saudi Arabia’s Eastern Province, accompanied by the emergence of such underground Shi‘i groups as the Islamic Revolutionary Organization of the Arabian Peninsula and the Liberation Party of the Peninsula (Dekmejian, 1985:187– 188; Abir, 1993:77). More threatening to the Saudi regime was the appearance of radical Sunni cells critical of the religious laxity and immorality of the ruling family; members of one such grouping, led by Juhaiman bin Muhammad Al ‘Utaibah, captured the Grand Mosque in Mecca in November 1979 (Kechichian, 1990; Graz, 1990:123–129). In the aftermath of this episode, Islamist militants in the Eastern Province set up a vigilante organization called al-Ikhwan to purge the region of foreign influence; the organization forced the closure of a women’s clerical school, a number of beauty parlors, and a hotel that winter (Doumato, 1991:36). Arab Gulf regimes responded to this outburst of domestic opposition in two complementary ways. First, local security services cracked down on suspected militants and their supporters. Because many opposition movements were organized on a regional basis, the measures directed against them engendered an unprecedented degree of collaboration among the security services of the six smaller Gulf states. Second, government officials proffered a variety of concessions to rich merchants and professionals in an attempt to dissuade them from allying with the radicals. In the case of Kuwait, the primary concession entailed the restoration of the elected National Assembly (Crystal, 1992:115). Saudi authorities, by contrast, authorized the Eastern Province’s economic development agency to initiate a number of development projects designed to improve living conditions for the restive Shi‘a of al-Hasa (Goldberg, 1986:244–245; Nehme, 1995:58). In light of their experience with domestic opposition at the end of the 1970s, Arab Gulf regimes took seriously the possibility that Iraq’s unexpected military thrust into southwestern Iran in the fall of 1980 might reinvigorate radical movements throughout the region. At the same time, local elites had an interest in defending the economic and political prerogatives they had been granted over the course of the preceding decade. This trend was even evident in Kuwait, where significant restrictions on the civil liberties enshrined in the 1962 constitution had been imposed during the mid1970s. Jill Crystal reports that the delegates elected to the Kuwaiti National Assembly in February 1981 “soon expressed [their] objection to the press and assembly restrictions [introduced by the regime in 1979–1980] and to the government’s proposed constitutional revisions” (Crystal, 1992:115). Under these circumstances, the six rulers faced a choice between augmenting the concessions they had already made to local elites on the one hand and limiting, or even curtailing, these prerogatives on the other. The regime’s alternatives are presented as the rows of Figure 1.1. At the same

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Figure 1.1

Domestic Game Confronting Arab Gulf Regimes

Non–Ruling Family Elites

Oppose radicals Extend concessions

Regime

19

Curtail concessions

Encourage radicals

further reforms

elites seize political initiative (3, 1)

status quo

revolutionary situation (4, 4)

(2, 2)

(1, 3)

Note: 1 = most preferred outcome; 4 = least preferred outcome.

time, non–ruling family notables confronted an equally difficult choice: whether to join the regime in suppressing radical activists or to express sympathy for the radicals’ demands. The elites’ options constitute the columns of Figure 1.1. Given the two parties’ shared interest in avoiding the emergence of a revolutionary situation, the interaction of regimes and elites was most likely to result in a perpetuation of the reforms that had been implemented in the late 1970s. But as in all games of “chicken,” mutual cooperation of this sort represented an unstable outcome (Snyder and Diesing, 1977:118–119). Non–ruling family elites continued to have an incentive to encourage the radical opposition in a bid to seize the initiative in local politics, whereas rulers harbored an equally strong incentive to revoke earlier concessions as a means of perpetuating the existing social order. Were either of these two actors to defect by moving in the direction of its most preferred state of affairs, the other would have had little alternative but to go along in order to avoid the chaos that was almost certain to accompany mutual defection. On the international level, Saudi Arabia had two options regarding how to respond to the threat to Gulf stability posed by Iraq’s invasion of Iran. First, it might have insisted that whatever security arrangements were set up accorded itself a preeminent role in regional affairs; second, it could have advocated some form of truly multilateral institution, predicated upon a more equal distribution of power among the prospective member-states. The kingdom’s potential partners, however, faced a choice between accepting and rejecting whatever security structure the Saudis proposed. The resulting game is sketched in Figure 1.2. Given Riyadh’s expressed determination to play the leading role in Arab Gulf affairs (Harb, 1986:241–242;

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Figure 1.2

International Game Confronting Arab Gulf Regimes

Kuwait, Bahrain, Qatar, UAE, Oman

Join Saudi Arabia Accept equal status

Saudi Arabia

Insist on predominance

Remain aloof

multilateral order

other states gain leverage in Gulf (3, 1)

Saudi hegemony

escalation of regional antagonisms (4, 4)

(2, 2)

(1, 3)

Note: 1 = most preferred outcome; 4 = least preferred outcome.

Obaid-Ul-Haq, 1986:252), the most likely outcome was one in which the remaining emirates acquiesced in a Saudi-dominated regional security arrangement. Nevertheless, this outcome was no more stable than the one that characterized the domestic political arena: Riyadh’s strategic partners could be expected to take steps to distance themselves from a Saudi-dominated security structure just as soon as it became safe for them to do so (alAlkim, 1994:80). In short, the winter of 1980–1981 saw Kuwait, Bahrain, Qatar, the UAE, and Oman facing substantial external threats, yet they were reluctant to acquiesce in the emergence of a Gulf security arrangement that institutionalized Saudi hegemony. At the same time, prominent domestic actors throughout the region stood to gain more from encouraging the radical opposition than they did from rallying to the support of their respective regimes. As a way out of the internal and external impasses they faced, the six rulers devised an innovative set of integrative institutions that promised to further the interests of local entrepreneurs and professionals. 1 The multilateral components of the proposed GCC— most notably the abolition of restrictions on investment and employment across the borders of the six member-states—gave non–ruling family elites a strong incentive to refrain from supporting radical movements, even as they sweetened the pill of heightened activity on the part of local security services. It was thus the synergy generated by the conjunction of simultaneous internal and external challenges that sparked the unprecedented burst of Gulf regionalism that occurred in 1981– 1982.

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After an initial outburst of multilateral activity, economic integration among the GCC states quickly sputtered and then stalled. Virtually no effort was made during the council’s first five years to unify the monetary systems of the six member-states (Hitiris and Hoyle, 1986; Zaidi, 1990). With regard to commercial affairs, the GCC Ministerial Council recommended the adoption of a common external tariff in May 1983. By the fall of that year, Kuwait and Bahrain had brought their customs regulations into conformity with the new system, but Saudi Arabia, Qatar, and Oman pleaded for more time to reconfigure their local customs administrations, and the UAE stood firmly opposed to the revised tariff structure (Middle East Economic Digest [MEED], September 9, 1983). The gradual winding down of the Iran-Iraq war accompanied the resurrection of trade barriers throughout the region. In early 1988 Saudi Arabia raised customs duties from 7 percent to 12 percent ad valorum on most imported goods while increasing tariffs from 10 percent to 20 percent on re-exports coming into the kingdom through Port Rashid in the UAE (MEED, February 13, 1988). Bahrain, meanwhile, adopted new regulations that authorized government agencies to discriminate in favor of domestic products, so long as the price differential between locally produced items and equivalent imports remained less than 10 percent (MEED, January 16, 1988). Even when GCC ministers of industry proposed in June 1989 to regularize tariffs among member-states, the proposal was rejected by GCC finance ministers, who recommended that different products continue to be treated in different ways (MEED, June 2, 9, and 16, 1989). The Supreme Council endorsed the finance ministers’ recommendation, once again postponing discussion of a unified customs agreement among the six (MEED, January 12 and February 23, 1990). Meanwhile, slumping prices on world petroleum markets combined with wartime disruptions in trade and finance to create unprecedented economic difficulties in all six GCC states. Each government responded to the crisis in a substantially different fashion (Hunter, 1986; Lawson, 1991). Oil-rich member-states pursued markedly different strategies within the Organization of Petroleum Exporting Countries from those of their less well-endowed partners (MEED, October 28, 1983). Moreover, the August 1982 collapse of Kuwait’s unofficial share market, the Suq al-Manakh, sent a chill through Gulf financial circles. The ensuing crisis prompted the central banks of the six member-states to adopt new regulations governing the lending and bookkeeping practices of local financial institutions, most of which severely restricted the flow of cash reserves and investment capital across state boundaries (Azzam, 1988:97). Industrial integration proved no more inevitable than financial or commercial integration. In the fall of 1984, the AGOIC published a major A Decade of Stagnation

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report on current and future trends in the Gulf cement industry. The report advised GCC member-states to collaborate with one another in the production and distribution of cement so as to reduce unit costs and avoid the emergence of surplus capacity. In particular, it urged the UAE “to stop issuing licenses for new works, and instead concentrate on co-ordinating clinkers supply and grinding capacity,” while calling on the Kuwait Cement Company to postpone plans to enlarge its existing plant. Neither government followed the AGOIC’s recommendations. Instead, each of the GCC states continued to expand its own cement industry, “looking for salvation to an early end to the war between Iraq and Iran, and a surge in cement demand to supply reconstruction work in both countries” (Azzam, 1988:148–149). When the demand for aluminum jumped in regional markets, Qatar, Saudi Arabia, and Umm al-Qaiwain in the UAE all announced plans to construct new smelters, each of which would compete not only with the others but also with existing plants in Bahrain and in Dubai in the UAE (MEED, March 26, 1988). Conversely, whereas the AGOIC strongly recommended that the GCC take steps to augment local iron and steel production, UAE authorities shut down the recently opened rolling mills in Abu Dhabi, Dubai, and Ras al-Khaimah as soon as they showed signs of operating at a loss (Azzam, 1988:150–151). In the security arena, Kuwait’s long-standing opposition to military collaboration among the GCC states wavered following the outbreak of the tanker war in the spring of 1984. Kuwaiti units joined Saudi, Bahraini, and Qatari forces in combined air maneuvers around the Bahrain islands that April (J. E. Peterson, 1987:83). Growing consensus among the six memberstates regarding regional defense was reflected in greater sharing of battlefield intelligence gathered by U.S.-operated airborne warning and control systems aircraft flying out of Saudi airfields, as well as in the decision of the six chiefs of staff to deploy Saudi interceptors to block Iranian incursions into GCC airspace (Braun, 1989:93; Fredericks, 1987:75). These measures culminated in the Supreme Council’s November 1984 decision to create a GCC Rapid Strike Force. The force, headquartered at the Saudi military complex at Hafr al-Batin, was put under the command of a Saudi general. Nevertheless, this formation proved less than truly multilateral in structure. As John Peterson (1987:84) observes, the strike force “was not intended to be a permanent force but would be drawn from units of all six states in an emergency and then disbanded at the end of the crisis.” Like other important GCC institutions, it required the unanimous consent of the Supreme Council in order to be deployed (Christie, 1986:11; Guazzone, 1988:143–144). Successive Iranian offensives over the next two years elicited sharp rebukes but few concrete countermeasures from the GCC. The Ministerial Council met in emergency session to condemn Iran’s occupation of the Faw

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peninsula in southern Iraq in February 1986; GCC rulers gathered in Kuwait for the January 1987 summit of the Organization of the Islamic Conference, despite Iran’s boycotting the proceedings on the grounds that Kuwait was tacitly supporting Iraq. Combined military exercises among the GCC armed forces became increasingly rare as the decade went by (Khalaf, 1987). Oman reinforced its ties to the United States instead, and in November 1986 Omani troops carried out joint exercises with British air and naval units (King, 1987:36). When Iranian forces stepped up their attacks against Kuwaiti merchant shipping in early 1987, Kuwait found itself unable to persuade the GCC to assume a greater role in securing the sea-lanes in and around the Gulf. Furthermore, Kuwait’s GCC partners refused to implement the terms of an oil-sharing agreement that might have helped to ameliorate its burgeoning financial difficulties (Tétreault, 1995:147). In desperation, Kuwait turned first to the Soviet Union and then to the United States for assistance (Crystal, 1992:128). Subsequent requests by U.S. military commanders for unrestricted access to naval and air facilities in Saudi Arabia, Qatar, and the UAE in connection with U.S. naval operations in the region were politely rebuffed (Braun, 1989:96–97). Strategic collaboration among the GCC states thus turned out to be one of the last casualties of the eight-year war between Iraq and Iran. Moreover, the massive regional arms buildup that accompanied the final phase of the First Gulf War reduced rather than enhanced the complementarity of GCC arsenals. Kuwait, Qatar, and the UAE, whose military establishments had earlier used British armaments almost exclusively, began to purchase large quantities of U.S. and French weaponry. By contrast, Saudi Arabia made a dramatic turn away from U.S. suppliers in 1986 by contracting with British firms to supply its armed forces with the next generation of aircraft and armored vehicles (Tow, 1990:51; Cordesman, 1997c:155–156; Guazzone, 1988:141–142). The Saudi and Qatari navies ordered several French-built patrol vessels in 1987–1988, whereas Kuwait and the UAE bought German warships and Oman maintained its traditional connections to British suppliers (MEED, June 17, 1988). Kuwait contracted with the Soviet Union in July 1988 to purchase 245 armored personnel carriers (MEED, July 22, 1988). As Joseph Twinam (1987:114) wryly commented shortly before the fighting came to an end in August 1988, “With such a melange there is little serious prospect that GCC governments will soon reduce the heavy cost of maintaining and repairing six separate air forces by significantly sharing support facilities.” Intra-GCC divisions regarding strategic matters persisted even after the August 1988 cease-fire. In early 1989, officials in the UAE were considering an Iranian suggestion that a joint chamber of commerce be set up in Dubai to promote trade between the Islamic Republic and the GCC states (MEED, February 24, 1989). At almost the same time, a GCC delegation

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traveled to Baghdad to discuss the possibility of forming a joint investment company to finance industrial and commercial projects among the seven Arab Gulf states (MEED, March 17, 1989). Such overtures foundered during the first quarter of 1990 on the shoals of lingering Saudi distrust of Iran and rising tension between Kuwait and Iraq (MEED, July 27, 1990). Paradoxically, these two dynamics reinforced one another: Riyadh’s deepseated suspicion of Iran prompted the Saudi government to sign a bilateral security agreement with Iraq, which in turn heightened the level of external threat confronting Kuwait (Twinam, 1987:116). An evanescent burst of unity among the GCC states occurred when Kuwaiti-Iraqi tensions flared into war during the second half of 1990. The December 1990 meeting of the Supreme Council adopted a Doha Declaration that pledged the six to redouble their efforts to achieve “the strengthening of cohesion and solidarity, the consolidation of bases of cooperation and the promotion of coordination among the GCC member states in all fields” (Twinam, 1992:96). Three months later, GCC foreign ministers met in Damascus with their Egyptian and Syrian counterparts to draft a joint defense protocol designed to serve as the foundation for a multilateral postwar security arrangement in the Gulf. Saudi Arabia quickly announced that it intended to triple the size of its armed forces, partly to ensure that Egypt and Syria would be in no position to dictate the terms under which the new alliance would operate (International Herald Tribune, April 22, 1991). However, further deliberations that spring and summer failed to come up with a mutually agreeable formula whereby a combined formation involving troops from all eight sponsors of the Damascus Declaration could be constructed (MEED, June 28, July 19 and 26, and September 13, 1991). Irritated by the GCC’s evident reluctance to entertain a permanent Egyptian military presence in the Gulf, Egypt’s president Husni Mubarak called his country’s soldiers home in May (MaddyWeitzman and Kostiner, 1995:113). Sporadic attempts to paper over the spreading cracks in the Damascus Declaration failed to resuscitate the scheme, and when the Egyptian foreign minister toured the Gulf in the spring of 1992, he was bluntly informed that the smaller Arab Gulf states had arrived at a new conception of regional security “which is a purely internal GCC matter and does not concern Egypt or Syria” (Hollis, 1995:48). The rapid demise of the Damascus Declaration accompanied a marked resurgence of bilateralism in Gulf security affairs. Kuwait concluded a tenyear defense pact with the United States in September 1991. The treaty laid the groundwork for a series of joint Kuwaiti-U.S. military maneuvers The Revival of Multilateralism

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beginning that November (MEED, September 20 and November 22, 1991; Hollis, 1993:43). Kuwait signed similar agreements with the United Kingdom and France in February and August 1992, respectively. The UAE negotiated a bilateral protocol with France in September 1991, Bahrain signed a formal treaty with the United States that October, and Qatar followed suit the following June (Hollis, 1993:43–45; al-Alkim, 1996b). These treaties severely undermined the grounds for security collaboration inside the framework of the GCC. In the months preceding the December 1991 session of the Supreme Council, Oman attempted to stem the drift toward bilateral arrangements by proposing that the GCC create a unified defense force consisting of 100,000 troops. The proposal went unratified at the summit, primarily because “the Council members were not able to agree on the financing, the location, and the command structure for the force” (Hollis, 1993:38). Iran’s occupation of the island of Abu Musa in April 1992 persuaded GCC defense ministers briefly to revisit the question of whether or not to form a combined strike force when they gathered in Abu Dhabi that November. But after two days of deliberations, the five participants (Qatar failed to send a representative to the meeting in the wake of a border skirmish with Saudi troops that September) refused to authorize the formation of a permanent force and instead expressed their overall satisfaction with the existing state of affairs. In other words, “the ministers decided to focus on the ‘Peninsula Shield’ formula, namely, enlarging the sizes and enhancing cooperation among the individual GCC armies. Accordingly, each state would develop its own army, gradually increasing their combined size to 100,000 in 15 years” (Kostiner, 1992:240). Furthermore, the five defense ministers present unanimously agreed to pursue bilateral security arrangements with outside powers whenever necessary. Economic integration mirrored security integration in the wake of the Second Gulf War. Immediately after the fighting stopped, GCC finance ministers authorized the creation of a $10 billion fund to support Arab and Islamic countries whose economies had been damaged as a result of the conflict. Responsibility for managing the fund was placed in the hands of a special commission composed of directors of existing Gulf development agencies. The commission’s activities were linked to the operations of such international institutions as the World Bank and the International Monetary Fund, and preference was accorded to private-sector projects rather than to state enterprises (MEED, May 3, 1991). At the end of November, GCC trade ministers met in Qatar to discuss ways of accelerating the formation of a customs union; in mid-December the governors of the six central banks announced that they intended to issue a single currency by the year 1999 (MEED, December 20, 1991; Middle East Memo, October 30, 1992). Prospects for a unified currency brightened when Kuwait decided to join

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the other GCC states in pegging the value of the Kuwaiti dinar to that of the U.S. dollar (MEED, February 14, 1992). But by mid-1992, the postwar flowering of economic multilateralism began to wither. The GCC Ministerial Council decided in early June to entrust the management of the newly created assistance fund to the central bank of Saudi Arabia. The council also announced that no customs union could be expected to emerge in the region until at least the year 2000 (MEED, June 12, 1992). Since the European Union had demanded that a GCC common market be established as a precondition for deregulating commerce between the two entities, GCC ministers of industry advised the Secretariat-General to stop focusing on trade negotiations with Europe and “shift our sights to other groupings in the world” (MEED, November 6, 1992). As foreign investment in local manufacturing rebounded that fall, Saudi Arabia and the UAE stepped up their efforts to manipulate tariffs as a means of promoting domestic industry (MEED, November 13 and December 4, 1992). More important, the Saudi delegate to a September 1994 conference of GCC finance ministers reported that his colleagues had “agreed that finding a fixed exchange rate for GCC currencies is no longer the priority it had been some years ago. Since the establishment of the GCC,” he continued, “exchange rates have remained stable even without a written accord” (MEED, September 30, 1994). Still, the mid-1990s witnessed a renewed outburst of economic multilateralism. In September 1994, Bahrain’s Chamber of Commerce opened a center for the arbitration of intra-GCC commercial disputes, whose board of governors included representatives from the chambers of all six memberstates (MEED, September 9, 1994). The GCC opted to become a full partner in the International Mobile Satellite Organization at the end of 1994, a move that committed the six to permit the unrestricted use of cellular telephones across their common borders (MEED, December 9, 1994). About the same time, special GCC commissions approved measures to equalize handling charges for the unloading of cargo at local airports and give GCC citizens the right to buy and sell corporate shares offered in any GCC stock market (MEED, January 6, 1995). Finance ministers meeting in Riyadh in March 1995 agreed to link automated teller machines throughout the GCC, to eliminate restrictions that prevented citizens from applying for loans at GCC banks outside their home states, and to “undertake economic activities in the educational field” (MEED, April 7, 1995). Six months later, the AGOIC published a comprehensive prospectus designed to persuade European companies to invest in mineral extraction ventures in all six GCC states (MEED, October 27, 1995). Substantial portions of the 1995 and 1996 Supreme Council agendas were devoted to exploring cooperative responses to regional problems, particularly the troublesome question of how to generate sufficient employ-

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ment to provide attractive jobs for the GCC’s rapidly growing population of well-educated young people (Anthony, 1996:167, 176). At the 1997 summit, plans were approved to connect the six member-states’ electricity grids and to allow banks chartered in any GCC state to set up branches in the others (Glubb, 1998). The resurgence of multilateralism was even apparent in talks concerning the formation of a Gulf customs union. Despite indications in late 1996 that the Ministerial Council had abandoned all hope of adopting unified tariff regulations in the foreseeable future, the issue continued to be debated during the course of 1997 (MEED, November 8, 1996, and July 11, 1997). Ironically, the major sticking point in the negotiations was the UAE’s refusal to raise tariffs to match the proposed uniform rate of 8 percent (Middle East Executive Reports, October 1997). Festering territorial disputes prevented the GCC states from undertaking multilateral security initiatives during the first three years after the Second Gulf War (Chubin and Tripp, 1993). Open skirmishing flared along the border dividing Saudi Arabia and Qatar in September 1992, in the fall of 1993, and then again on five separate occasions during 1994 (Cordesman, 1997a:222; Middle East Contemporary Survey, 1994:562). Increasing Saudi-Qatari tension accompanied a steady escalation of the long-running conflict between Qatar and Bahrain over the strategically situated Hawar Islands (MEED, July 15 and October 21, 1994). These developments finally convinced the December 1994 Supreme Council to include in its final communiqué an urgent appeal to “member states to make every effort to resolve their territorial disputes through bilateral negotiations before the next summit”; the statement “implied that the GCC itself would take an active role in promoting a settlement should the requisite progress not have been made within the specified time” (Schofield, 1996:39). Kuwait’s ruler further proposed that any such negotiations between pairs of GCC states be facilitated by a third GCC member, who would act as mediator (MEED, January 6, 1995). GCC heads of state closed ranks more tightly in the summer of 1995, after the ruler of Qatar was forcibly removed from power by his son, the heir apparent and minister of defense. Taking their cue from Saudi Arabia’s grudging acknowledgment of the new leadership in Doha, the four remaining rulers recognized the son as the legitimate emir and accepted him as a member of the Supreme Council (Cordesman, 1997c:13; MEED, July 7, 1995). That fall, the GCC adopted a unified stance in opposition to U.S. efforts to set up a Middle East development bank. Assistant Secretary General for Economic Affairs ‘Abdullah al-Quwaiz remarked that the six member-states “believe that creating the institutions of the framework of peace before the completion of the peace process is illogical” (MEED, October 27, 1995). GCC commanders stood equally united in their opposition to the “mission creep” that characterized U.S. military operations in

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and around Iraq during the course of 1995–1996 (National Council on U.S.-Arab Relations, 1996:12), even as they increased the level of tactical cooperation among their respective armed forces (Cordesman, 1997c:16). The 1997 Supreme Council meeting reaffirmed the rulers’ commitment to creating an integrated air defense network, including an “early warning system covering the whole region, . . . based on the most advanced technology” (Glubb, 1998). As had been the case in 1980–1981, the resurgence of multilateralism in the mid-1990s reflected a conjunction of domestic and foreign threats to the security of the smaller Arab Gulf states. On the domestic level, the regimes of virtually all of the GCC states came under intense pressure to liberalize their political systems in the wake of the Second Gulf War (Abou Taleb, 1991; Gause, 1994; Lawson, 1994; al-Alkim, 1996a; al-Hamad, 1997). Rising demands for political liberalization accompanied not only an unprecedented drive to privatize the economies of the Arab Gulf states but also the revival of radical opposition movements. Such movements were particularly active in Bahrain, where militants orchestrated a wave of mass demonstrations in villages surrounding the capital and then launched a series of attacks against tourist hotels, cafés catering to expatriate workers, luxury goods shops, and power-generating stations across the islands (alAlkim, 1996a:39–40; Gause, 1997; Bahry, 1997). In Saudi Arabia and Oman, by contrast, radical political activity focused primarily on rallying popular support for underground organizations opposed to the regime, although Saudi militants bombed a key government security installation in November 1995 and a U.S. military facility the following June (Dekmejian, 1994; Cordesman, 1997c:38–43). Consequently, GCC regimes once again found themselves confronting the thorny problem of how to suppress concerted challenges from radical movements without alienating influential domestic elites. In the international arena, repeated Iraqi troop movements during 1993–1994 triggered a succession of mobilizations involving GCC armed forces. The most threatening of these crises erupted in October 1994, after two of Iraq’s elite Republican Guards divisions abruptly pulled out of their encampments outside Baghdad and took up forward positions around the southern port of Umm Qasr. Kuwaiti military commanders responded to the redeployment by placing their own forces on high alert and taking part in a massive combined exercise with U.S. air and ground units. Even though the two Republican Guards divisions retreated north in the wake of this show of force, Iraqi forces continued to carry out smaller-scale operations south of Baghdad over the next few months (Cordesman, 1997b:12–13). Meanwhile, the primary external threat facing Bahrain and the UAE came not so much from Iraq as from Iran. At the time of the October 1994 crisis, Tehran dispatched additional troops to the disputed island of Abu Musa,

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along with batteries of heavy artillery, antiaircraft missiles, and antiship rockets. Iranian commanders took advantage of the situation to lengthen Abu Musa’s airstrip and construct a network of fortifications around the island as well (Cordesman, 1997a:302–303). Iran also augmented its annual naval maneuvers in the waters around the Straits of Hormuz, which were timed to coincide with the convening of GCC Supreme Council meetings each December and which “many in the GCC believe is a deliberate effort at intimidation” (Anthony, 1997:26). The conjunction of internal and external challenges that reappeared during the mid-1990s gave Arab Gulf regimes an incentive to adopt strategies that were virtually identical to the ones that had precipitated the formation of the GCC a decade and a half earlier. Saudi officials circulated a revised internal security protocol in the fall of 1994, then convened an extraordinary meeting of the six GCC interior ministers in Riyadh at the end of November to ratify it. Qatar, still smarting from the September 1992 border skirmish with Saudi Arabia, refused to send a representative to the conference; Kuwait attended but demurred from signing the new protocol on the grounds that its provisions governing the extradition of suspected criminals contravened the emirate’s recently reinstated constitution (MEED, December 9, 1994; Economist Intelligence Unit, first quarter 1995). Still, the Supreme Council adopted a resolution that December deploring “the phenomenon of extremism and fanaticism” that the six rulers associated with the activities of militant Islamist organizations. This resolution provided a basis upon which GCC interior ministers could express their commitment to “stand by Bahrain and fully support measures taken to maintain security and stability which is inseparable from the security of all GCC states” when widespread rioting broke out on the islands the following spring (MEED, January 6 and April 28, 1995; Middle East International, January 6, 1995). GCC interior ministers gathered in Bahrain’s capital, Manama, in mid-April 1995 “as a show of regional solidarity” (Middle East International, April 14, 1995). As a way of making such internal security initiatives palatable to local entrepreneurs and professionals, GCC rulers devoted special attention to promoting regional economic integration at the December 1996 Supreme Council meeting in Doha. John Anthony reports that “at this summit, key provisions of the GCC’s 1981 Economic Unity Agreement (EUA) received greater emphasis than at any GCC heads of state meeting for quite some time. . . . The added emphasis on economic matters . . . was the result of the members’ decision to place such issues near the top of their agenda.” Specifically, the list of topics discussed in detail at the meeting included “not only the perennially vexing issues of how to unify their external customs, how to enhance the movement of goods, services, and labor within the GCC region, how to attract more foreign and local private sector invest-

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ments, and how to gain greater access to the markets of their major economic partners. It also included such related issues as how to register more effective progress toward establishing a customs union and instilling a much greater sense of economic citizenship among the six states’ peoples” (Anthony, 1997:3). In other words, measures designed to expand the economic opportunities open to GCC nationals were intimately connected to steps that broadened the purview of the local security services and to initiatives that promised to reinforce the multilateral character of the institutions linking the six GCC member-states to one another. Conclusion

Explaining the peculiar developmental trajectory of the Gulf Cooperation Council in terms of the overlapping domestic and international games that have engaged Arab Gulf regimes over the last two decades enhances our understanding of Middle Eastern regionalism in three ways. First, this approach incorporates and augments the insights that can be gleaned from structural and historical institutionalist accounts. It recognizes Saudi Arabia’s predominant position in regional affairs but does not assume that the kingdom’s enviable economic and military assets will necessarily persuade the other Arab Gulf states to acquiesce in arrangements that institutionalize Saudi hegemony. Furthermore, it leaves open the possibility that specific institutions created at one time might predispose regimes toward further collaboration later on, while at the same time providing a plausible explanation for why such institutions were set up in the first place. Second, highlighting the intimate connection between domestic and international politics in the Arab Gulf states helps untangle a notable paradox regarding the GCC: the apparent opposition of non–ruling family elites to the deepening of regional integration. This posture is most obvious in Kuwait, where the elected National Assembly has consistently rejected proposals to establish a truly multilateral regional order, despite the concrete benefits that Kuwaiti entrepreneurs and professionals might derive from institutions such as a single Gulf currency or customs union. The unwillingness of influential notables to endorse the regimes’ efforts to extend the scope of the GCC reflects the adverse impact that regionalism has had on political reform throughout the Gulf. Third, the argument presented here implies that moves toward greater multilateralism tend to occur in discrete clusters, rather than in the form of a continuous progression. In the case of the smaller Arab Gulf states, persistent rivalries and deep-seated suspicions have made economic and strategic integration tenuous at best. Only in the face of extraordinary internal and external challenges have the six regimes created institutional arrange-

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ments designed to bind their respective states together. And even then, domestic and international pressures have generally pushed in quite different directions, complicating efforts to promote mutual collaboration. Sudden bursts of heightened multilateralism nonetheless appeared in the Gulf at the beginning of the 1980s and once again in the mid-1990s, separated by a lengthy interval of minimal integrative activity. The synergy generated by the complex dynamics of two-level games provides a promising way to explain the punctuated equilibria that continue to characterize regionalism in this crucial corner of the contemporary Arab world. Note

1. These institutions simultaneously undercut the position of some of the richest commercial houses in the region, thereby contributing to the transformation of ruling coalitions in the GCC states that took place during the 1980s (Chaudhry, 1996; Lawson, 1997b).

Barbara Jenkins

2

Assessing the “New” Integration: The Mercosur Trade Agreement According to the rhetoric, a new kind of integration is under way in Latin America. Although attempts to build regional economic integration are not new to the region, numerous recent agreements have been signed that claim to differ significantly from those of the 1960s and 1970s.1 Inspired by the tenets of economic liberalism, these trade agreements ostensibly take a laissez-faire view of market interactions. Unlike earlier attempts at Latin American integration, they deny special treatment for smaller countries and eschew the supranational bureaucracies previously deemed important for equitable integrated growth. One of the most ambitious of these efforts is an agreement between the Southern Cone countries of South America, the Mercado Común del Sur, known as Mercosur. Originally signed by Argentina, Brazil, Paraguay, and Uruguay, the group expanded membership to Chile in 1996 and is considering ties with the Andean Pact countries as well. In this chapter I show that in terms of Mercosur’s laissez-faire approach, the distinction between “new” and “old” forms of integration in Latin America is vastly exaggerated. In fact, Mercosur relies heavily on political interjections, despite its rejection of supranational political control. This does not mean that Mercosur is not a neoliberal trade agreement. Indeed, the way it treats labor and its smaller member states indicates it lies firmly in the neoliberal camp. But it does provide an interesting window on the dynamics of “free trade” agreements in general and on the disparity between the rhetoric of laissez-faire economic arguments and the actual mechanics of market operations. By exposing the emptiness of the laissezfaire approach to free trade, I hope to show that free trade efforts cannot survive without extensive state intervention and compensation. Acknowledging this point provides insight into the mechanisms necessary for successful regional integration efforts.

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The New and the Old Integration

Guillermo Ondarts claims that Mercosur is one of a breed of pacts in Latin America that he refers to as the “new integration.” He argues that newer integration projects such as Mercosur incorporate the following principles: (1) the rapid and generalized reduction of all tariffs; (2) adherence to strict trade reciprocity, allowing for little or no differential treatment for relatively less developed partners; (3) more open trading relations with the rest of the world through the reduction of external tariffs; (4) the simultaneous pursuit of special trade agreements with other countries or groups of countries; and (5) minimal reliance on institutional structures to allow for greater flexibility. Agreements are administered by councils representing appropriate ministers from member countries rather than by independent secretariats created specifically for the regional entity (Ondarts, 1992). Ondarts’s definition roughly corresponds to what Manfred Mols describes as “Type III” integration. Regional projects of this type live in a “world of pragmatism” characterized by flexible procedures and negotiation styles. Institutionally, they are informal, with little emphasis on the secretariats and bureaucracies prominent in many previous efforts at Latin American integration. Instead, they are run collectively by executive authorities, and all regional decisions are subordinate to those of national governments (Mols, 1993). This emphasis on institutional informality appears to be in sharp contrast to Latin American regional agreements in the 1960s and 1970s. Although previous integration efforts ultimately aimed at increasing extraregional exports, the emphasis was on trade promotion, not free trade. Structuralist advocates of regional integration, exemplified by the Economic Commission for Latin America (ECLA) school in the 1960s, argued that leaving the allocation of trade and production up to market forces was tantamount to “concentrating development on the more advanced countries among the union membership” (Wionczek, 1966:9). To ensure that trade and production were equitably distributed among trade partners, they maintained, derogations from the multilateral trade rules outlined in the General Agreement on Tariffs and Trade (GATT) were necessary. Specifically, trade liberalization was to proceed on the basis of preferential agreements that gradually lowered average tariff levels on a product-by-product basis, as opposed to the generalized across-the-board abolition of tariffs involved in a free trade agreement. Second, relatively less developed trade partners were given differential treatment in the form of nonreciprocal concessions and slower tariff reduction schedules (Tussie, 1987:112). Agreements such as the Andean Pact went further to include regional sectoral plans to ensure industrial complementarity, the financing

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of production and trade through a development corporation, and the regulation of foreign direct investment and technology transfer. The stalled progress of trade liberalization and growth in Latin America discredited ECLA arguments, however, resulting in the renaissance of the free trade school. Mercosur was touted as the first significant achievement of this new free trade school of integration. In fact, although on paper Mercosur became a free trade zone and customs union in 1995, this agreement embodies a series of sectoral agreements and hundreds of negotiated exceptions to the rule, including preferential treatment for smaller members—all a diluted version of the ECLA recipe. Most of the changes negotiated were in response to business protest, a reminder that business is often the first to abandon laissez-faire principles (Jenkins, 1992:20). The reasons for this are clear: business, including multinational corporations, relies on state protection for competitive advantage, and the harshness of free market operations would have obliterated any efforts to build more open trade. In addition, because of a historical lack of trade links between these countries, even those members most dedicated to laissez-faire principles, such as Argentina, have found themselves building trade via intricate negotiations. Some predict that in order to ensure the maintenance of regional markets, more interventions in the form of supranational institutions are likely to occur. Regardless, it seems obvious that Mercosur members have simply replaced supranational political interventions with ad hoc, “pragmatic” responses at the intergovernmental level. The Mercosur agreement provides interesting insights into the ironies of creating and maintaining a free market system. Contrary to the absence of state intervention one would expect in such a neoliberal endeavor, in the Mercosur case we see states carefully negotiating market relations between trading partners. Despite the free trade rhetoric surrounding Mercosur, it has much more affinity with the old integration than participants admit, partially because the largest Mercosur partner, Brazil, is still far from the textbook definition of neoliberal, even after a recent turn to the right. But this situation also reveals a fundamental truism about free trade: although self-regulating markets may require little intervention once in operation, they are ultimately political creations. As Karl Polanyi argues, there is an important distinction between laissez-faire and economic liberalism. Although economic liberals aspire to economies based on self-regulating markets, it is impossible to create such a system without significant government intervention. As long as a market is not established and needs support, even the most laissez-faire of governments will be forced to intervene in order to ensure free market operations. Polanyi states, “The accusation of interventionism on the part of liberal

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writers is thus an empty slogan. . . . The only principle economic liberals can maintain without inconsistency is that of the self-regulating market, whether it involves them in interventionism or not” (Polanyi, 1944:140). There could be no clearer evidence of Polanyi’s argument than the efforts of Mercosur governments to build new markets between themselves. Despite the absence of supranational political institutions, Mercosur is ultimately a political construction. Of course, not all groups are equally represented in political negotiations; the democratic deficit described in other chapters in this volume is clearly evident in Mercosur as well. Given the authoritarian legacy of the Southern Cone, it is not surprising to see that labor has not played a significant role in the negotiating process. The smaller member countries, Uruguay and Paraguay, entered the agreement out of necessity rather than by choice and have waged a constant battle to regain some of the preferential treatment they had received in previous trade agreements. Indeed, this probably is the new integration’s biggest contrast with the old: its neoliberal perspective on regional integration through the exclusion of labor and the formal rejection of any measures to encourage economic development in smaller states. Although the smaller states have had some success in pressing their claims for special treatment, Mercosur remains a neoliberal treaty in its emphasis on increasing trade flows rather than encouraging economic development (Richards, 1997). The analysis that follows shows the difficulties encountered by Mercosur countries in their effort to build a free trade area and how and why government interventions were exacted. The role of labor and the dilemmas of the smaller states will also be discussed. First, however, a brief explanation of the nature of the Mercosur agreement is necessary. What Is Mercosur?

The Treaty of Asunción signed in 1991 included the following five principles: 1. The free circulation of goods, services, and factors of production by 1994; 2. The establishment of a common external tariff by 1994; 3. The creation of a common trade policy with regard to third states; 4. A commitment to coordinate macroeconomic and sectoral policies as well as harmonize legislation in appropriate areas; 5. The creation of an arbitration forum to resolve conflicts and deal with noncompliance by member countries (Ministerio de Relaciones Exteriores y Culturo, 1991a).

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Provisions were made to set up working groups to ensure the coordination of policies in the areas of trade regulation, customs, technical norms, fiscal and monetary policies related to trade, ground and maritime transportation, industrial and technology policy, agricultural policy, energy policy, and macroeconomic policy. The treaty provided for a minimal institutional structure, with only two executive organs orchestrating regional operations and decisionmaking: the Consejo del Mercado Común, which comprises the ministers of external affairs and ministers of the economy and governs the nature, pace, and extent of the agreement; and the Grupo Mercado Común, which comprises the ministers of external affairs and is intended to ensure the actual implementation of the treaty. By January 1995, Mercosur members had come close to meeting three of the five goals outlined in the Treaty of Asunción, albeit with numerous exceptions to the rule. Given the rapid timetable set out in the treaty, it is not surprising that many exceptions had to be allowed, although critics charge that these loopholes seriously detract from the value of the agreement. Members decided to postpone negotiations for a full common market until the year 2000. With regard to the customs union and the negotiation of a common external tariff, however, members agreed on a series of tariff rates between zero and 20 percent, which apply to 85 percent of the products on Mercosur’s list. Again, numerous exemptions were made for specific products, which must be phased out by 2001. Certain strategic industries were also exempted, with various phase-out timetables. For example, Brazil and Argentina have until 2001 and Uruguay and Paraguay until 2006 to adopt a 14 percent tariff on capital goods. Information technology and telecommunications will retain a 16 percent tariff until 2006 in all countries. Another goal was met by an agreement to create a dispute settlement arbitration tribunal based in Asunción. Details of the actual rules of arbitration are sketchy to date, a disappointment to Uruguay and Paraguay, which wanted a more rules-based approach to dispute settlement. This move fits in with Mercosur’s minimalist institutional structure, but it remains to be seen how effective such a tribunal will be without legal strictures to guide it. Mercosur members also moved a step closer to the complete freeing of trade. As opposed to the full liberalization of trade called for in the treaty, about 82 percent of the 9,000 products on the Mercosur list are traded freely.2 Argentina and Brazil must reduce all tariffs to zero in four years, whereas Uruguay and Paraguay have five years to meet this target. In order to reach this free trade deal, numerous sectoral agreements had to be allowed. Argentina was allowed to keep its existing auto policy until 1999, for example, allowing Argentine auto manufacturers to import finished

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vehicles with a 2 percent duty, provided they balance their trade within three years. An auto agreement between Brazil and Argentina also remained in place. Argentina was allowed to keep quotas on Brazilian sugar until a new agreement is worked out, and both Argentina and Brazil will continue to protect their textile industries against non-Mercosur competitors. In addition, a sectoral agreement has been signed for the steel industry, and the Mercosur treaty states that accords will be pursued in petrochemicals, chemicals, textiles, shoes, paper, electronics, agroindustries, and automobiles. Finally, Chilean accession to the agreement was achieved only after grain producers in that country were granted trade protection for eighteen years. Since 1991, trade between Mercosur members has increased markedly. Recent reports show that between 1990 and 1993, exports within the group increased at a rate of 27.9 percent annually, as opposed to a 4 percent rise in exports to the rest of the world. The share of Mercosur trade in the total exports of member countries rose from 8.5 percent in 1990 to 18.5 percent in 1993. Ironically, this increase in free trade came as a result of the negotiated sectoral agreements and exceptions to the rule outlined above. Without concessions to ECLA trade philosophy, the neoliberal model of the new integration would not have survived. Because Mercosur is ultimately a stateled project, political acceptance of the treaty had to be bought through measures for preferential treatment and protection for specific industries. Why member states were so anxious to sign an agreement in the face of domestic opposition deserves further explanation. Motivations for Mercosur

Mercosur follows a series of trade and integration projects involving countries of the Southern Cone. Aside from the membership of all four states in the Latin American Integration Association (LAIA),3 a number of bilateral treaties were signed between the signatories throughout the 1980s. In 1986, Brazil and Argentina initiated the Programa de Integración y Cooperación (PICE), signing twenty-four sectoral protocols between 1986 and 1988. Uruguay also signed preferential trade agreements with Argentina and Brazil, and Paraguay negotiated preferential tariffs with both Brazil and Argentina via LAIA. These agreements met with considerable success: the value of trade between Brazil and Argentina increased 150 percent between 1985 and 1990, with about 90 percent of Argentine exports to Brazil entering by means of negotiated sectoral agreements. As a result, Argentina witnessed its first ever trade surplus with Brazil in 1989 (Bortzman and Porta, 1991:7; Bouzas, 1991:4). Fifty percent of Brazilian exports entered

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Argentina via negotiated sectoral agreements. Similarly, about 93 percent of Paraguay’s sales to Argentina were negotiated via LAIA (Alá Rué and Lavergne, 1991:24). By the late 1980s, however, the integration process between Argentina and Brazil, in particular, had stalled. The “gradual, flexible, progressive” approach of signing sectoral agreements was stymied by sectoral lobbies in both countries that made negotiations more difficult. Consequently, fewer and fewer items were being added to the common lists of duty-free goods in each sector. To give the process a boost, Brazil and Argentina ratified an Integration Treaty in 1989 that committed them to building a common market by 1998. In 1990, presidents Fernando Collor de Mello of Brazil and Carlos Menem of Argentina agreed to halve the time needed to achieve integration to five years and invited Uruguay to join them. Uruguay in turn lobbied for Paraguay to participate as well, and the process culminated in the signing of the Treaty of Asunción on March 26, 1991. Initially, Chile declined to join in negotiations, although in 1996 it acquired “associate status.” Because it refused to alter its single 11 percent external tariff to comply with Mercosur’s higher maximum tariff of 20 percent, Chile could not become a full member of the trade group. One cannot fully understand member countries’ motivations for creating Mercosur, however, without considering international influences on regional integration. The tendency of the world economy to divide itself into regional blocs has left many developing countries scrambling to find a “bloc” that they can slip into. The countries of the Southern Cone felt this pressure as well, and as the deadline for Europe 1992 loomed nearer and Mexico began to pursue a trade agreement with Canada and the United States, concerns of being left out of global trade schemas grew. Mexico’s quest for a North American Free Trade Agreement (NAFTA) was a particular worry for Mercosur countries. Although less than 25 percent of Mercosur exports go to the United States, both Argentina and Brazil had expanded their shares of the U.S. market over the 1980s. They were concerned that should it complete a trade agreement with the United States, Mexico would receive “first-signer” benefits that would displace Mercosur exports. Indeed, estimates showed that other Latin American countries would disproportionately bear the brunt of more duty-free Mexican goods entering the U.S. market (Bouzas, 1991:22). Another fear was that a free trade agreement with Mexico would funnel U.S. investment destined for Latin America into the Mexican market to the detriment of Mercosur states. Given the growing focus of European investors on eastern and southern European countries, and in the aftermath of a debt crisis that virtually extinguished foreign loans to the region, this meant that the Southern Cone would likely be faced with a dearth of external investment funds. As Table 2.1 shows, foreign investment levels had

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Table 2.1

Argentina Brazil Paraguay Uruguay

Foreign Direct Investment Inflows (millions of U.S. dollars) 1984–1989a 1990 1,028 1,416 6 29

1,836 989 76 42a

1991

2,439 1,103 84 32a

1992

4,045 2,061 137 1a

1993

2,555 1,292 111 102

1994

3,068 3,072 180 155

1995

4,181 4,859 n/a 157

1996

4,285 n/a n/a 169

Source: IMF, 1997. Note: a. Figures from UNCTAD (1994, 1995). Figures in column 1 represent annual average.

recovered somewhat from mid-1980 levels, but the limited recourse to bank financing meant that foreign direct investment (FDI) became a crucial source of external capital. Thus all four countries sought a way to attract new foreign investment. In this context, the need for regional integration seemed even more imperative for a number of reasons. First, member countries believed that a larger regional market could increase the competitiveness of regional firms by providing economies of scale and new markets for sales. The idea was that recultivated regional trade ties could compensate for lost markets abroad. Second, they hoped that a rigorous attempt to reduce tariffs to zero would convince multilateral lending institutions such as the International Monetary Fund (IMF) and the World Bank of their commitment to open up markets in the region. The example of the Asian newly industrializing countries (NICs) had convinced not only the IMF but, to a certain degree, governments in the region that a more externally oriented approach had to be tried. Thus, the Mercosur treaty explicitly emphasizes “the importance of achieving an adequate insertion into the international economy” for member countries (Ministerio de Relaciones Exteriores y Culturo, 1991a:2). A third calculation was U.S. president George Bush’s Enterprise for the Americas initiative and a desire to fit into U.S. plans for regional expansion. Encouraged by U.S. overtures regarding increased trade and investment ties, Argentina attempted without success to sign a bilateral trade agreement with the United States (although it did succeed in signing a framework agreement). One reason for the lack of U.S. interest in a bilateral accord with Argentina was its relatively small economic importance compared to the more lucrative market of its neighbor Brazil. Yet Brazil’s more protectionist stance made it reluctant to become involved in agreements with the United States. From an Argentine perspective, therefore, a regional accord with Brazil could not only increase its attractiveness to the United States but also expand its bargaining power. In any case, Argentina

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recognized that if it solely pursued a bilateral agreement with the United States and the negotiations on agriculture in the Uruguay Round of the GATT failed, it would be obliged to accept an agreement with the United States that included all products (including intellectual property and services) while still subjecting Argentina to the capriciousness of the U.S. Congress and its sensitivity to sectoral lobbies. This meant, for example, that Congress could refuse to accept concessions to Argentina on tropical products such as sugar (Morelli, 1991:414). A strong bargaining ally such as Brazil could rectify this bargaining asymmetry. However, Argentina shared U.S. concerns about Brazilian protectionism, realizing that the speed of regional growth would be determined largely by the pace at which Brazil opened up its relatively closed economy. By encouraging Brazil to liberalize via Mercosur, Argentina believed that it could expand its trade with Brazil while at the same time ingratiating itself with the United States and serving as a kind of Trojan horse for U.S. neoliberalism in the region. For Brazil, giving in to Argentine pressure to liberalize trade relations was far more politically acceptable domestically than capitulating to U.S. demands.4 In addition, the large size of many Brazilian producers made them confident of winning major gains if tariffs between the states were dropped to zero. To date, it is unclear whether banding together has increased the Southern Cone’s bargaining position with the United States. As a group, Mercosur members approached the United States in 1997 to join a Free Trade Agreement of the Americas (FTAA). Their effort was met with an attempt by President Bill Clinton to drive a wedge between them by trying to negotiate separately with Mercosur members (Latin American Weekly Report, 1997b:246–247). Although Mercosur remained together as a bargaining unit, it is clear that progress toward the goal of an FTAA will be slow, especially since Clinton’s attempt to obtain fast-track authorization for the agreement in Congress was unsuccessful. Looking at the motivations for the treaty in an international context reveals not only what could be the most important rationale for the neoliberal bent of Mercosur, but also why Mercosur has been more successful than previous integration efforts. In order to satisfy international lending institutions such as the World Bank and the International Monetary Fund and in order to portray themselves as avid free traders to the United States, member countries were anxious to align themselves with free trade policies. In the context of the all-pervasiveness of neoliberalism at the global level and the concern over Mexico’s entry into NAFTA, the pressure on Mercosur members to “make it work” was great. The greater urgency of the Southern Cone situation is manifest in the fact that the Mercosur treaty calls for a liberalization timetable that is twice as fast as NAFTA’s. Not surprisingly, the rapidity of this schedule has created numerous domestic polit-

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ical rifts within each of the Mercosur member countries, which in turn have led to defections from the free trade principles members were so anxious to support. These “slips” from the neoliberal program have not gone unnoticed. In November 1996, a World Bank staffer leaked a report that argued that Mercosur was a “fool’s paradise” and a threat to free trade (Latin American Weekly Report, 1996). The origins of this perceived threat are described below. Challenges to Free Trade Principles In contrast to the Canada-U.S. Free Trade Agreement and Europe’s Maastricht Treaty, both strongly supported and even initiated by business interests, Mercosur is largely a state-led project (Tavares de Araújo, 1992:286). Outside Brazil, there is little business enthusiasm for Mercosur. On their own initiative, the business organizations Confederación do Brazil and the Unión Industrial de Argentina (UIA) signed an accord to periodically evaluate the integration process, and they extended an invitation for both the Cámara de Industrias de Uruguay (CIU) and the Unión Industrial del Paraguay to join (Peña, 1991). Even at the outset, however, business outside Brazil was only cautiously supportive. Business

Table 2.2

Argentina Brazil Paraguay Uruguay

Attitude of Business Toward Integration (percentage) Expect to Gain 45 82 41 19

Neutral 40 10 14 56

Expect to Lose 15 8 45 25

Source: “Mercosur: La Voz de los Empresarios de los Cuatro Paises,” prepared by Coopers and Lybrand, August 1991.

The data in Table 2.2, derived from a 1991 survey of 123 firms in all four countries (both multinational and domestic), show that business expectations of Mercosur varied considerably across countries. Eighty-two percent of the Brazilian firms surveyed expected to gain from Mercosur, as opposed to 45 percent of Argentine producers, 41 percent of Paraguayan firms, and only 19 percent of Uruguayan firms. Since the implementation of Mercosur in 1991, numerous sectoral groups outside Brazil have been

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vocal in their opposition to the treaty. Argentine steel companies have harshly criticized the agreement, as have agricultural interests, textile producers, and petrochemical firms. The UIA has released a request for a drastic review of the pace of liberalization. In Uruguay, the CIU approached business organizations in all three of its trading partners and urged a joint request to slow down the pace of tariff reduction. Conversely, the optimism of Brazilian business is not difficult to understand. Not only are many Brazilian companies much larger than firms in the other three countries, but their close working relationship with the state also means they are confident that they will have more influence on Brazilian industrial and trade policy than their partners in the other three member countries. Previous to the implementation of Mercosur, business groups in Brazil’s trading partners achieved their market positions via bilateral sectoral agreements. Many of the sectoral agreements negotiated under PICE balanced and encouraged intra-industry trade, thereby diffusing political opposition to increased integration. In addition, they specifically acknowledged national freedom and compensated for the lack of harmonization of macroeconomic policies that are discussed in further detail below. One example of the balancing measures enacted under PICE was the Protocol on Capital Goods implemented in January 1987. Under the protocol, each country chose products for a Common List of goods in which tariffs would be reduced to zero. At the same time, various compensatory measures were enacted to ensure that one country would not perpetually suffer large deficits in the area. Thus, if annual deficits should exceed 10 percent, various compensatory mechanisms were enacted to bring trade into equilibrium. For example, there would be an effort to increase the number of duty-free products included in the Common List that were exported by the deficit country. If the deficit should persist, investors could be subsidized to generate new exports from the deficit country. The agreement was successful in expanding trade as well as in assuaging industry fears: in 1986, bilateral trade in capital goods as defined in the agreement was U.S.$63 million. By 1989, trade in this area had increased to U.S.$166 million. Argentine exports of capital goods to Brazil increased four times during this period, and Brazilian exports to Argentina doubled. Almost all the increase involved products included on the Common List (Chudnovsky and Porta, 1990:9–14). An agreement in the automobile sector met with similar success. Mercosur has abandoned the “gradual, flexible, progressive” approach of the PICE bilateral arrangements, however, for an “energetic, non-flexible and simultaneous” process designed to expand free trade more rapidly (Alá Rué and Lavergne, 1991:28). As noted above, the Mercosur agreement incorporates within its general structure sectoral protocols similar to those

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negotiated under PICE (in steel, autos, agriculture, and textiles, to name a few industries). The ultimate goal, however, is to progressively establish more general rules and reduce the importance of specific sectoral arrangements. These agreements are intended only to be the basis for expanding the lists of products placed on the Common List of duty-free products with the aim of reducing tariffs to zero. It will be interesting to see whether Mercosur can reach its stated goal of abolishing sectoral agreements and still maintain business support. In the absence of any compensatory mechanisms, Brazil’s huge economy could dominate regional trade, threatening the political resolve of smaller competitors. Although an absence of political support on the part of business was pivotal in pushing state intervention in trade, labor’s lack of enthusiasm has not been an important influence on state actions. The limited role labor has played to date reveals that not all social groups were equally represented at the Mercosur bargaining table. The Mercosur treaty says little with regard to labor. Labor mobility is provided for in the treaty, although no specific measures have been taken to alter national laws that currently prohibit regional labor migration. Theoretically, in the absence of tariff barriers, the free mobility of labor should act as a compensatory measure since workers displaced by imports can migrate to more competitive member countries. According to the neoclassical theory of “factor price equalization,” this movement should enhance the convergence of wage rates across countries. Even in the absence of labor migration, free trade should lead to open competition between regional partners, which in turn should result in the equalization of investment per worker and productivity levels across borders, due to increased efficiency and economies of scale. In reality, the determination of wage levels in free trade areas is much more complex. To avoid equalizing wages at the lowest common denominator as opposed to the highest common denominator, measures must be taken to ensure increased investment, innovation, rising skill levels, and the growth of productivity in all member countries (Reynolds, 1992:480–483). Such a virtuous circle of growth is unlikely to happen without specific provisions to ensure worker training and industrial research and development, and the absence of such measures in the Mercosur treaty has made it politically unacceptable for most labor groups to endorse the trade agreement. Labor unions in the region supported the movement toward Latin American integration in the past and initially felt that there was merit in the Mercosur project. Because of differentials in labor costs in each country and because of the distinctly neoliberal flavor of the Mercosur agreement, however, labor in the region faces many of the same issues so hotly disputLabor

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ed in the debates surrounding NAFTA. Table 2.3 shows the differences in labor costs across Mercosur members and in Chile. Argentina has the highest labor costs in terms of cost per unit of time and cost of time actually worked. Table 2.3

Index of Labor Costs in Mercosur (Argentina = 100) Country

Argentina Brazil Paraguay Uruguay Chile

Cost per Unit of Time 100.0 80.1 31.4 96.6 79.9

Cost of Time Actually Worked 100.0 82.0 31.9 95.7 80.5

Source: Adapted from Ministerio de Relaciones Exteriores y Culturo, Costos Laborales en el Mercosur, Buenos Aires, Argentina, 1991b.

Although the differentials in labor costs between Mercosur countries are not so significant as the differences among Canada, the United States, and Mexico, this has not stopped calls for greater “flexibility” in labor laws in countries with higher labor costs, such as Argentina. This is not to imply that Mercosur alone was responsible for Argentina’s Ley Nacional de Empleo, which was passed in September 1991, prior to the institution of the Treaty of Asunción. This law increased the flexibility of previous labor laws by allowing for new ways of contracting labor (especially younger workers), making it easier to fire workers, and encouraging voluntary retirement. There is no question, however, that regional free trade and integration add weight to the demands of capital, in both Argentina and Brazil in particular, for more flexible labor laws. In May 1993, another labor bill was introduced in Argentina. It allowed companies to hire contract labor for up to three years and to dismiss workers without severance pay within ninety days of their hire. Consequently, labor in all four countries responded with a universal condemnation of the “trade-dominated strategy” for economic recovery pursued by their governments, and in December 1992, Argentina’s Confederación General de Trabajo (CGT), Brazil’s Força Sindical and Central Unica dos Trabalhadores (CUT), Paraguay’s Central Unica de los Trabajadores (CUT), and Uruguay’s Pacto Intersindical del Trabajo/Central Nacional de los Trabajadores (PIT-CNT) requested a policy shift mandating more attention to the social consequences of integration. But because of the relatively limited bargaining power of labor, Mercosur governments have

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little incentive to pay attention to labor’s demands. Hector Alimoda argues that the lack of involvement of labor groups in the negotiation of Mercosur is a reflection of the authoritarian patterns of governing characteristic of the region. One exception to this trend is the success of Brazil’s CUT, which has managed to be recognized as part of the private sector in Mercosur working groups on industrial policy, agricultural policy, energy, and labor relations (Alimoda, 1994:31). Despite its inclusion in the Mercosur working group process, CUT support for the treaty remains ambivalent. CUT is aware that the weakness of regional and international alliances among labor groups makes a proactive strategy against downward pressures on wages and social dumping extremely difficult. In addition, the minimalist institutional framework of Mercosur means that there are no supranational organizations that might ensure effective regional social and labor regulation. Given the status quo, intervention can only take place locally, which prevents regional structuring of labor markets. This fragmentation of labor markets is exacerbated by the growth of nonunionized informal sectors where workers are less likely to have an impact on restructuring strategies (De Freitas Barbosa and Candia Veiga, 1994). Consequently, even CUT is reticent in its support for Mercosur, given the absence of guarantees for broad-based regional development. Aside from the inclusion of CUT in the negotiating process, however, there has been little attempt to address labor’s lack of political support. The reason for this is clear: the political powerlessness of labor outside Brazil means markets can be expanded without labor’s approval. Whether this is a viable long-term strategy on the part of Mercosur governments remains to be seen. Broad-based working class opposition to a too-harsh treaty could ultimately sabotage the electoral bases of these newly elected democratic governments. In the meantime, like labor groups in other free trade areas, unions in the Southern Cone have found themselves on the defensive. Another reason negotiated trade has played a pivotal role in building regional integration is the different approaches to governing the economy evident in Mercosur. The great contradiction in the neoliberal plan of the new integration is that the largest member of the group, Brazil, has a political-economic tradition of extensive intervention in its economy. Argentina has been particularly vocal in its opinion that unfair subsidies to Brazilian industries and an undervalued exchange rate give the regional superpower an advantage over its local trading partners. Brazil’s management of its economy has come under serious attack in the areas of subsidies, taxes, inflation, and exchange rates. Regional harmonization in these areas is supposed to take place by the end of the 1990s, but clearly this goal will be unattainable. Macroeconomic Coordination

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In terms both of subsidies and industrial strategies, Brazil intervenes far more extensively in its economy than do its regional trading partners. Since 1991, the Menem government in Argentina has completely cut subsidies to national producers. In contrast, Brazil continues to subsidize liberally, especially with regard to exporting industries. The result has been complaints of inequities by Argentine producers, particularly in areas such as steel. Despite a steel agreement between the two countries signed in March 1992, asymmetries emerged that Argentine steel producers claim their government has failed to address. Not only is the Brazilian industry much larger (it produces 1.9 million tons of steel per month; Argentina produces 1.5 million tons in six months), but some Brazilian products are subsidized. In contrast, when the Menem government took office in 1989 it suspended and then abolished industrial subsidies under the Industrial Promotion Law and suspended all export promotion subsidies. Argentine producers argue that since the differences in internal production costs between the two countries have not yet been addressed, companies that are otherwise viable could be wiped out in the transition period, due to what they claim is unfair competition from Brazilian producers. For its part, Brazil continues to elaborate specific industrial policies in areas such as high technology. In March and April 1992, the Brazilian government also introduced two new packages designed to promote agricultural exports and approved credit subsidies for rural areas, moves its trade partners complained were contrary to the spirit of the Mercosur treaty. These inequities could be remedied by correcting mechanisms such as a regional development bank that could lend capital to disadvantaged firms. Because Mercosur members went to obvious lengths to avoid creating regional institutions, however, this solution is unlikely to emerge. Another possibility would be to urge strict adherence to the GATT (or even the Organization for Economic Cooperation and Development [OECD]) subsidy codes, the former of which Brazil has already signed. The issue is ultimately both an ideological and a practical one, however: even if Brazil complied fully with international subsidy provisions, it would still be subsidizing its companies to a greater degree than Argentina. Since Brazil’s system of economic management makes it unlikely to lower subsidies below the maximum possible limits allowed by the GATT, the key question is whether Argentina will be able to relax its neoliberal assumptions sufficiently to raise subsidies to a similar level. On a practical level, this presupposes that Argentina will be able to raise the funds necessary for such strategies while still meeting the approval of multilateral lending institutions. The exchange rate policies of Mercosur members also differ considerably. In order to deal with domestic inflation, Brazil implemented a policy of mini-devaluations, reducing the price of its currency by 400 percent in 1991–1992. Further devaluations of Brazil’s new currency, the real, in

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1994, illustrated that Brazil had no intention of changing this trajectory. In contrast, Argentina has attempted to control inflation by pegging the Argentine peso to the U.S. dollar. This, in turn, overvalued the peso, making Argentine exports more expensive. The Menem government has stood firm on its macroeconomic policies, although it has taken some measures to stimulate growth and assist floundering domestic business since the signing of Mercosur. In May 1993 Menem announced that the government would invest U.S.$30 billion between 1993 and 1995 to “prime” the economy. Of this, U.S.$16 billion would go toward financing small and medium businesses. In addition, the government said it would eliminate import duties on machinery and heavy vehicles in order to reduce the cost of capital goods for producers. Still, many economists believe that a devaluation of around 25 percent will be necessary to genuinely rectify the overvaluation. At the time of this writing, however, Argentina refused to budge from current exchange-rate policy and resorted to restrictions on imports to improve its trade position. In 1993, Argentina introduced import quotas in the textile, petrochemical, and steel industries to assuage domestic producers. Brazil responded with an increase in its import levies on wheat and rice but agreed to a “wide-ranging review” of bilateral trade with Argentina (Latin American Weekly Report, 1993b). Argentina also instituted a temporary pseudo-tariff on imports it called a “statistical levy” in order to slow the growth of its trade deficit. One measure designed to alleviate exchange-rate differentials in the region was a Brazilian scheme that allowed importers between 180 and 360 days to pay for their imports, permitting them to close foreign exchange deals and then play the market until payment due dates. As Brazil’s huge economy heated up over the 1990s, however, its trade surplus turned into a trade deficit. Brazil, therefore, rescinded this measure in 1997, as its trade deficit continued to balloon. This move drew particularly loud protests from Argentina, which finally had moved into a surplus position with Brazil in 1995 (Latin American Weekly Report, 1997a). In November 1997, faced with a currency crisis and a growing trade deficit, Brazil unilaterally boosted its external tariff by 3 percent. Obviously, the maneuvering surrounding the exchange rate has invited trade battles, and the issue continues to be an acrimonious one in the absence of some mechanism to ensure a regional exchange-rate equilibrium. The sectoral agreements have alleviated this situation somewhat by providing quotas and temporary protection for regional producers. As noted above, however, they are intended to be temporary. Some believe that a supranational institution monitoring regional trade will be necessary to ensure the smooth functioning of the agreement (Manzetti, 1993–1994).

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Only time will tell if Mercosur’s neoliberal aspirations to avoid such interventions will be achieved in the long run. To date, the result of freer trade in the Southern Cone has been a trade surplus for Brazil with Paraguay and Uruguay. Until 1995, this was the case with Argentina as well. Table 2.4 illustrates the trade positions of Brazil’s regional trading partners. The trade imbalances outlined in Table 2.4 confirmed the fears of the smallest member countries that lowering tariff barriers would lead to an inundation of Brazilian exports into their economies, given the disproportionately large size of Brazil’s economy. Table 2.5 summarizes some of the comparative macroeconomic data for the area at the time the agreement was signed. Regional Inequities

Table 2.4

Trade Balances with Brazil (millions of U.S. dollars) 1990

Argentina Paraguay Uruguay

1991

+705 +105 +203

–43 –31 +11

1992

–1,668 –92 –191

Source: International Monetary Fund, 1996a.

Table 2.5

1993

1994

–1,638 –14 –270

–631 –231 –19

1995

+990 –834 –13

Basic Data for Mercosur (1991) Argentina

Brazil

Paraguay

Uruguay

GDP (millions of U.S.$)

$89.5

$329.4

$6.5

$8.8

% Manufactured exports (1989)

32%

Population (millions)

Inflation

% Primary products exports (1989)

External debt (millions U.S.$)

32

150

4

3

84%

487.3%

13.5%

81.44%

68%

48%

92%

61%

$61

52%

$122.8

8%

$1.8

39% $7.1

Source: Infografía/CLARIN, based on data from CEPAL, the World Bank, and the International Development Bank.

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With a gross domestic product (GDP) almost four times the size of Argentina’s, Brazil represents as much of a threat as it does an ally for the smaller states in the region. Yet the size of Brazil’s extensive domestic market means that its regional trading partners must pursue every avenue to secure greater market access. Mercosur’s two smallest members, Paraguay and Uruguay, went along with the free trade momentum, feeling that if they held back, they would be out of trade concessions they currently enjoyed with their two largest trading partners. Clearly, all four members could benefit from increased regional trade, which some claim has the potential to be expanded by 200–300 percent (Tavares de Aradjo, 1988). But ensuring the security of regional trade links was more important for Uruguay and Paraguay, since these countries conducted the largest share of their trade with Mercosur partners. At the outset of the treaty in 1991, approximately 35 percent of Uruguay’s and Paraguay’s exports went to Mercosur countries, as opposed to 16.5 percent for Argentina and 7.3 percent for Brazil. The two smaller countries’ previous trade links with Brazil and Argentina were largely the result of negotiated agreements, however. Thus, as Brazil and Argentina extended trading preferences to each other and to third parties, the trading advantages of Uruguay and Paraguay began to disappear. Uruguay had relied heavily on negotiated agreements to expand external trade: between 1970 and 1989 its exports to the rest of the world expanded 4.9 times, as opposed to 20.3 times with LAIA countries (Quijano, 1991:52). Consequently, Uruguay was relatively content to maintain the privileges it had obtained. But as both Brazil and Argentina expanded the preferential trading arrangements between themselves, Uruguay’s privileged position eroded. Uruguay believed it had little choice, therefore, but to join the Mercosur integration process in order to ensure itself a voice in regional trade matters. Similarly, Paraguay had benefited from LAIA provisions giving it preferential treatment (also extended to other relatively less developed countries such as Bolivia and Ecuador). Officially, Paraguay will no longer be accorded such benefits under the Mercosur agreement, although, as we will see, there have been exceptions to this rule. To date, both Paraguay and Uruguay have received special treatment under the treaty. Paraguay threatened to withdraw from Mercosur when Argentina instituted its “statistical levy” on imports. This situation was resolved when Argentina agreed to allow Paraguay special treatment under the less developed members clause provided by LAIA. Uruguay has asked for special treatment of its automobile industry. In 1991, Brazil grudgingly agreed to lower the national content level necessary for duty-free exports from Uruguay from 70 percent to 50 percent, but more recently refused to expand Uruguay’s import quota. Brazil accused Uruguay of being a “springboard for cars made outside Mercosur” and claimed it was not even

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respecting these lower local content limits (Latin American Weekly Report, 1993a). In June 1994, Argentina infuriated Uruguay by reducing Uruguay’s quota of auto exports (negotiated under CAUCE) by 29 percent. Paraguay’s enthusiasm for Mercosur was further dampened after a U.S. consulting firm concluded that the value of two companies on the government’s privatization list would be reduced to almost nothing if regional firms were granted duty-free access to the Paraguayan market. The firm argued that neither the steel company Aceros del Paraguay nor the cement firm Industria Nacional del Cemento could stand up to competition from Argentine or Brazilian firms and that the national oil and telephone companies might also be affected in this regard. Compensatory mechanisms allowing for slower adjustment and more exceptions to duty-free status for Uruguay and Paraguay have assuaged some of the smaller countries’ fears. Uruguay and Paraguay have marginally longer time spans for tariff reductions on exempted products than Argentina and Brazil do, and Paraguay has been granted 399 product exemptions to the common external tariff, as opposed to 300 for other members. These special measures were essential to ensure Uruguay’s and Paraguay’s continued role in the treaty. An OECD survey of integration efforts in developing countries emphasized that appropriate compensatory mechanisms are an essential aspect of the economic success of regional integration projects (OECD, 1993b). It is likely that, despite Mercosur’s stated aversion to special treatment for small countries, such compensatory measures will remain for the foreseeable future. Otherwise, it is difficult to see how Uruguay and Paraguay will find membership feasible. Extraregional Relations

Mercosur governments have made considerable progress in increasing regional trade in a remarkably short time, largely due to their “pragmatic” approach to building regional markets. The Mercosur agreement remains tenuous, however, due to some underlying pressures. First among these is the necessity of these debt-ridden governments to maintain a trade surplus in order to earn the foreign exchange necessary to repay external debts. The increase in intraregional trade is a genuine accomplishment, but it is important to remember that another central aim of Mercosur members was to insert themselves into the global economy. Trade with non-Mercosur countries has increased only 4 percent, not an impressive achievement. One reason for this is the backtracking of Argentina and Brazil from previous commitments to nonmember-states. Suffering from a crushing U.S.$6.1 billion trade deficit in 1994, Argentina tried to convince its partners to implement a 3 percent across-the-board increase in Mercosur’s external tariff in

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1995 (Latin American Weekly Report, 1995a:157). Sideswiped by Mexico’s financial crisis, Argentina also suffered a sharp decline in capital inflows and regarded the tariff as a way to raise revenues. At the time, Brazil said “no” to the tariff increase, leading Argentina to implement its “statistical levy” on non-Mercosur imports. Subsequently, Brazil also stepped back from earlier commitments, increasing tariffs 70 percent on 100 products on which it previously had given exemptions. And, as noted above, Brazil unilaterally implemented a 3 percent external tariff increase in 1997. Fellow Mercosur members were exempted from these increases, but they represent significant hikes to extraregional exporters. Among Mercosur members, Chile objected to Brazil’s move because it already considered Mercosur’s common external tariff too high. The desperate need to reduce imports and raise revenues via tariffs, however, means that Mercosur’s common external tariffs are constantly under pressure. Another potential threat to Mercosur’s longevity is competition for FDI among member countries. Table 2.1 shows FDI inflows to Mercosur countries up to 1996. Foreign direct investment has increased in all Mercosur countries over 1990 inflows but still has not met pre-1981 levels. The extent of Argentina’s increase is tempered by the fact that approximately 50 percent of inflows were “subsidized” investments, such as privatizations and debt-equity swaps. Until recently, large volumes of portfolio investment flowed into Brazil and Argentina. Much of this money went into the stock market or to acquire privatized firms, however, as opposed to the formation of new fixed capital. The ephemeral nature of these flows was illustrated by the near halt in portfolio investment caused by the Mexican crisis. Thus both countries are anxious to attract new sources of conventional FDI (UNCTAD, 1994:84). Eventually, the enlarged market provided by a Mercosur free trade zone could be a drawing card for foreign investors. Paradoxically, however, another aspect of Mercosur’s global opening—the ability of member-states to make bilateral preferential trade deals with third parties—could present a major disincentive for potential foreign investors. The extension of preferential trade agreements to extraregional members was one reason for the demise of the Latin American Free Trade Agreement (LAFTA) of the 1970s. The generalized lowering of external tariffs by Chile and Argentina in the late 1970s significantly reduced the margins of preference these countries had granted to their LAFTA trading partners, giving other LAFTA countries little incentive to offer trade concessions in return (Tussie, 1987). Should the same phenomenon occur in Mercosur, it would have a major impact not only on member countries but on foreign investors as well. Third-party deals aimed at the United States, for example, could mean that U.S. firms would have less incentive to enter the market via FDI since they could simply export duty-free from abroad. This could be one reason why western European countries have overtaken the United States as pri-

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mary investors in Latin America. But even European investors have to consider whether products made in the region may eventually face duty-free competition from U.S. goods. As Michael Gestrin and Alan Rugman note, once investors have gone to the expense of rationalizing investment on a regional basis, they will demand some guarantee that their investment is protected. Consequently, they will resist attempts to expand trade and investment preferences to nonmembers that threaten to dilute the protection of regional rules of origin (Gestrin and Rugman, 1994:585). Indeed, many expect that if other South American countries continue to negotiate bilateral treaties with the United States, U.S. producers could displace Argentina and Brazil in their role as regional suppliers. This will be an important consideration for foreign investors, especially those whose operations are also intended to service markets outside Mercosur. Within Mercosur, a trade dispute over automobiles in 1995 was blamed on Brazil’s fear that if Argentina achieved the full access to the Brazilian market it was granted under their bilateral auto pact, Argentina would attract the bulk of investment from foreign auto producers. The reason was that Argentina (once again in abrogation of laissez-faire principles) offered incentives to auto producers and helped arrange access to the Brazilian market for them (Latin American Weekly Report, 1995b:282). In June 1995, Brazil unilaterally announced a ceiling on imports of automobiles that did not exclude its major trading partner, Argentina. In 1997, Brazil further infuriated Argentina by offering tax breaks to automobile manufacturers that invested in its less developed regions. Ostensibly, the move was made to rectify Brazil’s growing trade deficit. In reality, however, the problem was that if Argentina, with its more flexible labor laws and neoliberal investment policies, proved able to ship its full quota of 50,000 automobiles to Brazil, investors seeking to expand production in the area would prefer Argentina over Brazil as a future investment site. So far, therefore, Mercosur’s success in expanding its interaction with the global economy has been mixed. Extraregional trade flows have increased marginally, but these increases may be erased by external tariff hikes on the part of Argentina and Brazil. Foreign direct investment flows have increased but have not reached the levels of the early 1980s. In general, one can conclude that Mercosur’s intraregional successes have been more impressive than its extraregional ones. Even within the region, however, many difficulties must be resolved before further progress is made. Conclusion

Mercosur countries have come a considerable distance in a short amount of time toward meeting their goals of free trade and a common external tariff. The fact that much of this liberalization was due to exceptions to the rule

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and backtracking on previous commitments has led to skepticism over the extent of these achievements. It seems clear, however, that even the liberalization made to date would not have been achieved unless these compromises had been made. In fact, one of the major advantages of the “new” integration seems to be its flexible, pragmatic approach to compensation. This is probably the major lesson advocates of regional integration can learn from Mercosur. By allowing members exceptions to the rule, the agreement became more politically palatable. It is clear that the word “pragmatic” has simply replaced the emphasis on “managed” trade from the ECLA program, revealing the necessity of state involvement in free trade projects. Many nagging problems remain to be resolved, and it is likely that a further step away from the group’s allegiance to rapid, across-the-board tariff cuts will be necessary to resolve them. Compensatory mechanisms are one way to satisfy the complaints of smaller states and adversely affected competitors. Sectoral agreements have also played a major role in alleviating the fears of business and gaining their political allegiance. A resurrection of the balancing mechanisms Brazil and Argentina used under PICE would be the most effective way of reassuring jittery businesses, although this is unlikely to occur. But the maintenance of sectoral agreements of some sort seems necessary if the agreement is to be at all politically viable. Sectoral agreements are also useful in assuaging the fears of smaller states, which may receive a guaranteed market share through such mechanisms. This approach provides one way to deal with the persistent trade deficits smaller states have with Brazil. In fact, the achievements of these agreements may well be all that is realistically feasible, considering the different sizes of member countries’ economies and the fundamentally different approaches of the major partners, Argentina and Brazil, to economic intervention. Even in Argentina, which has de jure rejected the concept of sectoral subsidies, numerous de facto protective measures such as the “statistical levy” and sectoral assistance have spontaneously emerged. Brazil, in addition to increasing external tariffs, has sought to deal with its economic difficulties by subsidizing export industries, much to the distress of its Mercosur partners. The implementation of such de facto compensatory measures as these is critical to domestic political acceptance of the Mercosur treaty, but when implemented outside the negotiated framework, these deals serve as major irritants to regional trade partners. Negotiated exceptions via specific agreements help avoid inflammatory trade disputes. Compromises regarding Mercosur’s institutional minimalism are also likely to occur. Observers question the viability of Mercosur’s institutional minimalism in the long run, arguing that without the creation of common supranational institutions, it will be difficult to achieve the cohesiveness

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necessary for a common market (Manzetti, 1993–1994). If Mercosur members abandon the goal of a common market and stick by their more immediate achievement of a customs union, they may not need more extensive institutions. Certain supranational institutions, such as regional development banks or a council for labor, could go a long way toward resolving dissatisfaction with the agreement, however. The dilemmas of macroeconomic coordination remain the thorniest problems for Mercosur because these challenges are ultimately ideological. Other regional organizations such as NAFTA (and the European Union to some degree) have settled this issue by allowing the largest economy to dictate the economic policies of smaller members. Evidently, this path is not acceptable to Argentina, whose noninterventionist policies are diametrically opposed to those of Brazil. Yet as long as it continues to benefit from its domestic policies, Brazil has little or no motivation to change them. Thus, if Mercosur does ultimately falter, this may have more to do with ideological differences between member countries than with the lack of institutions or domestic political acceptance. At a minimum, some sort of regional exchange rate agreement could help reduce disputes between trade partners in this regard. The Mercosur trade agreement unquestionably forms a new trading relationship among states of the Southern Cone, but just how new it is in terms of Latin American trade practice is questionable. The political negotiation of trade patterns is as evident in Mercosur as it was in previous agreements—the difference is that now it is considered “pragmatism” instead of “management.” Regardless, so long as Mercosur continues to build trade links between member countries, it should be seen as a valuable contribution to regional economic relations. Notes

1. For example, a selected list of some of the bilateral and multilateral agreements recently signed or in the process of negotiation includes Mexico–Canada– United States; Mexico-Chile; Mexico–Costa Rica; Mexico–Central America; Mexico-Colombia-Venezuela; Chile-Venezuela; Chile-Argentina; ArgentinaVenezuela; Argentina-Brazil; and Central America–Caribbean Community. For a survey of some of these agreements, see Mónica Hirst, “Condicionantes y motivaciones del proceso de integración y fragmentación en América Latina,” Integración Latinoamericana 17 (175) January-February 1992. 2. Uruguay was allowed exemptions for 950 products, Paraguay for 427, Argentina for 221, and Brazil for 30. To be considered eligible for duty-free trade, 60 percent of the components of the good must be produced within Mercosur. For strategic capital goods, the content requirement is 80 percent. 3. LAIA member countries include Argentina, Bolivia, Brazil, Colombia, Chile, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela. Signed in 1980,

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the agreement replaced the LAFTA agreement. In contrast to LAFTA, LAIA allowed member countries to grant bilateral concessions to one another without generalizing them to other members via most favored nation (MFN) status and had a greater focus on being competitive in the world economy. 4. I am indebted to Mónica Hirst for this argument.

Davis B. Bobrow Robert T. Kudrle

3

Foreign Direct Investment in the Context of Regionalism: The Case of APEC Nothing so needs reforming as other people’s habits.

Habit is habit, and not to be flung out of the window by any man, but coaxed downstairs a step at a time. —Mark Twain, Pudd’nhead Wilson

In this chapter we explore the factors determining the content of and possible convergence in national foreign direct investment (FDI) policies in a world of more or less formal multilateral clubs. Those clubs share the declared purpose of enhancing effective openness (the contestability of national markets) and market efficiency in world and regional economies. They also are vehicles through which participating governments pursue autonomy, national economic prosperity, security, and status. The club considered here is the Asia Pacific Economic Cooperation (APEC) group. The governments in these clubs, and their core constituents, are most informatively thought of as engaging in a continuing, incremental, and messy process of “partisan mutual adjustment” (Lindblom, 1965) rather than as participating in any simple model from game theory (Ravenhill, 1996). This chapter was largely completed before the Asian economic difficulties that developed in 1997. We suggest that the response to those difficulties in large measure supports the general arguments and the interpretation of APEC dynamics presented in the following pages. Both unilateral and negotiated FDI liberalization have figured prominently in the frequently dramatic changes in foreign economic policies observed around the world since the mid-1980s. APEC provides a particularly rich context in which to study such changes because it includes states of widely varying size, living standards, and governance structures as well as extremely different past experiences with foreign capital. Although the focus of this chapter is FDI, we seek greater understanding 57

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of the politics of APEC and of regional economic integration more broadly. Five fundamentals, which if not new have become very salient, characterize the context surrounding APEC treatment of FDI. First, international economic involvement is held to be the sine qua non of national economic development, prosperity, firm competitiveness, and sustained profitability. This idea has important policy implications. The removal of trade barriers, although desirable, is not sufficient to open an economy enough to maximize domestic benefits or the benefits to foreign firms and countries. Second, FDI has emerged as a central arena for policy adjustment both because of its influence on trade and growth (Graham, 1996) and because “at the border” barriers to trade have largely been removed. That centrality was formally recognized in elements of the Uruguay Round World Trade Organization (WTO) agreements, most obviously in the Trade-Related Investment Measures (TRIMs), Trade-Related Intellectual Property (TRIPs), and General Agreement on Trade in Services (GATS) agreements. Third, more and more parties now pursue incoming foreign direct investment (IFDI) and more engage in outgoing foreign direct investment (OFDI) with growing, if not always consistent, pressures for government liberalization, facilitation, and promotion related to FDI. In the 1980s, developing country and advanced host country suspicions about foreign influence entailed by IFDI were by and large subordinated to newly perceived gains for national development. This trend continued into the 1990s, as shown in the various annual editions of the UN’s World Investment Report. “Investment development path” thinking became widely accepted and fueled positive expectations for both IFDI and OFDI.1 Fourth, the set of consequences associated with market opening and market-oriented reforms, when combined with integrated international production and global capital markets, has led to the view that states are losing power to firms. That belief, especially when combined with fashionable programs for deregulation, decentralization, and devolution to subnational levels of government, poses the prospect of states losing substantial influence over domestic and foreign private-sector economic actors. In some circumstances, however, measures to create a more liberal investment climate can actually increase the power of the state. To the extent that fresh competition contests the economic power of local monopolies, it may serve to constrain their political power as well. Moreover, bringing the state’s financial system into conformity with international standards of safety and transparency as part of international openness can help destroy networks of cronyism, with both real and symbolic payoffs for the government. More generally, the decline of central government powers does not mean a

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decline in the extent to which their politicians and bureaucrats are held politically accountable for economic performance or imply a total loss of control over the timing of adjustments (for a related argument, see Leblang, 1997). Those elites then want to play, incur costs if they do not play, and have reason to believe that they can still at least affect the timing of acts that relinquish state autonomy. Finally, change in various aspects of relative and absolute economic performance by states and firms has become far better documented; is subject to unprecedented citizen, pundit, and elite attention; and is viewed increasingly as driven by actors and developments external to a single nation. Two not easily reconciled implications follow. The first is a vigilant, sometimes even a hypervigilant, guard on sovereign prerogatives—on ways to preserve national discretion. The second is to find ways to limit the discretion of foreign actors. Together they amount to having your cake and eating it too. Rare is the politician for whom that is not the preferred course. In that context, FDI has become increasingly central to regional clubs, global economic arrangements, and their national members. The United Nations has identified seventy-one important instruments put forward from 1948 through 1995, of which sixty-six were adopted by appropriate bodies. FDI agreement activity reached an unprecedentedly high level during the 1990–1995 period, although a substantial share of instruments have not been legally binding (United Nations, 1996:135–139). That pattern seems likely to continue as the Organization for Economic Cooperation and Development (OECD) pushes to conclude its long discussed Multilateral Agreement on Investment before the end of 1998. The importance of regional clubs and the General Agreement on Tariffs and Trade/World Trade Organization (GATT/WTO) has become more pronounced. That means more involvement by developing states. Recent years have also seen unilateral IFDI policy changes overwhelmingly in favor of attracting IFDI through liberalization or subsidy (United Nations, 1996:132; United Nations, 1995:295). The agreements can have numerous elements and, for each element, alternatives of content, timing, clarity, treatment of current practices (standstill or rollback), and “bindingness.” There is then a lot to bargain about and trade off. Yet in general, elements dealing with host government behavior dominate those requiring or precluding certain practices by investing foreign firms and home governments. That emphasis was well established in the key principles (right of establishment, national treatment, expropriation and compensation, free transfer of funds, and dispute settlement) contained in a variety of OECD initiatives from the 1960s to the mid-1980s (Gueretin and Kline, 1989:23). Thus the burden of adaptation falls mostly

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on IFDI seekers rather than OFDI providers, and particularly on those seekers historically committed to “developmental state” or command economy practices. APEC: The Big Picture

For purposes of exposition, we divide the APEC members into two groups: the “old rich,” consisting of the United States, Japan, Canada, Australia, and New Zealand, which we will refer to as advanced APEC economies (AAEs), and the rest of its membership before the 1997 Vancouver summit, except for Brunei and Papua New Guinea, which we term rising APEC economies (RAEs). The dynamic Asian economies (DAEs) are a subset of the RAE category, consisting of all APEC members other than the AAEs, Brunei, Papua New Guinea, Chile, and Mexico. The sheer economic dynamism of many RAEs during the two decades ending in 1994 is well known. Korea, Taiwan, Hong Kong, the People’s Republic of China, Malaysia, Singapore, and Thailand were among the world’s top fifteen countries in real gross domestic product (GDP) growth for both 1974–1984 and 1985–1994. Indonesia and Chile joined them for the more recent decade. Their achievements and the absence from that select club of all the AAEs and the other RAEs had four implications. First, it fostered the general view that access to and presence in the high-growth RAEs was of the utmost importance. Second, it gave many of the RAEs new confidence in their ability to succeed in the world economy and to move up the investment development path. Third, it created “declinist” fears in some AAEs and the possibility of policy reactions by them harmful to the successful growth strategies of the RAEs—thus fostering policy anxieties there. Fourth, intra-APEC variety created RAE concerns that slackening growth would place them on a slippery downward slope both within Asia and globally. APEC members have been heavily represented among the world’s largest traders by volume, most have high volumes of trade relative to gross national product (GNP), and they trade heavily with each other. Their consent and preferences clearly matter for the world trading system and for broad agreement on trade-related FDI measures; they have an especially clear interest in the export access that FDI strongly facilitates. These characteristics were well established before APEC was formed, and their existence implies great sensitivity to each other’s FDI policies. Within the strong intra-APEC concentration of trade, the importance of exports to participants in the North American Free Trade Agreement (NAFTA) (principally the United States) relative to exports’ importance to APEC members on the western side of the Pacific differs markedly. Those

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most focused on the United States would be expected to be particularly concerned with Washington’s policy inclinations and exclusion from a (perhaps expanded) NAFTA. Such concerns are more likely to motivate action in the APEC arena as Washington seems to be tilting toward unwanted courses of action. With few exceptions, however—notably Canada and Mexico—exports to the western side of the Pacific are more important than those to NAFTA. We would thus expect substantial sensitivity to traderelated FDI policies in the western geographical zone. Clearly, the preferred policy course avoids choice between one side of the Pacific and the other. In any event, for many of its members the value of APEC hinges on how conducive it is to their exports from home or “offshore platforms.” Conflict and Status Management

APEC’s short life has coincided with great concern that other framing arrangements in which the economic growth and national security of APEC members were embedded might dissolve. APEC then has been seen as serving noneconomic strategic purposes (Wanandi, 1996:11) valued both as ends in their own right and for their contribution to development and trade goals (Bobrow, 1997). Some involve an open world economy and orderly dealing to avoid both a fundamental U.S.-Japanese rupture and a “threebloc” economic world, with the implications of exclusion of parties on one or another side of the Pacific from the other. Some purposes involve military security, implying positive relations with the United States and continuing security commitments, as well as commercially cemented amity among the United States, China, and the rest of Asia. Some entail ensuring that the “three potential dominant powers” (the United States, Japan, and China) behave in ways that enable the smaller nations to minimize subordination to any one of them and escape acting in ways that offend any of them. Some require reassurances to major powers that they will not be exploited to the point of national decline or arrested development (a chronic U.S. concern) and second-class status (a chronic Chinese concern). Although the full array of relevant concerns affecting APEC decisionmakers was widely recognized among them, members have differed with each other in their priority and modified their own priorities over the entire life of APEC. All these concerns have been juggled in the context of three alternative sets of ideas about the evolution of the world economy, each having distinct hierarchical implications. The so-called Washington consensus (Krugman, 1995; Gills and Philip, 1996) features liberalization at home and international openness as the recipe for economic success and counsels the establishment of and adherence to formal and binding international codes of

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conduct and dispute settlement mechanisms. With respect to FDI, its advocates have gone so far as to claim that “capital mobility . . . [is] . . . very much in the interest of the developing countries . . . [and] . . . a powerful instrument in avoiding hegemonic dominance” (Fishlow and Haggard, 1992:19). This vision is widely perceived elsewhere in APEC to support U.S. economic interests and predominant U.S. status in the international economy and world affairs. In the second, the “flying geese” approach (Akamatsu, 1962; Kojima, 1973; Pempel, 1996), Japan leads the Asian Vformation and others are arrayed in tiers behind it. Those behind Japan at least are promised that they can change from “sitting ducks into flying geese” (United Nations, 1996:xxxviii) with the proper approach to development and economic cooperation with Japan. The keys lie in exploitation of shifting comparative advantages among national economies at different levels of economic development. Using FDI and supportive home government economic cooperation programs, corporations in the leading country shift “production to the lower cost regimes in follower countries. These moves can be repeated from second-tier to third-tier countries in a virtuous cycle of trade and FDI expansion” (Stopford, 1996:176). Absent the emphasis on Japanese leadership and government coordination, this model strongly resembles Raymond Vernon’s model of the international product cycle in trade and investment (Vernon, 1966). The third approach is less explicit and uniform, but its variants begin by rejecting the subordination inherent in the Washington and Tokyo models. Chinese leaders have been especially explicit on that score while seeing strategies for regional economic cooperation as a limited counter to Japanese or U.S. predominance (Chu, 1996:37). Korean elites have held “the transformation of [the flying geese] ‘V-formation’ into ‘straight-line’ formation . . . [to be] . . . of crucial interest. . . . To latecomers, ‘catch-up’ with advanced countries is as important as growth itself” (Lee, 1996:129). The aim should be to leapfrog (Sum, 1996), for states to jump rungs on a development and international pecking order ladder by selectively adopting elements of both the Washington consensus and flying geese recipes and fusing those with their own ingredients (e.g., Kim and Moon, 1997). Leapfrogging at the firm or industry level stresses the possible advantages of succeeding in some industries by wiping the slate clean, especially by removing obsolete human and physical capital. The more economywide such successes are, of course, the greater the chance that the state in question will grow more rapidly and move ahead of others in aggregate performance.2 Successful leapfrogging, however, requires tolerance and perhaps explicit cooperation from the United States and Japan at the same time that it carries elements of threat to each—and possibly to other RAEs as well.

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Advocates of the third way need to appear unthreatening to both the Washington consensus and the flying geese approach in order to continue receiving the flows of capital and technology, and the market access, that eventual leapfrogging requires. They need to act in ways that do not completely challenge their own technocrats, who are often skeptical about the feasibility of leapfrogging. They should avoid exacerbating fears among other RAEs that what is involved is simply changing the identity of the countries for which they are economic followers. And they need to accomplish these tasks in ways that do not foreclose but instead enhance the selfdirection leapfrogging assumes. That is, the pursuit of national and corporate growth needs to be accomplished without falling into the traps of creating excess capacity and relying on short-term foreign debt, with the withdrawal and repayment problems it involves. Collective action in APEC has thus involved finding measures that seem to be compatible with all three perspectives rather than embodying a triumph for any one approach and that allow differing interpretations of rationale and consequence across APEC members—and even within each country. Shifting tides of economic events have, of course, enhanced the credibility of one or another set of ideas, but not eliminated the political and economic agendas underlying each of them. Tactical postponement of certain ideas need not imply strategic abandonment of them. During the APEC period, U.S. preferences have, at least until recently, rested on two perceptions: erosion of U.S. “power and prestige” in East Asia at the same time that “East Asia has become essential to all aspects of America’s long-term interests” (Okimoto, et al., 1996:x, 1)—Asian relations as trap and cornucopia (Woo-Cumings, 1993). The problem has been to curb the decline and then restore power and prestige through a modus vivendi with the other, particularly the more confident, Asian APEC members—a multilateral solution. APEC provides a multilateral forum less likely to be limited to the United States pressuring Asians and more likely to have the character of the United States and some Asian countries pressuring others. Yet domestic acceptance of APEC in the United States required promises of safeguards against a host of fears: “cheap Asian labor will displace jobs and undermine American living standards . . . unfair trade practices will dominate U.S. industries . . . anti-Western forms of pan-Asianism will emerge . . . China or Japan may become the next threat to American security” (Okimoto, et al., 1996:5). The key to overcoming those fears is to appeal to Asian hopes for U.S.-provided political-military stabilization by assuaging U.S. fears of economic losses to rising Asians. And the latter could be best dealt with through opening up FDI opportunities. U.S. trade deficits with various Asian countries appeared to be the result of exclusion-

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ary FDI practices since the degree of FDI presence correlates with local market shares: “America’s FDI in Asia is the instrument that will carve out its long-term economic position” (Okimoto, et al., 1996:14, 35). The recipe for enabling that instrument to flourish would be an APEC that, according to then Undersecretary of State Joan Spero, would at the same time push governments out of the way and bring governments together to cut binding arrangements, to transform “APEC from a dialogue forum to an action-oriented, results-producing forum” (Spero, 1995). The obstacle was a few members resisting these “home truths” who would need the pressure of APEC actions to get them to see their own long-term self-interest, that is, “to wean the region off Japanese-style mercantilism” (The Economist, 1995). For the United States, APEC was then an instrument to avert looming threats from abroad (e.g., an East Asian economic bloc dominated by Japan), domestic protectionism and the frictions associated with it, and U.S. marginalization in the Asia-Pacific. Success in pursuit of the recipe would provide additional benefits—pressure on the European Union (EU) to accept U.S. preferences for the international economic order and an APEC caucus to advocate completion of the Uruguay Round and the “builtin agenda” of its WTO offspring. Yet, given U.S. fears, the whole strategy could collapse into coercive bilateralism unless APEC seemed to be moving well in the desired directions (e.g., Murkowski, 1993). Toward these ends, it would be useful for Asian members to continue to understand that the United States had—and was willing to pursue—other options. One might be proactive exclusive regionalism through vehicles like NAFTA, such as rebuffing Taiwanese interest in entering into NAFTA negotiations. A second would be to split the countries on the western side of the Pacific; for example, in 1992 the United States proposed a free trade area (FTA) including Australia, New Zealand, Hong Kong, Singapore, Taiwan, and the NAFTA countries—but not Japan, China, or countries in the Association of South East Asian Nations (ASEAN) (Rapkin, 1995). A third option was to pressure some Asians to oppose regionally exclusive initiatives by others such as the East Asian Economic Bloc/Group (Haggard, 1994; Funabashi, 1995). Finally, there could be unilateral neomercantilism and benign neglect—as President Bill Clinton told the 1994 APEC summit in Seattle. From a Japanese perspective, fears and perceived opportunities have been no less complex. In the early period of APEC, they featured tradingstate concerns about the division of the world into regional economic blocs, thereby depriving Japan of rewarding opportunities, and an economic relations rupture with the United States that would probably lead to withdrawal of the U.S. security shield. If the first and second would pose an unwanted need to choose “between Asia-centric and U.S. centric strategies” (Sudo, 1994), the last would make it more difficult to avoid military security poli-

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cy changes that would stress relations with Asia. All three would make rewarding economic relations with Asia more difficult. The desirability of multilateral means to lock the United States into Asia, to blunt protectionist pressures in the United States, and to diffuse U.S. economic “results-oriented” demands away from singling out Japan for bilateral bargaining have led for the past thirty years to a continuing Japanese strategy to push for Asian Pacific multilateralism. Some of the artifacts of that strategy have been the Pacific Basin Economic Council (PBEC), the Pacific Trade and Development Conference (PAFTAD) and the Pacific Economic Cooperation Council (PECC) (Williams, 1995; Crone, 1992; Woods, 1995). The surface tactics have often been to endorse initiatives whose public parentage was neither U.S. nor Japanese (“leading from behind” [Rix, 1993]). Japanese elites have been well aware of fears among other Asians of Japanese domination and of a U.S.-Japan condominium, as well as U.S. suspicions about Japanese intentions. Pursuit of a consistent strategy has been affected by varying degrees of urgency and changing judgments about what prospects will be most conducive to retaining U.S. support and managing intrabureaucratic and intra–private sector differences in Japan (Higgott, 1990; Funabashi, 1995). Japan’s sense of urgency would be particularly high in a context marked by U.S. pursuit of the alternative strategies indicated earlier (e.g., NAFTA), and apparent political momentum in the United States toward a rupture. Signs of that momentum were evident in the early 1990s—speculations about a future scenario of U.S. war with Japan, the rise of nativist Republicanism, and Chalmers Johnson’s forecast of “a Japan-dominated Asia-Pacific region in which the United States has only observer status” (Johnson, 1993:53). Possible moves by other Asians for a western Pacific– only grouping would both spur a Japanese sense of urgency and improve Japan’s bargaining position with the United States so long as those moves remained only in the realm of the possible. If they became reality, advantageous economic and political-military relations with the United States would suffer (Rapkin, 1995), and Japan might be pushed by other Asians to assume an unwarranted burden for their development costs (Nishijima, 1996:182–185). Japan’s preferred agenda for a multilateral modality has embraced not just free rein for market forces but also (unlike the Washington consensus) governmental activity to promote development (Crone, 1992; APEC Almanac, 1995a:3). Even without progress on freeing up market forces, APEC activities would still be a success if they enhanced developmentconducive cooperation on technical standards and other forms of harmonization. That position by Japan could both distinguish it from the United States and garner positive points with the RAEs. And, in turn, inclusion of the RAEs in any bargaining with the United States could serve to contain

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U.S. pressures for unwanted mandatory and rapid liberalization and deregulation. For the most part, the RAEs could be counted on to support Japan’s preferences for an “open economic association” (OEA) in which “participants do not cede powers of regulation or enforcement to any supra-national regional institution”—an OEA rather than an FTA (Drysdale and Elek, 1997:43–44)—and cooperate to resist U.S. pressure (Hook, 1996). For Japan, APEC could provide a “more persuasive position in other areas, such as arms reduction and regional conflict resolution” (Seki, 1996:136) without rapid and binding commitments to liberalization. It could further an “integrationist policy” toward China, thus reducing the likelihood of U.S.-Chinese tensions with the difficult choices those would pose for Japan, and helping the mature Japanese economy adjust to Chinese economic growth (Funabashi, 1996; Kobayashi, 1996). What of China? That country’s development strategies have in recent decades been premised on positive trade, investment, and technology transfer relations with the United States, Japan, and the rest of East Asia—in a context of varying views on the wisdom of moving quickly toward full liberalization and deeply rooted suspicion of both U.S. and Japanese hegemonic intentions. An APEC that offered carrots on all those issues would have advantages. An APEC entailing binding commitments to and rapid timetables for liberalization and full surrender to international market mechanisms would not. China found APEC sufficiently attractive in 1991 to join even though its accession was linked to that of Taiwan. China saw an APEC that seemed to curb rather than strengthen U.S. or Japanese capacity to direct China’s development and to eschew linkage between noneconomic and economic issues (Aggarwal, 1995). The Chinese vision for Asia would be most likely to occur if China were prepared to back alternatives that would marginalize the United States (like the East Asia Economic Group [EAEG]), thus fostering links with the DAEs, confronting Japan with the need to be responsive to Chinese and not just U.S. preferences, and inducing the United States to compromise to avoid an Asia-only arrangement. One way to accomplish those objectives would be by pushing a development assistance path as a requirement for cooperation with the U.S.-emphasized trade and investment liberalization path. As a Chinese official put it, the two paths are “like two wheels of a cart. . . . If we want to push the cart forward, we must have the two wheels advancing simultaneously, or the cart will be derailed” (Yang, 1998). The world the Chinese prefer would be most likely to occur if APEC could be used to provide reassurance to foreign investors about opportunities in China and to exert influence in favor of Chinese market access along WTO principles with favorable conditions for WTO membership. That would, of course, mean that APEC would lobby the United States as well as the rest of the world on behalf of positive relations with China. Yet a collapse of APEC because of

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Chinese actions or refusals to act would raise the risk of loss of access to the U.S. economy, either through unilateral protectionism or exclusive blocs. It could also strengthen the “China-threat view” among APEC members (Zhao, 1996). The dynamics of APEC have also given a major role to nations of less economic and political-military size. They have been anything but passive participants or homogeneous in their preferences—beyond a desire to see tensions between the United States, Japan, and China dampened, domination by one or several of them avoided, and their own economic vigor sustained through access to markets and capital. Specifics of APEC institutionalization were viewed according to these criteria, as in budget share norms that established crude parity among the United States, Japan, and the “three Chinas” (Funabashi, 1995). Economic technocrats of an orthodox liberal economic persuasion in many of these countries saw APEC as a way to increase domestic political elite acceptance of their views. Australia has played a particularly central role in formulating and advocating relevant initiatives before and since Prime Minister Bob Hawke’s 1989 proposal that led to the creation of APEC. Beyond the general preferences noted, activism could increase support at home for liberalization policies favored by officials of government and competitive international firms (Aggarwal, 1995; Higgott, 1990). Australia was uniquely well positioned to credibly and simultaneously deal with Tokyo, Washington, and the rest of Asia without appearing to be party to the parochial interests of any one of them—to be a “midwife” to an Asia-Pacific economic community (Dirlik, 1993:8). The Clinton-convened Seattle summit of APEC leaders, marking a major step up in status for APEC, was an Australian idea (Funabashi, 1995). The Australian position can be summarized as pushing for regime construction in the service of liberalization with substantial safeguards against hegemony. Beyond the few commonalities already mentioned, the members of APEC yet to be discussed have played different roles and have different agendas. They could agree on shaping APEC to protect the policy latitude of its weaker members (Simon, 1996), with safeguards against unilateralism and the defensive bulwark provided by a consensus decision rule— matters on which Japan and China agree. The ASEAN countries’ desire to build in those assurances thus met with considerable resonance, as exemplified in the 1991 Seoul Declaration. The desire by some of the ASEAN countries (most notably Malaysia) for a narrower grouping (the EAEG or East Asia Economic Council [EAEC]) has been less well received even within ASEAN (MacIntyre, 1993, 1996). Nevertheless, pronouncements from Malaysian prime minister Mohamad Mahathir could still have tactical threat (Rapkin, 1995) or “insurance policy” (Ariff, 1996:221) value from the points of view of the others (and perhaps China and Japan as well).

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Out of great diversity, APEC and participation in it emerged as more attractive than a world without it—a “tactical consensus” (Higgott, 1995:96)—so long as it did not seem to lead to “forced” domestic liberalization. For Korea, APEC could prevent market exclusion, advance its northern policy toward China, and lessen pressures to take sides against some countries important for economic and political-military reasons. The strength of these motivations has led to a special degree of activism in APEC. For Singapore, domestic economic liberalization was already accepted, and anything APEC could do to advance it regionally and globally seemed desirable. For Taiwan, in addition to the desire for market and FDI access, APEC offered recognition and presence at an international table. For the Philippines, it offered a bridge to Latin America and, as with the other less developed members, a forum to push for development assistance to cope with and benefit from globalization (Crone, 1992; Siazon, 1996). For a host of reasons, the smaller members have provided APEC with both an “accelerator and [a] brake” (Evans, 1996:13). Their willingness to adjust, or at least appear to adjust, on FDI policies as well as trade matters rose and fell with the urgency of the various concerns as seen through these alternative lenses and measured against the less than fully compatible criteria mentioned above. When urgency was lacking, keeping the APEC game in play as a sort of insurance policy was enough. When urgency was pronounced, APEC became, or seemed to become, important as an “action forum” rather than just a “talking shop.” Under both sets of circumstances, most members sought to preserve flexibility to play it either way and to discourage adoption of two threatening strategies. The first involves unilateral high pressure threat tactics to get everyone into line. The second attempts to form a dominant faction to ram policies through or to veto them arbitrarily. Factions could form along geographic, racial, or level-of-development lines. Both strategies could be discouraged through rules of “open regionalism,” WTO compatibility, consensus decisionmaking, and agreements only in principle with the details of interpretation and implementation left to “concerted unilateral action” (Bergsten, 1997; Hosono, 1996). Those, of course, are the prevailing APEC rules that were established in the Kuching consensus of February 1990 and reaffirmed repeatedly since. As encapsulated in the 1995 Osaka summit Action Agenda, they call for: “1) comprehensiveness; 2) WTO-consistency; 3) comparability; 4) non-discrimination; 5) transparency; 6) standstill; 7) simultaneous start, continuous process and differentiated time tables; 8) flexibility; and 9) cooperation” (Hosono, 1996:81). Combining the relative clarity of principles 1 through 6 with the permissibility of faster or slower unilateral action of principles 7 through 9 enabled consensus that APEC could help to reach the members’ diverse goals.

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The adverse financial developments in Asia that became visible in mid1997 and continued into 1998 surely created a sense of urgency for the affected governments and firms.3 They also have vastly increased U.S. bargaining power. The previous interpretation suggests that APEC would not be a central venue for dealing with these problems. For the non-U.S. members, their extreme urgency combined with great U.S. leverage would create a high risk that the United States could dominate decisionmaking. For the United States, adherence to the prevailing rules would mean at best a slow response to the financial stresses and at worst the need to compromise on policy preferences to an undesirable extent. The FDI Policies of APEC Members

In this section we summarize member policies and views, first for IFDI and then for OFDI. A subsequent section reports empirical patterns with regard to IFDI and OFDI. Our discussion covers the periods before and since the adoption of APEC’s most prominent agreement on FDI, the APEC NonBinding Investment Principles (ANIP) at the Bogor summit in late 1994. An analysis of ANIP’s effects follows our consideration of FDI policies and patterns. The United States has consistently emphasized the role of market forces in the international allocation of IFDI. Albeit with some sectors historically closed on national security grounds, the United States has been more open to IFDI than other rich countries and far more open than nearly any of the poorer countries. It has urged similar policies abroad, and recently within the OECD countries some hitherto closed sectors have opened significantly, either as part of general deregulation or as a result of bargaining. Yet, pending a new OECD Multilateral Agreement on Investment, even that grouping of advanced economies still adheres to its 1976 Declaration on International Investment and Multinational Enterprises, leaving to national discretion “those measures necessary to maintain public order and essential security interests” (OECD, 1993a). Although those items have to be declared (the transparency requirement) they are not subject to progressive reduction. Attempts in 1988 to block additions (standstill) and move toward removal (rollback) were not accepted. The surge of IFDI into the United States during the 1980s brought an increase in public concern about foreign domination. U.S. experience implies that the current general presumption about the link between prosperity and IFDI becomes vulnerable when some domestically salient eleIFDI Policy in the AAEs

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ment of autonomy or security can be portrayed as especially vulnerable or when IFDI appears to function as a resource drain, such as in the appropriation for foreign use of R&D results paid for by public monies in the host country. The sustained U.S. lead in per capita income has implied a singularly strong concern for expanding FDI access to other countries. As national income per person grows, services become a larger part of the economy, and their successful sale abroad typically requires direct activity in the foreign market to an even greater extent than does the sale of manufactures. Similarly, the position of the United States at the cutting edge of most technologies has generated particularly strong opposition to the policies of other countries that treat the development and exploitation of such technologies as nationalist preserves. The other AAEs have increasingly shared the U.S. concern with openness while typically also wishing to protect sectors perceived to be critically linked to prosperity (high tech industries), autonomy (“cultural” industries) or security (defense industries). Nearly all of them have also resisted a flat ban on investment incentives because so many subnational governments in the rich countries use them. The most consistent and best-organized opponents of IFDI openness in the AAEs have been those whose economic interests have been directly threatened, that is, domestic competitors in industries being considered for increased liberalization. Yet the general market orientation of most of these states and the presumption in favor of competition since the early 1980s has usually led to insistance on more openness in the same industry abroad as a quid pro quo rather than a flat rejection of foreign participation. This approach has increasingly become the most politically feasible route for maintaining temporary protection in the face of growing general concerns about international competitiveness on the part of firms that use the protected sectors’ output.4 Neither right of establishment nor national treatment can adequately compensate for laws and practices, as in Japan, that have made takeovers extremely difficult for both foreign and domestic interests (Wakasugi, 1995). Multinational corporations (MNCs) typically enter markets through the acquisition of an existing firm. Although Japanese MNCs have been in the vanguard of government efforts to make foreign entry easier through government assistance, much of medium-sized industry has been opposed. The international firms fear retaliation from abroad in the face of Japan’s huge and increasing imbalance between the stocks of outgoing and incoming foreign investment. This imbalance and the competitive disadvantages for foreign sellers that it implies have led to unremitting pressure from trade partners, especially the United States. The totality of government and private-sector restrictive practices (Yoshitomi and Graham, 1996) even led

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to the suggestion to convert the Office of the U.S. Trade Representative into the Office of the U.S. Trade and Investment Representative (Mason, 1995). Organized labor has played a complicated role in the politics of IFDI in most AAEs. The reality that foreign firm start-ups bring new capital and jobs and that takeovers sometimes rescue failing firms is tempered by the understanding that foreign takeovers often involve increased efficiencies, including workforce reductions. Firms going abroad typically resist labor restrictions that are more stringent than what they are used to and sometimes seek escape from labor regulation at home. The net effect of these forces often dictated trade union opposition to permissive IFDI policies before the early to mid-1980s. More recently, the employment risk from attachment to a firm unable to hold its own internationally has generated a more varied response. The richer countries have also become increasingly concerned about too much of a good thing: the enticement of IFDI with subsidies usually linked to performance requirements. Theoretically, this typically distorts the local economy while it misallocates resources internationally. Politically, such activity raises objections in the home country less from the affected firms themselves, whose profits may even be enhanced, than from critics who claim that certain activity would never have left home had it not been for the market distortions introduced abroad. Opinion within the AAE governments has shifted strongly toward liberalization. The Macdonald Commission Report of 1986 indicted government screening of direct investment as part of a general condemnation of Canadian protectionism. The report had enormous influence in both major political parties and provided much of the intellectual foundation for Canada’s approach to the United States for a free trade agreement. Australia and New Zealand largely abandoned protectionism and state economic control in the mid-1980s, more warmly embraced direct investment, and concluded a free trade agreement with each other. In this generally positive context, the United States has kept on the books the Exon-Florio legislation of 1988, adopted during the fearful period of surging Japanese IFDI. It allowed the president to block virtually any foreign acquisition for reasons of “national security” (Kang, 1997). Since national security was not defined, these steps could only raise fears abroad about increased barriers in any case involving a high technology U.S. firm—especially when the Clinton administration extended Exon-Florio to firms involved with “dual-use” technologies as well as defense technologies (Graham, 1996:92–94). Fear of higher U.S. barriers would, of course, increase the attractiveness to other governments of locking the United States into commitments for IFDI openness.5

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The RAEs have a history of holding negative attitudes toward IFDI because large corporations from the advanced economies symbolized colonialism. Reduction of foreign capital influence became a primary goal of the governments of many newly independent states. When combined with the dirigiste proclivities of elites in the poorer countries during the three decades after World War II, the resulting restrictions on IFDI were generally much in excess of developed country practice. The apogee of these tendencies was in the early 1970s, when MNC support for the overthrow of Salvador Allende in Chile and the success of OPEC seemed to argue for maximum surveillance of and minimum discretion for foreign firms. Although there was little democracy in the APEC region beyond the AAEs, public opinion, typically conditioned by a controlled press, generally supported the use of prevailing import-substitution regimes to pursue economic progress and national autonomy. Protected domestic business became the bulwark of industrializing governments, and foreign corporations were frequently allowed only in those activities beyond the scope of local business or in which foreign performance was greatly and visibly superior. Organized labor—if any—could be mobilized against foreign ownership or rewarded by forcing foreign firms to pay wages that frequently bore no relation to other local remuneration. Such economic policies cause difficulties for potential exporters because their opportunities are diminished by having to purchase uncompetitive inputs. Yet these firms (and industries) seldom coalesce politically until there is an overall economic policy shift toward an outward orientation. From the 1960s onward it became clear that the strongest RAE economies in the region, Taiwan and Korea, were embracing one element in what ultimately became general policy reform: an outward orientation with large volumes of manufactured exports. Their exporting success, as well as that of Japan, led to U.S. pressure to reduce barriers to IFDI and regulation of the IFDI allowed in. Meanwhile, internal market pressures growing directly out of export success were also working to reduce restrictions on IFDI. In many industries, increasingly sophisticated products and processes were leading to quality and productivity bottlenecks most easily overcome by the participation of foreign firms. Thomas Bayard and Kimberly Elliott (1994:186) have argued that Korea and Taiwan liberalized their IFDI policies in the late 1980s, not in response to outside pressure but for their own reasons: the increasingly clear need to augment domestic resources with the technology and skills of foreign investors. The ASEAN countries—at a lower level of income and, in most cases, technology—also saw an increasing need if they were to attract export-oriented foreign firms. IFDI Policy in the RAEs

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In the early 1980s, historically open Singapore was joined by opening moves by the ASEAN four (Indonesia, Malaysia, the Philippines, and Thailand) (Kohsaka, 1996). As a result, enticement with controls came to be practiced far more than liberalization. Virtually all RAEs developed elaborate patterns of multiple performance requirements for foreign firms while frequently also giving them special fiscal advantages. The processes were far from transparent, often with opportunities for corruption and idiosyncratic treatment in each particular case. In the 1990s, Mexico unilaterally extended the liberal investment regime of NAFTA to all other countries in part to create a credible commitment to permanent liberalization, and Chile, already a liberal host, positioned itself to join NAFTA. The TRIMs agreement was reached under the WTO obliging all countries to drop trade balancing and local content requirements from agreements with foreign firms. Although the former were by then rare in APEC, the latter remained widespread. Yet most of the RAEs approved TRIMS (China and Taiwan are not members of the WTO). In the years since APEC was founded, another factor has impelled liberalization: intra-RAE competition, much of it for infrastructure investment to support continued growth. The World Bank estimated enormous needs for the decade beginning in the mid-1990s on the order of U.S.$1.4 trillion (United Nations, 1996). China, Indonesia, Taiwan, Mexico, and Korea all focused on liberalization to attract infrastructure IFDI. Another major motivation, especially among the Asian RAEs, was the fear of losing out to China, a rival with a virtually unlimited potential internal market and a country determined to attract IFDI to improve productivity and exports. As detailed later, by the mid-1990s the potency of these Chinese strategies was apparent as it became the second largest recipient of IFDI and used it to power exports (in 1995, IFDI accounted for 31 percent of total exports [United Nations, 1996:54]). Yet Chinese policy hardly resembled traditional liberalization. China has presented more favorable IFDI opportunities to some sources than others—in general overseas Chinese and, by the 1988 State Council degree, Taiwanese (Song, 1995). It has advantaged foreign over domestic investors, although less so recently. Recent policy has been moving to both attract more IFDI and channel it to fit more closely with central government development and industrial priorities: more centralized control, more careful administration, and increased industry and region scope for IFDI.6 The attractiveness of China as a host has been accompanied by foreign investor frustration. The foreign investor faces a complicated array of options—equity joint ventures, wholly foreign-owned enterprises, and cooperative joint ventures with or without legal status. Only the second allowed for total control but at the price of a requirement to export not less

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than 50 percent of production. The options have differed in the regulatory and policy particulars they entail—approval authorities and quantitative thresholds, registration, forms of management, foreign exchange balances, tax treatments, accounting methods, after-tax reserves, earning distributions, export requirements, employment practices, land use fees, and disposition of assets after termination or expiration (Deamer, 1996). Foreigners have been given other reasons to avoid investing in China—or at least avoid performing some activities there—by weak protections of intellectual property rights (IPRs). The sheer size of the Chinese economy has generated very large estimates of resulting lost foreign profits from patent and copyright violations. Foreigners have been given still further reason for caution by attempts to draw them into investment in large state enterprises with the associated transfer of foreign technology. The transfer with its competitive implications is assured, but sometimes substantial excess production capacity places profits for the foreseeable future in question (most obviously in motor vehicles) (The Economist, 1997b). China has signaled willingness to follow WTO rules after admission, including those for IPR (most clearly at the 1996 Manila APEC summit), with a timetable more compatible with WTO provisions for transitional and developing countries rather than those for developed countries (Shindo, 1997). Yet WTO admission has not occurred, and compliance doubts remain. If anything, the problems of the burdensome state enterprises and a desire for foreigners to help alleviate those problems continue to increase. In sum, the RAEs’ desire to attract more IFDI has not propelled a commitment to liberal investment as great as in the AAEs. In neither group have governments concluded that binding agreements for openness and policy neutrality are required to maximize long-term economic welfare— let alone autonomy or security. Most of the RAEs have continued to adjust the mix of government-provided incentives in line with national development strategies. That posture has been most obvious in cases where IFDI is seen as key to “leapfrogging.” Consensus on investment development path thinking means competition for investment, which may involve liberalization but does not leave the field solely to market forces. Competition for IFDI may impel governments whose economies or societies come up short in other respects to more than match the policy environment other hosts offer; Malaysia’s creation of the “Multimedia Super Corridor” is an example (pace Petri, 1995:42). The IFDI seduction race may involve unilateral or cooperative measures by a subset of RAEs. In 1993–1994 China, Korea, Indonesia, the Philippines, Taiwan, Malaysia, and Thailand implemented unilateral attraction measures (United Nations, 1994, 1995; Asia-Pacific Economic Group, 1995b). Measures in the 1992 Framework Agreement on Enhancing ASEAN Economic Cooperation were intended to support regional growth triangles and an ASEAN free trade area. As put by

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Singapore prime minister Chok-Tung Goh, the goal was to help ASEAN “compete for investment as a region” (Dosch and Mols, 1994). On the other side of the Pacific, Mexico unilaterally liberalized its IFDI policies and pursued NAFTA and APEC as a way to entice not only U.S. but also Asian IFDI (Rubio, 1996). With the financial troubles visible by mid-1997, the RAEs’ need for IFDI and other financial flows is increased, as is their susceptibility to liberalization pressures. Attracting foreign capital may become even more of a seduction race, with more limited overall capital availability in Asia. The ultimate policy response will depend on, first, the imperatives of domestic politics in the RAEs and, second, how RAE devaluation is assessed by AAE firms that produce for global markets. For the first few decades of the postwar period, U.S. MNCs dominated global FDI activity, and the United States appeared to have largely identified its economic welfare with the ability of its firms to operate abroad with minimum hindrance, a position that has been maintained. In the 1960s and 1970s, organized labor in the U.S. reacted to what it saw as the international version of the “runaway plant” by stressing possible negative economic effects, particularly tax shifts from the United States to foreign governments. As the stock of IFDI in the United States grew to magnitudes comparable to the U.S. stock abroad (approximate parity by the early 1990s), the tax argument lost much of its persuasiveness. The increasing complexity of international production casts doubt on both the practicality and the policy implications of focusing on the impact of FDI on specific exports and imports because the actual value added by national territory is so poorly captured in international trade data. Yet regionally and sectorally concentrated fears of job loss remain as potent themes in domestic U.S. politics and in the politics of other AAEs. They have been supplemented by concerns that employers can use the prospect of moving abroad to constrain wage growth or even secure compensation cuts. “Globalization anxiety,” the general apprehension by governments of both AAEs and RAEs that valuable opportunities to source and sell abroad would be lost by trying to restrict firms’ foreign activity, has led in recent years to unprecedented freedom for OFDI—but not without lingering concerns and sometimes restraints. Among the AAEs, Japan has taken a variety of multilateral and unilateral measures to promote OFDI but with an eye “not to do so much as to trigger IFDI limits by Southeast Asian hosts or to hollow out industry” (Sakurai, 1995). Overall, RAE governments have not given up on formal and informal policy guidance, often through extensive capital controls. China has encouraged OFDI to secure technology. Taiwan OFDI Policy

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has in the past few years encouraged a “southern” OFDI emphasis toward Southeast Asia to lessen flows to China and has sanctioned investment in both low wage and high wage rich countries (Chen, Ku, and Liu, 1995). Korea, after easing OFDI policy, tried to tighten the reins on OFDI by its large chaebols even before 1997’s shocks. FDI Patterns of APEC Members The 1994 ANIP, as well as member state policies before and since, should be understood in the light of what was going on with FDI flows and stocks. The RAEs had become well established as FDI recipients before APEC began, although they were concerned that flows would shift toward the transitional economies of eastern and central Europe. By the end of 1993, before ANIP, that strong position had improved substantially. RAEs’ share of net FDI to developing countries had moved from 56 percent in 1990 to 77 percent in 1993 (and that of portfolio flows from 21 percent to 67 percent) (Khan and Reinhart, 1995:59–60). That generality masks some important differences both for the 1990–1993 period and afterward. Although year-to-year changes may only reflect incidental coincidences of firm decisionmaking and government record keeping, they can still have political currency. They can function as “headlines” to which political elites find it wise to seem responsive. The 1990–1993 period saw downward shifts in volumes of FDI inflows for many APEC members and substantial increases for only a few (Mexico, Malaysia, the Philippines, Indonesia, and China). The pattern shifted from 1993 to 1994 to a predominance of growth at a more uniform rate, but with several declines (Thailand and Malaysia). In 1995 there were widespread increases over 1994 with the few exceptions different from those for 1993 (JETRO, 1997). Relevant data on less volatile measures appear in Table 3.1. For IFDI stocks, growth was universal if quite discrepant from 1985 to 1993 and also from 1993 to 1995. Yet, with few exceptions, the rate of growth was strikingly lower in the latter period. China presents a particularly complicated picture, given the substantial difference between value of approved contracts and actual investment. The former actually declined in 1994 and 1995, but the latter increased as a result of previous approvals (Shindo, 1997:56). Decline in concentrated sums in 1996 accelerated in the first half of 1997 (Lachica, 1997). These patterns suggest that not all countries were equally successful in the competition for IFDI in the early years of APEC. Many RAEs had grounds for concern because IFDI was viewed as crucial for economic IFDI by the Numbers

The Case of APEC Table 3.1

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IFDI Flows, Stocks, and Perspective

Australia Canada New Zealand Japan U.S. Korea Taiwan Hong Kong China Indonesia Malaysia Philippines Singapore Thailand Brunei Papua New Guinea Mexico Chile

1985–1993 average — 8 — 33 18 26 30 32 33 43 38 9 27 66 — — 23 —

Percent Changes in Stocks

1993–1995 average — 9 — 3 13 11 9 — 63 5 15 9 16 13 — — 22 —

IFDI Stock/GDP (1992) 24.7 19.2 22.8 0.7 7.0 2.9 8.0 30.2 8.8 55.7 39.2 7.6 74.8 11.8 — — 11.2 —

FDI/GFCFa (1986–1990 average) 10.3 5.8 9.5 0.1 6.9 1.2 3.7 12.9 2.1 2.1 11.7 6.7 35.0 6.5 — — 7.5 20.6

IFDI/GFCF (1993) 6.2 5.1 32.4 — 4.7 0.4 2.4 7.1 20.0 4.8 23.7 5.9 43.3 3.6 — — 6.4 7.7

Sources: JETRO, 1997; Graham, 1996; United Nations, 1995:49–50; Petri, 1995:36; OECD in Figures, 1996:18–19; International Monetary Fund, 1995:411–418; Hufbauer and McFadyen, 1998:131. Note: GFCF = gross fixed domestic capital formation.

performance. The later patterns suggest grounds both for growing confidence about across-the-board gains and for growing concern about a growth rate slowdown. Our interpretation is that the 1990–1993 period gave many members motivation to change the IFDI playing field, whereas a few had reasons to like it as it was. The data for 1993–1995 suggest grounds for a broader consensus that IFDI policies within APEC were not a zero-sum game and that there was a common interest, but not necessarily a shared sense of urgency, in increasing attractiveness to IFDI. What urgency there was among the RAEs after the ANIP approval probably rested in the ASEANs who could not match the carrot of China’s enormous internal market. Governments of the ASEAN four (Indonesia, Malaysia, the Philippines, and Thailand) could not but have been aware that although the flow of IFDI to them in 1995 exceeded that to the four major transitional economies of eastern and central Europe, it fell far short of the flows to the four large Latin American economies of Mexico, Brazil, Argentina, and Chile (United Nations, 1996).

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These generalities should not obscure the vastly different roles IFDI played in the member economies within categories of development. Those differences were well established before ANIP with respect to the ratio of IFDI stock to gross domestic product and the place of IFDI in gross fixed domestic capital formation. Importance is particularly pronounced for four of the ASEAN economies (Indonesia, Malaysia, Singapore, and Thailand) and Hong Kong. IFDI is apparently accelerating into a substantial role for China and New Zealand. We surmise that APEC members would differ in (1) the priorities associated with policies conducive to IFDI; (2) the willingness to modify or hold fast to established policy; and thus (3) positions on IFDI-related policies in bargaining packages involving other issues. Forces at work in the different APEC members should also reflect the importance of different source countries. As relative importance changes over time, policy priorities should as well. Shares of holdings of IFDI stock in the Asian subset of the RAEs for 1985 and 1993 appear in Table 3.2. Table 3.2

Shares Held of Inward Stock (%) United States

Korea Taiwan Hong Kong China Indonesia Malaysia Philippines Singapore Thailand

1985 30 37 54 16 6 7 57 24 32

1993 29 27 28 9 5 11 44 18 17

1985 52 23 21 7 33 19 14 13 28

Japan

1993 40 29 34 9 21 22 20 7 33

Other than U.S., EU, Japan

1985 11 33 13 69 44 47 15 39 24

1993 11 37 26 80 59 50 19 51 39

Source: United Nations, 1995:49–50. Note: The last entry in the China row probably contains a substantial share of mainland funds looped around to take advantage of incentives to foreign incoming investment. The EU share is the residual for each period.

From the perspective of the Asian RAEs, we once again see diversity in terms of relative importance and trends in the years before ANIP. The importance of the United States as a source declined noticeably, except for Korea and Indonesia, and only increased for Malaysia. The Japanese role, in spite of its OFDI surge in the second half of the 1980s, is quite mixed with a preponderance of increases but also noticeable declines in the cases of Korea, Singapore, and Indonesia. IFDI sources other than the United

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States, Japan and the nations of the EU were already substantial by 1985 and grew to more than half by 1993. These other sources from the western side of the Pacific had by 1993 become more important than either the United States or Japan for the Asian RAEs except Hong Kong, Korea, and the Philippines. How much this information suggests possible U.S. investor dissatisfaction with the IFDI-related policies of many of the RAEs and how much merely greater enthusiasm by others requires more detailed country analysis than this chapter can provide. In any event, the data suggest that most of the RAEs would feel it important to have an East Asian consensus on any IFDI-related agreements, in APEC or elsewhere. They also imply that Japanese concerns, although they might differ from those of the United States, would have in common recognition of competition for opportunities from other East Asians and a desire to level the playing field with them. Overseas Chinese appear to have special investment advantages in several economies, and the most obvious solution would be greater general investment liberalization. IFDI stocks are, of course, the product of history and thus change slowly. Changes appear more quickly in flow data, as shown in Table 3.3 for 1986, 1990, and post-ANIP 1995. Table 3.3 makes clear the diversity of host sensitivities among the APEC members it includes. China, and to a lesser extent the ASEAN four (Indonesia, Malaysia, the Philippines, and Thailand), stand out for flows of FDI from the four “tigers” (Korea, Taiwan, Hong Kong, and Singapore). However, Japan was of particular importance for the ASEAN four. In contrast, Japan and the United States are of equal importance for the Asian NIEs. U.S. sensitivities about IFDI from Japan becoming unduly dominant would have surely been exacerbated in the 1986–1990 period and calmed in the more recent period. So too would concerns about decline based on a trend of increasing RAE share of IFDI from Japan and a downward trend for the United States. Theories of complex but differentiated interdependence argue that any IFDI-related steps in APEC would have to acknowledge a substantial variety of host interests in a variety of source preferences. The table also suggests that urgency for action felt by the United States may have declined from the early to the mid-1990s. The implications of Tables 3.1 through 3.3 for policy reactions to the shocks of 1997 are largely compatible with those drawn from our discussion of APEC member IFDI policies. They reinforce the RAEs’ need for IFDI, and especially U.S. IFDI, given the greater difficulties facing domestic fixed capital formation, the erosion of Asian capital, and the need for non-Asian “national” business advocates to smooth the way for cheaper Asian exports to other parts of the world. That is, the shocks may not vindicate the Washington consensus, but they do make it much more costly for the IFDI seekers to flout it.

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Table 3.3

Shares of IFDI Flows (1986, 1990, 1995)

Investing Country or Region

East Asia

Asian NIEs

26.6 33.8 34.8

East Asia

ASEAN Four China Japan United States EU World Total

27.8

0.8 2.4 2.4

0.3 0.5 0.1

Country/Region Receiving Investment

Four Tigers 5.9 6.1 6.3

0.5 0.0 2.2

0.8 0.1 0.6

ASEAN Four

China

Japan

15.8 36.0 17.9

61.1 55.4 69.0

6.1 2.2 6.0

17.2 39.7 20.6

0.1 0.6 0.1

51.7 55.8 71.6

0.6 0.3 2.0

25.8 27.5 16.5

35.8 34.2 24.1

30.3 28.1 20.4

10.7 14.4 8.3

11.4 10.8 12.7

15.4 14.7 21.8

11.6 10.9 15.7

6.9 4.2 5.7

18.8 10.8 12.2

100.0 100.0 100.0

29.6 32.7 38.8

100.0 100.0 100.0

11.1 6.2 10.8

100.0 100.0 100.0

6.1 2.2 6.4

— 0.0 0.1 — — 0.3

16.6 13.1 8.2

51.9 23.9 48.0

100.0 100.0 100.0

100.0 100.0 100.0

12.5 41.0 31.2

United States — 0.8 2.0

— 0.6 2.0

— 0.1 — — 0.1 —

21.3 28.7 8.8

80.1 45.2 71.6

100.0 100.0 100.0

Source: JETRO, 1997, from local statistics of individual countries/regions. Notes: Figures for all countries/regions are (from top row of each country or region) for 1986, 1990, and 1995. Figures for United States are historical cost basis, for Japan on fiscal year of notification (April 1 to March 31), for the Republic of Korea on approvals, for Taiwan on approvals, for Hong Kong on questionnaire survey of manufacturing industries, for Singapore on commitments in manufacturing industries, for Thailand on approvals, for Malaysia on approvals in manufacturing industries, for the Philippines on approvals, for Indonesia on approvals, and for China on actual implementation. “EU” in principle means fifteen countries. East Asia provision to China includes to a substantial extent funds originating in the mainland.

ANIP, of course, applied to both OFDI and IFDI policies. The United States, Japan, and Canada have long stood in the top group of all overseas investors, but in recent years many other APEC states have become important and therefore have developed interests as providers and not just recipiOFDI

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ents of FDI. About three-fourths of the most substantial RAE-based transnational corporations claim Korea, China, Mexico, Taiwan, Hong Kong, Singapore, or Malaysia as their home countries. This suggests the emergence of powerful domestic supporters of pursuing OFDI opportunities (United Nations, 1996). APEC members differ in the focus of their OFDI on each other. The most exclusive focus on APEC is shown by many of the RAEs (China, Hong Kong, Malaysia, the Philippines, Thailand, and Mexico). The United States and Australia stand in contrast, with Japan, Canada, Korea, Singapore, and Taiwan in an intermediate position. Whatever else, the shocks of 1997 have curtailed OFDI by many directly affected APEC members. However, the possible “firesale bargains” available in the adversely affected nations may well attract U.S. investors to an extent greater than the countervailing effects of weakened domestic demand and greater uncertainty in those hosts. The potential hosts’ greater dependence on the United States and the International Monetary Fund (IMF) will at least in the short run increase the chances for “reforms” attractive to U.S. and other advanced economy investors. For the immediate future, the major barriers to U.S. OFDI in the RAEs lie less in host government FDI policies than in fears of social instability and exchange rate unpredictability. APEC’s Action on FDI Issues

Since its inception, APEC has been concerned with FDI, and its individual members have sought the best available set of arrangements from their domestic and international policy perspectives. Priorities on instrumental matters of member governments and their major firms have changed as their perceptions of economic and security situations have changed. The likelihood of threats to their economic well-being have been no more stable as prospective economic “fortresses”—variously Europe, the western hemisphere, or Asia—have come and gone, and as the Uruguay Round of the GATT and the WTO have moved from a high probability of stillbirth to vigorous implementation of significant FDI-related measures. Prospects for greater FDI openness have also fluctuated as events supported or cautioned against the interpretation in the United States that unfettered capital mobility would enhance U.S. power and wealth, and the interpretations elsewhere that it would provide “a powerful instrument in avoiding hegemonic dominance” (Fishlow and Haggard, 1992:19) or create vulnerabilities to hegemonic manipulation (as in the outspoken Mahathir’s initial reaction to the 1997 economic shocks). The 1991 Seoul meeting of APEC approved plans for a Committee on Trade and Investment as one of three standing committees. Investment

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moved to the front of the APEC agenda with the Seattle summit of 1993, the Eminent Persons Group (EPG) report prepared for it, and the adoption of a declaration on trade and investment. With substantial U.S. influence, the EPG report pushed for an Asia-Pacific Investment Code (ASPIC) with more mandatory liberalization provisions than NAFTA or existing OECD provisions (Graham, 1995), and the Pacific Economic Cooperation Council (PECC) put forward a Draft Investment Code. The declaration only went so far as promising to “develop a non-binding code of investment principles,” which was done by the APEC Investment Experts Group prior to the 1994 Bogor summit (Bora, 1995:141). An agreement was eventually reached, but it was a very near thing and was largely due to a supportive shift by the Indonesian host (Pangestu, 1995; Green, 1995). The declaration contained far less than the U.S. ASPIC proposals or the 1993 and 1994 EPG reports. The immediate result was an agreement at the 1994 Bogor summit on “APEC Non-Binding Investment Principles” (text in Green and Brewer, 1995:273–275; summary of major provisions and comparison with other major international investment agreements in Bora, 1995:143–148). The agreement is silent on some major issues (most notably dispute settlement) and rich in escape clauses on others. For example, the provisions on nondiscrimination apply only to “investors from any other economy in like situations,” and that on national treatment provides for exceptions as stipulated in “domestic laws, regulations, and policies.” Language on incentives and performance requirements is in general highly permissive, as is that on the responsibilities of investors and capital exporting economies. ANIP softens or eliminates a number of provisions of the PECC draft (on nondiscrimination, national treatment, performance requirements, expropriation, repatriation, dispute settlement, avoidance of double taxation, and responsibilities of investors and of capital exporting economies). ANIP also contains a timetable, another matter over which Bogor almost broke down. The EPG had called for complete liberalization for the AAEs by 2010, for Korea by 2015, and for the other RAEs by 2020—but the U.S. government wanted an earlier deadline for China. Others, such as Indonesia’s Suharto, wanted 2010 for all. The conclusion reached was 2010 for the AAEs and 2020 for the RAEs. Some would argue that with ANIP, APEC has become a leader in FDI liberalization. We believe a more accurate view is that ANIP “fails miserably [as] a device to liberalize foreign investment regimes in the region [but] if ANIP is viewed as an investment facilitation device with which to signal to investors the receptiveness of the region to foreign investment, then there is considerable merit in the statement of principles” (Bora, 1995:154). ANIP responded to the urgent political need for APEC to do something about investment, especially in light of the activities of the Pacific Economic Cooperation Council’s recommendation for a quite spe-

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cific investment code, which was presented to APEC in 1993. The principles, however, also recognized that neither great specificity nor bindingness could pass APEC muster. At the end of the day, concerted unilateralism implies that the lowest common denominator will win out. “Flexibility” simply allows those who would or have gone faster to do so. ANIP merely moved bargaining into a more focused form about content, timing, and process. In the run-up to the Osaka (1995) and Manila (1996) summits and on each of those occasions little was done to bind or accelerate FDI liberalization (see the Osaka Action Agenda and the Manila Action Plan for APEC). Individual action plans (IAPs) (Drysdale and Elek, 1997) often added little to WTO commitments, as was also true of activities leading up to the 1997 Vancouver summit (Johnstone, 1997). Participants apparently wanted some progress on FDI, but there was no consensus on the most meaningful steps to take. Of course, they may have noted that the timetables in ANIP required little in the way of immediate changes in national practices. As Peter Drysdale and Andrew Elek (1997), hardly pessimists about APEC, put it, hard issues would have to be addressed as early as 2005. This very modest assessment is supported by the systematic analysis of Ippei Yamazawa (1998:28–29, 43) assigning scores for investment liberalization based on current practices, IAP elements, and the APEC Collective Action Plan. Although all APEC members would become more liberal in the future if declared intentions are realized, discrepancies between them would grow and none would achieve full liberalization. The currently most liberal—the United States, Hong Kong, New Zealand, Canada, Singapore, and Australia—would be joined by Japan and Brunei. The laggards would remain China, Indonesia, Thailand, and Korea. Supporters of fuller and more rapid liberalization in the member governments and in their respective business communities have kept up the pressure. At Osaka, the Pacific Business Forum was transformed into the APEC Business Advisory Council (ABAC), with three members from each of the APEC economies. ABAC attached importance to investment matters, including “protection” of investments, and a similar support group (the APEC Business Forum of CEOs) met in synchronization with the Manila summit (Siazon, 1996). That has been widely recognized as an attempt to muster powerful domestic interests on behalf of FDI liberalization. As indicated in the Pacific Basin Economic Council (PBEC) proposals of 1995 (Pacific Basin Charter on International Investments) and 1996 (Implementing Free Trade and Investment in the Pacific), those interests fully recognized the weakness of ANIP and continued to push for some agreement much closer to the ASPIC proposals (PBEC, 1995, 1996). Yet such a “business agenda for APEC” (Murofushi, 1996) has remained only an agenda and has not become an accepted APEC program of operations.

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The business lobby for stronger FDI liberalization only managed to forestall substantial backsliding from ANIP. By the time of the late 1997 Vancouver summit, the financial shocks had undeniably shifted the arena for decisive action away from the APEC venue (Altbach, 1997). Conclusions

The discussion in the earlier parts of this chapter suggested that provisions of APEC agreement on FDI would be moving and rich with conditionality. Agreement would hinge on the scope for alternative interpretation and noncompliance, including the particulars of implementation. Apparent commitments could (and can) be magnified “on the cheap” as they entail doing no more, and that no more quickly, than called for by WTO agreements to which most APEC members are parties. Commitments could (and can) also be given inflated “additionality” by leaving out what the various members have independently decided to do. These two sorts of magnification may be useful for creating a sense of policy momentum. However, that sense is highly vulnerable to evaporation in the face of shifts in economic performance and domestic political pressures—especially when its promised consequences do not appear to be realized. More specifically, we are dubious about the view that commitments without binding transitions are unambiguously progressive toward liberalization (pace Feketekuty, 1996). They can also serve to blunt pressures for it. The minimally constraining nature of the ANIP provided little in the way of “international commitments” to shield a government or an economy from the pressures of economic bad times, either with respect to vulnerability to severe foreign pressures for rapid FDI liberalization or severe domestic pressures to roll liberalization back. Perhaps to expect otherwise is to ask too much of such multilateral economic arrangements. The ANIP did embrace an agreed-upon general dynamic of FDI liberalization in ways that increased the domestic legitimacy of that direction by clothing it in a garb of sovereignty preservation—or at least of hegemony avoidance. The underlying strategy that led to the ANIP and indeed to APEC was the view that “bounded and incremental liberalization” could be compatible with each member state developing along a path it found tolerable. As the history of the OECD demonstrates, such a strategy can have constructive results. The OECD was the model Australian prime minister Hawke had in mind with his initial proposals in 1989 and that underlay the Seoul Declaration of 1991 (Ravenhill, 1996). APEC and FDI matters within APEC were not intended to operate with law-like regularity or in a real-time crisis-management mode. Despite some U.S. calls for moving in that direction, the record is clear that some of the

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appeal of APEC to its other members rested precisely on decreasing the likelihood that the United States could impose such arrangements. More speculatively, consonant with the perceptions of policy elites of many of the other members, it is doubtful that any U.S. administration of the APEC period (surely including the Clinton presidency) could have secured domestic ratification for truly binding across-the-board liberalization or the delegation of authority a real-time crisis-management capability would require. The essential irrelevance of APEC in managing the shocks of 1997 fits with these judgments. Dealing with the crisis through APEC would have run counter to its design, and probably would have required commitments even harder for the United States to deliver on than ones to the IMF. Our interpretation has been skeptical about how much the foreign investment policies of the APEC members have been altered by the existence of the APEC organization. We think it likely that the differences made have been very slight, thus failing one commonly held criterion for the importance of a regime (Haggard and Simmons, 1987). Nevertheless, with respect to these policies and many others, we still believe that APEC has been a constructive force in the world political economy. It has performed at least four functions that deserve recognition. At the margin, its deliberations have undoubtedly served to encourage policymakers to move toward openness as part of a broader dynamic. It has fostered commerce by its ability to coordinate a whole host of trade regulations and infrastructure improvements that would otherwise have seriously hampered both trade and investment. It has functioned to stabilize both behavior and expectations among the membership, creating norms of consultation and disclosure that should continue to foster cooperation. Finally, it has served to challenge others, particularly Europe, with the example of a group of economies that are determined to keep at least some momentum for openness—with the implicit threat of potential exclusion of those who choose not to move. Viewed in the light of what might have happened without it, the solidity of APEC’s record dominates its modesty. Moreover, APEC’s exclusion from the recent financial crisis has arguably helped to preserve those accomplishments as a foundation for future action. Notes

Kudrle’s portion of this research was sponsored by the Air Force Office of Scientific Research, Air Force Material Command, USAF, under grant number F49620-1-0461. The views expressed herein are those of the author and not necessarily of the Air Force Office of Scientific Research or the U.S. government. 1. After Dunning, the five stages of the path are: (1) underdevelopment with IFDI limited to natural resources and no OFDI; (2) with increasing per capita income, increasing IFDI far greater than nominal OFDI; (3) with further increases

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in per capita income, the rate of IFDI growth slows while that of OFDI increases; (4) as per capita income increases still more, OFDI growth increases faster, the OFDI:IFDI ratio narrows, and the IFDI comes predominantly from other stage 4 countries; and (5) either substantial and balanced IFDI and OFDI, or predominant OFDI with, in both cases, large intrafirm trade (United Nations, 1995:237–238). 2. “Leapfrogging” is quite well developed as a concept applied to firms in the industrial organization literature in economics. The concept has recently been extended to entire economies (Brezis, Krugman, and Tsiddon, 1993). 3. In 1996, the five economies hardest hit by the crisis of 1997 (Indonesia, the Philippines, Malaysia, South Korea, and Thailand) received $93 billion in net capital inflows; in the following year, the net outflow was $12 billion (The Economist, 1998:110). 4. If a state’s firms in general lose markets to foreign firms, the exchange rate will tend to drop to recreate balance, but until this actually happens, it is irrelevant to the ability of any particular firm to compete. A firm’s ability to compete is hampered by buying any of its inputs at prices higher than its foreign competitors must pay, and the larger the part of the economy facing international competition, the stronger is the presumed political resistance to the higher prices (or lower quality) brought by restriction. 5. Two sides of Exon-Florio are worth noting. On the “openness” side, the authority has been used in only a couple of minor cases, and U.S. IFDI policy has remained largely inoffensive except for continuing disputes about foreign qualifications for government R&D subsidies. Indeed, the legislation served to block far more restrictive proposals for blocking IFDI from Japan unless Tokyo matched the historical U.S. degree of access for IFDI. On the “closure” side, there are no guarantees against use of the power granted to the president should the climate of domestic opinion in the United States make it tempting to do so. 6. China recently attempted to introduce national treatment, not so much to protect foreign investors as Chinese competitors and tax collection. The absence of an accepted standard for the treatment of IFDI led to many incentives available only to foreigners and hence to the “round-tripping” of investment: Chinese capital exported to foreign affiliates and then reimported as “foreign” (United Nations, 1995:59). Other recent changes include the 1994 “Industrial Policy for the 1990s,” the June 1995 new foreign investment policy that limited the establishment of new labor-intensive enterprises and promoted relocation to inland regions, the 1996 abolition of tariffs on imports of capital equipment by foreign affiliates up to the value of their investment (United Nations, 1996), and the 1996 steps to standardize foreign exchange practices for indigenous and foreign enterprises (Shindo, 1997).

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4

Who Got What and Why: Constructing North American Free Trade The North American Free Trade Agreement (NAFTA) generated interest and controversy unlike any previous trade agreement. The negotiation and ratification processes subjected political leaders to the push and pull of powerful and often contradictory political pressures so intense that agreement on the various trade issues was nearly impossible. Leaders were caught between the strong concerns of contending domestic interests and equally strong international interests of the state. Although the negotiations created a trilateral market, most of the debate and controversy in the United States concerned trade with Mexico. A free trade agreement (FTA) negotiated with Canada in 1988 had generated relatively little controversy. Free trade with Mexico, however, raised a host of thorny issues, like possible U.S. job flight to the lower wage labor market in Mexico, that were not present in the U.S.-Canada negotiations. The resulting dilemma for U.S. policymakers and the extensive bargaining that led to its resolution in late 1993 are not easily captured by conventional analytical approaches. As Andrew Moravscik (1993b) and Helen Milner (1998) note, systemic theories of realism and liberalism point to considerations of relative power and the impact of international institutions on state preferences and action. By tending to conceptualize the state as a unitary actor, however, such approaches are less helpful in capturing the domestic context of international negotiations. Recent scholarship on the sources of domestic distributional coalitions and trade policies (e.g., Keohane and Milner, 1996; Milner and Rosedorff, 1997; Alt et al., 1996) has helped to fill this gap. But such approaches have been less useful in capturing the bargaining dynamics between state and societal actors that shape international economic negotiations (Friman, 1998). How were U.S. policymakers able to achieve the negotiation and ratification of NAFTA despite contending pressures? Robert Putnam’s (1988) two-level game metaphor calls attention to the means by which political 87

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leaders reconcile domestic and international constraints and opportunities in international negotiations. Drawing on Putnam, in this chapter we argue for focusing on NAFTA as a two-level bargaining game. We contend that the interaction between the international and domestic levels of the NAFTA negotiations shaped the agreement and influenced the prospects for its ultimate ratification.1 Political leaders in the United States “simultaneously exploit[ed] both levels” (Moravcsik, 1993b:17), invoking side payments and, to a lesser extent, utilizing generic goodwill to obtain the necessary support for the agreement. The chapter’s first section offers an overview of the NAFTA negotiations. The second briefly places the two-level game argument in the broader context of conventional analytical approaches. The third and fourth sections explore the dilemmas created by the domestic context of the NAFTA deliberations in greater detail. The final section turns to the bargaining methods through which U.S. leaders resolved the constraints and opportunities of the two-level game. The NAFTA Trade Regime

President George Bush announced plans to negotiate an FTA with Mexico in June 1990. The announcement followed six months of informal discussions and a formal request in June from Mexican president Carlos Salinas de Gortari. For President Salinas, such an agreement would prevent Mexico from becoming an economic backwater as trade blocs emerged in other parts of the world and would lock in the ambitious economic liberalization policies he began in the mid-1980s. The United States also had a stake in an agreement, not only because it promised new commercial opportunities for U.S. firms, but because it could lead to a more prosperous and politically stable neighbor. By the time the talks got under way a year later, Canada also had decided to participate, creating a prospective market equal in size to the European Community (EC) and the European Free Trade Association (EFTA) combined. Formal negotiations were completed in mid-August 1992, although it was several weeks before legal experts finished drafting the final text (for a summary, see NAFTA, 1992). The final draft called for tariff reductions over periods of five to ten years for most products and fifteen years for the most trade sensitive ones. It also spelled out detailed rules of origin, more open government procurement procedures, certain investment guarantees, a relaxation of Mexican restrictions on foreign participation in its energy and financial sectors, and procedures for settling disputes. In addition to the tariff reduction schedules, the agreement eliminated import prohibitions, quotas, and licenses, although each country retained the right to impose border

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restrictions in some circumstances. For example, restrictions were allowed to protect human, animal, and plant life, or to protect health and the environment. Special rules were negotiated to liberalize trade in the politically sensitive sectors of automobiles, textiles, and agriculture and merit additional discussion here. For example, provisions for trade in automobiles included complex tariff-reduction schedules as well as extensive rules of origin. Canada and Mexico were to reduce tariffs on imports by 50 percent immediately. Their remaining tariffs, nontariff barriers, and Mexican restrictions on used-car imports were to be phased out over the next ten to fifteen years. The United States was required to reduce tariffs on Mexican light trucks immediately to 10 percent, with the remainder to phase out over five years. Tariffs on all other vehicles from Mexico were to be eliminated over ten years. Origin rules specified that passenger cars, light trucks, engines, and transmissions must have at least 62.5 percent North American content. With few exceptions, the agreement required a 60 percent regional content for all other vehicles and parts. Through what is known as a “yarn forward” rule of origin, NAFTA provisions also required that most textile products (fabrics and apparel) be manufactured from yarn produced within the trade bloc to qualify for free trade benefits. Textiles using nonregional fabrics that are in short supply in the North American region (e.g., silk, linen, and some shirting fabrics) came under a “fiber forward” rule and were still able to qualify for North American origin. Textile and apparel producers also were allowed special protection when faced with serious damage from increased imports. The protection could be in the form of quotas, when the products did not conform to regional rules of origin, or tariffs when they did conform. U.S. quotas on Mexican textiles that conformed to the rules of origin were to be eliminated immediately and gradually phased out when they did not. The agricultural provisions of NAFTA were the most extensive.2 Fiftyseven percent of the value of bilateral U.S.-Mexican agricultural trade fell under rules requiring immediate liberalization. Another 6 percent was to be phased in over a period of five years, whereas the more sensitive products were given ten- and fifteen-year transition periods. About 94 percent of bilateral trade in farm products (including field and horticultural crops) were to be traded freely after ten years (see APAC, n.d.; Hufbauer and Schott, 1993:47). Special transition rules applied for the most trade sensitive products, including the selective use of “tariff-rate quotas” (APAC, n.d.:4–5). The agreement also included a special safeguard provision, known as “snap-back,” allowing the reimposition of tariffs to protect against the damaging effects of import surges. Of the three sectors, agriculture was the most protected and heavily subsidized and, as a result, the most contentious issue in the U.S.-Mexican

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negotiations. Though automobiles and textiles also would raise problems for negotiators, the broader issues of labor and the environment rapidly emerged as challenges to the negotiations. Contention over labor issues rested on fear in the United States of possible loss of jobs and depression of U.S. wages. Environmental issues, which never before had been prominent in trade negotiations, emerged in NAFTA largely because of concern that environmental degradation along the U.S.-Mexican border would spread throughout the region if no rules were written to prevent it. In each of these issue areas, entrenched and well-established groups comprised some of Washington’s most powerful organized lobbies. It is no surprise that these groups became formidable forces in both the negotiation and ratification of the agreement. Reconciling these diverse domestic interests with the country’s larger and often conflicting international trade interests presented U.S. trade negotiators with a difficult task. Drawing on Putnam (1988), we contend that insights into this reconciliation lie in analyzing NAFTA as a two-level bargaining game. Logic of the Two-Level Game

Bargaining remains underexplored by the international political economy literature. Even as scholars move toward greater theoretical integration of domestic and international politics, interest in international bargaining has failed to spark similar curiosity in bargaining on the domestic level and bargaining linkages between the two levels. The central contribution of the two-level game framework in this context lies not only in the recognition that leaders “are constantly playing in the domestic and international areas simultaneously” (Milner, 1998:4) but that they are bargaining in both as well. The two-level game framework moves beyond systemic theories that assume states as unitary actors as well as “additive approaches” that explore domestic politics—especially distributional coalitions and domestic institutions—as a secondary influence on state preferences and actions (Moravscik, 1993b:5–15). For example, realist and liberal arguments, such as those posed by neorealists and neoliberal institutionalists, call attention to considerations of relative power and international institutions as shaping state preferences and actions (e.g., Grieco, 1990; Keohane, 1989; Baldwin, 1993). Though influencing political leaders, such considerations fail to adequately explain either the dilemma of contending international and domestic pressures faced by policy makers or the nature of its resolution. Additive approaches that relax the assumption of the state as unitary actor help to provide insights into the contending pressures facing political leaders but still fail to adequately capture the dynamics of bargaining. For

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example, interest in the economic and institutional sources of distributional coalitions has emerged as one the most “active areas of work” in trade policy scholarship (e.g., see the literature review in Alt et al., 1996). Models of factor specificity and transactions costs help to explain why societal coalitions emerge seeking free trade or protectionism. Nonetheless, this scholarship falls short in discounting the ability of political leaders to sway the interests of coalition members and mobilize countervailing coalitions (Friman, 1998). The two-level game framework explores the interactive nature of bargaining on the international and domestic stage.3 At the international level (Level I), state representatives forge a draft agreement. The document is tentative in the sense that it must be acceptable to important domestic constituencies (Level II), whose concurrence is needed to win ratification. The dynamics of the two-level game are such that what occurs at Level I may echo across the Level II political landscape, sometimes increasing the prospects for ratification and other times diminishing them. Conversely, the particular configuration of coalitions and preferences at Level II helps mold the bargaining positions and strategies of negotiators at Level I. Expectations by Level I actors about prospects for ratification help to determine the parameters within which draft agreements are considered. Because the agreement cannot be amended at Level II without reopening the negotiations at Level I, failure to gain acceptance of the agreement at Level II can doom the agreement altogether. Knowing this, negotiators always must be aware of the constraints imposed on them in Level I deliberations by Level II constituencies. The results of interactions between the two levels define the win-set: “the set of all possible Level I agreements that would . . . gain the necessary majority among Level II constituents when simply voted up or down” (Putnam, 1988). Wider win-sets enhance the prospects for ratification because the win-sets of each side are more likely to “overlap.”4 Negotiators do not simply react to the dictates of Level II in the negotiation and ratification processes. They instead adopt bargaining strategies to manipulate the size of the win-set. Putnam (1988:450–451) discusses side payments and generic goodwill as two strategies that negotiators employ to win support.5 Side payments are inducements in the form of compensatory measures or concessions. The skilled Level I strategist offers side payments not to the already committed, such as confirmed free traders or die-hard protectionists, but to the marginally committed or the uncommitted. These individuals and groups comprise the swing votes that can provide the margin of victory in the ratification process. In contrast, “goodwill” is less a strategy and more a “general condition reflecting past behavior” (Friman, 1993:391) that can be exploited by political leaders to enhance the cohesion among members of support coalitions. Publicity efforts and public appear-

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ances offer a means for leaders to shape public opinion in favor of negotiation and ratification (Putnam, 1988:451). In the remainder of this chapter we explore the win-set faced by U.S. leaders during the NAFTA deliberations and the bargaining devices that the Bush and Clinton administrations employed to facilitate its expansion. Dilemmas Created by Level II Coalitions and Preferences

As Putnam (1988:442) argues, ratification of international agreements often “pits the proposed agreement, not against an array of other (possibly attractive) alternatives, but only against ‘no agreement.’” Such was the case with NAFTA, whose ratification pitted the market opening advocates against those supporting the status quo. In order to identify and understand the forces that shaped the size of the win-set for a Level I agreement, each of these opposing sides in the debate is examined to determine the particular “distribution of power, preferences, and possible coalitions among Level II constituents” in the two-level game. The idea of a free trade agreement with Mexico was consistent with the free trade policy of the Bush administration; Bush had been pressing Mexico for some time to liberalize trade. Initially, however, the U.S. bureaucracy was divided over whether to push ahead with formal negotiations. The Office of the U.S. Trade Representative (USTR) and the Department of Agriculture expressed reservations about moving forward at a time when very difficult negotiations were ongoing in the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). The USTR was especially sensitive to the extensive groundwork that was necessary and the protracted talks that would ensue in such negotiations. The Department of Agriculture was intensely focused on the goal of eliminating farm support programs within the framework of a revised GATT and thought a parallel set of negotiations would be a distraction. Bureaucratic support was strongest within the National Security Council and the Departments of State, Commerce, and Treasury. Eventually, the USTR and Agriculture came to see the negotiations as a complement to the GATT talks. By the time the agreement was unveiled on August 12, 1992, President Bush had solid backing within the bureaucracy. Outside the administration, support for the agreement was strongest among business leaders. Just after the agreement was signed, a poll of business executives showed 72 percent in support of NAFTA (Journal of Commerce, 1992:12A). A broad coalition of business leaders joined the Opening the Market

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administration in promoting the agreement, led by the U.S. Chamber of Commerce, congressional supporters (mostly Republicans), a variety of agricultural groups, prominent economists, Hispanic groups, and some environmentalists. The market-opening coalition contended that the agreement would have long-term positive effects on U.S. job creation and economic growth. The coalition had formed during the previous year’s battle over congressional approval for the extension of “fast-track” authority. Such authority in a trade agreement requires Congress to consider the treaty in an up-or-down vote, without amendment, and within a specific period of time. Defeat on fast-track probably would have doomed the negotiations even before they got under way. Thus, for supporters of a free trade agreement, the fast-track vote in effect became a referendum on the agreement itself. Recognizing the importance of the fast-track vote, “corporate America assembled a virtual lobbying Who’s Who, including corporate chiefs from American Express Co., Eastman Kodak Co., Procter & Gamble Co. and many other blue-chip concerns” (Abramson, 1991:A16). As one business lobbyist stated, “we’ve never had a trade issue that has been this hot. It’s quite a donnybrook” (Abramson, 1991:A16). Business supporters formed an umbrella organization, called the Coalition for Trade Expansion (later changed to USA-NAFTA Coalition), that included more than 500 corporations and lobbyists. Five key business trade associations were represented in this coalition: the Business Roundtable (representing more than 200 major corporations), U.S. Chamber of Commerce, Emergency Committee for American Trade, National Association of Manufacturers (whose members account for 85 percent of U.S. manufacturing output), and National Foreign Trade Council (Abramson, 1991:A16). Also supporting the agreement was the Council of the Americas, which represents U.S. business interests in Latin America (Wiarda, 1994:121). Much of the supportive infrastructure for NAFTA was provided by an extensive private-sector advisory system, first mandated by Congress in the Trade Act of 1974. The purpose of the advisory system was to facilitate consultation between the executive and domestic interests in the shaping of trade policy and to form a base of support for the policies formulated. Coordinated by the USTR, approximately 1,000 advisers are involved in a system that is similar to Stephen D. Cohen’s (1988:125) description of U.S. trade policymaking as a “multilayered pyramid of lobbying activity.” At the top of the pyramid is the Advisory Committee for Trade Policy and Negotiations (ACTPN), comprising forty-four members, mostly top business leaders, representing a cross-section of the United States’ major economic sectors. The second level comprises seven committees charged with providing sector-specific advice, such as industry, agriculture, labor, and the like. A third level includes the numerous technical and sectoral advisory

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committees that provide the detailed information needed to assess the likely impact on specific sectors of trade policy. Although the USTR is not required to follow the recommendations, the committees must be informed of all “significant departures” and their views are communicated to Congress. Altogether, this advisory system submitted thirty-seven reports on NAFTA. The report of the most senior panel, the ACTPN, strongly endorsed NAFTA, with only the labor representatives dissenting. James Robinson III, chair of the panel and head of American Express, stated that the trade agreement would “enhance the international competitiveness of U.S. companies” (Japan Economic Institute, 1992:4). He further praised the Bush administration for working closely with the private sector in the NAFTA negotiations, noting that nearly 1,000 meetings had been held with trade negotiators and government officials (Japan Economic Institute, 1992:4). In Congress, a bipartisan coalition formed in both chambers to provide majority backing for fast-track authority. Although predominantly Republican, key members of the Democratic leadership voted for the extension, including House Majority Leader Richard Gephardt (D-Mo.) and Ways and Means Committee Chair Dan Rostenkowski (D-Ill.). Both Gephardt and Rostenkowski expressed sympathy with the skepticism of opponents and stressed that their support was conditional, pledging to fight the treaty later if it was “not good enough.” The House vote was 231 to 92, with only ninety-one Democrats voting in the majority (Washington Post, 1991d:A26). The vote was similar on the Senate side: twenty-three Democrats joined thirty-six Republicans in a 59 to 36 vote to defeat a resolution to deny fast-track authority. Senate Finance Chair Lloyd Bentsen (D-Tex.), a key supporter, called the vote “a great win for American leadership in world trade” (Washington Post, 1991e:A4). In general, however, congressional support among Democrats for the agreement was lukewarm. Later on, even their party’s presidential nominee, Bill Clinton, expressed only modest support for the agreement. Moreover, since both congressional votes were on resolutions simultaneously extending fast-track to NAFTA and the GATT, some votes no doubt were directed as much toward preserving fast-track authority for the more popular GATT negotiations as toward promoting NAFTA. Throughout the negotiations, agricultural support for the agreement was mixed, reflecting the great diversity of interests in U.S. agriculture. Nowhere, perhaps, was this diversity more evident than in the Agricultural Policy Advisory Committee (APAC), one of the sector-specific advisory committees within the president’s private-sector advisory system. APAC played an important role in the negotiations, largely because of the broad

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range of farm interests and groups it represents. It served as a forum in which farm groups could express their views on the various agricultural issues that emerged in the negotiations (Boutwell, February 4, 1993). And although APAC could never speak with one voice on all issues, reflecting as it does the fragmented nature of U.S. agricultural interests, it did provide a significant base of support for the agreement. In its report to the USTR, APAC concluded that “the proposed NAFTA agreement provides long term net export growth opportunities for U.S. agriculture and is in the economic interest of the United States” (APAC, n.d.:1). Recognizing that all trade agreements have winners and losers, it acknowledged that its objective of export growth opportunities could not be achieved for every commodity. Among the strongest agricultural supporters of the accord were grain producers. The reasons for this support were simple and straightforward. In virtually every grain commodity, U.S. farmers already had a commanding lead in trade with Mexico, and lowering trade barriers was expected to produce even more opportunities for grain exports. E. W. F. Peterson (1991:27) claimed that NAFTA would lead to increased U.S. grain exports “even if . . . markets are only partially liberalized.” According to the Wall Street Journal (1992a:A2), U.S. corn exports to Mexico, which stood at more than 1.3 metric tons in 1991, “could easily double under free trade.”6 It is thus no surprise that two of the staunchest members of the market-opening coalition were the National Corn Growers Association and the U.S. Feed Grains Council. Shortly after the agreement was announced, the council’s director of trade relations stated that NAFTA “is going to be very positive for us” (Christian Science Monitor, 1992:6). Many grain-belt congressional representatives were equally positive toward NAFTA. In the Senate debate on fast-track, Senator Max Baucus of Montana expressed a view held by many midwestern senators when he noted that his state had much more to gain than lose in the agreement, because of the boost it would give to exports of grain and other farm commodities (Washington Post, 1991e:A4). Mexico already accounted for some 10 percent of U.S. feed grain exports, and this percentage was almost certain to grow as Mexican beef and poultry industries expanded (Christian Science Monitor, 1992:6). One of the United States’ largest farm organizations, the American Farm Bureau Federation, representing a large number of farmers in grainproducing states, invested considerable time and effort in support of the agreement. The bureau commissioned a four-volume study of NAFTA’s impact on various agricultural sectors (see American Farm Bureau Federation, 1991) and sponsored four study missions to Mexico by about twenty representatives of their state organizations. The conclusion reached was that U.S. “agriculture had less to fear than some people thought” (Drazek, February 3, 1993). The bureau became very active in supporting

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fast-track authority and ratification, even organizing a coalition of supportive groups to lobby Congress. The bureau decided early in the negotiations to oppose all exemptions in the accord. Farm Bureau officials wanted to avoid what had happened in the free trade agreement with Canada, in which large product groups (dairy, peanuts, cotton, sugar, and sweeteners, known as Section 22 products) were excluded from free trade provisions. They argued that if the United States tried to exempt such products, for example, as fresh fruits and vegetables, Mexico would almost certainly protect corn. The bureau opposed all exemptions in order to gain access to Mexico’s grain markets. As noted by a spokesman for the bureau, “we wouldn’t have much of an agreement, if we allowed the exceptions” (Drazek, February 3, 1993). The market-opening coalition included several additional sources of support that warrant mention: the American consumer (or public opinion), Hispanic groups, mainstream academics (especially prominent economists and Latin American specialists), and some environmental groups. Most public opinion polls showed fairly broad support for free trade with Mexico, although that support slipped some as the recession tightened in 1992 and opponents became more vocal (Facts on File, 1992:582). Favorable public opinion created some space to build congressional support in the crucial battle for fast-track authority and later in the vote on the agreement itself. Economists and Latin American specialists argued that all parties would benefit from free trade and noted that virtually all quantitative studies of the likely effects of NAFTA supported their view (Wiarda, 1994:122). Hispanic groups supporting the agreement formed an umbrella organization, the Hispanic Alliance for Free Trade, that sharply criticized organized labor and Democrats for opposing the pact. Many environmentalists opposed the treaty, but some did not. The largest U.S. environmental group, the National Wildlife Federation, early on voiced qualified support for “fast-tracking” the agreement. In fact, as a member of one of the seven sector advisory groups (investment), the federation worked closely with the Bush administration to ensure that the agreement would have adequate environmental safeguards. Nonetheless, a federation spokesman warned that, if they were not satisfied with the safeguards, “we are fully prepared to join the fight” against a treaty (Washington Post, 1991a:A4). From the beginning, environmental groups were concerned about Mexico’s existing environmental problems, especially in Mexico City and along the U.S.-Mexico border. The New York Times (1991:1) described the air in Mexico City as “an unequaled collection of atmospheric poisons.” In the border area, rapid and unplanned industrial development, spurred by Mexico’s expanding maquiladora program, had produced contamination of water, careless and improper toxic waste disposal, and

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extensive degradation of air quality.7 Environmentalists feared the free trade agreement would accelerate investment and production along the border, exacerbating an already serious problem. Concern too was expressed about Mexico’s lax enforcement of its environmental laws. It was argued that U.S. firms would move south to avoid tougher laws and enforcement in the United States and Canada. Early in the negotiating process, President Bush sought to assuage these concerns. He promised to address environmental issues directly in the treaty itself and in cooperative bilateral agreements. In the end, a total of six environmental groups, representing about seven million members, became part of the market-opening coalition. Joining the National Wildlife Federation were the Natural Resources Defense Council, World Wildlife Fund, National Audubon Society, Environmental Defense Fund, and Conservation International (Journal of Commerce, 1993). Shared opposition to NAFTA brought together people with otherwise radically different political backgrounds and philosophies. For example, Jesse Jackson, Ralph Nader, and Jerry Brown found themselves in a de facto coalition with Patrick Buchanan and Ross Perot. Most opponents gathered under the Citizens Trade Campaign that included more than sixty organizations representing labor unions, environmental and consumer advocacy groups, some segments of agriculture, Jackson’s Rainbow Coalition, and some religious and civic groups. The coalition claimed to represent over forty-five million people in all fifty states, with operations in thirty-eight states, including field staff in twenty-five states (Citizens Trade Campaign, n.d.). Led by organized labor, in particular the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), opponents began lobbying Congress against fast-track as early as autumn 1990, long before the pro-NAFTA coalition began its push. Arguments against the agreement ranged from loss of U.S. jobs to concern about the reappearance of screwworm infestation in cattle. The vigorous opposition of U.S. labor unions was rooted in fear that hundreds of U.S. companies would relocate in Mexico to take advantage of cheap labor. Thus, despite White House claims that free trade would create 44,000 to 150,000 new U.S. jobs, the AFL-CIO charged that “tens of thousands” of jobs would flow to Mexico (Wall Street Journal, 1991b:A14). Economists for the Economic Policy Institute, a labor-supported research body, claimed that, because of increased investment in Mexico, “550,000 fewer high-paying jobs will be created in the United States with the trade pact than without it during the next 10 years” (Washington Post, 1992:A12). At one point, the institute issued a report claiming “that 7.4 Protecting the Market

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million manufacturing jobs currently located in the United States are vulnerable [emphasis in original] to relocation to Mexico” (Lee, 1992:3). A top AFL-CIO official called the agreement “a bad deal for American workers, consumers, and the long-term health of the American economy” (Washington Post, 1992:A13). Perot and his organization, United We Stand America, echoed many of labor’s arguments. He coauthored a book (with Pat Choate, 1993) criticizing the agreement, arguing among other things that U.S. jobs would be lost to Mexico partly because of large differences in wages. In a published debate between Choate and Deputy U.S. Trade Representative Rufus Yerxa, Choate cited figures showing Mexican workers earning one-seventh the wages of U.S. workers (Washington Post, 1993:C3). Choate further contended that “by Mexico’s own estimates, investors gain $15,000 or more per U.S. job that is shifted to Mexico.” Choate concluded that “for U.S. companies undecided about moving to Mexico, NAFTA removes the remaining impediments and doubts.” In addition to fears of job losses, labor leaders charged that NAFTA did not protect worker rights and workplace standards in Mexico. They insisted on the use of trade sanctions should Mexico fail to respect labor rights to organize and bargain collectively. Labor further demanded that sanctions be permitted to force “the establishment of strong workplace health and safety standards, appropriate minimum wage structures, the elimination of child labor, a prohibition on forced labor, and guarantees of non-discrimination in employment” (AFL-CIO, n.d.:3).8 Among other labor demands was “a prohibition on transferring work or workers across borders in the event of a labor dispute, and a prohibition on trade while a labor dispute is in progress” (AFL-CIO, n.d.:5). Many of the major environmental groups in the U.S. opposed the agreement on grounds that Mexico’s environmental laws were weak or nonexistent in most cases and not vigorously enforced in others. For example, the Sierra Club and Greenpeace pointed out that Mexico had no standards regulating emissions from paint coatings and solvents, whereas tough rules in California required cutting solvents by 93 percent in 1996 (Christian Science Monitor, 1991b:2). They argued that such differences in environmental standards would greatly accelerate job flight from U.S. companies under free trade. A spokesman for Friends of the Earth, responding to the Bush administration’s claim that tougher Mexican environmental standards will follow economic growth, stated: “The president’s plan is flawed. What he is saying is that Mexico’s environment will get better only as they get rich. . . . The president is throwing a party and hoping you collect enough at the door to buy a vacuum cleaner” (Christian Science Monitor, 1991b:2). Organized labor and certain advocacy groups (e.g., Nader’s Public Citizen) joined with environmentalists in raising concerns about the agree-

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ment. Labor’s alliance with environmental groups was “a somewhat strained marriage of convenience,” given its past record of opposing environmental controls on U.S. industries on grounds that they would cost jobs (Wiarda, 1994:125). Public Citizen was one of the most active and outspoken leaders of the status quo coalition, claiming that the trade pact would force the United States to abandon its own laws protecting health and the environment. Nader warned that U.S. “laws on pesticide residues in food, contaminated food, and disposal of hazardous waste” would be victimized by free trade with Mexico (Wall Street Journal, 1991b:A14). Lori Wallach, a staff attorney for Public Citizen, in congressional testimony on NAFTA, raised another objection to the agreement. She argued against the treaty because “rules are set and disputes are settled in an entirely anti-democratic fashion by unelected, unaccountable trade bureaucrats lobbied heavily by industry interests” (U.S. House of Representatives, 1991:39). Agricultural groups in the status quo coalition tended to be linked to specific commodities. Among those most opposed were sugar, dairy, cotton, and peanut producers. In the agreement with Canada, they won a hardfought battle for exemption from liberalization. In NAFTA, however, they were subjected to gradual market opening requirements that, over some years, would completely liberalize trade with Mexico. Even though peanut and sugar producers were given the longest transition time (fifteen years), their opposition to the accord remained strong. Peanut growers even threatened an expensive television campaign to warn U.S. consumers of “danger” from imported peanuts (Business Latin America, 1992:316). U.S. farmers who faced the greatest potential threat from trade liberalization were fresh fruit and vegetable growers in Florida and California. The existing system of “complementary tariffs” imposed duties on Mexican imports during the U.S. harvest season, then dropped off to little or nothing for the rest of the year, thus protecting U.S. growers from head-to-head competition with cheaper Mexican fruit and vegetables (Wall Street Journal, 1991a:A23). NAFTA would eventually uproot this protective tariff arrangement. For this reason, Florida farmers, especially those who grow oranges for juice concentrate, fiercely opposed the trade agreement, insisting that all winter fruit and vegetables be exempted. They provided more than half the nation’s supply of winter produce crops but shared a growing season with Mexico. Dan Gunter, head of the Department of Citrus for the state of Florida, stated: “If Mexico is given duty-free entry into the U.S., Florida orange juice will be but a memory” (Christian Science Monitor, 1991c:1). Among California growers, tomato and avocado producers mounted the stiffest opposition. California accounts for about 90 percent of U.S. processed tomatoes but could be damaged by imports from Mexico where farm laborers are paid only about $4 per day (Christian Science Monitor,

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1991c:2). Other products in a similar situation were broccoli, cucumbers, table grapes, and peppers. The California Tomato Growers Association pressed for a transition period of more than twenty years, including snapback protection. The issue for avocado growers was loss of a total ban on avocado imports from Mexico dating back to 1914. Lifting the ban would mean about $100 million in Mexican avocado exports to the United States, and the U.S. consumer would see an immediate and dramatic drop in price. During NAFTA negotiations, California avocado farmers insisted on retaining the ban, saying that no transition period was slow enough for them (Los Angeles Times, 1992:D1). Agricultural opponents to free trade with Mexico had two important allies: the National Farmers Union and a majority of congressional Democrats. An organization representing about two million family farmers, the union was an eager participant in the status quo coalition against NAFTA (Dunn, February 4, 1993) and a traditional source of solid electoral support for the Democratic Party and its candidates among farm constituencies. Although some prominent Democrats gave qualified support for the agreement, most Democrats in the House and Senate did not. In addition, Democrats were reluctant to go against unified labor opposition to NAFTA. At one point during the congressional debate over fast-track, even the Democratic National Committee (DNC) issued a statement opposing the agreement (Los Angeles Times, 1991a:A1).9 It is clear that the configuration of preferences and coalitions at the domestic level (Level II) divided along distinctive lines, separating those who favored market opening and those who did not. The most significant disagreement among Level II constituencies was over whether a trade agreement with Mexico was better than the status quo. A spokesman for the Farm Bureau put it in precisely those terms: “NAFTA may not be perfect, but it is much better than no agreement at all” (Drazek, February 3, 1993). Others tended to take the opposite position, namely that the agreement suffered “fatal flaws” and was worse than no agreement (Dunn, February 3, 1993). Putnam (1988:444) sees negotiators at Level I using such preference divisions to strengthen their hand in international negotiations. By constantly “looking over their shoulder” at Level II opponents, negotiators may try to squeeze additional concessions from the other side. He cautions, however, that the effect of such Level II divisions may be a reduction of the prospects for reaching a Level I agreement. If either side in the negotiations comes to doubt the ability of the other to deliver on promises made, it can undermine the potential for agreement. The ability to deliver on the deal is Summary

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often profoundly affected by the specific institutional environment within which ratification takes place. It is to that subject that we now turn. Dilemmas Created by Level II Ratification Process

Ratification of international agreements takes place within an institutional context of norms, rules, and procedures that shape the autonomy of Level I negotiators from their Level II constituents. This autonomy affects the size of the win-set. In the United States, for example, the constitutional requirement of a two-thirds majority in the Senate to ratify treaties produces a smaller win-set than “if only a simple majority is required” (Putnam 1988:448). The smaller win-set increases the odds that U.S. negotiators may not be able to deliver on the ratification of the Level I agreement, a development Putnam (1988:438–439) terms “involuntary defection.” To decrease the risks of such defection, U.S. leaders have sought to modify congressional constraints on the ratification process. Fast-track appears as one of the best examples of such a shift. The U.S. Constitution empowers the president to conduct foreign policy, including negotiating trade treaties, but also grants Congress the power to regulate commerce with foreign nations. To deal with this apparent contradiction, Congress and the president have designed elaborate procedures to allow congressional input on trade agreements while still permitting the president necessary leeway to negotiate complex trade agreements. In what are called “fast-track” procedures, the treaty is submitted for ratification to the entire Congress, which is required “to say ‘yes’ or ‘no’ to the whole agreement, in a deadline-driven, limited debate, no-amendment-up-ordown vote” (Paarlberg, 1993:44). Fast-track is intended to protect trade packages from being nibbled away bit-by-bit in long, drawn-out debate and thus minimize the impact on size of the win-set. Fast-track procedures were first authorized in the Trade Act of 1974 and modified to cover a two-year period by the Omnibus Trade and Competitiveness Act of 1988. Fast-track follows a prescribed sequence of steps leading to formal consideration of a negotiated agreement by Congress (Cranford, 1992:2335). First, the president notifies the House Ways and Means Committee and the Senate Finance Committee of his intention to begin trade negotiations with a foreign government. Second, though not required, the president may announce a handshake agreement, allowing him to declare a deal and claim credit before all the actual terms are settled. Third, the initialing of the agreement launches the formal Fast-track

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beginning of fast-track consideration. This serves as official notification to Congress that the president intends to sign an agreement. Fourth, the final agreement must be signed no sooner than ninety days after initialing, allowing some time for additional congressional input. Fifth, consideration by Congress begins after the president has submitted three documents—the actual trade agreement, a draft bill changing existing law to comply with the agreement, and necessary regulatory changes. The president may submit these documents anytime after signing the final agreement, but once submitted, Congress has no more than ninety legislative days to act. Although these procedures are intended to put trade agreements on a fast legislative track, in fact they lay out a slow and deliberate process. The ninety legislative days within which Congress must act include only those days when Congress is actually in session, which could amount to half a year. The first forty-five days are reserved for consideration by House committees, after which the House is given fifteen days to take a floor vote. On the Senate side, fifteen days are set aside for committee consideration, with the floor vote coming within the next fifteen days. Passage of the agreement requires a simple majority vote in both houses. Fast-track procedures offer U.S. trade negotiators a margin of autonomy. The simple majority vote alone is a significant advantage over the twothirds Senate rule for the ratification of formal, nontrade treaties. In trade negotiations, therefore, foreign counterparts are likely to be less wary of commitments made by U.S. negotiators and more confident of their ability to avoid “involuntary defection” on those commitments. Together with the Level II coalitions and preferences described above, these ratification procedures help shape the behavior of negotiators at Level I. The actual strategies that negotiators employ to manipulate the two-level bargaining game also shape the agreement and the prospects for ratification and are explored below. Summary

Manipulating the Two-Level Game

Bargaining lies at the core of the two-level game. As argued by Putnam (1988:450–451), negotiators will target their efforts on the uncommitted and swing voters, focusing on the portions of the Level II constituency capable of providing the margin of victory. The “empirical frequency of such targeting,” Putnam notes, “would be a crucial test of the relative merits . . . of the two-level approach.” In this section we reveal that both the

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Bush and Clinton administrations turned to such targeted side payments and, to a lesser extent, efforts to exploit generic goodwill to expand the win-set for the negotiation and ratification of NAFTA. Throughout the negotiations, administration officials adopted a classic twolevel bargaining strategy of carefully targeted side payments to groups perceived to provide swing support for the agreement. Hoping to win over wavering members of Congress during the 1991 debate over fast-track, Bush sent a ninety-page letter to Representatives Rostenkowski and Gephardt and to Senator Bentsen, specifying a number of concessions including provisions on labor, the environment, agriculture, and sectors such as automobiles and textiles (USTR, n.d.:1–5). On labor issues, Bush promised to push for longer transition periods than those in the 1988 pact with Canada in order to minimize dislocation of U.S. workers in trade sensitive sectors. He promised not to negotiate the issues of labor mobility and existing U.S. immigration laws. Additionally, Bush committed to work with Congress to ensure an adequately funded worker adjustment program for displaced workers and to sign a memorandum of understanding with Mexico providing for joint action on labor standards, health and working conditions, and child labor. Bush delivered on all these promises to a remarkable extent. In the final agreement, U.S. negotiators won fifteen-year phase-in periods for the most sensitive products to ease the transition for U.S. workers. They also were able to get agreement on snap-back to pre-NAFTA tariff levels on sensitive products, where serious injury was present or threatened. A new Consultative Commission on Labor Matters was formed to deal with enforcement of labor laws and regulations. Mexico and the United States also agreed to create new standards for workplace safety and sanitation. And perhaps most important, Bush launched a new $10 billion worker adjustment program to provide training and assistance for displaced U.S. workers (Hufbauer and Schott, 1993:27–30). Bush’s side payments on the environment included a pledge to retain the right to exclude any products that did not meet U.S. health and safety standards. He pledged also to maintain the right to impose stringent controls on pesticide use, energy conservation, and toxic waste. Moreover, Bush promised to pursue, in parallel negotiations with Mexico, a series of joint environmental initiatives, ranging from technical cooperation to an integrated environmental plan to clean up pollution along the U.S.-Mexico border.10 These efforts clearly were designed to widen the administration’s winset in the negotiations. Responding to reporters’ questions about the conThe Bush Administration and Side Payments

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cessions, President Bush stated: “We’re determined to work with Mexico to address the labor and environmental issues that are of common concern” (Washington Post, 1991b:A27). U.S. Trade Representative Carla Hills was even more explicit about the objective of the pledges. She told reporters: “We have listened . . . we have reached out. I have met with groups that have expressed their concern. . . . Our action plan is shaped to respond to those concerns” (Washington Post, 1991b:A27). The concessions on labor issues were significant because they amounted to a complete reversal of previous policy under President Ronald Reagan not to grant special adjustment programs for displaced workers. Representative Rostenkowski promptly expressed his support for extending fast-track authority and stated his belief that many uncommitted members of the House Ways and Means Committee were also impressed with the president’s response to their concerns (Washington Post, 1991b:A27). Senator Bentsen responded by applauding Bush for making “significant concessions” (Los Angeles Times, 1991b:B6). Both Rostenkowski and Bentsen chaired the key trade committees in their respective chambers, and their support was considered crucial. On the House side, Representative Gephardt supported fast-track authority with reservations, despite intense pressure from labor to oppose it. “I think we should try to do a treaty,” he said. But “we retain the right to amend or reject it, if it’s not agreeable to us” (Washington Post, 1991c:A21). Not every source of opposition, however, was won over by the administration’s strategy. Organized labor, especially the AFL-CIO, continued to oppose the agreement. Senator Donald Riegle (D-Mich.), a strong labor supporter whose state was experiencing high unemployment, dismissed the Bush concessions as inadequate. In reference to the president’s letter, he said that it shows the administration “fully intends to side-step these issues. What you’ve got is the generalizations and sophistry that you get when you have a tough problem that they don’t have any intention of dealing with” (Washington Post, 1991b:A27). Some environmental groups, however, were “softened up” by the White House strategy. Leaders of several such groups, including the Nature Conservancy and the Natural Resources Defense Council, agreed to meet with President Bush to discuss their concerns, prompting Ralph Nader to accuse them of selling out (Washington Post, 1991c:A21). Agricultural issues severely tested the Bush administration’s efforts at expanding the NAFTA win-set. An official in the office of the USTR who worked directly on the agricultural negotiations noted that “American agriculture is so fragmented that it is hard to get agreement no matter what you do” (Condon, February 4, 1993). Certainly, this seems to have been true of sugar growers. After months of haggling, U.S. negotiators offered generous concessions but did not meet the sugar producers’ demand for complete

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exemption from trade liberalizing rules. The American Sugar Beet Growers Association promptly rejected the administration’s offer. As their vice president stated, “I can’t see how the safeguards are going to work” (Wall Street Journal, 1992b:A2).11 Florida fruit and vegetable producers reacted to concessions in much the same manner. The Florida orange juice industry was particularly unhappy. Producers had pushed for an exemption and were dissatisfied with both the fifteen-year transition period and the tariff-rate quota they received in the agreement. Their representative on the APAC claimed that if they could not get an exclusion for citrus, at least they should have received a twentyyear transition period with no tariff reductions (APAC, n.d.:16). Tomato growers also complained that their transition period of ten years was too short. Florida’s director of agriculture was said to believe that 400,000 jobs would be lost in Florida agriculture with the free trade agreement (Dunn, February 4, 1993). Some U.S. citrus and vegetable farmers, however, reacted to the concessions differently. California fresh fruit producers were generally satisfied with the concessions they received, but they faced less head-to-head competition with Mexico than the Florida orange juice industry (Drazek, February 3, 1993). The same can be said for Texas fruit and produce growers. Mexican shipments to the United States included exports from farms owned by Texas growers in Mexico; in addition, Mexico and Texas have different growing seasons. These considerations and the administration’s concessions led the Texas Citrus and Vegetable Association (TCVA) to endorse the agreement (Christian Science Monitor, 1992:6). Even though most business leaders were early and consistent supporters of NAFTA, two business sectors (textiles and apparel, and automobiles) received concessions so generous as to warrant separate mention. The textiles and apparel industry lobbied vigorously for even greater protection in NAFTA than it had received in the previous FTA with Canada. Their concession was the “yarn forward” rule noted earlier, requiring items that qualify for regional preferences to be produced from yarn made in one of the NAFTA countries. Automobile and auto parts manufacturers were also big winners. They received rules of origin concessions that “substantially raise the overall regional-content requirements for preferential trade in automotive products” (Hufbauer and Schott, 1993:6). This concession, in effect, created a regional zone of preference for the automotive sector, forcing foreign transplant firms in the three countries to buy more auto components in North America in order to gain duty-free access to the integrated market. Overall, the Bush administration’s negotiating strategy of targeted side payments expanded the president’s win-set with important Level II constituencies. Although the strategy failed to win over organized labor, significant progress was made with key sectors of industry, agriculture, and some

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environmental groups. In addition to the compensations noted above, administration officials used offers of selective access into the trade advisory process in an attempt to influence swing constituencies. This is perhaps best illustrated in the administration’s choice of agricultural groups invited to participate in the APAC. Groups such as the American Farm Bureau Federation and the National Council of Farmer Cooperatives had ready access to the advisory panel, but the National Farmers Union was deliberately excluded. Despite repeated efforts to gain representation on the APAC, the union was rebuffed (Dunn, December 4, 1993).12 Most observers of the initial stages of the NAFTA negotiations believed that the public euphoria over the Gulf War greatly expanded President Bush’s win-set. However, the impact of administration efforts to exploit this goodwill appears to have been limited. Early public opinion polls showed broad support for the president and the free trade pact with Mexico. Democratic strategists, however, saw the agreement as a potentially potent campaign issue in the 1992 elections (Christian Science Monitor, 1991a:2). The strategists were watching unemployment figures climb to 7 percent, corporate profits drop, U.S. auto output slide toward a 33-year low, and the fiscal deficit grow to a record level. Long-time party leader Robert Strauss noted that more and more middle class Americans “are finding their jobs gone, and they cannot replace them in this country. They are getting squeezed” (Christian Science Monitor, 1991a:1–2). Many Democrats wanted to tie the free trade proposal to the jobs issue, claiming that it would export more jobs than goods. The Democratic National Committee passed a resolution opposing the agreement in March 1991, calling it a “disaster for workers” (Los Angeles Times, 1991a:A21). As the 1992 presidential election results showed, the euphoria over the Gulf War faded with the deepening of the economic recession. Whatever generic goodwill President Bush may have earned with the Gulf War did not overcome public concerns about the economy. As the November election approached and he was trailing Clinton in the polls, Bush began pushing his negotiating team to finish a trade deal, hoping it would provide a boost to his campaign. Though resulting in a higher presidential profile on the trade accord, these efforts failed to achieve electoral success. The Bush Administration and Generic Goodwill

By 1993, the fate of the free trade pact had passed to the newly elected president. Candidate Bill Clinton had supported the concept of hemispheric free trade but repeatedly stressed the need to provide “adequate protection The Clinton Administration and Side Payments

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for workers, farmers and the environment on both sides of the border” (Washington Post, 1992:A1). In this regard, his position was hardly distinguishable from that of Representative Gephardt and a great many other congressional Democrats who gave what amounted to grudging support to the agreement during fast-track authorization. Soon after taking office, however, President Clinton outlined a strategy for ratification that was not unlike the strategy of targeted side payments employed by Bush. First, he rejected reopening the pact for renegotiation. Second, he enumerated several unilateral measures he would propose for inclusion in implementing legislation. These measures included broad worker adjustment assistance, funding for environmental cleanup and investments, assistance for farmers, assurances that NAFTA would not impede democratic practices, and prohibition against importing foreign workers as strikebreakers. Third, he pledged to negotiate separate “side agreements” (or supplementals) on labor issues, environmental concerns, and “import surges” (Hufbauer and Schott, 1993:8). Clinton’s pledges read like a checklist of the arguments that had been mounted against the agreement by opponents, many of whom had supported his election. The pledges were carefully constructed to appeal to elements among Level II constituencies that might be persuadable. Unlike the Bush administration, however, Clinton officials relied more on the use of side payments than efforts at exploiting generic goodwill. The new president’s marginal electoral victory in 1992 and the experiences of the Bush administration’s efforts in dealing with Level II constituencies suggested the need for a more concrete approach. The battleground for ratification quickly shifted to the supplemental agreements. Clinton stated that he would not even submit the trade agreement to Congress until he was satisfied with them. The supplemental negotiations began a whole new bargaining game, with dynamics similar to those of the Bush negotiations, involving the same players at Level II, but with a new team at Level I. Clinton’s decision to negotiate side agreements can be interpreted as an attempt to expand the win-set for NAFTA even further by dealing with opponents’ objections in a more formal manner. The obvious advantage in this approach was that the ratification prospects would be on firmer ground, since opponents would no longer have to rely on promises and goodwill in getting their objections addressed. With the side agreements, their concerns would be addressed in binding supplemental accords that would have the same force as the basic agreement itself. Some members of the status quo coalition saw the additional negotiations as a new opportunity to fix what they considered “fatal flaws in the original agreement” (Dunn, February 4, 1993). They hoped that the time needed to negotiate the supplementals would delay ratification long enough for them to muster support within the new administration for their

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arguments. One could see some justification for their hope. After all, key members of the new administration were on record, prior to appointment, either as opposed to the agreement (budget director Leon Panetta) or as having grave doubts about it (economic adviser Laura D’Andrea Tyson).13 Recall too the close political ties between organized labor and the Democratic Party and between farm groups such as the National Farmers Union and Democrats. There was reason to expect that such groups at least would have greater access to the new administration and that their views would be heard.14 Others in the coalition no doubt hoped the new talks would provide a wedge for prying open the entire agreement for reconsideration, a development that would almost certainly kill it (Condon, February 4, 1993). Their rallying theme became “Not this NAFTA!” In a letter to members of Congress shortly after the supplementals were unveiled, for example, the Citizens Trade Campaign (October 14, 1993) wrote: “We ask that you abandon this NAFTA and instruct our nation’s trade negotiators to work with their counterparts to develop a trade initiative which will truly benefit the people of all three countries. This will require that the NAFTA be fundamentally recast.” Representative Gephardt, in a news conference announcing his opposition, used similar language: “I will vote against this NAFTA. The issues are too important and the stakes are too great to pass a deficient NAFTA, and no NAFTA is preferable to a deficient NAFTA” (Gephardt, September 23, 1993). The Clinton team of negotiators, led by the new trade representative Mickey Kantor, were unable to get provisions in the supplementals that were as tough as they had hoped. For example, the labor supplemental did not contain terms that would permit the imposition of trade sanctions on another country for failure to enforce its own labor and environmental laws (see NAFTA Supplemental Agreements, 1993). This had been a key demand of organized labor and some environmental organizations and can be counted among the reasons why they continued to oppose NAFTA ratification. But it would be misleading to portray the accords as failures. Important new mechanisms were agreed upon to monitor each country’s compliance with its environmental and labor laws. Two commissions were set up for this purpose: the Commission for Labor Cooperation and the Commission for Environmental Cooperation. In addition to monitoring compliance, each commission could establish special panels to investigate complaints and to recommend fines or other sanctions. The supplemental agreement on import surges also permitted additional, though temporary, protection beyond those allowed under the snap-back provisions spelled out in the basic agreement. Such protection was designed to deal with large and unexpected surges in imports that might result from implementing NAFTA. Organized labor and many environmental groups criticized the supple-

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mentals and accused Clinton of retreating from promises he had made during the presidential campaign (Levinson, 1993:2–3). In testimony before Congress, AFL-CIO secretary-treasurer Thomas Donahue warned members (especially Democrats) that support for NAFTA would result in loss of labor backing in the 1994 election.15 Greenpeace and some other environmental groups reacted in a similar fashion. Greenpeace stated that “even by modest expectations, the side deal . . . would have to be judged a complete failure” (Greenpeace, n.d.:4). Nonetheless, the environmental side agreement reinforced the support for NAFTA among many of the United States’ largest environmental groups. During fast-track authorization in 1991 environmental supporters had reserved the right to oppose ratification if their core concerns were not adequately addressed. After the basic text was released and the supplementals were negotiated, a majority of leading U.S. environmental organizations endorsed the agreement and worked for its approval in Congress. Stewart Hudson, legislative representative for the National Wildlife Federation, when testifying before the House Ways and Means Committee, stated that his organization thought, early in the negotiations, that trade and environmental issues could never be linked in NAFTA. But over the course of the negotiations, they came to the opinion that “environmental concerns are clearly one of the pillars of the agreement” (Hudson, 1993:1). The Natural Resources Defense Council agreed. Speaking for the council, Justin Ward (October 19, 1993) observed that “much of what we wanted in the agreement all along was included in the side agreements.” Even though Clinton’s manipulation of the two-level game had expanded support for NAFTA among key domestic constituencies, it was still necessary to convince the Congress to ratify the agreement. Nowhere was the battle more intense than in the House of Representatives, where Clinton had to cope with deep divisions in his own party. Even the Democratic leadership was split. Speaker Thomas S. Foley backed the president, but House Majority Leader Gephardt and the Democratic Whip David E. Bonior were both in opposition. Bonior even “whipped” the opposition forces in the House. With the leadership so divided, it was impossible for Clinton to employ the normally effective Democratic Whip organization to line up votes for the agreement. Further, with Democrats facing crosspressures from labor, a presidential appeal for them to vote for NAFTA out of loyalty to him and the party was much less effective. Thus, much depended on the ability of the president to successfully manipulate the bargaining game. Prospects for approval did not look especially promising, almost from the beginning. Opponents were so confident of victory that Bonior claimed to have enough votes to defeat NAFTA several days before it was scheduled for debate. As the day approached, the White House unleashed a

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“full-court-press” strategy of intense lobbying and deal making. To persuade undecided representatives, the president offered a variety of concessions and trade-offs. None of the deals, of course, could amend the basic trade accord or the supplemental agreements. Several bargains, however, did affect certain elements of the agreement. For example, in order to win over some undecided representatives from Texas, Oklahoma, and Florida, Clinton promised “to protect growers of wheat, tomatoes, peanuts and citrus by limiting imports that could depress U.S. prices” (Newsday, 1993:23). Essentially, this deal involved additional monitoring of Mexican imports that might trigger the snap-back mechanism, and was offered only after getting Mexico’s approval. Many of the deals were not very closely related to trade issues. One representative obtained a White House pledge to support a Small Business Administration pilot urban renewal project in his district in exchange for his vote. Another received help untangling federal red tape that was holding up money for a dredging project in his district. Public Citizen blasted the administration for these actions. In a report entitled, “NAFTA’s Bizarre Bazaar: The Deal Making that Bought Congressional Votes on the North American Free Trade Agreement,” they were particularly critical of the deals unrelated to the trade pact (Daily Labor Record, 1993). Public Citizen’s founder, Ralph Nader, denounced the deals as involving “the President in a process of complex sleaze that doesn’t do the republic any good” (Daily News Record, 1993). But the strategy proved to be decisive in some key congressional delegations. Florida’s twenty-three-member House delegation is a case in point. Initially, Representative Sam Gibbons had been the only Florida member to support the agreement. However, after the White House offered concessions to the fruit and vegetable growers, a majority of the delegation switched from against or undecided to support of the treaty. Representative Jim Bacchus stated that “never before have the concerns of Florida agriculture been so comprehensively addressed” (Washington Times, 1993:3A).16 The result of Clinton’s strategy was what many called an impressive victory. When the votes were cast on November 18, 1993, the agreement was approved by a vote of 234 to 200. Democrats supplied only 102 of the votes for NAFTA; Republicans voted 132 to 43 in favor (Cloud, 1993:3174). In order to win, Clinton (and Bush before him) successfully employed a twolevel bargaining strategy of carefully targeted side payments to individuals and groups comprising the swing votes needed for ratification. Conclusion

In this chapter we employed Putnam’s two-level bargaining framework to analyze the negotiations leading to the North American Free Trade

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Agreement. The emphasis has been on the U.S.-Mexico portion of the negotiations, identifying the distribution of principal coalitions and preferences across the U.S. polity that have influenced the negotiations. Attention was given to those coalitions and preferences revolving around agricultural, environmental, and labor issues. The findings show how the trade negotiations were influenced by the intersection of interests and strategies at both domestic and international levels. Both the Bush and Clinton administrations adopted strategies of targeted side payments in order to enhance the prospects for ratification of the agreement. When analyzed in two-level game logic, these strategies can be seen to have expanded the win-set for NAFTA ratification, especially with certain segments of agricultural and environmental groups. In addition to analyzing the trade negotiations, we also demonstrated the utility of Putnam’s two-level approach to international bargaining when compared with more conventional systemic and additive approaches found in international political economy scholarship. The two-level game offers an especially powerful analytic tool for capturing the dilemma created by tensions inherent in the often conflicting interests of national groups and the larger international interests of states. How successful policymakers are in resolving this dilemma depends on their ability to manipulate the twolevel bargaining game. It is not an overstatement to say that when states engage in negotiations, the hardest bargaining is frequently not between the states, but within them. Notes

1. For a more formal application of rational choice arguments in a two-level framework to the NAFTA case, see Milner (1998:206–214). 2. On the separate Canadian accords with the United States and with Mexico, see Cohn (1993). On the broader agricultural context of the NAFTA negotiations, see Avery (1993). 3. The remainder of this section draws heavily from Putnam (1988). 4. In contrast, Putnam also notes that larger win-sets can lead to bargaining disadvantages at Level I. When Level II constraints are portrayed as especially restrictive, one’s negotiating counterparts may extend an additional degree of bargaining latitude. For a more systematic exploration of the “Schelling conjecture,” see Milner and Rosedorff (1997). 5. Bargaining efforts can also focus on shaping the win-set of one’s counterpart through strategies of “reverberation” or expanding the participants in one’s own Level II through the use of “synergistic issue linkage” (Putnam, 1988; Schoppa, 1993; Paarlberg, 1997). For an exploration of additional tactics, see Friman (1993; 1998). 6. Trade in corn, which is probably Mexico’s most politically sensitive farm commodity, would gradually become duty-free over a fifteen-year period, as Mexican import licenses are removed and U.S. export quotas expanded (Wall Street Journal, 1992a:A2).

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7. Mexico’s maquiladora program was set up in the 1960s to improve the nation’s export performance. The program provides government incentives for assembly-oriented manufacturing plants that export almost or all of their production. For instance, the plants are permitted to import components duty-free if the products are then exported. Maquiladoras were required to locate along the border. 8. The Child Labor Coalition also expressed concern about exploitation of child labor under poorly enforced child labor laws in Mexico. 9. The NAFTA divisions along party lines reflected a more general pattern in which the Democratic Party has been less likely to extend unqualified support to free trade as a matter of economic principle than has the Republican Party. The differences lie, in part, in the relative importance of labor and business in each party’s constituency. 10. One concession the president did not make, however, was to require Mexico to clean up its own environment, as some environmentalists had demanded. 11. A representative of a large agricultural group, who requested not to be identified, observed that sugar producers could have ended up with a better deal if they had cooperated with the administration. In his opinion, “they were uncooperative because they wanted to be able to oppose the final draft, which is precisely where they are now.” 12. The record of the Farmers Union, in contrast to the Farm Bureau and the National Council, as an electoral supporter of Democrats and as an organization with a protectionist bent, probably convinced the White House that any effort to coopt it would be fruitless. 13. Before becoming head of the Office of Management and Budget, Panetta had opposed the agreement as a member of the House of Representatives. Tyson, while on the faculty at the University of California at Berkeley, wrote a pointedly negative column on NAFTA that was published in the Los Angeles Times (1991c:D2). 14. The new USTR’s first meeting with a private-sector agricultural representative took place within two weeks of the inauguration and was with Michael V. Dunn, vice president of legislative services of the National Farmers Union (Dunn, February 4, 1993). 15. Such statements prompted President Clinton to denounce labor’s tactics as “roughshod” and “muscle-bound” (Cloud, 1993:3107). 16. For more on presidential deal making in the House vote, see Avery (1996; 1997).

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5

Trade Liberalization and Environmental Regulations: Regional Interests and Ideas in Europe and North America Free trade is an idea that may challenge vested economic interests and entail a compromise with other societal values. Three distinctive features of contemporary in ter national economy and politics are shaping new and notable challenges to interests and values: First are regio nal trade li beralization agreements among countries with very different lev els of income. The second is the growing concern, particularly in high-income countries, for strong environmental measures that include support for stipulations on environmental protection in free trade agreements. Third, in middle-income countries there are conspicuous political changes and policy innovations that create rising expectations about high-income countries’ trade policies and hope for free trade agreements (FTAs) with their more affluent neighbors. The evolving sets of agreements on opposite sides of the northern Atlantic Ocean are the most prominent cases of regional trade liberalization between high- and middle-income countries. At the same time, they typify different ways of institutionalizing trade and environment. In Europe, the European Union (EU) and its fifteen member countries have entered into the Europe Agreements with ten central and eastern European (CEE) countries; the Europe Agreements are association agreements, with stipulations on trade liberalization being the most important part. They have become part of a “preaccession” strategy for the CEE countries and also include extensive stipulations on environmental policy. In North America, Canada, Mexico, and the United States have entered into the North American Free Trade Agreement (NAFTA) that, together with side agreements on environmental cooperation and labor, forms a package that also includes extensive stipulations on environmental policy.

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Regional trade liberalization arrangements may express comprehensive goals concerning political integration, yet the two set of agreements in question are very different in that the NAFTA package does not envision more extensive political cooperation. It is also worth noting that the dispute on NAFTA, above all in the United States, was much stronger than the strife in the European Union on the Europe Agreements. But whatever the differences between Europe and North America on the new institutional arrangements, never have trade liberalization arrangements been attempted between adjoining nations with such divergent standards of living. In North America the border between Mexico and the United States is the long est se parating a developing from an indu stri a lized coun try. In Europe the borders between members of the European Union and the CEE countries represent a similarly extensive geographic dividing line between countries with markedly different per capita incomes. All fifteen members of the EU are high-income countries, whereas nine out of ten CEE countries are upper-middle-income countries. Only the Czech Republic is a high-income country, but with a per capita income that is lower than the least wealthy EU member (Greece) (see Table 5.1). In North America the dividing line is even simpler, with Canada and the United States being high-income countries and Mexico an upper-middle-income country. The economic divisions within Europe and North America are congruent with differences in political structures. The EU countries are well-established democracies, with the three least wealthy (Greece, Portugal, and Spain) having the shortest democratic traditions. The CEE countries are all new democracies, more or less well established. In North America the two high-income countries are old and well-established democracies, whereas Mexico has moved toward a democratic (less one-party dominant) system during the 1990s. With regard to the environmental situation, the dividing lines in Europe and North America are more ambiguous, in part because many environmental problems are simply transboundary. Yet, some pollution problems are definitely worse in central and eastern Europe, where sulphur oxide emissions are markedly higher than in western Europe (Eurostat, 1995:19). In North America, urban air pollution problems in Mexico, particularly in the Mexico City area, and pollution along the Mexican-U.S. border raise serious concerns (OECD Economic Survey, 1992:118ff.; WHO/UNEP, 1992:27, 155–164). Issues of distribution and opposing values usually raised by international trade (Moon, 1996) pose a number of delicate questions that may challenge both vested interests and popular ideas in the affluent societies in Europe and North America. The purpose of this chapter is to study trade liberalization agreements between high-income and middle-income countries in Europe and North America that include environmental stipulations,

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Gross Domestic Product (GDP) in Purchasing-Power Parity (PPP) per Capita ($) in Europe and North America in 1997

Thirteen Most Wealthy European Countries Luxembourg Denmark Belgium France Germany Netherlands Austria Italy Sweden UK Finland Ireland Spain

25,300 23,200 23,000 22,000 21,900 21,700 21,600 20,700 20,700 20,700 19,600 18,700 16,000

North America United States Canada Mexico

29,300 22,300 7,500

Twelve Least Wealthy European Countries Bulgaria Romania Latvia Lithuania Hungary Poland Slovakia Slovenia Estonia The Czech Republic Greece Portugal

4,000 4,600 5,100 5,300 7,000 7,000 7,100 7,400 8,000 10,600 12,500 13,900

Source: The Military Balance 1998/99. Note: According to the World Bank’s criterion for classifying economies, high-income countries have a GDP per capita of $9,656 or more, and middle-income countries have between $785 and $9,655. The latter group is subdivided into lower- and upper-middleincome countries, the upper-middle group having between $3,126 and $9,655 (Global Economic Prospects, 1999: 213).

with a view to assessing the impact of economic interests and political ideas on political alignments in high-income countries. Applying this “interests and ideas” framework means combining an analysis that focuses on objective contextual factors related to defined roles and positions with one focusing on subjective beliefs held by actors. The analysis aims especially at elucidating the interplay between contextual factors (interests) and actor beliefs (ideas) in high-income countries challenged by basic changes in the international society.

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Essentially, I intend to demonstrate four propositions:

Proposition 1: The public choice theory, predicting that the conflict between protectionist sector interests and free trade general interests will dominate the political coalition process around trade liberalization, is inadequate. Proposition 2: Protectionist business sectors form heterogeneous “baptist-and-bootlegger” coalitions with environmental groups opposed to trade liberalization, whereas internationally oriented business sectors promote free trade interests that form the basis of other heterogeneous “green-and-greedy” coalitions with environmentalists. Proposition 3: Environmental worldviews prompt opposition to trade liberalization and result in “baptist-and-bootlegger” coalitions, whereas environmental causal beliefs may motivate support for free trade and result in “green-and-greedy” coalitions. Proposition 4: Due to anticipatory adaptation, trade liberalization between high-income and middle-income countries affects the level of environmental protection by strengthening middle-income countries’ environmental efforts.

The second section of the chapter presents an analytical framework for analyzing the role of interests and ideas in trade policymaking, and the third section describes the main components of institutional arrangements and regulations concerning trade and environment in Europe and North America, including environmental policy changes in middle-income countries. The fourth section focuses on political processes in high-income countries facing free trade arrangements with middle-income countries; the chapter’s conclusion analyzes protectionist and free trade dynamics and reflects on the four propositions that may serve as guidelines for further study of political aspects of trade and environmental relations. The Domestic Politics of Trade Liberalization: Interests and Ideas

The framework for analyzing the role of interests and ideas in trade policymaking is based on a plurality of theoretical approaches and conceptual distinctions. For analyzing the role of interests, the theory of public choice is applied as a starting point. The public choice approach assumes that political actors (states, bureaucracies, parties, interest groups, voters, etc.) are egoistic and rational utility maximizers in their political behavior (Mueller, 1989). Different public choice theories have been elaborated, and most fruitful for analyzing trade policymaking is a theory focusing on the asym-

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metry of the institutional transformation of individual preferences into political decisions. Developed especially by economists (Baldwin, 1989; Cohen, 1990), it shows how the advantages of free trade are diffused among many ano ny mous consumers who each obtain a little benefit, whereas the disadvantages are concentrated on a few producers who are easily identified and each exposed to a marked loss. Because of the highly unequal distribution of the effects of free trade among winners and losers, the few producers have a much stronger motive for organizing, seeking information about their situation, and attempting to influence the trade policymaking process toward protectionism than the many consumers have for influencing policymakers toward a free trade policy. Because political leaders are primarily motivated by their wish for reelection, they are susceptible to demands for protectionist measures, and so there is a built-in asymmetry in the trade policymaking process favoring sectoral economic interests and protectionism against general economic interests and free trade (Krueger, 1990; Nunn, 1996). For a closer elaboration of the role of economic interests in shaping political cleavages, public choice theory will be supplemented by two theories that reach contrasting conclusions. The first asserts that internationally oriented industries in high-income countries have an interest in maintaining a free trade system, suggesting that rising international economic interdependence shapes the basis for countervailing asymmetrical forces in the trade policymaking process (Milner, 1987, 1988). The second points to the importance of the distributional aspects of trade among land, labor, and capital, arguing that advanced economies’ increased exposure to trade influences organizations representing scarce factors of production to oppose free trade agreements with backward economies, whereas abundant factors of production support free trading (Rogowski, 1989). Concerning relations between ideas and trade policies, studies of the role of ideas in economic policymaking processes have ex peri enced a revival in the 1990s as a supplement to interest-based, rational actor approaches, in part because demonstrating the political power of ideas may lead to analyzing power and influence structures behind ideas (cf. Jacobsen, 1995:291). In analyzing ideas, defined as beliefs held by individuals, I distinguish between three types: worldviews, principled beliefs, and causal beliefs (Goldstein and Keohane, 1993:8–11). Worldviews are embedded in the symbolism of a culture and deeply affect modes of thought and discourse; they are entwined with people’s conception of their identity, evoke deep emotions and loyalties, and may thus have a very broad impact on human action. Principled beliefs consist of normative ideas specifying criteria for distinguishing right from wrong, thus mediating between worldviews and policy conclusions; like changes in worldviews, changes in principled beliefs have a profound impact on political action. Causal beliefs are

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about cause-effect relationships deriving authority from the shared consensus of recognized elites; they change more frequently and more quickly than the other two types of beliefs. Applying that distinction, various beliefs have influenced high-income countries’ positions and movement on the trade policy continuum. During the early decades of the Cold War, the United States was a clear advocate of free trade. That policy was closely connected to a set of principled beliefs, often approaching a worldview, of the United States as leader of the free world in the conflict with the Soviet Union. However, during the 1970s, principled beliefs in “fair trade,” often substantiated by causal beliefs based on analyses demonstrating that other countries did not play a fair trade game, increasingly dominated U.S. trade policy and pushed it toward protectionism. There is much talk about how geoeconomics is going to replace geopolitics as the dominant factor in international relations, with an activist and inclusive new trade policy incorporating concerns that include the environment and competition policy as prominent elements. In that movement, rhetorical adaptation to pressures from Congress has been an important factor: it is often difficult to distinguish between a belief in fair trade and rhetorical correctness. Related to this is a special set of causal beliefs revealed in the political use of the theory of strategic trade policy. The theory, developed during the 1980s by economists and political scientists, is based on an observation that recent developments in international economics have resulted in a world differing significantly from the one envisioned by liberal free traders: comparative advantages are not fixed but have become dynamic and may be shaped and manipulated by an activist trade policy (Gilpin, 1987:215–221; Irwin, 1996:207–216; Kuttner, 1996; Moon, 1996). Whatever the validity of these causal beliefs, particularly the claim that the new trade theory requires a new trade policy, the principled belief in managed trade has become very attractive to trade policymakers in the United States, as may be seen in the tendency toward unilateral action in U.S. trade policy since the early 1970s (Bhagwati and Patrick, 1990; Destler, 1992:183–187, 246f.; Krugman, 1987, 1992; Tyson, 1992). In Europe, Germany and the Scandinavian countries and, since the early 1980s also the United Kingdom, tend toward free trade as part of a set of principled beliefs dominating their foreign policy. Since the end of the Cold War, free trade has become connected to principled beliefs in the need to include central and eastern Europe in political cooperation and integration in a “whole and free” Europe. However, France especially has long held a principled belief, connected to an overall view of France’s role in the world, in a dirigiste, protectionist trade policy. Because members from southern Europe believe in a similar policy, the trade policymaking process in the EU is marked by highly divergent ideas. Consequently, agreeing on a trade policy in the EU easily becomes a cumbersome process, dominated

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by the need to reach a compromise in the EU rather than by a need to reach compromises with the outside world (Hayes, 1993:73–121). Focusing on ideas about how trade policies ought to be affected by environmental issues, it is useful to distinguish between two sets of ideas, the environmental perspective and the free trade perspective (cf., for example, Esty, 1994:36f.; Jerome, 1991; Williams, 1993:87ff.). Each contains mixtures of causal beliefs, principled beliefs, and worldviews held in various versions by political actors. An environmental perspective is marked by a causal belief, sometimes expressed as a worldview, that there is a conflict between free trade and protecting the environment. As a principled belief, protecting the environment is ever the superior goal, so that free trade agreements should include stipulations establishing the sovereign right of countries and subnational communities unilaterally to adopt, implement, and enforce stricter rules for environmental protection than trading partners. Otherwise, free trade will result in a “race to the bottom.” Many environmental activists in high-income countries advocate such ideas, sometimes by emphasizing the superior essence of an ecological worldview and their absolute opposition to free trade. Other environmental groups stress principled environmental beliefs but do not automatically equate trade liberalization with environmental damages. To these groups there is no oneto-one relationship between environmental ideas and an environmental perspective on trade and environment relations. A free trade perspective is marked by a causal belief that economic growth connected with free trade increases the possibilities for protecting the environ ment, especially in that growing interdependence between nations strengthens the fight against transnational pollution. This is a principled belief, supported by public choice arguments that free trade rules are ever vulnerable to sectoral interests and the misuse of environmental problems for protectionist purposes by unilateral legislative or administrative regulations. Therefore, free trade ar rangements should constrain envi ronmentally argued exceptions. Besides being espoused by many economists, a free trade perspective is shared by several political actors in middle-income and in traditional free trade countries. As above, there is no one-to-one relationship between free trade ideas and a free trade perspective on trade and environment relations.1 An interesting question in analyzing the politics of trade liberalization concerns the political dynamics of the interplay between interests and ideas. Focusing on different aspects of the relations between societal forces and government leaders, two types of interplay may appear. One type, derived from a public choice perspective, posits a confluence of interests and ideas in the form of heterogeneous coalitions between, on the one hand, economic interest groups capturing “economic rents” (cf. Hoekman and Leidy, 1992) and, on the other hand, environmentalists capturing “ideolo-

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gical rents.” Both push for protectionist measures to be adopted and implemented by the government but for dissimilar motives. One label pinned on this phenomenon is “baptist-and-bootlegger” coalitions (Vogel, 1995:20– 22, 196–217). The other type of interplay starts with the notion that free trade is a collective good: under a free trade regime no person or group can be excluded from sharing in the benefits even if that person’s or group’s products are exempted from the free trade rules, that is, if the person or group is a free rider (Olson, 1965:14f.; see also Kindleberger, 1988:133f.). When it is likely that a free trade agreement may be undermined by growing and widespread demands for exemptions supported by baptist-andbootlegger coalitions, a political leader may approach the problem by displaying political leadership through boosting the economic benefits or the idea of free trade in domestic debate. Table 5.2 summarizes elements of some hypotheses on how interests, ideas, and the interplay between them influence high-income countries’ policies when they face free trade arrangements with middle-income countries. The next section reviews trade agreements and related environmental regulations between high-income and middle-income countries in Europe and North America, which may suggest the actual impact of various interests and ideas. Table 5.2

Hypotheses on Interest and Idea Dynamics in High-Income Countries’ Trade Policies

Protectionist Dynamics

Interests Sectoral economic interests Domestic-oriented industries Scarce factors of production Ideas Environmental beliefs Environmental perspectives Dirigiste and new trade policy beliefs Interplay between interests and ideas Baptist-and-bootlegger coalitions

Trade Liberalization Agreements and Environmental Regulations

Free Trade Dynamics

Interests General economic interests Internationally oriented industries Abundant factors of production Ideas Free trade beliefs Free trade perspectives

Interplay between interests and ideas Political leadership

How are stipulations on trade liberalization and environmental protection included in various in sti tutional ar rangements in Europe and North America? After a review of the relevant parts of the Europe Agreements

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and the preaccession strategy and the NAFTA package, I consider the main features of environmental regulations in middle-income countries. In Europe, two set of stipulations have to be considered: the Europe Agreements and the preaccession strategy. The Europe Agreements are international agreements, whereas the relevant parts of the preaccession strategy are in junctions established by the EU. Since 1994 the Europe Agreements have been presented as a part of the preaccession strategy. Ten CEE countries have entered into Europe Agreements with the EU and its member states.2 Based on a common scheme, the stipulations on trade liberalization are the most important in this context. The progressive establishment of a free trade area is laid down in Title III under the heading “Free Movement of Goods,” providing for a transition period of, at most, ten years. Concerning industrial goods, the transition period is five years for the CEE countries’ exports to the EU and ten years for the EU countries’ exports to CEE countries—that is, the establishment of free trade proceeds asymmetrically. Quantitative restrictions are eliminated immediately for some goods, whereas other so-called sensitive sectors products (coal, steel, and textiles) operate with a transition period of up to six years (cf. Protocol 1 on textiles and Protocol 2 on coal and steel). The parties are allowed antidumping and safe guard measures if imports cause se rious injury to domestic producers or serious disturbances in any sector of the economy; these stipulations, however, are vague because the conditions are indistinctly delimited. Concerning agricultural products, there is to be no free trade allowed: some tariffs will decrease during the transition period, while mainstream items (cereals, beef, lamb, and dairy products) will continue to be protected by the EU’s Common Agricultural Policy (CAP) (cf. Protocol 3). Some restrictions on the CEE countries’ exports to western Europe were lifted at the June 1993 European Council meeting. Still, the Europe Agreements’ stipulations on trade liberalization designate a qualified, or hybrid, free trade system. In light of the ambiguous character of antidumping clauses, the fact that the CEE countries are most competitive in sectors where access to markets in the EU is most restricted, and the fact that the improved market access of June 1993 is most limited in these sectors, the trade stipulations may be termed “the EU hegemonic trade regime” (Guggenbühl, 1995:253; see also Sedelmaier and Wallace, 1996:372–376 and Mastropasqua and Rolli, 1994). As for environmental policy, the Europe Agreements refer to it briefly in Title VI under the heading “Economic Cooperation” and in nonbinding terms. The need for harmonizing the CEE countries’ legislation to the The Europe Agreements and the Preaccession Strategy

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EU’s is mentioned in seventeen different issue areas. The agreements also state that the partners will develop and strengthen their cooperation to combat environmental deterioration, which they consider vital and a priority. The EU’s environmental injunctions to the CEE countries consist of two parts. The first concerns legislation related to the internal market. It appears in the European Commission’s White Paper, published in May 1995, and before that was briefly discussed at a meeting of foreign ministers from the EU and CEE countries. The White Paper forms part of the preaccession strategy of the ten associated countries that was adopted at the European Council meeting in December 1994. It is a guide, listing, in an extensive Annex, twenty-three sectors related to the internal market in which the CEE countries should adapt legislation and administrative regulations to those of the EU. It also includes a forty-three-page review of environmental legislation (Commission of the European Communities, 1995, Annex:214–253). The EU’s environmental policy is presented as essential to the creation of the internal market, both policies being mutually supportive. The basic principles of the Maastricht Treaty’s stipulations on environmental policy and the 5th Community program on environmental policy endorsed by the Council in February 1993 are cited. The legislation and regulations discussed comprise two hundred legal acts that cover a wide range of issues, including water and air pollution, management of water and chemicals, biotechnology, nuclear safety, nature protection, and control of ozone-depleting substances. The second part of the EU’s injunctions, published in a Commission paper in February 1996, deals with approximation to EU environmental legislation not directly related to the internal market, in particular, quality standards for air and water and nature protection (Commission of the European Communities, 1996). Also discussed before publication in meetings between EU and CEE countries, the paper identifies criteria that can be considered in the different phases of the approximation process but also notes that the associated countries must determine their respective priorities. Among these criteria are the relief of imminent dangers to human health, significant transboundary impacts, and most notably, the building of “political support in favor of environmental protection” (Commission of the European Communities, 1996:4). As to the approximation process, both formal compliance with the EU’s environmental laws and practical implementation are stressed. Lastly, the paper notes that in all associated CEE countries “a sound political commitment to approximate their en vi ronmental policy and legislation to that of the EU has been one of the strongest driving forces” (Commission of the European Communities, 1996:9, emphasis in original).

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The NAFTA package consists of NAFTA, signed in December 1992, the North American Agreement on Labor Cooperation, and an environmental side agreement, the North American Agreement on Environmental Cooperation (NAAEC), signed in September 1993. Each entered into force on January 1, 1994. Before reviewing NAFTA, it is worth noting that because Canada and the United States signed a free trade agreement in 1988, NAFTA is primarily a U.S.-Mexican agreement. Moreover, because Mexico re moved many of its trade barriers in the late 1980s and most Mexican products already enjoyed relatively unrestricted access to U.S. markets, the actual free trade innovation in NAFTA is less important than the fact that it goes to great lengths to ensure the rights of foreign investors in Mexico. Thus NAFTA may be seen as a trade and investment liberalization agreement between Mexico and the United States (Blecker, 1996:138; Orme, 1996:129ff.). Trade liberalization under NAFTA operates with a ten- to fifteen-year transition period to free trade, during which tariffs are to be eliminated according to a prearranged schedule envisaging a swift transition to free trade. Thus, when NAFTA entered into force on January 1, 1994, the volume of U.S. exports entering Mexico duty-free increased from 20 to 50 percent, whereas two-thirds of Mexican products entered the United States free of tariffs. At the same time, potentially significant safeguard exceptions in so-called snap-back provisions allow the reimposition of tariffs temporarily to protect specific sectors that suffer substantial losses due to import surges. Also, certain industries are exempted from the general free trade rule, such as Mexico’s oil and gas drilling enterprises and the United States’ shipping industry. Finally, the stipulated rules of origin for different products, among others textiles, automobiles, and some agricultural products, may inhibit the free flow of trade across the three countries’ borders (Avery, 1996; Sousa, 1996:245–247). Three out of fifteen preambular statements refer to the environment. The parties are resolved to The NAFTA Package

contribute to harmonious development and expansion of world trade . . . in a manner consistent with environmental protection and conservation; . . . promote sustainable development . . . ; [and] strengthen the development and enforcement of environmental laws and regulations.3

Stipulations related to the environment are found primarily in the chapters on environmental standards, on so-called pollution havens, and on international environmental agreements. The parties’ right, including the rights of political subdivisions (states and local communities), to select

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their own “appropriate” level of environmental standards over and above international standards is affirmed. However, it is also stated that in establishing its appropriate level of pro tection, each party should take into account the objective of minimizing negative trade effects and avoid arbitrary or unjustifiable distinctions (Art. 712–715). NAFTA includes a provision on pollution havens, stating in hortatory language that it is “inappropriate” for a party to relax its environmental laws as a method of encouraging investment (Art. 1114). Also, NAFTA identifies three traderelated environmental agreements that would generally take precedence over NAFTA and provides for adding other agreements.4 The environmental side agreement reiterates and strengthens many of NAFTA’s stipulations on the parties’ environmental rights and obligations.5 NAAEC establishes different mechanisms to increase cooperation on environmental issues and creates an elaborate organizational structure to handle trade and environmental disputes, including the Commission for Environmental Cooperation (its three components are a council composed of the three countries’ environmental ministers; a secretariat with some elements of independence, or supranationality; and a fifteen-member Joint Public Advisory Committee).6 The central provisions of NAAEC focus on domestic enforcement of each country’s environmental laws to prevent any party from using weak enforcement to induce investments, and it contains an elaborate consultation, evaluation, and recommendation procedure to be followed when one party charges another with failure to enforce its own environmental laws and regulations. In the event of a persistent pattern of nonenforcement by a party, the use of trade sanctions is stipulated, as a last resort, in the form of suspension of NAFTA trade benefits and increases in duty rates on environmentally defective products (Johnson and Beaulieu, 1996:211–223). Thus, even if a country’s failure to implement environmental programs is recognized as an unfair trade practice, the side agreement does not focus on sanctioning a party for failure to enforce its environmental laws but instead on aiding and encouraging—exhorting—a party to do so (Housman, 1995:308). In the same way, it is stated that nothing in the agreement shall be construed to empower a party’s authorities to undertake environmental law enforcement activities in the territory of another party. Altogether, many of the environmental stipulations in NAFTA and the side agreement are ambiguous and devoid of actual substance. Moreover, although the agreements in some ways resemble environmental principled beliefs, they focus on enforcement by each country of its own laws, and there is no stipulated mechanism for promoting an upward harmonization of environmental standards (Esty, 1994; Johnson and Beaulieu, 1996; Makuch, 1994). The central tenet of the environmental side agreement is that it views environmental protection as a competitiveness issue, one piece

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in industrialized countries’ zero-sum competition for world markets (cf. Krugman, 1994). It does not aim at limiting transboundary pollution that might result from trade but at limiting the unfair competitive advantage that might be—as opposed to has been—gained by a party when it fails to enforce its environmental laws (cf. the notion of “environmental dumping”) (Johnson and Beaulieu, 1996:176ff., 252ff., 265–266). In that way, the environmental side agreement displays central ideas about “new trade policies.” Since the early 1990s, the CEE countries’ environmental regulations have been subjected to considerable revision, a revision marked by the fact that the CEE countries are transition economies. During forty years of communism, a central part of these countries’ environmental regulation consisted of administrative measures that set environmental standards often higher than those in western Europe. However, in practice there was a large discrepancy between strict regulations and highly ineffective implementation. Enforcement of environmental standards was regarded as a marginal activity, in part because local authorities and enterprises often received “exceptional” permission to ignore rigorous standards that they had great difficulties in meeting (Cerna and Tosovska, 1995:14; Ministerial Conference, 1994:35–36). Another essential feature of the CEE countries’ poor environmental situation under com munism was the extremely inefficient use of energy (French, 1990:11ff.; Hardi, 1992:8ff.). This was reflected in very high emissions of sulphur oxides (SOx), the most important regional pollutant in Europe that, together with nitrogen oxides (NOx), are the principal ingredient in acid rain. The latest available figures, from 1990, show only the three Baltic countries as having emissions lower than all fifteen members of the EU, whereas three countries (Bulgaria, the former Czechoslovakia, and Slovenia) have extremely high emissions (Eurostat, 1995:19). Within central Europe, heavy pollution is concentrated in the so-called black triangle of southern Poland, the southern part of the former German Democratic Republic (GDR) and nearby parts of the Czech Republic, where brown coal/lignite is used extensively in heavy industries (Carter and Turnock, 1993:4). To combat the environmental problems, CEE countries have often abandoned strict and unrealistic standards for looser and more realistic ones. Combined with a downward revision of high administrative standards as a means to reach higher societal environmental standards has been an increasing tendency to rely on economic instruments. In transition economies like Estonia, Hungary, and Poland, economic incentives are seen Environmental Regulations in Middle-Income Countries

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as a promising mechanism to integrate economic and environmental policies. The change has gone farthest in Poland, where environmental economists early began playing a major role in preparing the country’s environmental policy and applying economic incentives, often much more ambitiously than western governments (European Environmental Agency, 1996:23; Bates, Cofala, and Toman, 1994; Levy, 1993:338). Even so, it is evident that the poor environmental conditions in central and eastern Europe cannot be attributed solely to a low level of income. They are also due to low priority attached to environmental goals under the old political systems. In North America, Mexico’s environmental policy has changed since the late 1980s. This process is closely related to a general change in economic strategy. Mexico’s industrialization for many years was based on import substitution supported by protectionist measures. One result was heavy pollution, most acute in specific regions of the country such as the Mexico City area (Cornelius, 1996:105; Munasinghe and Cruz, 1995:21–22, 52–53). Mexico enacted its first comprehensive environmental law, the General Law of Ecological Balance and Environmental Protection, in 1988. Since 1992, authority to enforce environmental laws and regulations has been vested in El Secretario de Desarrollo Social (SEDESOL) (Hopp, 1994b:247–252; Johnson and Beaulieu, 1996:17–24). Several new environmental programs have been put in place, but they still lack the financial resources necessary to be fully implemented. Enforcement has been stepped up, including the possibility of imposing substantial fines for environmental infractions, and Mexico has quadrupled the size of its environmental inspection corps (Johnson and Beaulieu, 1996:205–206; Pastor, 1993:57–61). Some facilities that caused heavy air pollution in the Mexico City area were closed down, with some reduction in the city’s pollution as a consequence. Another aspect of Mexico’s environmental innovations is an increase in environmental services as parts of Mexican industry have begun developing environmental safety programs (Rotman, 1994; Sissell, 1996). The areas along the Mexican-U.S. border also have seen new environmental programs, partly as a result of the bilateral U.S.-Mexico Environmental Agreement that was signed in October 1993. One major concern in the border area is the so-called maquiladora industry, about 2,000 plants with 550,000 employees, which are exempted from duties on raw materials and other components used in the production of exports to the United States (Hufbauer and Schott, 1992:91–105; Johnson and Beaulieu, 1996:19, 125). The effectiveness of many of these measures can be questioned because Mexico’s environmental policymaking and administration capacity falls below that of richer countries. Thus, records on some new environmental programs have not been made public, and local governments have

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resisted the new national programs for environmental enforcement (Gilbreath and Tonra, 1994:78–79). But compared to the lax state of Mexico’s earlier environmental regulations, the new efforts represent an important departure. As in central and eastern Europe, the actual implementation of a new environmental policy is a long-term matter linked to democratization. Both in Europe and in North America, the new environmental regulations can be explained as a pattern of anticipatory adaptation: middleincome countries seek to strengthen environmental protection in anticipation of concluding free trade agreements with nearby high-income countries (Beukel, 1997:25–26; Haggard et al., 1993:182ff.; Levy, 1993:319ff.). The environmental innovations adopted by middle-income countries suggest the powerful force that free trade agreements—however conditional the actual substance of free trade—may have on environmental reforms in less wealthy countries. As expressed by David Vogel (1995:5ff., 248–270; see also Hopp, 1994b:252), the “California effect,” or a “race to the top,” is a more likely result of such pacts than the “Delaware effect,” or “a race to the bottom.” Table 5.3 summarizes central features of trade liberalization and environment regulation in Europe and North America. Both the Europe Agreements and NAFTA are limited free trade agreements. NAFTA is termed a free trade agreement with “conditions,” primarily because of its safeguard and antidumping provisions. The Europe Agreements have similar stipulations but are characterized as well by stipulations excepting the agricultural sector from free trade. Thus, the Europe Agreements are more Summary

Table 5.3

Regional Trade Liberalization and Environmental Regulations Europe

The Europe Agreements Trade liberalization with provisions Significant sectoral exceptions A few environmental stipulations The preaccession strategy Comprehensive environmental guidelines Approximation to EU environmental regulations Trade and environment relations Trade and environment policies part of overall EU policy structure Anticipatory adaptation: race to the top

North America

NAFTA Free trade with provisions Extensive environmental stipulations

The environmental side agreement Extensive environmental stipulations Obligation to enforce own environmental laws Trade and environmental relations Environmental policy as a competitiveness issue Anticipatory adaptation: race to the top

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restricted as free trade arrangements. As to the environment, the primary difference concerns the requirement that CEE countries as potential members approximate EU environmental regulations, whereas in North America the extensive environmental stipulations are marked by the obligation of each party to enforce its own environmental laws. As to relations between trade and the environment, in Europe they form part of an overall EU policy structure, whereas in North America environmental protection in the trade partner is viewed as a competitiveness issue. In both Europe and North America, trade and environment can be considered as informally linked by anticipatory adaptation, as middle-income countries adopt new environmental regulations to produce positive reactions in high-income countries. These features of trade and environment relations on the two sides of the Atlantic Ocean indicate that improvements in middle-income countries’ environmental policies do not depend on “green” stipulations in agreements on trade liberalization. But improvements are clearly related to the prominence of environmental ideas in high-income countries. In the next section, the political process in high-income countries will be considered. The Political Process in High-Income Countries

In the first part of this section, I consider how the EU institutions and the member countries positioned themselves during the negotiations on the Europe Agreements. In North America, the process in the United States evidently was decisive, and so the second part looks at the Bush and Clinton administrations’ endeavors to ensure congressional approval of the NAFTA package. The interplay between the Council and the Commission is a central feature of the pol icymaking process in the European Union. According to the Treaty on European Union the EU may conclude agreements with one or more states establishing an association involving reciprocal rights and obligations, common action, and special procedures (Art. 238). As to negotiating an association agreement, the Commission shall make recommendations to the Council, which shall authorize the Commission to open the necessary negotiations. The Commission conducts the negotiations in consultation with special committees appointed by the Council and within the framework of such directives as the Council may issue. The Council acts unanimously on association agreements (Art. 228). When the European Community (EC) prepared the first negotiations with Hungary, Poland, and Czechoslovakia in 1990, strong opposition soon The European Process

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appeared to a plain free trade arrangement as part of the association agreement. France, Greece, Portugal, and Spain opposed the CEE countries’ free access to western European markets, and they had strong support from interest groups representing commercial sectors such as agriculture, textiles, coal, and steel. France feared agricultural imports from eastern Europe. Greece and especially Portugal were concerned about their textile industries. Textiles constitute more than 30 percent of these countries’ total exports, the highest proportion in western Europe. Spain feared for the fate of its steel industry, which is concentrated in depressed regions of the country (Neven, 1995; Nicolaïdes, 1993:216ff.). Although some of these sectors represented a very small part of the concerned country’s economic life, vocal opposition was also expressed to rather modest increases in CEE countries’ import quotas to western European markets. Moreover, even in cases when sensitive sectors face disproportionate extra-EU competition, some analyses suggest that there is actually little cause for concern about the effects of imports from the CEE countries, showing flows multiplying severalfold without inflicting major damage on producers. Even so, it is evident that the costs of trade liberalization were higher to agricultural producers than to producers of sensitive manufactures, despite the vulnerability of textiles in Greece and Portugal to competition from CEE products (Rollo and Smith, 1993:143–144, 163ff.). Sector interests, particularly agriculture, usually have great influence in councils of sectoral ministers. These interests endeavored to influence the EC’s position and partly succeeded, both in that the EC’s initial position on trade provisions of the treaties favored a limited free trade arrangement and in the substance of the final agreements with the three CEE countries that were signed in December 1991, two years before they entered into force after long-drawn-out ratification processes in the member-countries. Countervailing forces included such countries as the United Kingdom, the Netherlands, Denmark, and to an extent Germany, whose governments advocated offering the CEE countries as free access as possible to western European markets.7 This latter position was supported by various elite groups, political parties, and grassroots or ganizations, especially in the northern part of the EC, which argued that economic and political integration between Eastern and Western Europe was the best way to ensure economic growth and political stability in Eastern Europe following the Soviet military and political withdrawal. A free trade perspective on the impact of trade liberalization was combined with promises of economic help for environmental restoration in central and eastern Europe. The preparation of the negotiations and their conduct were more cumbersome than expected beforehand, and the Commission’s proposals were ever vulnerable in the EU’s internal decisionmaking and bargaining

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process. Generally, political competition for the protection of specific sectors was more intense in the southern part of the EU. The critical politicaleconomic issue was that low-cost production structures in the poorer parts of the high-income EU are similar to low-cost economic structures in middle-income CEE countries, making them potential competitors. That problem was compounded by the fragmented nature of the EU’s institutional structure, especially the Council of Ministers, which includes a multitude of specialized councils and preparatory working groups. Although this gives a voice to all kinds of economic interests, it also impedes a coherent treatment of issue areas within a broader political strategy (Smith et al., 1996:14–18). Any principled belief in a long-term policy is weakened from the outset in a conflict with sectoral interests. Federalists envision the Commission as a political leader, supported by the European Parliament. However, the Commission’s main role has turned out to be mostly mediatory and accommodating in relation to both divergent state interests and private economic interests, whereas the European Parliament has not been able, or allowed, to play a major role. Thus, on the EU level, there is no superior actor to stand up for ideas or general interests. The dividing line between advocates and opponents of a free trade arrangement partly coincided with what may be termed a leader-laggard division as to environmental policy in the EU, “leader” countries being eager for new environmental rule making and “laggard” countries opposing it (Sbragia, 1996:237–241). Leader countries are the Netherlands, Germany, and Denmark. The United Kingdom is the clear exception, usually opposing new environmental legislation.8 The laggard category includes Portugal and Spain, two of the poorer countries in the Community, together with countries that did not play a prominent role when the Community prepared its negotiating position on the Europe Agreements. Some environmental laggards also hid behind France’s strong opposition to a plain free trade arrangement. The Constitution gives Congress power to “regulate Commerce with foreign Nations” (Art. 1, Sect. 8). The interplay between Congress and the president as leader of the executive branch is an important feature of the U.S. trade policymaking process. To un der stand that interplay and its impact, it is essential to remember that the president is the only elected government official from a national constituency (together with the vice president), whereas members of Con gress are elected by separate constituencies. When Congress approved NAFTA in November 1993, two months after the environmental side agreement had been signed, a North American The U.S. Process

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free trade agreement had been a hot issue in U.S. politics for almost three years. Environmental concerns played a major role in the strife and focused on five issues: (1) whether free trade would lead to further environmental deterioration, especially in the border regions with the maquiladora industry; (2) whether free trade would result in a downward harmonization of environmental standards, among other reasons because U.S. firms would relocate to Mexico in order to circumvent stricter environmental standards in the United States; (3) whether unilateral, meaning U.S., rather than bilateral or multilateral aspects of the dispute settlement procedure should be stress ed; (4) wheth er the dis pute settlement procedure should be more transparent; and (5) whether there was sufficient funding of environmental measures (Gilbreath and Tonra, 1994:80ff.; Kahane, 1996:397). Spearheading the opposition was an alliance of en vi ron mental groups, organized labor, and some business groups, a composition suggesting a confluence of divergent ideas and interests. The opposition to NAFTA became a significant political force in March 1991, when President George Bush, following the initiating trilateral talks about an agreement, requested a fast-track authorization from Congress, which would require Congress to ap prove or disapprove a NAFTA agreement within ninety days and without amendments. Environmental organizations quickly mobilized members of Congress, and in congressional hearings during spring 1991 different environmental concerns were voiced (U.S. Senate, 1991). The Bush administration’s early inclination was to deny an environmental link, but to accommodate Congress, the administration established a so-called parallel track for handling environmental (as well as labor) concerns. When fast-track authority was granted in late May 1991, some environmental groups favored it, but others opposed the NAFTA idea. Even though the parallel track was intended to ease the process, it seemed at that stage to have the opposite effect as the opposition singled out NAFTA’s damag ing en vi ronmental effects (Housman, 1994, 1995:304ff.). Differences among environmental organizations continued to be a central feature of the debate, with some groups expressing an environmental worldview opposing any free trade arrangement, whereas others, expressing environmental principled beliefs, opposed the actual free trade agreement. Yet prior to the signing of the environmental side agreement in September 1993, some environmental opponents avoided the simple adversarial “kill” strategy, offering instead various versions of accommodation granting the possibility of a free trade agree ment that would advance environmental principles.9 The strategy was revealed in the way that various sets of ideas on how to accommodate environmental concerns were developed by environmental opposition groups, who hinted that NAFTA might be supported if their conditions were met. The outcome was that the

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Clinton administration endeavored both to conclude a “good” environmental side agreement and strongly to promote its significance after it had been concluded. At the final vote in Congress, some environ mental organizations opposed the NAFTA package, whereas others supported it, all focusing on some version of the five issues. The different arguments used by environmentalists point to the heterogeneity of the opposition to the NAFTA package. Labor organizations, primarily the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), focused on the second issue, arguing that NAFTA would cost jobs in the United States and entail a downward pressure on wages as U.S. companies relocated to Mexico to take advantage of cheap labor. Business group opponents included the textile industry and such agricultural producers as citrus and vegetable growers who feared competition from Mexican producers (Wiarda, 1994:123– 130; Avery, 1996). One of their arguments, using the unilateral-multilateral issue as a point of departure, emphasized the loss of U.S. sovereignty. This merged into fears of foreigners and appealed to xenophobic forces in U.S. society. In view of the disparate elements of the opposition alliance, which included both environmentalists and economic interest groups, it may be termed a “baptist-and-bootlegger” coalition. The heterogeneous character of the opposition was a special problem for Democrats. During the 1992 presidential campaign, the Democratic candidate, Bill Clinton, was cross-pressured because the party included free traders, labor groups suspicious of free trade, and environmentalists. Clinton called for supplemental agreements on environmental and labor matters, but NAFTA continued to be a tricky issue even after the side agreements were signed, particularly for the House Democratic majority, not least because of fear that it would cost jobs and mean a downward pressure on wages. Because legislators are elected in single-member constituencies, they were highly vulnerable to local fears of losses. Opponents tended to appeal to such fears by emphasizing both tangible and intangible dangers. The alliance favoring NAFTA also was heterogeneous. The main components included most major business groups, in particular peak associations, multinational corporations, and export-oriented business sectors, along with most Hispanic orga ni zations and some envi ron mental organizations. 10 Environmental groups supporting the NAFTA package stressed three arguments: the environmental side agreement would improve Mexican enforcement of environmental laws; the parties would be allowed to honor their commitments under other international agreements; and there would be substantial new funding for environmental cleanup in the border region, thus emphasizing various causal beliefs as to the likely effect of the NAFTA package on environmental protection. Environmental organizations

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supporting the NAFTA package paid special attention to the parts of the package that dealt with issues beyond free trade. Although they took exception to the environmental worldview of other groups, they did not endorse a free trade perspective on trade and environment relations but instead articulated a revised environmental perspective. Independent observers such as economists and Latin American specialists also voiced support (Grossman and Krueger, 1993; Low, 1992). On the whole, these groups spoke in favor of NAFTA using general arguments about probabilities rather than certainties. In consequence, they had an indirect impact, strengthening beliefs about the environmental benefits of NAFTA (i.e., the free trade per spective). Scrutinizing the various components of the pro-NAFTA alliance, some notable differences appear. Sharply diverging from the environmental part of the pro-NAFTA alliance as well as from the position of the Clinton administration, some members of the business community and Republicans in Con gress fa vored a “NAFTA Clean Approach,” that is, a free trade agreement unencumbered by an environmental (or a labor) side agreement (Housman, 1995:314ff.). The debate over NAFTA thus divided not only the environmental community and the Democrats but also the business community and the Republicans, so that some, although supporting NAFTA in the end, opposed the link between trade and environment. The debate centered on Congress, where the decisive vote took place in the House of Representatives in mid-November 1993. A week before the vote, opponents were believed to have held a substantial lead. However, the actual vote was not close: 234 to 200. A total of 132 Republicans and 102 Democrats supported the measure, whereas 43 Republicans, 156 Democrats, and 1 independent opposed it. In the Senate, a higher proportion was pro-NAFTA: 61 to 38. The Clinton administration prevailed in the House because more than 75 percent of the Republicans supported NAFTA, but more than 60 percent of the Democrats opposed it (Lovely, 1994). Opponents were mostly northern Democrats from states and constituencies that expected job losses. The environmental issue seemed to be less important, especially in the House, whereas Senators who supported NAFTA but were concerned about the environment shared the view that NAFTA would lead to improved environmental conditions along the U.S.-Mexico border. On the whole, environmental issues receded during the last stage of the debate as the administration strongly emphasized the big market opportunities that would accrue to the United States (Johnson and Beaulieu, 1996:34; Kahane, 1996:402ff.). Explaining the final outcome of the battle, both the environmental side agreement and various accommodating measures vis-à-vis specific economic sector interests, that is, side pay ments, were decisive (Avery, 1996:124–128). In addition, the leadership of the president, as the only

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nationally elected government official capable of shaping and enlarging an alliance to countervail and vanquish innumerable special interests, partly by accommodating them and partly by boosting general U.S. economic interests, was important.11 At the same time it can be concluded that the general trend toward “fair” trade in U.S. thinking on trade policy since the 1970s and ideas about a “strategic” trade policy, which the Clinton administration emphasizes more than the Bush administration did, complicated the task of leadership. Conclusion

Summarizing the last two sections as to the role of interests, ideas, and their interplay, the most important protectionist and free trade dynamics in the European Union and the United States are shown in Tables 5.4 and 5.5, Table 5.4

Protectionist Dynamics in the EU and the United States

European Union

Interests Sectoral economic interests

Ideas Dirigiste trade policy beliefs

Interplay between interests and ideas Fragmented decisionmaking structure Country governments

Table 5.5

The United States

Interests Sectoral economic interests Labor organizations Ideas New trade policy beliefs Environmental beliefs Environmental perspectives Interplay between interests and ideas Constitutional checks and balances Baptist-and-bootlegger coalitions

Free Trade Dynamics in the EU and the United States

European Union

Interests General economic interests

Ideas Free trade beliefs Free trade perspectives Political integration beliefs Affinities to central and eastern Europe Interplay between interests and ideas Country governments

The United States

Interests General economic interests Internationally oriented industries Ideas Free trade beliefs Free trade perspectives

Interplay between interests and ideas Executive leadership Green-and-greedy coalitions

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respectively. Concerning the role of interests, there are notable similarities as well as dissimilarities between high-income countries on both sides of the Atlantic Ocean that bear on the validity of the hypotheses presented in Table 5.2. First, there was strong opposition from sectoral interests that feared competition from producers in less wealthy countries. The actual impact of that opposition was strengthened by various constitutional rules. In Europe, the EU’s unanimity rule and fragmented decisionmaking structure make it necessary to accommodate opposition from governments that take charge of sector interests. In the United States, the checks and balances system, directly working in the trade policymaking process, and congressional members’ sensitivity to local pressures strengthen protectionist forces. Second, general economic interests were a source of support for trade liberalization because of the way that they were invoked by political leaders in both Europe and the United States. This was conspicuous in the United States, where the president and other leading members of the executive branch boosted this argument before the critical vote in Congress. The European Union lacks a central political institution that might play a similar role, but political leaders from especially tra ditional pro–free trade countries advanced similar arguments. Third, general economic interests were not the only ones supporting free trade; some sectoral interests also supported trade liberalization. This was more evident in the United States but also occurred in Europe. Thus the theory that rising international interdependence shapes the basis for political forces opposing protectionism (cf. Helen Milner’s studies listed in the Bibliography) is corroborated. Fourth, focusing on some economic interests, we see an obvious difference between cleavages on trade liberalization on the two sides of the Atlantic: whereas labor in the United States strongly opposed NAFTA, labor in Europe did not oppose the Europe Agreements. Actually, northern European social-democratic parties affiliated with trade unions strongly supported them. Various explanations may account for this difference. One refers to the distributional aspect of trade liberalization. Because U.S. labor is a scarce factor of production whereas European labor is an abundant factor (Rogowski, 1989:90–98), this marked difference be tween U.S. and European labor in attitudes toward liberalization of trade with less affluent neighbors accords with a theory emphasizing the distributional aspects of free trade among land, labor, and capital. Another possible explanation is the different social welfare systems. Although it can be said that the performance of the European labor market is dismal because of relatively high unemployment, it is also true that by reducing the social distress of high unemployment, the social welfare systems in Europe—and Canada—may have mitigated the protectionist pressures from labor, political parties, and

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other nongovernmental organizations (NGOs) that exist in the United States (Wolf, 1996:131–132; Rogowski, 1989:173–174). Consequently, labor in Europe did not oppose trade liberalization, and baptist-and-bootlegger coalitions did not play an analogous role in Europe. In any case, the consequence of different social welfare systems in relation to trade liberalization is clearly a subject that needs further study. Comparing the four conclusions concerning the role of interests in public choice theories, although the first two corroborate these theories, the second two would have been missed by a public choice approach that presumes a one-to-one relationship between sector interests and protectionism. Public choice theory’s dichotomy between general free trade interests and sectoral protectionist interests fails to take account of important political cleavages. As to the role of ideas, there is, first, an obvious similarity as well as a dissimilarity between the United States and the European Union. The similarity concerns the respective roles played by new trade policy beliefs in the United States and dirigiste trade policy beliefs in Europe, as well as free trade beliefs and perspectives on both continents, all confirming the hypotheses. The clear difference is the role played by ideas on political integration in Europe, which did not play any role in the United States. The most conspicuous and interesting dissimilarity between U.S. and European high-income countries is that although some environmental groups spearheaded the U.S. opposition, similar groups did not oppose the Europe Agreements. To the extent that environmental groups and similar grassroots organizations expressed a view on the Europe Agreements, they supported them, even if they also warned that “unrestrained” free trade could have serious environmental consequences.12 Mostly they viewed the agreements as a step toward helping the CEE countries “return to Europe.” Environmental groups and other grassroots movements often censured the EU, but their censure concerned either the Europe Agreements’ failure to provide free access to western European markets, or—more like U.S. environmentalists—the defective financial contributions for cleaning up the environment in adjoining countries with heavy pollution problems. Western Europeans’ affinities to central and eastern Europe evidently did play a role. It was simply not “in” among major NGOs to demand environmental improvements as a condition for market access, even if German environmental groups, which are among the most prominent in Europe, have been strong supporters of protectionism (Vogel, 1992:172). This contradicts the hypothesis that environmental beliefs are generally protectionist (Table 5.2). Altogether, concerning the role of ideas in shaping positions on trade liberalization, the analysis shows that ideas matter by influencing the clout of economic interests. As expressed by Judith Goldstein in her research on U.S. trade policy, a research agenda has to

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look “beyond objective social interests to the beliefs of political entrepreneurs” (Goldstein, 1993:250). As to the interplay between interests and ideas, there is another difference between the political processes on the two sides of the Atlantic: in the United States, internationally oriented business sectors formed an important part of the alliance favoring NAFTA, which also included some environmental groups, leading to a green-and-greedy coalition.13 In Europe that type of alliance didn’t play a similar role, and the reason is closely related to the overall ideational context in Europe in the 1990s, particularly the role played by affinities to central and eastern Europe and the related absence of the other type of heterogeneous alliance: the baptist-and-bootlegger coalition. This difference between the political processes on the two sides of the Atlantic Ocean can be traced, first, to the relationship between trade and environment. In autumn 1991 a GATT panel ruled that a U.S. environmentrelated ban on imports of tuna, challenged by Mexico and other countries, was a violation of GATT rules (the so-called tuna-dolphin dispute) (Runge, Ortalo-Magné, and Kamp, 1994:71–80). No similar publicity-evoking development occurred in Europe, even though the trade and environment issue appeared on the political agenda subsequently, both in the European Parliament and in national parliaments. A second factor is critical, however: the highly dissimilar political transforma tions in Europe and North America since the late 1980s. In Europe, environmental groups, like the great majority of political groupings, had closely followed the democratic revolutions in central and eastern Europe in 1989, excited about the prospects for a “whole and democratic” Europe. In North America, democratic development and transformation in Mexico has been much slower and less conspicuous. There has never been a Berlin Wall in North America whose spectacular fall, shown on television, could exhilarate an attentive general public. Thus no heterogeneous baptist-and-bootlegger coalition in the wealthy parts of Europe could form and have an impact, simply because the “baptist” element—environmental grassroots groups in Europe—were ideologically predisposed to favor accommodating the expectations of central and eastern Europe. “Boot legger” sec toral interests did evidently exist in Europe, but they were unable to attract an idea-based partner. And “greedy” sectoral interests existed as well, but because the trade and environment issue has had no important place on the political agenda, there was, so to speak, no obvious demand for a green-and-greedy coalition. That conclusion implies that the second and the third propositions (see list at beginning of chapter) today hold better for the United States than for Europe. However, as the memory of the 1989 revolutions slowly fades away in western Europe, a stronger split on trade liberalization may appear among

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environmentalist groups in wealthy countries similar to what happened among U.S. environmentalists in the early 1990s. Looking again at the hypotheses presented in Table 5.2, it can be concluded that some of them can account for aspects of EU and U.S. policies. However, the most important differences in the ways the trade-and-environment issue has been handled by affluent countries in Europe and North America have been caused by factors that lie outside the focus of trade issues and environmental issues. One paradox is that Americans may be able to influence environmental policy in Mexico in the future only because U.S. environmentalists opposing NAFTA did not succeed. And only because western European producers both lacked environmentalist allies and had limited success in opposing market access for the CEE countries are people in western Europe able to influence environmental policies in central and eastern Europe in the years to come. In addition, precisely because middle-income countries anticipate a link between free trade and environmental improvements, an occasional connection of the two issues by central actors in high-income countries may increase the strength of that link. This suggests a critical, but delicate, interplay between economic interests, free trade beliefs, and environmental beliefs in high-income countries when they attempt to realize a “race to the top” in their economic relations with less affluent neighbors. Notes

1. Distinct representations of the two perspectives are Daly 1995, presenting an environmental perspective, and Bhagwati 1995, presenting a free trade perspective. 2. The ten CEE countries are Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia. The first six agreements are reprinted in OJ L 347 and 348, 31.12. 1993 (Hungary and Poland), OJ L 357, 358, 359 and 360, 31.12. 1994 (Romania, Bulgaria, Slovakia, and the Czech Republic). The first two agreements entered into force on January 1, 1994, and the other four agreements entered into force on January 1, 1995. Agreements with the three Baltic countries entered into force February 1, 1998, and an agreement with Slovenia entered into force February 1, 1999. 3. Cf. Cameron, Demaret, and Geradin (1994:2:702). The actual juridical status of preambles of international treaties is uncertain, however (cf. Johnson and Beaulieu, 1996:67). The review of NAFTA’s environmental stipulations is also based on Esty (1993), Hopp (1994a), Housman (1994), Magraw (1994), and Wilkinson (1994). Selected provisions of NAFTA related to the environment are reprinted in Cameron, Demaret, and Geradin (1994:2:702–719), and Johnson and Beaulieu (1996:287–329). 4. The three agreements are the Convention on International Trade in Endangered Species (CITES); the Montreal Protocol on Substances that Deplete the Ozone Layer; and the Basel Con vention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal. See Article 104 of NAFTA.

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5. The agreement is reprinted in Johnson and Beaulieu (1996:331–361). 6. The conflicting concerns raised in the U.S. debate as to the powers of the secretariat (cf. Magraw, 1994:39) display striking similarities to the European debate on supranationality: whereas some assert that it represents an unacceptable loss of U.S. sovereignty, others (or the same people on other occasions) assert that the secretariat is not independent enough. See also Johnson and Beaulieu (1996:60–62), and Weintraub (1996). 7. On Germany’s switches, see Friis (1997:241, 247). 8. It will be interesting to see if this changes after the United Kingdom’s change of government in May 1997. 9. Among environmental organizations opposing NAFTA, often applying environmental worldviews, were Friends of the Earth, Greenpeace, and Public Citizen. The Sierra Club may have been a more cautious opponent (cf. Audley, 1993, 1995). The organizations often testified before congressional committees: for example, a representative of Friends of the Earth testified to a House committee in September 1993 (cf. U.S. House of Representatives, 1993b:131–141) and a representative of Public Citizen spoke before a House subcommittee in February 1993. A representative of the Sierra Club presented its arguments to a Senate committee in March 1993 (cf. U.S. Senate 1993a: 37–38, 72–81). 10. Among environmental organizations supporting NAFTA were the National Wildlife Federation, the World Wildlife Fund, Conservation International, and the National Audubon Society (cf. Audley, 1995; Johnson and Beaulieu, 1996:30–34). These organizations also testified before congressional committees. The president of the National Wildlife Federation testified in March 1993, at that time noting that Congress should withhold its support until supplemental environmental agreements were successfully negotiated (cf. U.S. House of Representatives, 1993a:35, 68–72). See also the president of the World Wildlife Fund in hearings in July (U.S. Senate, 1993b:16–17, 79–89). In October 1993, two months after the environmental side agreement had been signed, the president of the National Audubon Society supported the NAFTA package (cf. U.S. Senate, 1993c: 39–40, 99–103). 11. One spectacular happening a few days before the vote in Congress greatly strengthened the pro-NAFTA alliance: the television debate between Vice President Al Gore and the 1992 presidential candidate Ross Perot (cf. Wiarda, 1994:129). 12. Cf. the debate in the European Parliament (OJ 3-421 69, 15.9. 93). 13. That label is borrowed from Oye and Maxwell (1995:205).

Antje Wiener

6

Citizenship Policy in a Global Framework: The Case of the European Union During the 1974 Paris summit, European Community (EC) heads of state decided to establish two ad hoc working groups, one on special rights and one on passport union. Ten years later, at the 1984 Fontainebleau summit, another working group was set up to prepare a report on a “people’s Europe.” Almost another decade later, citizenship in the European Union (EU) was included in the 1993 Treaty on European Union (Maastricht Treaty). In 1994, European citizens were able to vote and stand for election in European Parliament (EP) elections at their place of residence for the first time: Until the successful incorporation of citizenship in the EU in the Treaty, citizenship had not been named a policy. Studies on citizenship in the EU have often focused on its shortcomings, either from a minimalist legal perspective (Closa, 1992; Evans, 1985; O’Leary, 1995; Oliveira, 1995) or from a normative perspective (Garcia, 1992; Habermas, 1991). More recently, critical approaches have suggested addressing EU citizenship as contextualized practice that contributes to the rethinking of modern citizenship (Meehan, 1993, 1997; Kostakopoulou, 1996; Shaw, 1997, Wiener, 1998). Following this approach, this chapter advances a discursive analysis of citizenship policy as a dimension of modern state building. It suggests taking a sociohistorical perspective that allows a view of both the legal or constitutive dimension of citizenship and the dynamic sociohistorical dimension. The constitutive elements include the triad of the state, the citizens, and the relation between the two, which I call “citizenship practice.”1 The historical essentials include the meaning that has been attached to the constitutive elements by their interplay over time and at different places and comprise the aspects of rights, access, and belonging. If the constitutive elements and historical essentials of citizenship constitute the basic components of a modern understanding of citizenship, then it follows that the presence of these elements in any context would suggest 141

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the existence of citizenship in that particular modern representation. In order to find out whether the EC/EU is a case in point, I carry out a discursive analysis of citizenship policy as it emerges over time within the emerging Euro-polity. Based on this type of analysis, I show how, beginning in the early 1970s, Union citizenship has been created as a new political institution. The chapter is organized in two sections. The first lays out the case and defines the framework for a discursive policy analysis. It draws on citizenship theory and historical institutionalism. The second offers a discursive policy analysis based on a case study of citizenship policy with reference to three periods: Paris in 1974, Fontainebleau in 1984, and Maastricht in 1991. Assessing Citizenship in a Nonstate Since the ratification of the Maastricht Treaty in November 1993, citizens of the Union enjoy a series of rights such as the right of residence, free movement (Article 8a, EC Treaty), diplomatic protection while in third countries (Article 8c), the right to petition (Article 8d; Article 138d), and most important, the right to vote and stand as a candidate at municipal elections in the member-state of residence (Article 8b.1), as well as the right to vote and to stand as a candidate in elections to the European Parliament in the member-state of residence (Article 8b.2). These rights are now constitutionally grounded in the Treaty and may be legally invoked. Citizens who have them are “every person holding the nationality of a Member State” (Article 8) as opposed to formerly addressed “hyphenated categories of citizens” by the Bindi Report of the EP.2 The latter were citizens of an EU member-state who got access to the practice of European citizenship based on what they were doing as workers, students, or nonactive persons in another member-state, for example, Italians working in Germany. Two insights follow from this. First, achieving the status of citizen of the EU depends on the citizen’s membership in a national community and that community’s relation with the EU. Second, the process inscribes a change from market citizen, or bourgeois, to EU citizen, or citoyen (Degen, 1993; Hobe, 1993; Meehan, 1993). Individual relations now are based not only on involvement in market affairs but are also politically defined. Although the degree or type of EU “statehood” that might follow from this remains a subject of much debate, legal studies show that the right of EU citizens to vote and stand as candidates in municipal elections (Article 8b.1), in particular, interferes with statehood of the member-states (Hobe, 1993:265). As a case of citizenship policy without a state, EC/EU citizenship poliCitizenship in the Union

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cy seems to contradict recent historical experience indicating an interdependence between citizenship and the emergence of the modern nationstate (Brubaker, 1989; Degen, 1993; Grawert, 1973; Hobe, 1993; Jenson, 1992; T. H. Marshall, 1950; Tilly, 1975; Turner, 1990). As Europeanists (among others, see Marks, Hooghe, and Blank, 1994; Sbragia, 1993; Schmitter, 1996; Wallace, 1996; Jachtenfuchs, 1995) never get tired of emphasizing, the EU cannot be defined as a state. The German Constitutional Court supports this view, defining the EU as “not a state, and equally no federal state. It is a community of a particular kind in the process of progressive integration . . . , to which the Federal Republic of Germany . . . has transferred certain sovereignty rights.”3 Notwithstanding these historical and legal observations, citizenship of the EU was enshrined in the revised Treaty of the EC (Article 8) qua signing the Treaty on European Union in 1993. Specific European citizenship rights may now be legally invoked. A third, global insight contributes to the puzzling emergence and possible political impact of this particular citizenship. Citizenship was written into the Maastricht Treaty at a moment of global turbulence, a time when the foundations of the modern nation-state faced dramatic challenges, both internationally and domestically (Held, 1991; Kratochwil, 1994; Turner, 1990; Dunn, 1994). As Held observes: Everywhere the sovereignty of the nation state itself—the entity to which the language of citizenship refers, and within which the claims of citizenship, community and participation are made—is being eroded and challenged. Externally, the processes of economic, political, military and ecological interrelation are beginning to undermine the status of nation state as a sacred and self-sufficient entity. The rise of regional and local “nationalisms” are beginning to wear away at it internally. (Held, 1991:24)

That citizenship of the EU emerged despite these changes raises questions about both its conceptual and political meaning. So far, the unfolding interest in Community citizenship has overwhelmingly concentrated on legal problems, most of which became apparent in the pre-Maastricht debates (Costa, 1992; Degen, 1993; Evans, 1985; Hobe, 1993; Magiera, 1990; Taschner, 1994; Van den Berghe, 1982), and political analyses of citizenship, which often present a perspective on the integrative function of citizenship within a federation (Degen, 1993; Hobe, 1993; Mazzaferro, 1993; Magiera, 1990; Wildenmann, 1991). More recently, questions of what an ideal European citizenship should comprise, including the central aspects of identity, culture, and belonging, were addressed (Garcia, 1992, 1993; Heinelt, 1993; Habermas, 1991; Meehan, 1993; Lenoble and Dewandre, 1992). Research often concentrates on a partial view of citizenship policy such as migration, labor, health, education, or family policy, but

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the constructive force of citizenship has rarely been explored (for an exception, see Weiler, 1986, 1993). This situation is hardly surprising given that despite the scholarly debates over the EU’s nature as federal, functional, or intergovernmental, the final shape of this “would-be polity” (Lindberg and Scheingold, 1970) has not been clearly addressed (Bogdandy, 1993; Diez, 1996). Considering citizenship policy means addressing the issue of state building as well. Accordingly, to study citizenship policy in the EC/EU raises a series of epistemological questions and has methodological consequences. Elizabeth Meehan notes: The failings of my discipline to help me make sense of what I was discovering about the legal, political and social evolution of the European Community are symptomatic of general problems of epistemology, [that is, the question of] whether a distinction can properly be drawn between empirical facts and how we arrange them, or whether our language and systems of categorization influence what we think we observe. (Meehan, 1993:ix)

Meehan addressed this methodological problem when focusing on contextualized ideal citizenship. As she showed, a careful reading of ideas about and experiences of citizenship that had developed and materialized in other contexts allowed an appreciation and understanding of European citizenship, despite Raymond Aron’s statement that there were no such animals as European citizens (Aron, 1974; cf. Meehan, 1993:1). Based on knowledge of what citizenship ideally can comprise, Meehan’s comprehensive and extensive study of Community citizenship uncovered expressions of citizenship in EC politics and institutions. Drawing on previous legal and sociocultural research, the next section seeks to explore the constructive aspect of citizenship. The case study brings to the fore the story of citizenship policy and institutional innovations as a related process embedded in the contexts of the Euro-polity and the global political arena and enacted by EU practitioners. The analysis is based on the policy process in a narrow sense, that is, the stages of agenda setting and policymaking that have been documented in official EU texts. Despite an abundance of approaches toward the concept of citizenship, it is possible to come up with a minimal definition of citizenship as defining a relation between the individual citizen and the political community. Although the pattern remained roughly the same throughout modern history, the nature of the citizen and the community both have changed as well as the way their relation was practiced. As T. H. Marshall finds, “There is Citizenship Practice

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no universal principle that determines what those rights and duties shall be, but societies in which citizenship is a developing institution create an image of an ideal citizenship against which achievement can be measured and towards which aspiration can be created” (Marshall, 1950:29). This perspective stresses dynamic and contextual aspects of citizenship as part of, first, the changing institutional setting of the state from, for example, city-states to nation-states; second, the definition of who is entitled to citizenship rights changes the constellation of individuals who belong to a particular state; and third, due to political, economic, and social changes, reforms and transitions led to the establishment of new institutions and hence reshaped the frame of reference for citizenship practices. Accordingly, Marshall chose an approach that was “dictated by history . . . more clearly than by logic” and divided “citizenship into three parts, or elements, civil, political and social” (Marshall, 1950:10).4 Following this model with regard to the development of citizenship in England, Marshall linked the three parts of citizenship to a “modern drive for social equality” (1950:10). They were established over a period of three centuries through a “twin process” of “fusion and separation. The fusion was geographical, the separation functional” (Marshall, 1950:12). The process of fusion included state building in a bounded territory as the borderline of citizenship rights, and the process of separation involved the institutionalization of the terms of citizenship according to the functional requirements of citizenship practice. This process proceeded in proportion to the sophistication of citizenship rights. The “result of the twin process of fusion and separation was that the machinery giving access to the institutions on which the [civil, political, and social] rights of citizenship depended had to be shaped afresh” (Marshall, 1950:14). Charles Tilly and a group of colleagues reached a similar conclusion regarding the development of modern nation-states in western Europe (Tilly, 1975). Despite different trajectories of state making due to differences in place, time, space, and actors, it was possible to establish some generalizations about the process. Accordingly, state making entailed three aspects: mobilization, stateness, and political rights. Between the development of stateness, on the one hand, and the pattern of mobilization, on the other, comes the acquisition of political rights binding on agents of the government by the members of the mobilized groups within the subject population. Extensions of the suffrage, for example, do not follow from the pace of state-making alone, or from the pattern of mobilization alone, but from an interaction between the two processes. (Tilly, 1975:35)

It follows that analyses of state making need to focus on the institutional setting of the political entity in the making, the identities and demands of

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the population, and the interaction between constituency and state institutions. According to Tilly, the struggle over political rights was crucial to establishing this link (Tilly, 1975:36). The importance of this finding was less the focus on the establishment of abstract rights than on the way they were practiced within the newly emerging institutional framework. As Tilly emphasized, “The significant thing about such [political] rights is not that they should exist in the abstract, but that the state, rather than some other organization, should become the focus of their enforcement” (Tilly, 1975:36). The trajectory of citizenship rights, from their appearance in policy discourses until their entrenchment in constitutions and political practice, traces functional changes in the machinery of governance. Understood in this way, the struggle over political rights offers a prism through which the emerging institutions of a political entity can be identified. They are therefore “political rights in a large sense—political in that they constitute binding claims on the agents of government, rather than some other groups” (Tilly, 1975:37). In sum, processes of state building have been found to contribute to both the existence of (nation-)states and the meaning of citizenship. Rogers W. Brubaker summarizes the interdependence between the two concepts when he notes that “citizenship today means membership of a nation-state. To note this is to point to a basic fact of political and social organization” (Brubaker, 1989:33). If changes in the practice of political rights are associated with large historical transformations in the modern period of European state building, it is fair to conclude that similar changes may accompany state making in other processes of reorganizing political space. It follows that, if the institutional and political development of the EU bears elements of transformatory qualities, they would best be discerned by adopting a historical perspective on citizenship policy that adds contextualized meaning to citizenship by defining citizenship as (1) stipulating rights, (2) providing access, and (3) creating a feeling of belonging and identity (Wiener, 1997). Beyond the creation of an “ideal of citizenship” that is special to every particular state (Marshall, 1950; Meehan, 1993), such a focus on the historical elements of citizenship provides an insight into the grafting of distinct institutional settings of governance within and among states in the international system (Wiener, 1998). Confronted with theoretical challenges that derived from changes in statesociety relations, social scientists often have turned to historical analyses. As Peter Katzenstein points out, the idea was to take “events” as resources to generate a “reorientation in theoretical perspectives” (Katzenstein, 1978:4). Institutional analyses that drew on this insight have since referred Discursive Policy Analysis

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to specific historical contexts and subsequently contributed to developing new frameworks of analysis, focusing primarily on an examination of “the interaction of interests, institutions and ideas in the policy process” (Hall, 1986:5). These approaches are best represented by the literature on “policy networks” (Katzenstein, 1978) and the “politics of ideas” (Hall, 1986, 1989) that form part of the new institutionalism in comparative politics (Thelen and Steinmo, 1992; Hall and Taylor, 1996).5 Although this literature considered states as responsible for policymaking, it opened space for the analysis of policy formation by a variety of actors and in different discursive settings. Similarly, the following analysis of citizenship policy reconstructs the process of polity formation. Instead of considering state-society relations, however, I examine the interaction between institutional and individual actors in a nonstate. The term “institutions” used in this approach refers “to the formal rules, compliance procedures, and standard operating practices that structure the relationship between individuals in various units of the polity and economy” (Hall, 1986:19). It is thus not synonymous with the main organs of the Euro-polity, namely, the European Parliament, the Commission, the Council of Ministers, and the European Court of Justice. These are the major actors in the process. They participate in the policymaking process based on different instruments such as resolutions, reports, and opinions (European Parliament); proposals, programs, and papers (Commission); directives, regulations, decisions, and agreements (Council of Ministers); and rulings (European Court of Justice). These actors’ impact can be distinguished by referring to their political role within the Euro-polity, but it is important to acknowledge the interrelations between the three actors and their subcommittees, which are often put into practice by informal communicative processes among individual practitioners. Broadly speaking, the analysis of the historical process then includes substantial policy input from two levels, the institutional and the individual. Three propositions follow from the above triad of case, concept, and methodology. First, at the moment when political rights of citizens were enshrined in the Maastricht Treaty, the change from bourgeois to citoyen introduced the concept of statehood to the Euro-polity. Second, political rights, their establishment, and their practice provide crucial information about state building. Third, drawing on historical analyses, evolving citizenship practice is situated within a bounded territory and reflected in institutional changes. In order to clarify the political meaning of citizenship policy in a nonstate, political rights and institution building therefore represent the core of this citizenship policy analysis. The term “citizenship policy” is used abstractly, since until the 1991 Maastricht summit, citizenship barely appeared in the policy discourse. I therefore refer to citizenship policy as an umbrella term that entails the policy objectives of special rights and

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passport union. The discursive analysis is based on the exact wording of the documents and their appearance in time and context. This procedure considers only policies that were found in the discursive context as defined, that is, only after they were named as part of citizenship policy in the actual process. Policies such as social policy, which are generally considered as a central component of an ideal citizenship, appear only if they are mentioned in the citizenship discourse. The case study is organized around three periods, each initiated by “history-making” (Peterson, 1995) European Council meetings, or summits. These are meetings among heads of state or government that led to changes in the overall policy orientation of the EC/EU. The time periods cluster around the 1974 Paris summit, the 1984 Fontainebleau summit, and the 1991 Maastricht summit. Within the context of global politics, all three summits took place during challenges to the balance of the international state system, such as the breakdown of the Bretton Woods system in the early 1970s, the declining stability of welfare state institutions in the early 1980s, and the fall of the Berlin Wall in 1989. The Case Study During the 1970s, the EC was in a state of severe crisis initiated by external international economic changes such as the oil crisis and changes in the Bretton Woods system; internally, it manifested itself in declining interest in European integration. The European Commission, the administrative body of the EC, was increasingly criticized for being unable to confront these challenges. An institutional crisis emerged whose scope was such that Commission president Xavier Ortoli stated after the 1972 Paris summit, “la crise économique et les changements dans les rapports internationaux, loin d’entrainer un renforcement de la solidarité communautaire et de conduire l’Europe a affirmer son identité à l’égard du reste du monde, ont marqué un arrêt, et peut-être un recul, de la construction européenne” (emphasis added).6 To meet the international challenge, the EC had to act as a single political entity. For example, Ortoli emphasized the importance of “political-will power [with reference to] the new world situation, [in which] no member state [could] act efficiently alone.”7 Although there was little consensus on most policy issues among the nine member states in the early 1970s,8 there was a broad agreement on the necessity to create a “new Europe” that could present itself as a strong political actor. The practitioners felt that those who spoke for the EC were not necessarily seen as representatives of the EC. Viscount Davignon states that he Paris, 1974: The Quest for a European Identity

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had “at times compared Europe with Tarzan. It ha[d] a relatively advanced morphology but its speech [wa]s still fairly scanty.”9 The problem was one of identity. How could the EC be represented in international dialogues and negotiations? These concerns led to two innovations, the adoption of a document on “European identity” at the 1973 Copenhagen summit; and the establishment of a passport union and special rights as two policy objectives at the 1974 Paris summit (Bull. EC, 1974:8–9). The identity document defined European identity in broad terms as based on a “common heritage” and “acting together in relation to the rest of the world”; the “dynamic nature of European unification” was to be respected (Europe Documents, 1973:1). The final communiqué of the Paris summit transformed an idea— to introduce citizenship as a means to establish a “European” identity—into policy objectives, such as the creation of a passport union and the establishment of special rights for citizens of the nine member-states. Special working groups were assigned the task of producing draft reports for the development of the special rights, passport union, and universal suffrage. The question of which institution was to grant special rights was discussed during a roundtable held in Florence in 1978. The draftsman of the Legal Affairs Committee of the EP, Alfons Bayerl, summarized the complicated issue, stating that “the present situation of a citizen of the Common Market had to be transformed through special rights into the status of citizen of the European Community” (EP, 1978:24). According to the EP, special rights were defined as “‘subjective’ public rights, in other words rights which the citizen possesses as a legal subject vis-à-vis the State” (EP, 1978:86). They involved “(a) defensive rights which protect fundamental freedoms vis-à-vis the State (fundamental rights); (b) claims which citizens are entitled to make on the State, for example in respect of provision for their welfare (civil rights); and (c) rights which guarantee the participation of the citizen in the State’s institutions (political rights)” (EP, 1978:87). To apply a special rights policy in the EC indicated that “all the constitutional rights on which the legitimacy of a democratic State depend[ed were] conferred upon the citizens of the European Community vis-à-vis the European Community and, secondly, . . . include[d] those rights which citizens of a particular Member State possess[ed] but which ha[d] not hitherto been granted to other citizens of the Community” (EP, 1978:87). With this definition of special rights, the EP took the position that citizenship rights could not be thought of, protected, or practiced if there was no agreement on the political entity they referred to. Since the implementation of a special rights policy included transfers of citizens’ rights and obligations from member states to the EC, sovereignty transfers were at stake. The political dilemma of having to establish a balance between the necessity of constructing a “European identity” as the basis of successful European politics and the threat of a loss of sovereignty was thus put on the table.

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Passport union policy included not only the decision about color and size of the passport but also the problem of border controls, thus touching the sensitive areas of security, visa, and immigration policy. Ministers at the 1974 Paris summit agreed that a working party should submit a draft on passport policy “to the Governments of the Member states before 31 December 1976” (Bull. EC, 1974:8). The draft was supposed to “provide for stage-by-stage harmonization of legislation affecting aliens and for the abolition of passport control within the Community” (Bull. EC, 1974:8). The communiqué stressed two aspects of this project, first, “the fact that the introduction of such a passport would have a psychological effect, one which would emphasize the feeling of nationals of the nine Member states of belonging to the Community” (Bull. EC, 1974:9); and second, “that such a passport might be equally justified by the desire of the nine Member states to affirm vis-à-vis non-member countries the existence of the Community as an entity, and eventually to obtain from each of them identical treatment for citizens of the Community” (Bull. EC, 1975b:10). The goal of passport policy was thus explicitly twofold: it was “a project aimed at confirming the Community as an entity vis-à-vis the rest of the world [as one] and capable of reviving the feeling of citizens of the Community of belonging to that entity” (Bull. EC, 1975b:12). Compared to the long and often philosophical discussions over the definition of special rights, passport policy seemed a relatively straightforward, technical matter. As the Commission’s working party charged with the task of designing the project “Towards European Citizenship” explained, passport policy comprised two areas and four policy steps: (1) uniform passport, (2) abolition of control of persons at international frontiers in the EC, (3) equality of treatment of nationals of member-states by third countries, and (4) legal implementation of the passport union (Bull. EC, 1975b:12). However, complications came to the fore with the judicial and political aspects of the policy realization. The goal of passport union did not leave much room for holding philosophical discourses akin to the 1978 Florence roundtable, which had helped to define special rights. Quite to the contrary, successful passport policy seemed to depend on not more but less public debate. It turned out to be an essentially diplomatic matter that took its time to emerge. In the meantime, passport policy was put on hold for about half a decade. The beginning of EC citizenship policy resulted from the change in global politics that followed the oil shocks of 1973 and 1974. In response to the changed international environment, EC practitioners sought to develop an identity that would improve the EC’s negotiating capacity vis-à-vis the Americans.10 Citizenship policy was part of this effort and was developed on a step-by-step basis. Passport policy proved particularly complicated since border controls remained a security matter, and the member-states

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were not inclined to transfer any sovereignty to the EC level in this area. However, free movement was an aspect of the internal market and hence a policy issue over which the Commission had agenda-setting power. The absence of consensus on political innovation within the EC at that time led to an initial concentration on establishing civil and social rights for workers and their families, but not on political citizenship rights. During the 1980s, the increasing globalization of production and monetary operations began to detach social and economic rights of citizens from their national contexts. In western European nation-states, this was reflected in the decline of national welfare provisions and the beginning of deregulatory economic policies. At that time, the EC reinitiated a social dialogue, formed innovative policy strategies, and passed the Single European Act (SEA), embedded in an overall plea for solidarity among the European regions. The 1984 Fontainebleau European Council was crucial to EC history because it marked the point of overcoming the British budget problem, which “had monopolized every council meeting since 1980.”11 Quite to the surprise of observers, the European Council concluded without “a single dispute left to settle” (Bull. EC, 1984a:12), as French president François Mitterrand announced after the meeting. “With the problem of the British contribution resolved,” he added, “the community could at long last stage a strong revival” (Bull. EC, 1984a:12). The Council conclusions confirmed a relaunch of European integration. Among other things, the idea of European identity was put on the agenda once again. The European Council considered “it essential that the Community should respond to the expectations of the people of Europe by adopting measures to strengthen and promote its identity and its image both for its citizens and the rest of the world” (Bull. EC, 1985d:5). To that end, two ad hoc committees called the “Adonnino” and the “Dooge” committees (after the names of their chairpersons), were appointed to work out proposals regarding the establishment of a “People’s Europe” and institutional reform, respectively (Europe Documents, 1984:1–8). According to the Fontainebleau mandate, the task of the Adonnino Committee was threefold. First, it was to study measures that would lead to “a single document for the movement of goods; the abolition of all police and customs formalities for people crossing intra-Community frontiers; and a general system for ensuring the equivalence of university diplomas, in order to bring about the effective freedom of establishment within the Community” (Bull. EC, 1985d:5). Second, it was to review suggestions for “symbols of the Community’s existence, such as a flag and an anthem; formation of European sports teams; streamlining procedures at frontier posts; Fontainebleau, 1984: Making Market Citizens

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and minting of a European coinage, namely the ECU” (Bull. EC, 1985d:5). Third, it was to examine how to involve young people in the EC. Thus, a decade after the Paris summit, the project of constructing a European identity was revived. This time it was to be developed on the grounds of economic and cultural policy rather than on political and civil rights. Barely settled into his new position as Commission president, Jacques Delors’s first address to the European Parliament highlighted two principles as central to the new Commission policy. One was to rely (and build) “strength of character”; the other was the EC’s “economic muscle” (Bull. EC, 1985c:18). The emphasis on “strength of character” recalled a lack of unity in the EC position that had contributed to an image of it as a weak negotiating partner on the world stage. Stressing the necessity of self-confidence and clear political statements toward international partners, Delors recalled former experiences of EC officials, stating, “I could review three and a half years of world monetary history for you to demonstrate that only once in that time did we succeed in convincing our American friends. And on that day we spoke strongly and in unison. We were agreed on our proposals and we all followed the same strategy” (Bull. EC, 1985c:18). “Speak[ing] with one voice” and turning into “an actor rather than a spectator on the contemporary stage” (Bull. EC, 1985c:16) to achieve recovery were thus the political goals of the time. Explaining the need for economic muscle flexing, Delors cited the importance of mobilizing the EC’s resources (such as “young people”) into a project of restructuring the economy (Bull. EC, 1985c:19). These statements advocated an active role for the Commission in working toward a better environment for competition, based on the best possible use of the existing institutional framework by “working within the Treaty, all of the Treaty” (Bull. EC, 1985c:21). In other words, Delors stressed the Commission’s intention to “make full use of its right of initiative to accomplish the priority tasks” (Bull. EC, 1985c:15). During the ensuing debate with the parliamentarians, Delors explained that the major purpose of his speech “was to reflect on ‘how to go about it’ rather than on ‘what has to be done’” (Bull. EC, 1985c:17). This statement contained an early hint of this Commission president’s approach to policymaking, namely, to proceed by placing major issues on the agenda and then “flesh[ing them] out later” (Bull. EC, 1985c:17).12 The Single European Act supported a strong Commission influence on the agenda-setting process regarding market-related issues according to Article 8a of the EEC Treaty, which granted the Commission the power to put forward proposals on market-related matters. This institutional change was important for the realization of the special rights policy, which was now legitimated by the goal of establishing the conditions for free movement of workers within the EC as an area without frontiers. The discourse

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was driven by a predominantly economic rationale—the new special rights policy addressed social rights for working citizens only, excluding the unemployed. Social rights policy became refined within the framework of the 1989 Community Charter of Workers’ Fundamental Social Rights. With regard to passport policy, the Fontainebleau Council conclusion stated its approval of the agreement “reached on the principle of creating a European passport and ask[ed] the Council to take the necessary decisions to ensure that this passport [wa]s actually available to the Member states’ nationals by 1 January 1985 at the latest” (Bull. EC, 1985d:5). The Adonnino Committee was further to focus on suggestions for “streamlining” procedures at frontier posts. The ink of this conclusion was barely dry when the governments of the Federal Republic of Germany (FRG) and the French Republic came forward with an agreement on the gradual abolition of checks at the borders of France and the FRG (Bull. EC, 1984b:120–121). In this document, the French and German governments agreed to change regular border checks to “spot checks” (Bull. EC, 1984b:120). The Commission’s strategy for passport policy thereby became a step-by-step policy toward a “relief” of border checking based on “spot checks” (Taschner, 1990:9), which was adopted by bilateral agreements between member-states.13 This agreement did not leave any doubt about its ideal link with EC policy, stressing that the contracting parties were “aware that the ever-closer union of the peoples of the Member states of the European Communities should find expression in free passage across internal borders for all nationals of those States” (Bull. EC, 1984b:120). The agreement thus referred implicitly to Article 49 of the EEC Treaty on freedom of movement. This non-EC solution marked the beginning of a new approach to passport policymaking. Negotiations following the signing of the Franco-German agreement comprised both intergovernmental bargaining elements and EC action on behalf of the Commission’s negotiators. Progress in the area of border policy was marked by the multilateral Schengen Agreement on the Gradual Abolition of Checks at Their Common Borders (Schengen Agreement), which was signed by the governments of the Benelux Economic Union, the Federal Republic of Germany, and the French Republic on June 14, 1985, in Schengen, Luxembourg (see Steenbergen, 1992, for text of the agreement). Parallel to the border politics that preceded the Schengen Agreement, the Commission engaged in a series of actions to abolish internal frontiers. It prepared three memoranda that expressed the policy preferences of the time, putting an obvious accent on the achievement of a single European market (Bull. EC, 1985a:97). Embedded in this project was the abolition of “internal frontiers within the Community by 1992 in the interests of the citizens and companies of Europe. This complete unification of the market

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[would] be carried out in stages, following a precise timetable” (Bull. EC, 1985a:99). The blueprint was the Commission’s White Paper on the internal market.14 The White Paper was a document without precedent in EC history. Its attempt to streamline the confusing and disorganized flow of Community policymaking was extraordinary. Beyond its practical value, the White Paper was a major innovation in Community policymaking because it allowed for a language of success and achievement to become part of EC discourse: the market was defined as an “expanding market—not static but growing.”15 Previously, there had been only one measure of successful EC policymaking: the acquis communautaire, that is, the shared institutional, legal, and ideal property of the EC at any given time.16 This type of property was not always easy to spot, and it was even less obvious to EC citizens than to the involved practitioners. The lack of opportunity to spell out policy goals and then be able to point at their successful realization in due time had contributed to the vague notion of the EC as a huge “bureaucracy” that prevented “transparent” politics. In other words, the EC was conceived as “undemocratic.” With the White Paper’s precise timetable, that situation changed. Among other things, the White Paper addressed the realization of essential goals of passport policy, including the easing of border controls, the elimination of checks on individuals leaving one member-state for another, and the disappearance of all systematic checks on the movement of citizens within the EC. 17 Although the member states had to agree to “aboli[sh] barriers of all kinds, harmoniz[e] rules, approximat[e] legislation and tax structures, [and] strengthen monetary co-operation and the necessary flanking measures to encourage European firms to work together,” the Commission aimed at more than a mere adoption of the timetable. The realization of this program required an operational institutional basis that remained to be clarified. Among other things, the so-called Luxembourg compromise, which had prevented the EC from using qualified majority voting in Council decisions since the 1960s, needed to be addressed in order to facilitate the Commission’s innovative role as the organ responsible for writing proposals. This was crucial for the completion of the 279 directives of the White Paper. To this end, the Milan European Council decided to convene an intergovernmental conference (IGC). At the time, European practitioners regarded the internal market “as crucial to the revitalization of European integration. The means must therefore be provided to achieve it” (Bull. EC, 1985b:8). As to the target date of 1992, “political commitment must be turned into legal requirement; otherwise it would be a dead letter” (Bull. EC, 1985b:8). Successfully realized with the signing of the SEA, this “relaunching” of European integration (Colchester and Buchan, 1990) shifted the focus of EC policymaking

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toward the completion of the single market without frontiers in 1992. Three aspects of the SEA were central to the progress of citizenship policy. The first was the establishment of qualified majority voting for decisions regarding the realization of the internal market, as in Article 8b (single market), Article 28 (tariffs), Article 57 (diplomas), Article 59 (free movement of services), Article 70 (movement of capital), Article 84 (means of transportation), and Article 100a (harmonization of legal provisions);18 the second included the stipulation of “economic and social cohesion” in Title V of the EEC Treaty. The third was the decision of all member-states to “work together to promote democracy on the basis of the fundamental rights recognized in the constitutions and laws of the Member states, in the Convention of the Protection of Human Rights and Fundamental Freedoms and the European Social Charter, notably freedom, equality and social justice” (Bull. EC, 1986:5). The half-decade of EC policy planning that was initiated with the 1984 Fontainebleau European Council produced one major achievement: the planning, negotiating, and signing of the Single European Act. The SEA decisively changed the EC institutional network and created the basis for a Community without internal frontiers. Citizenship policy was not at the forefront of EC discourse in the 1980s. However, the passport and special rights packages did receive considerable impetus when the “single market without frontiers” was launched with the Commission’s White Paper, which stood as a brilliant example of the “Russian Doll” strategy of the Delors Commission (Ross, 1993). Thus citizenship policy, which had been debated philosophically in the aftermath of the Paris summit, was now realized as a means toward the establishment of the single market without internal frontiers. Now, special rights policy was, if temporarily, restricted to the right of citizens as workers, thus excluding nonworking persons from enjoying special rights. Similarly, passport policy was approached via the issue of abolishing border controls with a view to increase worker mobility within the internal market. What may overall be considered as a measured continuity of policymaking faced a serious external blow when the Berlin Wall tumbled in 1989 and the Cold War balance no longer stabilized global politics. German unification created political momentum for change toward political union that was without precedent in EC history. This momentum evolved on two grounds. First, a unified Germany presented a potential threat to the still unstable institutional setting within the EC, implying an increasing number of German members of the European Parliament (MEPs) and conferring more political weight on Germany. Second, there was no doubt that prospective Maastricht, 1991: Bringing Political Integration Back In

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EC policy would have to focus on relations with central and eastern Europe and, eventually, whether and how the EC might enlarge toward the east. These new external impacts on EC politics interrupted a previously relatively smooth flow of EC politics, which had concentrated on preparations for the upcoming IGC on European Monetary Union (EMU). At that time, the European Parliament observed that although “Europe might be an economic giant, it remained a political dwarf.”19 As practitioners expressed it, the EC needed stability to create hope for the now disorganized Eastern European countries. Commissioner Martin Bangemann stated, for example, that “the bipolarity of the superpowers which was the basis for the necessity to channel and otherwise manage the inevitable tensions and conflicts in international relations no longer exists.”20 Painting a picture of possible future scenarios of unrest and implying that only a strong and united Europe could face these challenges, he added that “ancient sources of fire, like nationalism, religious fanaticism, racism, the exclusion of minorities which were thought to have been eradicated a long time ago, might suddenly reignite. Within such an environment, we need a strong European Community—for us, in our interest but most of all in the interest of those who have put their hopes in this Europe.”21 The intervention was thus not restricted to the dangers of potential crises; it also stressed the prospective role of a strengthened European political union as an international actor. The new geopolitical situation had two major impacts on citizenship policy. One was the change in European identity politics. After all, “from the outset, the Community had considered itself as synonymous with ‘Europe.’ With the Cold War over, could the Community foster a sense of pan-European solidarity and genuinely pan-European integration?” (Dinan, 1994:158; see also Laffan, 1993:36). These were serious questions that also problematized the discourse on a “European” identity, which had been so crucial for the emergence of citizenship practice in the early 1970s. At that time, “European” identity meant Western Europeans (including the potential Western European new member-states’ citizens). The fall of the Berlin Wall challenged the use of that term, suggesting that some Europeans had been left out all along (Hoogenboom, 1992:74). The other impact on citizenship policy was the shaky Paris-Bonn axis, as German chancellor Helmut Kohl pushed for fast German unification, whereas French president François Mitterrand was “torn between an instinctive antipathy toward German unification . . . , and an equally instinctive affinity for European integration” (Dinan, 1994:163). One way of facing this tension was to forge a link between German unification and European integration. According to the Italian government, the external political changes had led to “opening up a constituent era of international relations in our Continent” (Europe Documents, 1990a:1). In a summary note concerning

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the guidelines for the Italian presidency of the EC Council, the Italians stressed that such a new era required “an additional conference on institutional matters” (Europe Documents, 1990a:2). About ten days after the publication of that Italian summary note, Chancellor Kohl and President Mitterrand addressed a now famous letter to the Irish presidency of the Council, stressing that the political situation required a second conference on political union. The objective was to “strengthen the democratic legitimation of the union, render its institutions more efficient, ensure unity and coherence of the union’s economic, monetary and political action—define and implement a common foreign and security policy.” The letter was a straightforward demand to initiate steps toward the institutional settlement of political union. Kohl and Mitterrand also set a clear time frame, declaring that their “aim [wa]s that these fundamental reforms—economic and monetary union as well as political union—should enter into force on January 1, 1993, after ratification by the national parliaments.”22 The solution seemed feasible to the majority of the member-states. Accordingly, the IGC on EMU was coupled with a second IGC on political union, thus bringing the issue of political integration back in. The initiative drew on the Martin Report (I), which had been adopted by the European Parliament on February 27, 1990, and mentioned the urgent necessity of developing the EC into a European Union on a federal basis.23 The Kohl-Mitterrand initiative was followed by a Belgian memorandum, which was drawn up to “suggest that the European Community be given a new stimulus towards political union.” In a more subtle way, this memorandum singled out two major tasks on the EC’s political agenda. The first was to clarify the “Community’s political purpose” in the light of the international political transformation, and the second was to deal with the “growing democratic deficit” that had developed along with the growth of the single market. Like the Martin Report, the Belgian document stressed the necessity to include provisions providing a stronger link between the EC and its citizens, for example, on the basis of a uniform electoral procedure, and the right of Community citizens to vote in local elections.24 These documents showed how the changed external conditions had opened space for negotiations toward a new institutional entrenchment of political union. In the wake of the informal Dublin summit (April 1990), they provoked intense debates, using a type of wording that manifested that time for change was overdue. This urge for progress was most explicitly put by the president of the European Parliament, Enrique Baron Crespo, who declared that he would “like the Dublin summit to express a position in favour of a rapid qualitative leap in the Community, whatever procedure [wa]s chosen.”25 Citizenship as such was brought into EC discourse within the framework of the preparatory interinstitutional conference by a letter from

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Spanish prime minister Felipe Gonzalez to the president of the Council on May 4, 1990.26 In this letter, Gonzalez proposed to include citizenship in the Treaty. The letter related EC citizenship policy in the 1970s to the situation in the 1990s. This new context required the creation of “real contents” for political union, as Spanish representative Fernandez Ordoñez explained during the conference. It was, for example, possible to think of such a political union as being based on “three pillars: an integrated economic space, a common foreign and security policy, and a common citizenship.”27 That notion of citizenship was mentioned in a note of reflection from EC foreign ministers, stating that the “overall objective of Political Union” included three main aspects, namely, the transfer of competences, the notion of “Community citizenship,” and the free circulation of persons (Europe Documents, 1990b:2). With a view to special rights policy, the foreign ministers asked, “How will the Union include and extend the notion of Community citizenship carrying with it specific rights (human, political, social, the right of complete free movement and residence . . . ) for the citizens of Member states by virtue of these states belonging to the Union?” (Europe Documents, 1990b:2). The message was clear. If the EC was to turn into a “union of a political nature” with a mandate to take foreign policy decisions, citizens as constituents of this new entity needed to be bound to it. Similarly, the European Parliament, as the representative of this constituency, needed more powers. These were the grounds from which the ongoing problem of democratic legitimacy was to be tackled. As regards citizenship policy, the major question for the Dublin II summit (December 1990) became, in the words of Commission president Delors, “how [could] a flesh and blood content be given to the notion of European citizenship so judiciously proposed by Felipe Gonzalez?”28 The question was first answered by the Spanish delegation. Soon after the Gonzalez letter, Spanish authorities produced a second note on citizenship.29 It stated that it was time to work on the regrettable fact that only those citizens who occupied functions of consumers or producers had equal access to the EC. For a political union to be created, this economic dimension needed to be transcended.30 A concept of European citizenship had to comprise political, economic, and social citizenship rights. 31 Whether intended or not, the Spanish authorities proposed a Marshallian triad of civil, political, and social citizenship rights (Marshall, 1950), including a notion of dynamic social rights with a view to progressive equalization of access to citizenship. This dynamic perspective on equal citizenship rights was new in Community history. So far, EC citizenship policy had never before aspired to create equality among all citizens based on progressive citizenship rights. This Marshallian perspective was refined in September with a Spanish government proposal on “European Citizenship” (Europe Documents,

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1990c:1). The document comprised a most elaborate answer to both the foreign ministers’ and Delors’s questions about citizenship. It linked three aspects of citizenship policy with a European integrated space: a common market area, free movement of persons, and foreign policy. These were interlocked in different ways. With the establishment of a new economic framework for the large internal market—and soon EMU—the movement of persons became a crucial factor. Despite manifold efforts to establish special rights, so far citizens had not been granted new political rights by the EC. They never went beyond the status of “privileged foreigners” in their role as mobile market participants. In view of the upcoming development toward political union, the status quo would undergo radical changes. That “require[d] the creation of a common integrated area, where the European citizen [would] have a central and fundamental role,” and, to this end, the Spanish government proposal asserted, it was “important to define a citizenship of the European Political Union” (Europe Documents, 1990c:1). The document emphasized that citizenship was a flexible and dynamic concept, developing together with political union, that is, that the “progress which [would] be made for the union to attain its final objective [would] be accompanied by a more precise and complete definition of the quality of European citizens” (Europe Documents, 1990c:2). At the same time, the Spanish government emphasized the necessity of making a qualitative leap to launch this dynamic development of citizenship. It recommended that the IGC “debate the necessity of changing or completing the treaties in such a way as to at least define and resolve the notion of citizenship, as well as the status civitatis, designed as a set of rights, freedoms and obligations of citizens of the European Union” (Europe Documents, 1990c:2). To this end, the Spanish document defined three sets of rights and responsibilities of European citizenship, namely, those that referred to national, Community, and Union citizenship. Union citizenship would grant rights allowing for participation in the citizen’s member-state of residence, such as special basic rights, new (dynamic) rights, and protective rights. Special basic rights comprised “complete freedom of movement, free choice of place of residence and free participation in political life in the place of residence” (Europe Documents, 1990c:3). Dynamic rights would develop based on citizenship policy and other policy areas such as social policy, culture, and the environment, whereas protective rights would establish consular protection for EU citizens outside EU territory (Europe Documents, 1990c:3). Some of these rights were already—at least partially—in place or were part of previous policy negotiations among EC institutions and the member-states, but the document suggested including these rights in the Treaty so that they would be granted by the EU. Such a change would induce further qualitative changes with regard to the legitimacy of

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the responsible institution to grant or deny these rights. To summarize, the Spanish document included notions of political rights (assembly, expression, association, vote), civil rights (business, movement, residence), and “dynamic” social rights (education, health, social relations). That notion of social rights provided a view to the future. According to the document, if that political project were to lead toward a “real union,” it “should aim to overcome the inequalities which subsist[ed] between Community citizens because they live[d] in different areas of the Community and through different means reinforce the social cohesion in a concrete framework” (Europe Documents, 1990c:2). Regional differences were one cause of inequality among Community citizens, which could be addressed via social citizenship rights. Previous policy discourse in the EC had taken account of this fact within the framework of the politics of solidarity during the Fontainebleau period. To overcome regional differences, structural funds had been established. To establish a discourse of progressive social rights implied that regions might achieve the right to ask for funding. Such a regional social right would certainly mean a qualitative change in equality politics that was not only unprecedented but also indicated a new way of thinking about regional integration. Different from the socioeconomic aspect of territory, which was part of the special rights discourse, the passport discourse brought the profoundly political issues of access, security, and control to the fore. Until the 1990s, border control, or the abolition of internal EC borders and the enforcement of external EC borders, had been an aspect of passport policymaking for almost two decades. It had been dealt with as a matter of “high politics” (Hoffmann, 1966) and addressed in an intergovernmental fashion. A whole range of newly emerging groups, committees, and subcommittees had been busy analyzing the matters of police, drugs, and terrorism.32 These groups were frequently characterized as lacking transparency, not only from the perspective of the public but also of the Commission and EP officials involved in the process. At times, participants in one group did not know about the work of another group, to the extent that responsible government officials were, in fact, often not adequately informed. As Belgian socialist MEP Lode van Outrive observed, “To talk about clearly set democratic goals [would be] out of proportion; there [was] an array of working groups which [kept] their results as a secret, so that they did not even know about the object of their work among themselves. Moreover national members of government [were] often not informed.”33 A good part of the movement discourse was generated within the 1985 framework of the Schengen Agreement. With five member-states participating and Italy and Austria applying for membership, Schengen had turned into something like an “engine” in the complicated process toward the realization of an internal market without frontiers. In fact, internal Commission

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documents on the Schengen ministers’ meeting in Bonn on June 25, 1991, reported that Schengen was a positive element that had a driving effect on Community objectives otherwise difficult to obtain. However, the downside of this situation was that the Commission had to accept mere observer status in the Schengen negotiations, a position that turned out to be much more controversial than had been assumed in early Schengen years. With the deadline of 1992 approaching, the debates shed light on the complex process of border politics, including not only the freedom to cross them (positive discursive effect) but also the duty to secure and control them and the territory they bounded (negative discursive effect). Previously, the Commission and the European Parliament had been the major actors in pushing for the former, with a view to creating a functional internal market and developing a feeling of belonging among European citizens that would slowly but steadily contribute to the emergence of a European identity. Once security came onto the policy agenda, the member-states represented in the Council of Ministers of the Interior were the ones to show an increasing interest. This interest resulted in a shift in the style of policymaking as well as the policy networks involved in the process. In the short term, the major problem was that Schengen borders and EC borders did not always overlap. For example, how was a European citizen who arrived from London (not a Schengen country but an EC memberstate) to be checked at Amsterdam’s Schiphol airport? Was she going to be treated as an “alien,” that is, “any person other than a national of the Member State of the European Communities”?34 Such treatment would clearly not contribute to a symbolic sense of European identity. Yet, if the passenger’s identity and baggage remained unchecked at external Schengen borders (Schiphol Airport), the security risk was too high. The dilemma was addressed by two EP reports, a second Outrive Report on Schengen, and the Malangré Report on free movement of persons. Stressing the practical problems caused by more than one set of borders, the Outrive Report pointed at the contradictory discourse of introducing a new freedom of movement by removing internal frontiers and the parallel request for newly fortified borders around the Schengen countries within the EC.35 The debates over strategies and concepts of policymaking during this period added a third dimension to the citizenship discourse within this polity-in-the-making. Whereas the Paris period was dominated by debates on the establishment of a European identity and Fontainebleau contributed an unfolding discourse of solidarity, the Maastricht period tackled legitimacy. During the early debates on special rights and passport policy in the Maastricht period, the necessity of establishing an institutional backup for the newly emergent EU became evident. The quest for democratic legitimacy required a shift in policymaking. As I have demonstrated, that shift was to be defined in political terms. The socioeconomic and territorial aspects

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of border policymaking in the late 1980s and early 1990s turned into border politics as the conflict between “police and security” and “freedom and democracy” led to a growing public dispute in the EC. Maastricht citizenship policymaking brought a particular type of citizenship politics to the fore. If it can be sustained that the distinction between the terms “politics” and “policy” can be made by defining policy to mean contents and results and politics to mean processes of conflict and consensus,36 then Maastricht citizenship-making leads us to the following conclusion. While citizenship policymaking had contributed to the contents and strategies of the process, the new situation of conflict over the political basis of citizens’ rights brought conflict and consensus into the process and resulted in new institutional arrangements. The last stage of citizenship policy in this twenty-year period of EC policymaking thus brought two major innovations. One is the inclusion of political rights in the Treaty. The other is the conceptually innovative suggestion to think about social rights not only in terms of class or gender but also in terms of regional differences. During this process, the third citizenship policy package emerged. Against the odds—and the particularly strong opposition of the UK delegation to any common social policy—the Spanish delegation, with strong support from the Irish and Portuguese delegations as well as from the Commission, continued to insist on the necessity of new regional policymaking (Bull. EC, 1991:132–134). In the end, the notion of solidarity did materialize by way of a reformulation of Article 130 EC so that “economic and social cohesion, and solidarity among Member states, [were] expressly included among the tasks of the Community [so that] the objective of cohesion [had to] henceforth [to] be a constituent part of all other Community policies from their inception” (European Social Observatory, 1993:62).37 Conclusion

This chapter reported results of a research project on EC/EU citizenship policymaking. It focused on the incorporation of citizenship rights in the quasi-constitution of a nonstate in the context of changing global politics that had brought a crisis of the nation-state and a revival of the citizenship debate. It demonstrated how citizenship policy emerged along with the EC’s need for negotiating power within the international realm. That necessity reemerged with the crises the EC faced over time, including the breakdown of the Bretton Woods system in the early 1970s, the decline of the western European welfare state in the 1980s, and the challenge to the balance of powers in international relations initiated by the 1989 fall of the Berlin Wall. The establishment of Union citizenship thus emerged in relation with and often in response to international crises.

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For comments on earlier versions of this chapter, I am very grateful to Josée Bergeron, Mathias Bös, and Jane Jenson. The responsibility for the final argument is, of course, mine. 1. For a more in-depth elaboration on this concept, see Wiener (1998, chap. 2). 2. PE 207. 047/fin., November 25, 1993 (opinion concerning citizenship in the Union, written for the Committee of Civil Liberties and Internal Affairs, drafted by Rosamaria Bindi of the Committee on Institutional Affairs; hereafter referred to as Bindi Report). 3. This was the interpretation of the German Constitutional Court. See BVerfGE 22, 293 (296); cf. Hobe (1993). 4. Civil rights comprise the right to liberty of the person; freedom of speech, thought, and faith; and freedom to own property and conclude valid contracts. Political rights allow participation in the exercise of political power. Social rights establish the right to access to social welfare and security, to a share in social heritage, and to the life of a civilized being (Marshall, 1950:10–11). 5. For a clear assessment of the development and meaning of different schools, including historical and rational choice approaches within the framework of new institutionalism in the field of comparative politics, see Thelen and Steinmo (1992); for an overview of recent developments of the practice of new institutionalism in sociology, economy, and political science, see Hall and Taylor (1996). 6. Bull. EC (1975a). Translation: “Instead of leading to the reinforcement of Community solidarity and to a Europe that would affirm its identity vis-à-vis the rest of the world, the economic crisis and the changes in international relations had marked a standstill and perhaps a retreat in the construction of Europe.” 7. Agence Europe, No. 1449, February 2, 1974, p. 7. 8. Dissent was particularly expressed with reference to the establishment of the Regional Fund. As Bertrand, the rapporteur for the Political Committee, noted, “enthusiasm and confidence after this summit [Copenhagen] are out of place, as the formula appears to have failed to a large extent, this being produced by the deadlock on the question of the Regional Fund” (cf. Agence Europe, No. 1438, January 18, 1974, p. 4). 9. Agence Europe, No. 713, January 5, 1973, p. 7; from an interview published in “La Libre Belgique,” December 28, 1972. 10. Desmond Dinan writes, for example, that the “United States and the Nine toyed with various draft statements on U.S.-European relations in the summer of 1973, before the member states adopted their Document on the European Identity on December 14” (Dinan, 1994:85). 11. European Report, No. 1052, p. 6; see also Bull. EC (1984a:12) on the “British problem.” 12. This approach later became known as “Russian Dolls” (Ross, 1993). 13. As Taschner explains, the step-by-step policy strategy had been introduced to Commission policymaking by him. The origin of this type of policymaking was the “policy of small steps” (in German: Politik der kleinen Schritte) that had been applied first by the representatives of the Federal Republic of Germany toward the German Democratic Republic in order to ease the political relations between the two German states (interview with Taschner, Brussels, June 8, 1994). 14. COM(85)310 final, Brussels, June 14, 1985. “Completing the Internal Market,” White Paper from the Commission to the European Council, Milan, June 28–29, 1985.

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15. Ibid., p. 5. 16. According to the European Commission, the acquis communautaire is understood as “the contents, principles and political objectives of the Treaties, including the Maastricht Treaty; the legislation adopted in implementation of the Treaties, and the jurisprudence of the Court; the declarations and resolutions adopted in the Community framework; the international agreements, and the agreements between member states connected with the Community’s activities” (quoted in Michalski and Wallace, 1992:38). 17. COM(85)310 final, Brussels, June 14, 1985, Annex, p. 1. 18. These areas for qualified majority voting in the Council of Ministers are stipulated in Article 8a (Completion of the Internal Market) of the EC Treaty. 19. PE 137.068/fin., p. 16. 20. SG(90) D/05797 (intervention of Martin Bangemann, vice president of the Commission, July 11, 1990, in the European Parliament), p. 8 (translation from French). 21. Ibid., p. 9. 22. Letter published in Agence Europe, No. 5238, April 20, 1990, p. 3. 23. PE 137.068/fin., p. 6. 24. Memorandum from Permanent Representative of Belgium to the European Communities, March 19, 1990; in Laursen and Vanhoonacker, 1992:269–275. 25. Agence Europe, No. 5239, April 21, 1990, p. 3. 26. SEC(90) 1084 ref. from: SEC(90) 1215, June 15, 1990, p. 1. 27. SEC(90) 1015/2, May 18, 1990, p. 6. 28. Agence Europe, No. 5281, June 23, 1990, p. 4. 29. “Union politique et citoyenneté commune,” reproduced in SG(90) D/06001, July 24, 1990 (French version). 30. Ibid., p. 1. 31. Ibid., p. 4. 32. For a good overview of some of these groups see Den Boer and Walker (1993:4–7); Taschner (1990:27); and Commission of the European Communities, December 12, 1990, CIRC 36/4/90 (objet: Rapport du Groupe des Coordinateurs au Conseil européen—Mise en oeuvre du rapport de Palma). As the EP’s Outrive Report observed, “European cooperation between the police and the courts [was] disturbed by the lack of cooperation between numerous initiatives in this area which overlap[ped] and cut across each other. This broad number of groups, working groups, committees, clubs (Trevi-Groups, Pompidou, Group of Co-ordinators, CELAD-ECCD, GAM-MAG, Committee of Experts, Club of 5, working groups, ad-hoc groups, IKPO-Europol, European Council, Gafi-G7, CCC, Mar-Infogroep, STAR, UCLAF, Dublin and so forth) ha[d] resulted in a real chaos” (PE 202.540/fin, November 5, 1992, p. 20); for an overview of all groups, see first Outrive Report (PE 156.390). 33. PE 202.540/fin, November 5, 1992, p. 21. “Second Report of the Committee on Civil Liberties and Internal Affairs on the Realization of the Schengen Agreement.” Rapporteur: L. van Outrive. 34. Schengen Convention, Schengen, June 19, 1990, p. 3. 35. PE 202.540/final, p. 22. 36. See Zeuner (1989:135) and Schmidt (1989:106). 37. “The establishment of a new Cohesion Fund before the end of 1993, designed to take action only in countries whose per capita GNP is less than 90 percent of the Community average (Ireland, Greece, Portugal, Spain) and that have

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established a program leading to economic convergence as provided by the Treaty on Economic and Monetary Union, is another factor demonstrating the desire to emphasize the redistributive nature of cohesion policy” (European Social Observatory, 1993: 62).

Laura Macdonald

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Democracy, Human Rights, and the Transformation of Civil Society: The Case of the New North America We are not asking for charity or handouts, we are asking for the right to live with human dignity, with equality and justice as did our parents and grandparents. —Ejercito Zapatista para la Liberación Nacional (EZLN), quoted in Nash and Kovic, 1996:185

Governments should respect the basic civil, social, political, economic, and environmental rights of their citizens; their development strategies should promote the basic economic, social, and cultural rights outlined in the United Nations Declaration of Human Rights. . . . Under the current development strategies of all three countries, increasing numbers of people are denied human rights. Neither the NAFTA nor its recently negotiated side agreements give any consideration to these rights. —Alliance for Responsible Trade et al., n.d.

Regional trade agreements are frequently portrayed as primarily economic phenomena. The emergence of a North American economic region, represented in the North American Free Trade Agreement (NAFTA), has been the subject of numerous studies.1 In general, analysts have focused primarily on the economic causes and consequences of regionalization in North America; the political, social, and cultural dimensions have been the subject of little serious analysis. Focusing purely on the economic side (whether the aggregate gains in trade expected by supporters of NAFTA or the losses in jobs and wages expected by detractors) results in overlooking many fundamental political aspects of regional restructuring.

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In this chapter, I argue for the necessity of analyzing the long-run impact of North American integration on human rights in all their dimensions. NAFTA must be understood as part of a broader process of regional integration that involves profound changes in relations between state and civil society, between the national and the international (or regional), and between the private and public spheres in Canada, the United States, and Mexico. These changes carry important implications for a wide range of basic human rights. The impact of regionalization on democracy and human rights is most obvious in the case of Mexico, where respect for these rights is most limited. Following David Held and others, however, I will argue that regionalization (like globalization) also poses severe challenges to the health of democracy and human rights among the northern participants, Canada and the United States. This task is impeded by traditional approaches to international human rights, derived from liberal theories, which tend to ignore economic factors. In addition, debate about NAFTA has been polarized between opponents and proponents of the deal, often leading to economistic and deterministic assumptions. Proponents of NAFTA have primarily based their arguments on the expectations for aggregate growth in the region as a whole resulting from trade liberalization and the claim that these benefits will eventually trickle down to society at large. On the political side, proponents accept liberal assumptions that economic liberalization in Mexico will automatically promote political liberalization. They claim that an improved human rights situation in Mexico has resulted from increased international scrutiny. Opponents of NAFTA have also concentrated a great deal of attention on the economic consequences of liberalization, including distributional aspects and the possibility of job loss. However, opponents have paid greater attention than proponents to political issues such as concerns about sovereignty and the ability of states to regulate transnational capital. To the extent to which human rights concerns have been raised, however, the focus has been almost exclusively on civil and political rights in Mexico, as well as labor rights throughout the region. The impact of regional integration on other economic, cultural, and social rights in North America as well as civil and political rights in Canada and the United States have rarely been examined.2 In general, I contend, integration and the related promotion of the neoliberal state in the three countries has led to a downward pressure on a wide range of social rights and on the quality of democracy in the region. Nevertheless, it is important to avoid determinism in understanding the relationship between economic and political change. As Jan Berting states, “Human rights are almost never ‘given.’ Usually they must be conquered, and often must be reconquered after we become aware that we have been fooled by unintended and undesirable consequences of societal change” (Berting, 1990:206). This approach implies a theoretical emphasis on agency

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and social struggles both between different groups within civil society and between civil society and the state. Human rights, according to Jack Donnelly, “empower citizens to act to vindicate these rights; to insist, through the exercise of their rights, that these standards be realized; to struggle to create a world in which they are realized in practice” (Donnelly, 1989:3). Civil society has not responded passively to the changes associated with regionalization. Popular movements in the three countries have organized into coalitions critical of NAFTA that have highlighted some of the problems discussed here and have suggested possible alternative forms of integration in which human rights and democracy are central elements. It is difficult to untangle the impact of the NAFTA agreement from other related forces in the international political economy: “globalization”; changing production strategies of firms within the region; changes in domestic politics toward the neoliberal state form, and the long-standing processes of economic integration between both Canada and the United States, and the United States and Mexico. In general, then, this chapter focuses on the broader process of regional integration, of which NAFTA is an important defining moment, rather than the more narrow impact of the trade agreement. I begin with a brief discussion of the different ways in which human rights have been addressed in two economic regions, Europe and North America. These differences reflect the distinct historical and cultural traditions of the two regions, as well as the different forms of state within the dominant countries of each region. In the second section, by way of illustration, I examine the impact of regionalization on labor rights, women’s rights, and rights of migrants and refugees. This is by no means a comprehensive survey but merely highlights some of the principal concerns raised by current trends. As I will show, many of these concerns relate to the fear that lower social standards will lead to a downward pressure on standards in Canada and the United States (the so-called race to the bottom), as employers and governments compete for increasingly mobile investment. The third section addresses the impact of regional integration on human rights in Mexico, the least democratic partner in the regional alliance. In the final section of the chapter, I discuss general concerns about the trend toward the withering away of democracy and citizenship rights associated with regional integration in North America (and elsewhere). Human Rights and Regional Integration

The formation of regional “economic spaces” in Europe, North America, and Asia is clearly a process that is not opposed to, but rather closely linked with, globalization. For example, the United States was able to use the

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Canada–United States Free Trade Agreement (FTA) as a “lever” to encourage progress in the then-stalled Uruguay Round of the General Agreement on Tariffs and Trade (GATT). The eventual agreement from the Uruguay Round also contained key elements of the U.S. trade agenda such as trade in services and intellectual property rights that initially debuted in the FTA. However, regional agreements also impart a degree of flexibility to the process of globalization and allow for a limited expression of diversity within the broader process. The different forms of regional integration thus express the different values and political systems of the respective parties (or at least those of the political elites within the dominant partner—in the case of NAFTA, the United States).3 Thus, one of the main differences between the forms of regionalism in North America and Europe relates to their differing approaches to human rights issues. The European approach is commonly used as a model in this respect by critics of NAFTA (although critics who advocate abrogation of NAFTA tend to dismiss this experience). For example, Ed Broadbent, former president of the International Centre for Human Rights and Democratic Development in Montreal, praised the European model in his testimony before the Canadian Parliament: The European Economic Community has led the way in recognizing the links [between trade and human rights] and European leaders of all political persuasions have been preoccupied to assure that economic integration will not mean a downward harmonization of standards. Eleven of its 12 members have adopted a “Community Charter of the Fundamental Social Rights of Workers.” Earlier the EEC delayed the entry of Spain and Portugal until they met the human rights standards of member-states and Turkey’s poor human rights record is still an obstacle to its membership. The Charter of the European Bank for Reconstruction and Development makes explicit links between its lending policies and human rights, pluralism and democracy. (Broadbent, 1993:2)

The existence of an elected European Parliament is a partial concession to concerns about democracy at the European level. In addition, “structural funds” help equalize imbalances between the richer and poorer countries in the European Union (EU) (even though the disparities are not nearly as great as those between Canada and the United States on the one hand and Mexico on the other). The codification of human rights concerns within the structures of the EU can be traced in part to the historical origins of European integration, in which the desire to avoid the horrors of Nazi Germany by strengthening democracy in the region were almost as important as economic motives for regional integration. Moreover, the historic strength of social democracy in Europe and a strong tradition of state intervention meant states were more willing to incorporate demands expressed by noncorporate actors, including

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women’s groups and labor unions, and to address economic and social rights within the integration process. Of course, the elements of European integration mentioned above have been widely criticized by social movements in Europe, who find them largely inadequate and ineffectual. Indeed, progressive anti-EU campaigners frequently point to the “democratic deficit” that has resulted from the concentration of power in nonelected bodies. Martin Rhodes argues that the combined effects of regional economic integration and globalization are fostering a “subversive liberalism” that “is eroding the principles of universalism and solidarity in welfare provision and subjugating social progress to the exigencies of economic competition” (Rhodes, 1995:384). Nevertheless, the European experience of integration involves much more attention to human rights and democracy concerns than the North American. The virtual silence of the NAFTA agreement on these concerns is partly attributable to the dominance of the United States on the continent, with its traditions of neoliberalism and widespread suspicion of binding international agreements that might limit state sovereignty, particularly in the area of economic and social rights. For example, the United States has been notably unwilling to sign UN Conventions in these areas. It must be recognized, though, that once widespread public opposition to the NAFTA agreement emerged, it was only the more permeable congressional system of the United States that permitted some limited concessions on these issues. The fact that the debate emerged during an election year put President Bill Clinton under pressure to create side agreements on labor and the environment. In contrast, in Canada and Mexico, where the governing parties exercise more control over the legislative process, governments were unwilling to make concessions demanded by NAFTA critics within their own countries and only agreed to the side accords in order to avoid the stalling of congressional approval for the agreement in the United States. Within North America, progress on linking trade with human rights has also been impeded by different priorities on human rights issues among the participating regimes. In the aftermath of the Cold War, both the U.S. and Canadian governments have increasingly emphasized human rights and democracy as key foreign policy objectives. However, in this interpretation, human rights are limited to civil and political rights, and democracy is interpreted in its minimalist form as the existence of regular, relatively free and open, elections. Separating civil and political rights from the broad range of human rights and prioritizing the former thus permits the United States and Canada to paternalistically present themselves as the virtuous parties in the hemisphere and to imply that incorporation of Mexico into the continental trade pact will inevitably exercise a positive impact on human rights conditions in that country. For example, in a letter to the for-

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mer national secretary of OXFAM-Canada, former Canadian minister of trade Roy MacLaren responded to concerns about the human rights situation in Mexico and particularly the rights of aboriginal peoples in Chiapas by saying: “I would suggest that NAFTA has been a major force in Mexico’s open response to the human rights allegations as well as the underlying issues, for it has brought Mexico into closer relations with countries that have a tradition of liberal democracy.”4 However, in trade promotion trips to Mexico and China, Prime Minister Jean Chrétien made it clear that Canada will not make trade links conditional upon improved human rights in the countries with which it does business (the so-called Chrétien Doctrine): “If we refuse to do business with every country having a political system that is not to our liking, then we will not be doing business with very many people” (quoted in Thompson, 1994:B5). Similarly, Clinton has extended most favored nation status to China and recently certified Mexico as a partner in the U.S. “war on drugs” despite the rampant corruption in the country’s drug control apparatus. In contrast to the U.S. and Canadian positions, the Mexican government has seemed to prioritize social, cultural, and economic rights over civil and political rights. Under the administration of President Carlos Salinas de Gortari, the official line was that “there is no true democracy without a social program. In order for the democratic process to become consolidated and to advance, there must be a solution to the people’s heartfelt problems” (Gentleman, 1993:7). This position was designed to distract attention from the systematic human rights abuses and electoral manipulation perpetrated by the Mexican government and to indefinitely postpone political reform. The decline in wages and living standards and the polarization of wealth during the Salinas administration cast doubt on its claim to be placing priority on a “social program.” It is important to avoid this sterile and manipulative separation of civil and political rights from other kinds of rights and the ranking of one “generation” of rights as more important than the other. The distinction between two categories of rights is largely rooted in Cold War discourses, in which the superpowers espoused one form of rights at the expense of the other and authoritarian Third World regimes espoused developmentalist rhetoric that portrayed civil and political reforms as First World luxuries. In fact, the two categories are intimately connected. The expansion of civil and political rights creates space for subordinate social groups to demand economic, social, and cultural rights without fear of reprisals.5 Also, recognizing the ways in which the rights of all North Americans are threatened by the current form of economic integration is necessary to avoid ethnocentrism and paternalism and to provide the basis of a common agenda between Canadian, U.S., and Mexican human rights activists,

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despite the very different nature and degree of respect for human rights in the three countries. David Held has examined some of the implications of regionalization and globalization for traditional democratic theory: The problem, for defenders and critics alike of modern democratic systems, is that regional and global interconnectedness contests the traditional national resolutions of the key questions of democratic theory and practice. The very process of governance can escape the reach of the nation-state. National communities by no means exclusively make and determine decisions and policies for themselves, and governments by no means determine what is right or appropriate exclusively for their own citizens. (Held, 1993:25–26)

Ian Robinson argues that NAFTA intensifies the already existing trends toward inequality and injustice contained in the movement toward globalization. This will occur, he claims, because NAFTA will encourage corporate competitive strategies premised on cutting wage and environmental protection costs, and intergovernmental competition premised on cutting corporate taxes and regulations to attract and maintain private investment. Competition of these kinds may well reduce rates of technological innovation and productivity growth. Even more important, they will exacerbate income inequalities and undercut worker rights and labor movement power in the three NAFTA countries. These changes, in turn, will reduce the quality of democracy in Canada and the United States, and the probability that high quality democracy will emerge and survive in Mexico. (Robinson, 1993:4)

Another major concern relates to the changes neoliberal regional restructuring, enshrined in NAFTA, implies for the relationship between civil society and the state (Grinspun, 1992; Gill, 1995). As I demonstrate below, state power is being radically redefined, dismantled in some areas and reinforced in others, but largely in antidemocratic ways. In addition, traditional divisions between the public and private are being transformed, with profound implications for basic human rights, particularly for women. Economic, Social, and Cultural Rights

In this section I provide an overview of some of the major human rights concerns that emerge from regional integration in North America. Since it is an economic agreement, the most obvious human rights concerns associated with NAFTA are economic, social, and cultural. (Political rights per se will be addressed later.) However, those rights traditionally seen as economic, social, and cultural clearly have profound implications for the quality of democracy in the region.

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Labor rights are the component of human rights that have received the most attention in the NAFTA debate.6 The side accord on labor responded to widespread concerns from U.S. workers about the likely impact of NAFTA. The most public debates were about the direct impact of NAFTA on workers in the form of wages, job loss, plant closures, and plant relocations to Mexico, particularly to the maquiladoras on the U.S.-Mexican border, where companies could pay workers lower wages and benefit from lax environmental regulation, compliant unions, and so on. This was “the giant sucking sound” trumpeted by Ross Perot during the debate on NAFTA in the United States. Although job loss remains a serious concern, a more sophisticated argument has also been made about the indirect impact of NAFTA on labor rights in Canada and the United States (Langille, 1991:599–600). In other words, economic integration means that the abysmally low level of wages and labor rights in Mexico (and to a lesser extent, in the southern United States) exercises a downward pressure on labor standards in the north. In the so-called right to work states of the U.S. South, weak labor legislation and enforcement creates heavy restrictions on union activity, low minimum wages, and low social assistance entitlements. Partly because of these low standards, the level of union membership in the United States has declined rapidly, in contrast to Canada, where the labor movement is relatively healthy (Robinson, 1993:27). More severe violations of labor rights occur in Mexico, despite the fact that on paper, Mexican labor legislation is stronger than that of the United States, reflecting the legacy of the Mexican revolution. The Mexican state has systematically used its control over the labor movement, organized in the Confederación de Trabajadores Mexicanos (CTM), as part of a political and economic strategy of undemocratic rule. The Washington-based International Labor Rights Education and Research Fund has detailed many violations of “internationally recognized workers rights” in Mexico, including the following: Labor Rights

1. Mexican workers are systematically denied the most fundamental labor union rights. Mexican workers are not allowed to freely form or join labor organizations of their choice but are forced to join the labor unions affiliated with the ruling Institutional Revolutionary Party (PRI). 2. Union democracy is virtually nonexistent. The official labor unions deny workers the right to democratically control their organizations; most union officers are chosen by the PRI. 3. Many “official” labor unions exist not to protect the union’s members but to protect the employers.

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4. Unions frequently collude both with Mexican and foreign employers to fire workers who demand reforms. When even mass firings fail to deter demands, employers and union officials may also threaten, beat, kidnap, or even murder independent activists. 5. Legal strikes are virtually impossible to sustain, because of the role of the Boards of Conciliation and Arbitration and the use of police and judicial power to jail union leaders. 6. The Mexican government continues to use military force to suppress labor strikes and has tolerated without prosecution the use of informal violence against trade unionists (Harvey, 1991:4–5).

Given these conditions, governments will have an incentive to weaken labor legislation in the sites with higher standards or to fail to improve it in lower wage, lower rights areas, in order to maintain or attract corporate investment.7 In Mexico, privatization and liberalization of major sectors of the economy prior to entry into NAFTA put downward pressure on wages and worker protections and have led to increased labor unrest and union and state abuses (Americas Watch, 1990:67). A report edited by Canadian activist John Dillon cites recent changes by the Ontario Progressive Conservative government to its labor law allowing firms to employ scabs during strikes and cutting funds for Ministry of Labour inspectors as evidence of declining standards in Canada.8 In the United States, the effects of regional integration are seen in legislation to strip the enforcement power of the Occupational Safety and Health Administration; legalize company unions; abolish overtime pay; outlaw corporate campaigns against a company’s lenders, suppliers, or customers; reduce worker’s compensation; outlaw union shops; and repeal laws that guarantee prevailing wages for construction workers on federally funded projects. Similarly, legislators in both Canada and the United States have instituted cuts in unemployment insurance benefits and introduced “workfare” programs.9 U.S. Trade Representative Mickey Kantor argued before the congressional vote on NAFTA that the labor side agreement, the North American Agreement on Labor Cooperation (NAALC), would be a forceful mechanism for strengthening labor rights throughout the continent. Opponents of the deal claim that the accord is largely ineffective, however. Pharis Harvey of the International Labor Rights Education and Research Fund argues: “In reality, the NAALC is a weak agreement, overburdened with procedural barriers and ponderous processes, that has done little to protect workers from abuse” (Harvey, 1996:18). However, unions and other groups in Mexico and the United States have made some attempts to use the NAALC machinery to draw attention to labor rights violations and labor rights issues (Harvey, 1996:18; Luján, 1996). Bertha Luján, president of the Frente Auténtico de Trabajadores (FAT), a federation of independent

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Mexican trade unions, has called for a coordinated strategy among labor and social organizations in the three countries with regard to the NAALC (Luján, 1996:18). The recent death of Fidel Velazquez, longtime leader of the CTM, may permit some democratization of the official labor movement, contributing to more protagonism around labor rights in Mexico, but moves in this direction are still incipient. The existence of the NAALC reflects the fact that labor rights have received considerable attention during the NAFTA debate. Other forms of rights have been less visible, however, including women’s rights and the rights of migrants and refugees, which are discussed below. Human rights are generally discussed in aggregate terms, as if all individuals are affected equally or in the same way by continental integration. However, apart from the differential class impact of NAFTA discussed above, significant differences exist among citizens on the basis of gender, ethnicity, or regional location, which influence how they are affected by integration. Feminists have argued that existing approaches to international human rights issues are inadequate because they are implicitly based on the idea of male-as-norm and largely ignore the life experiences of the female half of the population.10 One of the main insights of the feminist perspective that relates to the question of economic integration is its critique of the way in which international human rights law is built upon the separation of the public and private spheres. Human rights theories thus deal primarily with the so-called public sphere of “political” activity, relegating women and women’s activities to the “private” sphere. International human rights law thus applies by definition to the violations of human rights committed by states and ignores similar violations that are perpetrated by private individuals. Violence against women by their spouses, for example, is thus considered outside the purview of international human rights conventions (Eisler, 1987:289–295). Feminists also point out that the human rights regime’s prioritization of civil and political rights over economic, social, and cultural rights adversely affects women, since because of women’s responsibilities in the family, they are more heavily affected by imfringements on socioeconomic rights. In general, feminist legal theory provides the basis for a theory of rights emphasizing forms of domination and resistance that occur within civil society and challenging liberalism’s rigid separation between state and civil society. As a result, it creates a space for examining the role of agency and contingency in struggles over rights, in contrast to the static and legalistic nature of traditional international human rights theories. Regional restructuring and its attendant discourses are not gender neutral. As Janine Brodie argues, changes in the regional and global economies Women’s Rights

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are destabilizing traditional boundaries between the public and private spheres (Brodie, 1995). The “gender subtext” of economic restructuring in North America thus involves changes in women’s incorporation into the labor force, in the role of the state, and in discourses about citizenship and rights of profound import to women and the women’s movements in the three countries. Women are affected in different ways, however, particularly in Canada and the United States on the one hand and Mexico on the other. In Canada and the United States, feminists have pointed out that women, particularly immigrant women and women of color, work in the industries likely to be most affected by NAFTA (Boyd, 1996). In Canada, the National Action Committee on the Status of Women (NAC) was one of the major actors in the opposition to the FTA in the mid-1980s. This opposition was based on the prediction that women would bear the brunt of the restructuring caused by the FTA. These predictions have been largely borne out. In general, Canadian women’s position in the labor market has worsened. One in five Canadian women today is either unemployed or underemployed. The 49 percent of women working full-time, all year suffered an 8.2 percent fall in real earnings between 1989 and 1991.11 In the United States, critics of NAFTA also voiced concerns that the industries likely to be the most affected by NAFTA, such as the electronics and apparel industries, were those that employed large numbers of women, particularly women of color. In 1997, a three-year review of the labor market impact of NAFTA by the North American Integration and Development Center at UCLA and the William C. Velasquez Institute confirmed these concerns. The study found that Latinos, women, and African Americans, who are more likely to be employed in low-wage, import-sensitive industries, were highly overrepresented in net negative employment impacts. Overall, 91.9 percent of workers displaced were in the manufacturing industry, particularly in the categories “Apparel and Other Textiles” and “Electrical Machinery.” Of all NAFTA–Trade Adjustment Assistance certified workers in the apparel industry, 40 percent were Latinos; 70 percent of these were women. These groups are also poorly served by the training programs designed to assist workers dislocated by NAFTA in the United States. According to the report, Latinas have been especially plagued with higher unemployment rates and minimal retraining (“Latino Review of NAFTA,” 1997:1, 3, 7). It is difficult to generalize about the impact of restructuring on Mexican women because of the differences in women’s experiences based upon class, ethnicity, age, and other factors (Gabriel and Macdonald, 1994). In general, however, in contrast to Canada and the United States, restructuring and economic crisis in the 1990s have led to increased incorporation of women into the labor force both in the maquiladoras, primarily located on

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the U.S.-Mexican border, and the informal sector. This form of incorporation does not necessarily result in an improvement in women’s status or conditions, since it is based on sexist assumptions about women’s docility and dexterity, as well as the systematic violation of their basic labor rights. It is assumed that women can be paid less than men and are less likely to organize independent trade unions. Women working in the maquiladoras are regularly subjected to sexual harassment. Moreover, the structural adjustment measures adopted in the 1980s and codified in NAFTA have had a disproportionate effect upon Mexican women in general, who are responsible for providing the food and basic needs of their families (Heredia and Purcell, 1994). Despite these differences between groups of women, in all three countries, states and dominant classes have adopted a clear “restructuring discourse” in support of their project of neoliberal restructuring and trade liberalization. This discourse is also largely centered on the privatization of functions previously performed by the state. Women are disproportionately affected by privatization both because women were more likely to gain employment in the public sector than in the industrial private sector and thus have lost job opportunities, but also because it is women, because of their traditionally defined social roles, who have to take up the burden when the state abrogates its responsibility for tasks of social reproduction such as health care, care for the elderly, education, and the supply of basic needs. The continental attack on social rights and the resulting shifting relationship between the public and private sphere thus also results in a generalized deterioration of women’s equality rights. Globalization and regionalization have led to the state’s withdrawal from some areas of previous activity, but it is simultaneously strengthening its control in other areas. One area where this is most clear is in the area of migration and refugee policy (Basok, 1996). In contrast with the European experience, which permitted labor mobility within the EU (while cracking down on the influx of migrants into Europe), labor mobility is conspicuously absent in the North American agreement, apart from selected categories of high-wage, high-skilled workers. One of the major human rights concerns associated with NAFTA relates to a racist and xenophobic backlash from both state and civil society in the United States, which has resulted from the fact that regional integration, rather than stemming migration northward from Mexico, has instead intensified it. These new tensions are most apparent in the U.S.-Mexican relationship, but the previously relatively open Canadian policies have also been tightened up, partly as a result of regional restructuring. According to the Canadian Jesuit Refugee Service, although an agreement on immigration was not part of the NAFTA negotiaMigrant and Refugee Rights

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tions, “there is no doubt that it is part of the informal agenda” (Jesuit Refugee Service, 1992:4). In both Europe and North America, however, increased harmonization of refugee policy is occurring among members of the trading blocs, in response to the perceived threat of an increased influx from refugee claimants.12 One of the arguments made by proponents of NAFTA in the United States was that the agreement would lead to a decline in levels of undocumented migrants crossing into the United States by promoting development and work opportunities in Mexico. To the contrary, however, the economic crisis precipitated by the drop in the peso and especially the crisis in the peasant sector following the liberalization of agricultural trade has resulted in increasing numbers of would-be migrants. The number of Mexicans apprehended in attempted border crossings has increased by 30 percent, from 979,101 in fiscal year 1994 to 1,271,390 in 1995. The number of apprehensions doubled in the month following the peso crisis of December 1994 (Anderson, Cavanaugh, and Ranney, 1996:34). Americas Watch has documented a series of human rights abuses along the U.S. border with Mexico: Beatings, rough physical treatment, and racially motivated verbal abuse are routine. Even more serious abuses, including unjustified shootings, torture, and sexual abuse, occur. When they do, investigations are almost invariably perfunctory, and the offending agents escape punishment. The human rights abuses reported here are similar in kind and severity to those about which we have reported in many other countries. Moreover, the response of the U.S. government is as defensive and unyielding as the responses of many of the most abusive governments. (Human Rights Watch/Americas, 1992:1)

The militarization of the border region and abuses by the U.S. government itself foster a climate of racial and cultural intolerance in U.S. society at large. In 1994, California citizens approved Proposition 187, which would have denied basic government services such as education and health care to immigrants. This measure was struck down by a U.S. District Court in 1995, but California governor Pete Wilson has called on the U.S. Congress to adopt similar legislation at the national level, and other states are developing similar initiatives. Moreover, Pat Buchanan was surprisingly successful in the early 1996 Republican primaries, basing his appeal on right-wing, xenophobic populism and calling for such measures as the construction of walls on both the Mexican and Canadian borders in order to prevent a supposedly overwhelming influx of migrants. Although the racist backlash against migrants has received the most attention in the United States, regional integration seems to have led to increased harmonization of immigration and refugee policies among the three parties to the agreement. However, this process is less advanced than

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in the EU. According to the U.S. Committee for Refugees, the United States has used Mexican authorities to deter the arrival of Central American refugees to the United States. For example, between 1988 and 1989, the number of deportations of Central Americans from Mexico jumped by 500 percent. 13 High levels of human rights abuses by Mexican authorities against Central Americans have been reported. Rodolfo Casillas contends that the reasoning of the Mexican government “goes something like this: transmigrants [Central Americans heading to the United States] cause problems in our relations with the United States, so we must maintain campaigns to arrest and expel them” (Casillas, 1996:170). Like the United States, Canada also has a history of exclusion of refugees and immigrants on racial grounds. In the interwar period, Canada developed a reputation as one of the most generous recipients of international migrants. In the 1990s, however, in line with other developed countries, Canada has adopted a series of policies to restrict levels of poor and working-class immigrants and refugees (in practice, targeting migrants from Third World sources) and to encourage wealthy “investor class” migrants. Recently, Canada reached an agreement with the United States to return to the United States asylum applicants who had first arrived in that country from their home country, despite refugee advocates’ claims that U.S. refugee determination standards are considerably more stringent than are the Canadian ones and that this amounts to an assault on the rights of asylum seekers. This type of measure has led Anthony Richmond to claim that a system of “global apartheid” is being constructed, in which most of the more than 23 million world refugees are locked outside the walls of “Fortress Europe” and “Fortress North America.” The European and North American experiences with regional integration thus differ with regard to the treatment of internal labor mobility but are similarly inspired by racist and xenophobic attitudes.14 NAFTA’s failure to address labor mobility combined with its undermining of the previous Mexican development model are partly responsible for an increase in abuses of the human rights of undocumented workers and refugees. The human rights abuses associated with regionalization and migration are thus another way in which regional migration stretches the bounds of traditional democratic theory, which primarily concerns itself with the rights of existing citizens of nation-states rather than undocumented migrants. NAFTA and Civil and Political Rights in Mexico

The promoters of NAFTA missed a golden opportunity to promote human rights and democracy in the hemisphere by failing to impose democratic institutions as a fundamental prerequisite for Mexico’s entry into NAFTA,

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as was done for Spain and Portugal’s entry into the EU. Although Mexico did undertake several political reforms in the period prior to the agreement, there is nothing in the accord itself that can be used as a lever to extract further reforms (Weston, 1992:10). This omission affects not only Mexico but other countries wishing to join the agreement, since the same conditions (i.e., purely economic ones) will presumably apply to their entry. Colombia, for example, the country with the highest levels of human rights violations in the hemisphere, sees itself as the next logical candidate after Chile. Political proponents of NAFTA in Canada and the United States, as well as academics within the tradition of modernization theory, argue that entry into NAFTA is a necessary condition for democratization because there exists a high correlation between economic and political liberalization. In this view, NAFTA will contribute directly to democratization in Mexico by diversifying the sources of political power in the country. M. Delal Baer argues, for example, A free-trade agreement may help reinforce decentralized economic decision-making, erode the dirigiste tendency of an authoritarian state, and decouple the economy from exclusive party control. Liberalized politics thus tends to accompany liberal economics.15

Opponents argue, to the contrary, that economic liberalization will lead to the revival and reconstitution of authoritarianism in Mexico because the nature of liberalization will require increased centralization of authority and increased repression.16 To some extent, this is a debate about apples and oranges, since the two sides of the debate often define democracy in different ways. Supporters of the modernization approach define democracy very narrowly, in terms of electoral procedures and alternation of parties in power, whereas opponents of economic liberalization tend to define democracy more broadly, including economic, social, and cultural rights as part of their definition, as well as the desirability of direct popular participation in governance. The modernization approach is clearly inadequate for several reasons. First is the obvious fact that economic growth has not always led to democracy and in fact often generates, at least in the short to medium term, higher levels of repression. This approach also ignores the fact that even if formal democratization occurs, economic liberalization can have severe consequences for economic, social, and cultural rights, and even, in some cases, political and civil rights. The result is the emergence of what some writers have called “low intensity democracies.”17 Economic liberalization in Mexico, which began under former President Miguel de la Madrid Hurtado (1982–1988), clearly did not lead immediately to democratization of the Mexican authoritarian political

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system. Instead, at least in the short to medium term, a profound political crisis erupted as the result of the combination of several contradictory elements: certain limited forms of political liberalization; increased intransigence of some political elites leading to widespread human rights abuses; the centralization of power in the hands of the president; and the growth of an articulate and highly organized civil society. This crisis was visible in both the Chiapas rebellion discussed below and the assassinations of two PRI leaders, which are widely believed to have been ordered by elements within the party. Although the Mexican system is shaped by its distinct historical traditions, the impact of regional integration is largely responsible for this crisis, whose outcome is unforeseeable. Until recently, the PRI was renowned for its ability to maintain political stability through a mixture of co-optation and coercion. Having carried out what most observers believe to have been significant fraud to win the 1988 elections against left-wing candidate Cuauhtémoc Cárdenas, the Salinas administration appeared to be in clear control of the system and launched a massive program of economic reform. Salinas was able to gain support through economic growth, control over inflation, and the NAFTA initiative, along with adroit manipulation of a large-scale poverty alleviation program centered in the president’s office, titled National Solidarity Program (PRONASOL), to win over some previously disaffected sectors of the population. The PRONASOL, or Solidarity, program had a number of innovative features designed to renovate state-society relations in Mexico. The program was clearly politically motivated, intended to gain support for the Salinas administration. Juan Molinar Horcasitas and Jeffrey Weldon argue that spending under the program is explained better in terms of electoral criteria than in levels of poverty in targeted regions.18 However, Solidarity spending differed from earlier politically motivated poverty alleviation programs in that funds were provided not through the traditional corporatist organizations for workers, peasants, and the urban sectors but to grassroots committees usually formed for the purpose of attaining such support, which has been labeled “renewed clientelism” (Dresser, 1994:159). Political reforms were also undertaken, but at a much slower pace and of a more limited scope than the economic reforms. Opposition parties were able to play a more prominent role in national politics, and elections became more competitive because of electoral reforms between 1977 and 1993 (Cook, Middlebrook, and Horcasitas, 1994:5). The PRI was able to win substantial majorities in the 1991 midterm congressional elections and the 1994 federal elections, although domestic and international observers still recorded substantial irregularities and abuses in the latter exercise (Healy, 1994). Nevertheless, in 1993 Washington analyst Riordan Roett was able to judge that “Salinas’s strategic decision at the beginning of his

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six-year term was probably correct: Put the economic house in order and all good things will follow” (Roett, 1993:7). This complacent prediction was dramatically disproven by a series of dramatic events: the Chiapas rebellion that began January 1, 1994; the assassination of PRI presidential candidate Luis Donaldo Colosio on March 23, 1994; and the peso crisis of December 1994. Altogether, these events display the unraveling of the apparently successful political and economic project of restructuring in Mexico and led to a rapid decline in the prestige of former President Salinas, his family, and his administration. The political disarray these overlapping crises caused within the PRI have the potential to lead to political chaos. It has become apparent that the impact of restructuring has undermined the corporatist sectors where the PRI located most of its popular support, without creating sufficient pressures for democratization. Serious concerns remain about state abuses of civil rights, despite mounting internal and international pressures. As Americas Watch notes, before 1990 there was little international attention given to human rights in Mexico and relatively little domestic pressure (Human Rights Watch/ Americas, 1991:1). The Mexican state tolerated serious human rights violations in the form of killing of peasant leaders over land conflicts, regular torture of prison detainees, labor rights abuse, corruption within the judicial system, and “virtual police and military impunity.”19 State control over the media is also a significant barrier to democratization (Saenger, 1991–1992). Upon announcing his intention to seek a free trade agreement with the United States in June 1990, however, Salinas faced increased pressure to improve human rights standards. In June 1990, he established the National Human Rights Commission (CNDH) to investigate human rights complaints, propose legislative and other reforms, prevent future abuses, and educate Mexican officials and the public about human rights. Reforms were also undertaken to curb the use of torture and to clean up the federal judicial police, one of the main institutional sources of abuse (Human Rights Watch/Americas, 1991:1). The increased international attention resulting from NAFTA has thus led to some human rights improvements. Nevertheless, many human rights organizations see these reforms as inadequate. The CNDH has issued several important recommendations but has no powers of prosection and is not fully independent of the political structure. It also lacks any jurisdiction over rights abuses related to elections, labor conflicts, and federal judicial decisions (ICCHRLA, 1992:3). Its conduct in the investigation of rights abuses in the state response to the Chiapas rebellion has been criticized (Physicians for Human Rights and Human Rights Watch/Americas, 1994). Continuing concerns remain about the use of torture by law enforcement agents (Amnesty International,

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1991). Human rights nongovernmental organizations (NGOs) are also concerned that purely legal reforms will not lead to improved human rights standards, given the propensity of the Mexican government to ignore previously existing Mexican law and international commitments (Human Rights Watch/Americas, 1991:6). There are also concerns about “new” forms of human rights abuses associated with the U.S.-backed “war on drugs” and increases in political violence (ICCHRLA, 1992:3). In addition to increased international attention to human rights issues, the Mexican government has also been subject to mounting pressure as a result of the upsurge in Mexican NGOs dedicated to the promotion of human rights. Although human rights NGOs existed earlier, their numbers rose rapidly after the elections of 1988. Their activities became more clearly political, and they took on a more active role in pushing for democratization during the elections of 1994. More than 400 NGOs joined together in the group Alianza Cívica (Civic Alliance) to engage in civic education and monitor the election and the media, in order to pressure the government to hold clean elections. Despite this unprecedented level of activity, Alianza Cívica still recorded high levels of electoral abuses. Human rights activist and academic Mariclaire Acosta argues that this experience has led to fundamental rethinking of strategy. The NGOs have been successful in exercising strong popular pressure for democratization in Mexico and in constructing a “democracy network”: This democracy network was very effective in liberalizing the political regime, but it couldn’t achieve the desired goal of democratizing it. In other words, it educated many in the necessity of defending their rights, it opened political space for the organizations of civil society and the opposition parties, it generated a new relationship between civil organizations and the government, and strengthened the autonomy of many social organizations, etc. All of these are very important contributions to the change of the Mexican political system, but insufficient to establish a real democracy, that is a system in which such conduct such as electoral competition, effective citizen participation and responsibility in the exercise of public power predominate.20

Soledad Loaeza suggests that in Mexico, the differences between liberalization and democratization may be so great that these two paths may be negatively correlated rather than mutually reinforcing (Loaeza, 1994:107). More recently, victories of the opposition parties in the July 1997 state and legislative elections under reformed electoral laws, particularly the victory of Party of the Democratic Revolution (PRD) leader Cárdenas in the Mexico City mayoral race, signified a new transparency in the Mexican political system. However, great progress remained to be made in the areas

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of popular participation and freedom of association, as well as in respect for civil liberties. The human rights problems at the level of national politics in Mexico discussed above are multiplied at the local level in much of southern Mexico. The rebellion in Chiapas led by the EZLN was the main trigger for recent debates about democracy, human rights, and regional integration in Mexico. The rebellion clearly has long-standing roots in domestic social history, dating back to the impact of the Conquest on the indigenous peoples of the area. More specifically, the highly unequal landowning structures in the region and the political intransigence of the local landowning elite blocked any political or economic reforms. Nevertheless, peace was maintained in the region with a combination of agrarian reform and clientelist policies. The EZLN rebellion was not initially timed to coincide with the date of implementation of NAFTA, but the eventual selection of this date resonated with peasant grievances over the impact of neoliberal economic policies that preceded NAFTA and threatened the livelihood of small rural producers throughout the country. As part of these reforms, the Mexican state had dismantled state institutions that had provided credit to rural producers, meaning that between 1985 and 1990, 62 percent of producers had no access to agricultural credit (Harvey, 1994:7). The parastatal organization that marketed coffee, one of the main peasant crops, was privatized. Moreover, the main crops produced by small peasants, corn and beans, which had previously been subsidized, were included in the NAFTA negotiations. Although in the text of the agreement, liberalization was phased in over a fifteen-year period, the Mexican government unilaterally opened up the domestic market to more imports of corn and beans than necessary. As a result, it has been estimated that over two million Mexican small producers will not be able to survive as corn producers (Harvey, 1994:13). Finally, the reforms to Article 27 of the Constitution that took effect in early 1992 were seen as a major threat by peasant producers. Article 27 had protected the ejido sector, the communal landowning sector that for peasants was the heart of the Mexican revolution. The liberalizing reforms of the Salinas administration allowed for the privatization of this sector, threatening increased concentration of landownership. The dismantling of agrarian reform also eliminated the hope many landless peasants held on to that they could one day obtain a parcel of land. According to Neil Harvey, the end of the land reform thus “constituted a symbolic break with the past but one which offered no guarantees of improvement for the future” (Harvey, 1994:25). According to long-time Chiapas scholar George Collier, the 1992 repeal of the land reform provisions of the Mexican Constitution was the straw that broke the camel’s back, since it “robbed many peasants

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not just of the possibility of gaining a piece of land, but, quite simply, of hope” (Collier, 1994:45). These reforms were undertaken prior to the implementation of NAFTA but were part of the same neoliberal logic and contributed to the progress of regional integration. The attack on traditional collective rights and the wellbeing of peasant and indigenous groups that these reforms represented led to the armed rebellion of January 1994. Mexican NGOs denounced the Mexican army’s response to the rebellion, which, they claimed, violated constitutional limits on the role of the armed forces and also involved such tactics as indiscriminate bombing from the air, extrajudicial executions, arbitrary detentions, and the use of torture and cruel and inhuman punishment (Todos los Derechos para Todos, 1994:133–139). Since 1995, rural violence in the northern region of Chiapas has led to the forced displacement of almost 4,000 people and dozens of confrontations (Human Rights Watch/Americas, 1997:1). In a 1997 report, Human Rights Watch/Americas documented continued severe human rights problems in Chiapas as well as the other states of Guerrero, Oaxaca, and Sinaloa. Some abuses are committed by government officials, but others are carried out by private citizens, often armed by local power brokers (or caciques). As Human Rights Watch notes, “by systematically turning a blind eye toward such attacks, local officials become actively complicit in them” (Human Rights Watch/ Americas, 1997:15). Two of the most horrific of these events were the attacks in Aguas Blancas in Guerrero, where police opened fire on peasants, killing seventeen and wounding twenty-three on June 28, 1995, and the massacre of forty-five Zapatista supporters in Acteal, Chiapas, by a paramilitary group on December 22, 1997. In general, Mexico’s experience with NAFTA indicates that free trade neither directly fosters democracy (even in its most formal, limited form) and human rights, nor does it necessarily result in purely undemocratic outcomes. In the short- to medium-term, the negative social impacts of liberalization upon the popular sectors in all three countries, as well as the undemocratic nature of the adoption of NAFTA (and the FTA), have a negative impact on democracy in all three countries. In the longer term, however, as the Chiapas rebellion vividly illustrates, these changes are not greeted passively by the population but are met with a dialectical response by civil societies in each country. Civil society groups respond by organizing against the negative impacts of restructuring and in favor of more democratic forms of national and regional governance. These dynamics are most vivid in the case of Mexico, which is the least democratic of the three countries and probably the place where NAFTA has the greatest political impact, but they are felt throughout the region. Nevertheless, as the Mexican case also illustrates, civil society pressures on their own do not necessarily lead to broad-based democratization.

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Finally, as indicated above, NAFTA leads to concerns about democracy and human rights not just in Mexico but in the long-standing liberal democracies of Canada and the United States. NAFTA has resulted in the transfer of decisionmaking power away from elected bodies that are, at least in theory, accountable to their citizenry and toward several trinational committees. Although some of these may entertain public consultations, others, like the dispute resolution committee, operate in secret, and none is elected. Thus, “rulings made by unelected technical ‘experts’ . . . supersede many existing laws passed by the legislatures of the three countries” (Development GAP, 1991:13). The anemic democracy that results, in which elected governments appear virtually powerless to take fundamental decisions related to the health of the nation-state, is partially responsible for the growing apathy of the electorate throughout the region and the distrust of existing political institutions. In addition, the economic marginalization of increasing numbers in both Canada and the United States as well as Mexico threatens a breakdown of social cohesion, feeding a resurgence of xenophobia, racism, and intolerance. Despite the differing circumstances, it is possible to apply some of the theories about the threats to democratic consolidation in the new democracies of Latin America to the increasingly dysfunctional democracies of North America. J. Samuel Valenzuela identifies several perverse forms of political institutions that may undermine newly democratic regimes. The first is the existence of nondemocratically generated “tutelary powers” that “attempt to exercise broad oversight of the government and its policy decisions while claiming to represent vaguely formulated fundamental and enduring interests of the nation-state.” He asserts that a “regime cannot be considered a consolidated democracy if those who win government-forming elections are placed in state power and policy-making positions that are subordinate in this matter to those of nonelected elites” (Valenzuela, 1992:62–63). Valenzuela is referring here to the role of the military in most Latin American countries, but the term could equally apply to the power of the unelected trinational bodies of experts created by NAFTA. The second perverse institution is the existence of “reserved domains” of authority and policymaking: “In contrast to the ambiguous and generalized tutelary power, the reserved domains remove specific areas of governmental authority and substantive policy making from the purview of elected officials” (Valenzuela, 1992:64). Valenzuela claims that these reserved domains in the transitional settings of new Latin American democracies differ substantively from policy areas that are excluded from elected governments’ control in the western democracies, such as in consociational democracies or institutions like the Federal Reserve Bank of the United

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States, which are shielded from political influence for what are, in his view, good reasons.21 In contrast, he claims, undemocratic reserved domains exist when elected officials would like to control certain areas of policy but are prevented from doing so by veiled or explicit threats of a return to authoritarian rule. Certainly the resulting threats to democracy are much more serious in the context of former military dictatorships where the generals are lurking in the barracks, threatening imminent return. However, it is hard to argue that the economic threats to misbehavior exercised by NAFTA officials are different in kind, since they both constrain the power of governments to exercise control over areas traditionally considered part of their legitimate domain of authority. By institutionalizing perverse elements such as these, therefore, regional trade agreements debilitate democracy and debase the meaning of citizenship, which increasingly becomes a symbolic exercise rather than a process of real democratic control over state and elite power. Conclusion

As we have seen, regional integration, as institutionalized and consolidated in the NAFTA agreement, has profound implications for the future of democracy and human rights in the region (and possibly the hemisphere). This process of integration, apparently technical and apolitical in content, in fact has led to deep transformations in the relationship between state and civil society, between the national and the international, and between the public and the private. For the most part (although with some important exceptions), these changes are damaging to the quality of democracy and the respect for a wide range of human rights in the region, including civil, political, economic, social, and cultural rights. Nevertheless, it is important not to read these changes in an economistic or deterministic way. In a similar analysis, Ian Robinson and Michael Dreiling argue that the structural tendencies associated with NAFTA and globalization are damaging to conventional labor movement power. However, labor movements in Canada and the United States are not doomed to irrelevance and marginalization. Instead, the struggle against NAFTA and the GATT generated a strong potential for union mobilization of volunteer energies, a potential that was only partly tapped (Robinson and Dreiling, 1996:33). Similarly, the increasing erosion of democracy and human rights in North America has created new forms of popular response from civil society, responses that have the potential for creating new forms of politics at both the national and transnational levels. This opposition was, in the past, rather narrowly focused, particularly in the United States and Canada. The fact that the U.S. government backed side accords on

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labor rights and environmental issues while ignoring broader human rights issues to some extent reflects the nature of the pressures it was subjected to from civil society. In the post-NAFTA era, popular strategies must be rethought in order to place on the agenda other human rights issues, like the rights of women and of migrants, the issue of democracy and human rights in Mexico, and ways in which trinational bodies can become subjected to control by civil society actors, rather than remaining the guardians of reserved domains of undemocratic power. Notes

I wish to thank Cathy Blacklock and Victoria Bromley for research assistance and the Canadian Social Sciences and Humanities Research Council for funding. I also thank Glen Williams and the editors of the volume for their comments and the participants in the former human rights project of Common Frontiers, particularly Patty Strong, Christine Elwell, and John Foster, for the inspiration for this research. 1. For example, Baer and Weintraub (1994); Barlow and Campbell (1991); Barry (1995); Cavanagh, et al. (1992); Grinspun and Cameron (1993); Hart (1990); Lustig, et al. (1992). 2. There are, however, a few important exceptions. These include Common Frontiers (1992); O’Brien (1993); Reding (1992); and Robinson (1993). 3. Robert Cox distinguishes between two main forms of the state that have emerged as a result of the crisis of hegemony in the advanced industrial countries: the “hyperliberal” form of the United States and Britain, which “reasserts the separation of state and economy,” and the more consensus-based “neomercantilist” form associated with Western Europe and Japan, which “promotes a fusion of state and economy” and attempts to balance the welfare of social groups within the pursuit of competitiveness (Cox, 1987:285–286). The different state forms in the dominant countries result in different forms of regional integration. 4. Letter from Roy MacLaren to John Foster, February 25, 1994. 5. For statements on the indivisibility of human rights, see Donnelly (1989:28–45) and Shue (1979). 6. That is, apart from environmental rights, which could also be considered a human right but will not be addressed in this paper. 7. For a discussion of the political and economic calculations of labor federations in the three countries, see Littlehale (1995). 8. Dillon notes that the labor side deal is unable to challenge such moves (Dillon, 1996:30). 9. The Canadian Civil Liberties Association issued an open letter to former Ontario Community and Social Services Minister Dave Tsubouchi saying workfare programs pose the serious civil-liberties concern of “conscripting labor in a free society” (Anderson, Cavanaugh, and Ranney, 1996:11–12). 10. See, for example Eisler (1987); Thomas and Beasley (1993); and Ashworth (1986). 11. Canadian Labour Congress (1993:1). See also Gabriel and Macdonald (1994). 12. Glenn (1996). In Europe, the Dublin Agreement among members of the European Community and the Schengen Agreement that now covers nine states in

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the Community addressed harmonization of policy for control of asylum applicants and their removal if denied admission. Keely and Russell (1996:231). 13. Cited in Jesuit Refugee Service/Canada (1992:7). 14. Richmond (1994); Basok (1996). Alan Simmons argues, however, that despite tendencies in this direction in North America, immigration policy shows greater concern with attracting and selecting the kinds of immigrants who will promote goals of economic growth, rather than focusing purely on restricting immigration (Simmons, 1996b:5). 15. Cited in Smith (1996:254). 16. These positions are summarized in Smith (1996). Smith also describes a possible alternative scenario, based on the “transitions to democracy” literature promoted by Guillermo O’Donnell, Philippe Schmitter, Laurence Whitehead, and others, that NAFTA will have no meaningful impact on democracy in Mexico because democratization is the result of purely political decisions undertaken by state elites and members of the opposition or leaders of civil society. Economic changes are largely irrelevant to these decisions. Finally, he also posits that NAFTA will contribute to the debilitation of the Mexican state vis-à-vis both internal and external actors—a scenario not directly concerned with democratization. See O’Donnell, Schmitter, and Whitehead (1986). 17. See, for example, Gills and Rocamora (1992). 18. Molinar and Weldon (1994); see also Dresser (1994). 19. ICCHRLA (1992:3); see also Amnesty International USA (1990). 20. Acosta (n.d.:2), my translation. 21. Nevertheless, many on the left in Canada and the United States have criticized the shielding of central bank agencies from political control as undemocratic, resulting in the elevation of narrow economic criteria over social ones in the determination of central bank policy.

Commentaries

Teresa Healy

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Regional Integration and Critique: Raising the Possibility of Counterhegemony The bourgeoisie . . . has resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms, has set up that single, unconscionable freedom—Free Trade. . . . Veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation. —Communist Manifesto, 1848, quoted in Marx and Engels, 1978:475

By mid-1998, the postcolonial critique of globalization exploded in the student movements in the streets of Jakarta. Neither the International Monetary Fund (IMF) nor the repressive Suharto regime was spared that disciplined fury. One hundred fifty years after the Communist Manifesto was written, the impact of “that single, unconscionable freedom” continues to be resisted by those most devastated by its domination. Suharto has been deposed, but the democratic forces in Indonesia are up against terrible odds because the structures that Suharto represented and reproduced, with all of their divisions based on gender, race, ethnicity, and class, have yet to be dismantled. The struggle in Jakarta is a struggle for a new form of state, but it is a struggle rooted in the recent history of neoliberal economic restructuring in the region and in the much older history of colonialism. The essence of critical praxis in these circumstances is to understand both the dynamics leading to the expansion of market society and the very large “cracks in the consent” that have appeared (Marino, 1997:22). Engagement with those who are reflecting from the margins is a challenging but vital part of any feminist, postcolonial, or socialist explanation of regional integration in an era of globalization. During the past quarter century, we have witnessed the institutionalization of both structural adjustment and free trade in international agreements covering virtually every region of the globe. Not only has regional 193

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integration had significant implications for the organization of commerce, finance, and investment, but also it has altered many common understandings of legitimate forms of politics, society, and state. What is remarkable is the extent to which regional integration appears to be more a matter of institutional convenience than any innovative means of preserving regional and cultural specificity in an age of liberalization, privatization, social welfare cutbacks, economic polarization, environmental degradation, and precarious employment. Deflation, deregulation, and deunionization stand in contrast to a previous era in which institutionalized social conflict was the goal, if not the reality, of development models in many countries now leading the consolidation of virtually the same “regional” agenda across the planet. Regional specificity, it seems, is relegated to a subordinate position that may determine the speed of the transition, if it has any impact at all. Under these increasingly globalized circumstances, it is commonly held that the role of social forces in bringing about historical transformation is minimal. In the dominant view, globalization is caused by the exigencies of the market and the market simply is. Within the logic of neoliberalism, there is little option left for social forces but to embrace this historical imperative. For many subordinated groups, it is not self-evident that the long-term benefits of regional restructuring are worth waiting for, and the acquiescence of the subordinated is not at all complete. Still, the discontentment of the most marginalized will not automatically translate into oppositional movements able to contest the policies of their governments’ or their employers’ strategies. At the end of the twentieth century, oppositional social forces are unlikely to be impressed with the fact that “the bourgeoisie . . . has created more massive and more colossal productive forces than have all preceding generations together” (Marx and Engels, 1978:477). After three decades of crisis and restructuring, many national labor movements are struck, not so much by the fact that capitalism constantly revolutionizes the instruments as well as the relations of production, but by the way in which capitalist societies continue to be characterized by “a modern working class, developed [as] a class of laborers who live only so long as they find work and who find work only so long as their labor increases capital” (Marx and Engels, 1978:479). Although the dramatic rise in social inequalities confirms long-standing critiques of capitalism, it may also reinforce a sense of the impossibility of overcoming exploitative social relations. Faced with the strength of the dominant argument that “there is no alternative,” critical thinking about the historical context of our lives becomes urgent. The question arises: In a world marked by neoliberal capitalist hegemony, what does counterhegemony require? This question fundamentally disputes the necessity of neoliberal convergence across regions; it supports the search for alternative ways of living, but it does so in light of

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historical reflection on past experiences of similar explorations and social struggles. Resistance is neither futile nor voluntaristic. To think about counterhegemony at the end of the twentieth century, we need intellectual resources able to comprehend both the expansion of capital as well as the resistance of social forces that have been marginalized and politicized in the process. One of the things that counterhegemony requires is theory that is self-consciously engaged in movements of social forces attempting to construct new hegemonic alternatives. In my reflections on the contributions in this timely collection on regional integration, I have been curious to examine the range of theoretical perspectives gathered together. There are three questions that interest me in particular: (1) In what way do the authors help us understand the social relations of power underpinning regional integration at the end of the twentieth century? (2) Given that so many spheres of social life are being transformed by regional economic integration and political restructuring, how do the chapters deal with the intersection of these spheres? and finally, (3) Is neoliberalism accepted as an historical imperative, or is the possibility of counterhegemony advanced? Social Relations of Power

Although regional integration facilitates the free movement of goods, services, investment, and, to a lesser extent, people, it is a not a process that simply crosses over regions. It is a process that emerges out of social relations that include gender and race, ethnicity and class. The chapters in this book recognize the limitations of simple economistic descriptions of regional dynamics, but not all are interested in the inequalities of power generated between different social forces in the process of regional integration. In his very thorough empirical comparison of the European and North American trade agreements in Chapter 5, Erik Beukel builds upon public choice theory’s assumption of economic self-interest by recognizing that “other societal values” also play a part in the determination of trade policy. Assuming rational utility maximizers, he links together objective and subjective factors in his “interests and ideas” framework. In this view, unlikely coalitions of economic interest groups and ideologically based interest groups may join together in free trade debates. Although Beukel incorporates the role of ideas into his analysis in order to analyze “the power and influence structures behind ideas,” the problematic nature of public choice is not acknowledged: in the realm of the economy, there are interests, whereas in the realm of civil society, there are ideas. Interests are self-evident and given, but ideas are held by individuals outside the economic realm. The possibility that pro–free trade environmental

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groups might represent economic interests or that economic interests might be constructed around patriarchal, class-based, or racist ideas is not evident in this formulation. Interests are not objectively given. Neither are political positions derived directly from economic location. Power relations are much more complex than that. Social stability sometimes requires dominant groups to act against their short-term interests, and subordinate groups often consent to long-term structural inequality. Even opponents in debates over trade policy may agree on the framework for their discussions. If this goes by unnoticed, they may even make the mistake of essentializing historically constructed social practices. When regional economic integration is constructed according to the universalizing discourse of neoliberalism, the political debate underpinning the process is obscured. In Chapter 6, Antje Wiener refuses to concede the political terrain to economistic generalizations. As a result, her intervention is a most welcome one. Wiener argues that the changes in the meaning and institutionalization of citizenship in European regional integration must be understood. Not only economic forces, but political identities institutionalized in citizenship policies also constitute the region. Because she focuses on the processes through which ideas and institutions concerning citizenship are transformed and transform the region, her chapter seems to contradict my original assertion that neoliberal regional integration erases historical specificities. Wiener does not, however, tell us enough about the social forces that have struggled over the meaning and institutionalization of citizenship. As I argue above, neoliberal globalization is not simply the economic container within which social forces act but rather an outcome of their relation. Neither is the construction of European citizenship only a dimension of the “emerging Euro-polity” but an aspect of the power relations underpinning the regional economy as well. The social relations of power embedded within European political integration have an institutional and an ideological basis, but the material dimension within which identities and interests are generated ought neither to be assumed nor underplayed. In order to be able to evaluate the relative merits of citizenship as a site of struggle for marginalized social forces, I would like to hear more about the distribution, allocation, and control over material resources in the region and how these are related to the changes in the character of world order. Intersection of Spheres

Most approaches to the study of international political economy (IPE) acknowledge that neoliberal economic restructuring challenges traditional boundaries between the “domestic” and “international” spheres. Feminists

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have made the boundaries of the household and local community visible, and this volume indicates that our rethinking of spatial boundaries must consider the “regional” as well. The interesting question, it seems to me, concerns not just the boundaries we draw around our social spaces, but the social relations that construct these boundaries and are constituted within them. Regional integration is defined not only by changes in the intersection of spheres but by the way in which social relations of power cut through and shape social spaces as well. We may take William Avery and H. Richard Friman’s two-level bargaining game approach in Chapter 4 as an example. In their view, the negotiation of international trade agreements and ratification processes are considered to be interactive processes. Their chapter offers a thorough treatment of the sectoral interests in the United States that made their demands known during both processes. The limitation of the approach emerges in the analysis of the state. Here, the state (or rather government) is a neutral arbiter, not the site where relations of power are constructed and reproduced. For Avery and Friman, accommodation and compromise are expected to emerge within a pluralist polity, and domestic opposition is seen to represent the particular “special” interests that emerge at odds with the national interest, embodied in the state. The problem is not simply that the interests of transnational capital are made invisible, but that their expression in the North American Free Trade Agreement (NAFTA) is seen to be in the interests of a national community. By accepting this proposition, Avery and Friman advance the discourse of hegemony, in the Gramscian sense, in which the interests of the dominant few are presented as being the same as the interests of the dominated whole. Barbara Jenkins’s strongly argued and complex discussion of regional integration in South America offers a Polanyian view of the state in regional restructuring. In Chapter 2, Jenkins argues that state intervention in the Mercado Común del Sur (Mercosur) agreement is not exceptional but an example of the more general situation in which “free trade efforts cannot survive without extensive state intervention and compensation.” Her message to advocates of regional integration is that compromise is necessary to sustain the viability of neoliberal trade and investment agreements. Although the Mercosur agreement depends upon a state-led strategy for implementation, changes at the level of world order are seen to be driving the integration process. In Jenkins’s view, small states and adversely affected producers will tend to accept regional integration if it is accomplished slowly and accompanied by pragmatic interventions. From another “two-level” perspective, Fred Lawson explains in Chapter 1 the sporadic tempo of economic and political cooperation among six Gulf states by analyzing both the interstate bargaining and national constituencybuilding levels. Although he argues it is the “periodic external shocks that

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have demanded unequivocal commitments to regional unity,” he also suggests that institutional responses tend to foster long-term cooperation. In Lawson’s view, however, it is not only international forces that push states to cooperate. For the ruling families of the six Gulf states, interstate cooperation began in response to Islamist opposition at the domestic level. Although security issues were the primary reason for international cooperation, liberal trade and investment provisions in the region were also meant to encourage nongovernmental elites to withhold their support from the rebels. In breaking down the traditional divisions between domestic and foreign affairs and by pointing to the key challenges to domestic power structures, Lawson’s analysis marks an important advance over realism’s illusion of the state-as-unitary-actor. This reference to the domestic roots of international cooperation is quite compelling but could be explored more deeply. For instance, in what ways are productive modes implicated in the processes of constituency building and international cooperation? Are the legitimating ideas gendered? Are hierarchies of race and ethnicity institutionalized? In reading Lawson’s chapter, I am reminded of the great challenge that is presented once we recognize the permeability of the boundaries between spheres. The challenge has opened up a new dialogue between comparativists and international relations scholars (among others) on the merits of taking more holistic approaches to our analysis. Nevertheless, holistic approaches may reinforce existing power structures to the extent that the perspective of state managers and governing elites is the privileged one. Possibility of Counterhegemony

One of the central tenets of postcolonial theory is that western intellectuals tend to assume a lack of agency on the part of previously colonized peoples of the world. In response, I would suggest that we look at social relations and their location within different spheres of social life. Such an approach shows neoliberal restructuring to be a historically constructed and highly politicized project. It is the dominant project at the moment, but we cannot explain regional integration as if it were a wholly irresistible force bearing down upon the most marginalized peoples of the world. The influence is not one way. The global and the regional manifest themselves in the local— in the real lives of communities. Indeed, what is considered local can have an impact on the structure of world order, but this depends upon how people organize themselves collectively. So too does it depend upon the form of state that is created to represent them. Thinking about counterhegemony in the context of neoliberalism does not mean thinking about the local as an effect of the global.

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For a critical perspective, we may look to Laura Macdonald, who builds from an analysis of social relations to discuss NAFTA in relation to the deteriorating conditions of human rights across the continent. Her analysis in Chapter 7 rejects economic determinism but discusses the material dimension of economic restructuring in the context of political responses by coalitions of popular movements that have organized against neoliberal forms of economic integration. In marking the distinction between civil and political rights on the one hand, and economic, social, and cultural rights on the other, she advances a key insight of feminist theorizing, which is to discuss the constructed character of human rights discourse. It is her focus on agency and historical specificity that is most illuminating in this discussion of NAFTA as “an important defining moment” in the broader processes of regional integration. By examining human rights from the perspective of social movements organized on a sectoral basis, Macdonald moves women’s, labor, migrant, and refugee rights from the margins to a central location in her analysis of regional integration. Finally, it is important to acknowledge the way in which counterhegemonic projects are often written out of mainstream scholarship despite the shortcomings and apparent contradictions of neoliberal regional integration. For example, in Chapter 3 Davis Bobrow and Robert Kudrle offer a highly comprehensive, empirical treatment of the liberalization of foreign direct investment (FDI) within Asia Pacific Economic Cooperation (APEC) member-countries. Underpinning their empiricism, however, are normative assumptions about the inherent “goodness” of liberal investment flows. What becomes obvious in the course of this discussion is their location within the construction of hegemony. Theirs is a point of view expressing a narrow range of debates within elite circles. In this chapter we are confronted by an effort to construct a particular common sense at the level of world order. The neoliberal perspective is the one held in “respectable quarters.” All other are merely “parochial” and soon to be overcome by an emerging convergence favoring the liberalization of FDI. When marginalized social forces contest the power of transnational capital, they do so out of the specificity of their historical location, including the legacy of state formation and institutional contexts and within the range of ideas that attain legitimacy. As Jenkins points out, the role of labor and other social movements has been of minimal importance in defining the parameters of Mercosur. Except for the strength of Brazil’s labor organizations, the Mercosur labor movements have not been able to influence the negotiations to the extent that sectoral interests have. Here we are reminded that opposition to regional trade agreements may arise outside the movements of subordinated sectors of labor or oppositional social movements. In fact, we cannot assume that opposition will appear automatically, or that it will be naturally egalitarian when it does.

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Conclusion

Globalization is a creation of historical processes and, contrary to its proponents’ most favored notion, did not spring fully formed from some transcendent market imperative. This new liberal convergence across hemispheres was created, constructed, fashioned in the boardrooms, debated over, voted on, and imposed by decree. It is an economic, an ideological, and a political process. It is the dominant model of development that is restructuring many regions of the globe, but it is certainly a contested model. Social forces continue to debate and struggle over contending analyses of crises and their resolution. They do so according to how they define their interests and their position in social relations and within the range of possibilities that have meaning for them. Marginalized groups of people do contest the conditions of their subordination. No longer can this be ignored by students of IPE, especially those who reject the impoverished realist version of the state. To assume that dominant social forces are the only relevant social forces is to reject the relational dimension and the constructed character of regional integration in a period of neoliberalism. If Robert Cox (1996:87) is right when he argues that knowledge is always produced for somebody and for something, then our work is not simply a reflection upon regional integration but is tied up in the restructuring processes themselves. From one such engaged perspective, the interesting questions arise when we take seriously the efforts of marginalized social forces to struggle against structures of oppression and for political expressions based on solidarity and respect for difference. After all, it is in the struggle for counterhegemony that the well-worn phrase “there is no alternative” may be revealed as the hollow apologetic statement that it is. Note

I would like to thank Karen Hadley and Mark Neufeld for their insightful comments.

Paul Aarts

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The Middle East: Eternally Out of Step with History? Since the 1970s, the quantum leap in the globalization process has made many states lose much of their regulatory capacities. As a result of this process, which represented a qualitative transformation from an international to a global or transnational world, less developed countries (LDCs) have been left with no option but full insertion into the world economy. Regional economic integration has probably been one of the major responses to the perceived threat of marginalization following this so-called globalization process. Nearly all states that become members of these multilateral fora try to “ride two tigers simultaneously”: they try to respond to international capital, which requires openness to the world economy, and to serve national interests, which demand competition for relative national advantages.1 Although regional experiences have certain assumptions in common and have been framed within a common globalist perspective, each regional integration project has its distinctive features. This diversity reflects the differential local articulations of regionalization, which need to be included in discussions about the subject. The case of the Middle East, or the Arab world, stands out clearly in this respect.2 Scholars of international relations have generally tended to regard the Middle East or the Arab world as a regional system or international subsystem, and geographically speaking it no doubt forms a region. So far, however, neither political nor economic regional arrangements have materialized. At first sight, the region seems to exemplify the eternal “exceptional” case, being out of step with history and immune to the trends affecting other parts of the world.3 Great ambitions toward regional unity coexist with constant conflicts; there is a conspicuous lack of democratic tradition; and a “regional civil society” is at best a sleeping potentiality (Hettne, 1994:28). The Middle East is the region of “realist thinking” par excellence. Collective political structures mostly stopped short at taking the form of “regional hegemonism” without attaining any significant degree of political integration, and economic integration hardly went beyond the 201

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stage of rhetoric. Although the prospect of Arab unity tantalizes all Arabs to some degree, a stark contrast between this idea and the poor results of the many ostensible efforts in that direction remains a particular trait of the Arab world today (Nonneman, 1992:33).4 “Integration? You have to be joking,” The Economist once captioned (1966). This statement, cynical though it is, has a high degree of veracity. Although Arab regional economic interaction on a pan-Arab level is rather weak—hence no all-Arab agency emerged—there has been at least one subregional attempt that has proven something of a success. Here we refer to the Gulf Cooperation Council (GCC), established in 1981 by Saudi Arabia, Kuwait, Bahrain, Qatar, Oman, and the United Arab Emirates. These countries were brought together into a pact ostensibly aimed at economic cooperation but that in fact had the purpose of maintaining internal and external security. Although Turki Al-Hamad may have overstated the case by declaring that “the GCC is purely a security institution; the rest is window-dressing” (Al-Hamad, 1997), one may wonder whether the GCC will continue as a viable functional union (Tripp, 1995; Ayubi, 1995; Wilson, 1992). The GCC’s efficacy depends on the fear of (internal and external) threats. In times of tranquillity, tensions among the member states grow; in times of turmoil, these disappear. Based on the notion of “punctuated integration” (and in an earlier version of the same article on the notion of “dialectical integration”), Fred Lawson reaches an analogous conclusion (Lawson, 1997a; see also Chapter 1). In this context there is no need to dwell upon the two other subregional organizations: the Arab Maghreb Union (created in 1989) is still alive, albeit rather shakily and without much prospect of success; the Arab Cooperation Council (founded in 1989) was rather short-lived, as it soon turned out that the organization was a strategic ploy on the part of its members, with each pursuing its own ends (Tripp, 1995; Joffé, 1992). Apart from some modest functional cooperation among the Gulf states, regional institutions either are dormant, have disappeared, or are unable to grow beyond their present limits (Nonneman, 1996; Wilson, 1992; El-Agraa, 1997). Defining the Causes

Defining the causes of poor Arab regionalization efforts, one can put together a comprehensive list of five thematic dimensions: economic, political-historical, political-economic, sociopolitical, and geopolitical. In the economic field the most relevant obstacles are primitive trade specialization, substantial differences between haves and have-nots, and rampant protectionism. In political-historical terms, pan-Arabism has a dismal record of Arab political and economic cooperation. Arab nationalist thought has

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always been reluctant to take account of noncultural factors and never developed any solid economic or strategic vision. Indeed, one of its most glaring shortcomings is its virtual neglect of economics (Ayubi, 1995; Korany, 1997; Alnasrawi, 1989). In terms of political economy, we refer to the notion that “politics overrides economics” and the insistence on strict “economic sovereignty.”5 In contrast to East Asia’s “economics first” policy, in most Arab states economic choices are first and foremost directed by short-term political needs. Economically speaking, quite a few Arab states definitely have experienced a “hardening” of their borders, underlining the chasm between the (poor) “Arabs of the North” and the (rich) “Arabs of the South” (Aarts, 1992:531; Faour, 1993:86–87). The sociopolitical dimension—by far the most important one—refers to the low level of legitimacy that most Arab states enjoy. It is obvious that authoritarian and undemocratic regimes, loath to make significant compromises with domestic constituencies, are not particularly willing to make compromises with neighboring states. They are suspicious of any transnational or otherwise nongovernmental cross-border contacts between their citizens and others, being very eager to control the social and economic interactions between their subjects and those of other countries. Hence they stick to highly centralized bilateralism rather than engaging themselves in multilateral cooperation efforts (Perthes, 1996a, 1996b; Nonneman, 1992). Geopolitically speaking, the Middle East is noted for its “absence of great powers” (Lustick, 1997). Due to its latecomer status (or political “backwardness”), the Middle East followed a completely different historical trajectory than Europe and North America did. According to Ian Lustick, “The route available for the achievement of great power status in Europe and North America, which included large-scale state-building wars, has not been available to those [Muhammed Ali, Gamal Abdul Nasser, and Saddam Hussein] who sought and still seek to enter the great power club after its establishment” (Lustick, 1997:657). Intervention by western powers not only propped up otherwise vulnerable regimes against internal challenges but, most importantly, prevented potential regional hegemons from exercising their relative capacities by conquering or otherwise coercively integrating their neighbors. The Bourgeoisie’s Double Assignment

Despite the long-standing recognition of the need for Arab regional economic integration, so far nothing of substance has left the ground. In the past, regional attempts at generating forms of integration have met with numerous obstacles. More recently—in the wake of the “peace process”— two alternatives were launched, both undertaken from outside the region.

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On the basis of the argument that not only is peace good for business, but that in particular business is good for peace, a consensus is in the making that “political peace” is qualified as a departure from the past, whereas “economic peace” is seen as the introduction to the future (Aarts and Tempel, 1995).6 Both the Euro-Mediterranean Partnership Agreement and the U.S.-inspired Middle East and North Africa (MENA) Economic Conferences aim at integrating Israel in the wider Middle Eastern economic region. However, neither project looks feasible. The creation of a free trade zone between the European Union (EU) and the countries south of the Mediterranean has some built-in limits from the European side and offers little hope for broader Arab economic integration (Salamé, 1994a; Landgraf, 1994), whereas the second initiative is widely seen as the old colonial ploy in a new form. Ideologically underpinned as it is on Shimon Peres’s The New Middle East (1993), the real objective behind the U.S.sponsored “Middle Easternism” is viewed as an attempt to achieve Arab subordination by other means, culminating in a kind of Pax Hebraica.7 If neither of these externally driven economic integration projects look attainable, what could be the alternative? In a recent contribution to the debate, Bahgat Korany and others point in the direction of a step-by-step approach; that is, the alternative is not to have an instant “New Middle East” à la Peres instead of but “rather with—if not posterior to—an Arab international institution or regime” (Korany, 1997:146; Abdel-Fadil, 1997; Guerrieri, 1997). This gradual and more cautious approach to regional economic integration—based on the notion of concentric circles—boils down to a strategy of “Arab integration first,” having a concrete parallel in the case of Latin American countries (Mercosur in particular). But against the backdrop of lackluster results of past economic integration efforts, the obvious question is: Why would it work this time? If not in the wake of the peace process, economic integration might materialize in the wake of ongoing processes of economic liberalization. Although the Arab states have been among the most reluctant in the Third World to subscribe to the new neoliberal orthodoxy, one by one they have begun cautiously to endorse its principles and adopt piecemeal its basic tenets. The failure of centralized, protected economies had become apparent, and by the mid-1980s a growing number of governments were diluting existing state-centric development policies by implementing liberalizing measures. Impetus was given to the trend by the collapse of the socialist bloc and the discrediting of command economy frameworks. By the 1990s, liberalization had become the new paradigm (Tschirgi, 1996). In this framework, export-led growth under private-sector auspices is a key element. This trend raises the following question: Will economic liberalization give the Arab bourgeoisie sufficient coherence and power to do two things: first, curb state autonomy (i.e., boost the process of political liberalization,

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seen by some as a necessary precondition for regionalism, at least the “new regionalism”), and second, act as the “championing social class” whose own specific interests coincide with the prospects of a larger unified market and integrated state?8 Before discussing this topical question, a few words on the origins and characteristics of economic liberalization programs in the Arab world are appropriate. Apart from differences from country to country, there is one characteristic that all these countries have in common: liberalization and privatization programs have not followed from formal empirical evaluations of past performance of the dominant public sector, nor have they resulted from pressures exerted by native entrepreneurs. Rather, these policies have been adopted as an option by the state and in the form of public policy (Ayubi, 1995; Nonneman, 1996). Some progress has been made in the field of economic liberalization and deregulation, but insofar as divestiture is concerned, the record is quite modest (Harik and Sullivan, 1992; Stevens, 1993). Not only the regimes themselves, but also (parts of) the state-connected business class will try to limit the extent of privatization measures because they will lose their privileged status under free competition. Also labor organizations that have a modus vivendi with state enterprises fear the market economy, which respects no privilege. The real reason, however, that reforms have been so halfhearted is that to give up control of the economy is to give up power. Coming back to the question about the Arab bourgeoisie’s “double assignment” to boost the process of political liberalization and take the lead in the process of economic integration, one could argue along the following lines. On the basis of the meager results of privatization programs until the early 1990s, some pundits have concluded that political reform is a necessary precondition if privatization is to contribute to improved economic performance: “perestroika is not possible without glasnost” (Stevens, 1993: 129; Abdel-Khalek, 1992). Apart from this rather absolute inference, the question can also be put the other way around: Will economic liberalization enhance the process of political liberalization? Without entering the general discussion on the relationship between capitalism and democracy, I take another, more limited and shorter-term perspective.9 Whereas some strike a cautiously optimistic note (like Nonneman, 1996), others have strong doubts about the “softening” effects of structural adjustment measures on authoritarian regimes. It is true that economic liberalization will lead to an enhanced role for the private sector, but this does not entail a call for more representation. Entrepreneurs are more interested in political stability than in party politics and wider political participation, as long as they can operate in an environment of minimum restrictions. 10 The most that some regimes may adopt is a type of superficial, cosmetic democracy—“for the Yankees to see” (Ayubi, 1995:411). In all other cases, we witness what

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Clifford Geertz has typified as “the rise of a combination of a Smithean idea of how to get rich with a Hobbesian idea of how to govern” (Vandewalle, 1992:34–35). Does the second part of the bourgeoisie’s “double assignment” show any promise for the future of Arab economic integration? Now that both domestic and international environments look more favorable to a “second Arab bourgeoisie” (Springborg, 1993) than during the first decades of the postindependence period, one might expect the entrepreneurs to extricate themselves from the state (and push for regional economic integration). Reality appears to be different. As an outcome of the articulated nature of the modes of production in Middle Eastern societies, there is a relative weakness of polar classes and an enhanced significance of intermediate strata. As Nazih Ayubi has forcefully argued, the bourgeoisie was not only structurally weak and socially ineffectual but as a consequence also lacked hegemony over the society. This structural weakness obliges the privatesector bourgeoisie to function either as an appendage to its own state or as an agent to multinational capital or both (Ayubi, 1995:181). It has entered an “alliance for profits” with the state, renouncing any overtly political role (Waterbury, 1994:27). This is not to say, of course, that this alliance is everlasting. At a certain moment private actors may begin to lobby to protect themselves, but to date the national entrepreneurial bourgeoisie definitely is too weak versus the statesmen-cum-businessmen class.11 The Arab countries did not follow a strategy of “industrial deepening” and limited themselves to policies that were quite the opposite: they opted for a kind of “commercial deepening,” sometimes accompanied by an element of “financial deepening” (Ayubi, 1995:389). This increasing differentiation within the private sector led to differentiation of economic interests and expectations regarding both government and integration policies. With respect to government behavior, the commercial part of the bourgeoisie— or in a wider sense the mercantile-financial bourgeoisie—will find it much easier to adapt to authoritarian regimes than the entrepreneurial industrialists and artisans. As a rule, industrial investments tie down more capital and are less remunerative in the short and medium term than most commercial ventures. Therefore, manufacturers are much more negatively affected by low levels of government accountability, of transparency in deal making, and, even more, of the rule of law (Perthes, 1994:263). Hence this part of the bourgeoisie is doubtless interested in some democratization. Due to its weakness, however, it cannot push for change. With respect to economic integration policies, things look different. Obviously, the commercial bourgeoisie is very much interested in freedom of cross-border traffic. Many industrialists, however—sometimes alongside landowners and farming interests—are in favor of continued protection against foreign competition. This leads to a kind of catch-22 situation:

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assuming that some degree of political liberalization is desirable to come to successful regional economic integration, the equivocal agenda of the private sector constitutes a major obstacle. For one thing, the industrial bourgeoisie is known as the most “pro-democratic” force but lacks any bargaining power and is none too keen on opening up borders; for another thing, opening borders is exactly what the commercial bourgeoisie is itching to do, but it is very much supportive of authoritarian power structures. Finally, it is against all probability that the “second Arab bourgeoisie” will prove to be equal to its double assignment. As a result, Arab regional economic integration is not likely to be spurred on. Conclusion

Even if most countries of the Arab region would undergo substantial and successful macroeconomic adjustment, this would only be a necessary and not a sufficient condition for the start-up of a process of integration. Rather, for opportunities to materialize, the question is whether these countries will be able to lay the political-structural groundwork for cooperation in the first place. Mutual distrust is high, both between regimes and their citizens and between regimes themselves. As long as the governments of most of the Arab states maintain themselves in the way to which they are accustomed, regionalism will remain a largely symbolic issue. In the meantime, due to its ambivalence, the Arab bourgeoisie’s performance does not augur well either. Regional peace surely can make a difference and is likely to enhance the chances for inter-Arab cooperation, but here also the future does not look promising, and it may take several more years (if not more than “several”) to come about. Moreover, even in a scenario of peace, the potential rewards may lie in economic relations outside the region rather than inside (Sayigh, 1997:63). Since the early 1990s, the political map of the Arab world has changed. The Second Gulf War fostered fragmentation along national lines, bilateralism prevails, and existing multilateral institutions (the Arab League in particular) are weaker than ever. There is much less competition between Arab states for overall Arab supremacy but much more rivalry between pairs of states for primacy in relations with non-Arab partners. Such is the case between Syria and Lebanon, Jordan and the Palestinian Authority, and Egypt and Jordan, all making their calculations in relation to Israel (Sayigh, 1997:64). In short, the Arab states do not coordinate; they compete. As a deviation from the practice elsewhere—Africa apart—the Arab world apparently does not regard regional cooperation as a way to achieve mobility in the changing global division of labor. This attitude cannot be explained within the framework of “regional narcissism,” a tendency to see

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the course of events there as “unique” by comparison with other areas of the world. Essentialist and culturalist approaches—true to Orientalist discourse—have to give way to a political economy approach. Notes

1. See Wil Hout’s review of Andre Gamble and Anthony Payne, eds., Regionalism and World Order, in Mershon International Studies Review 41 (1997): 104. The “two tigers” notion looks similar to what Davis Bobrow and Robert Kudrle in Chapter 3 observe as the (double) purpose of multilateral clubs: enhancing effective openness and market efficiency in world and regional economies and pursuing autonomy, national economic prosperity, security, and status. In an earlier volume of the International Political Economy Yearbook, James Mittelman noticed the following analogy: “Paradoxically, regionalism both shields domestic society from and integrates it into the global division of labor” (Mittelman, 1996:11). 2. This chapter in most cases refers to the Arab world or subregions thereof (i.e., the twenty-two member states of the Arab League). When Israel is included, however, we explicitly use the term “Middle East.” Neither Iran nor Turkey—normally part of the “Middle East”—is being dealt with here. 3. Cf. Yahya Sadowski, “The New Orientalism and the Democracy Debate,” Middle East Report (July-August 1993):15–21. For a more general discussion on the “uniqueness” of the Middle East, see Bromley (1994); Halliday (1996); Owen (1992); and Zubaida (1989). 4. The plea for an Arab common market—with little success—was made again and again, first in 1958 and most recently early 1998. Both in terms of intraarea trade and intraregional investments, the record is minimal. For an overview, see Perthes (1996a); Battles (1995); and Padoan (1997). 5. See Rivlin (1997); Perthes (1996a); Chatelus (1987); Brumberg (1995); Alnasrawi (1989); Barnett (1995); and Tripp (1995). 6. For an antidotal opinion, see Battles (1995); Joffé (1996); Maoz (1997); and Sayigh (1997). 7. See the numerous commentaries in Al-Ahram Weekly (by Dina Ezzat, Ibrahim Nafie, Mahmoud Abdel-Fadil, Mohamed El-Imam, and Fawzi Mansour). See also Korany (1997):138–141. 8. This ties in with the idea that capitalists are more likely to be “panArabist” than are the ruling elites of the territorial states who would lose many of their privileges in a unified setting (F. Jalal in Ayubi, 1995:161). Ayubi poignantly adds: “Perhaps he [Jalal] is right. For the future, however, it is hard to imagine how private Arab capital would voluntarily go ‘Arabist’ after it has already opted to go ‘globalist.’ It may well be that the common class interests of the ‘international corporate bourgeoisie’ . . . will prove to be more potent than the presumed Arab sentiments and regional interests of Arab capital” (Ayubi, 1995:162–163). 9. See the seminal work by Bromley (1994); also Dietrich Rueschemeyer, Evelyne Huber Stephens, and John D. Stephens, Capitalist Development and Democracy (Cambridge: Polity Press, 1992); Larry Diamond and Marc F. Platter, eds., Capitalism, Socialism and Democracy Revisited (Baltimore: Johns Hopkins University Press, 1993); and Ellen Meiksins Wood, Democracy Against Capitalism: Renewing Historical Materialism (Cambridge: Cambridge University Press, 1995).

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10. Examples abound of cases where “less money” did not lead to “more democracy” (i.e., “taxation without representation”). See Ayubi (1995); Perthes (1994); Poelling (1996); Brand (1992); Leca (1994); Hermassi (1994); Pool (1993); and Heydemann (1993). Others question the presumed relationship between economic and political liberalization even more; for example, see Cox (1992) and Farsoun and Zacharia (1995). 11. Examples abound: see Niblock and Murphy (1993); Ayubi (1995); and Harik and Sullivan (1992). In Tschirgi (1996), an interesting comparison is made between Mexico and Egypt. See also Chang, Said, and Sakr (1995) for a comparison with the “East-Asian experience” and Kolko (1989) for a more general analysis of the role of so-called political accumulators.

Hartmut Elsenhans

10

On the Politico-Economic Conditions for Maintaining Accountability and Sovereignty in the Era of Globalization The chapters of this book share a common theoretical perspective: the changes brought about by globalization and transnational networks in the international “anarchical” system are not promoting greater comfort for the population of the world. More economic integration is expected by Laura Macdonald and Barbara Jenkins, as well as Erik Beukel, whereas William P. Avery and Richard Friman, Davis Bobrow and Robert Kudrle, as well as Antje Wiener predict, at least implicitly, a disempowerment of labor. More political cooperation between governments will not compensate these negative effects but enhance the capacity of the state to mediate between competing interests. Those social groups that can influence the state for promoting their own particularistic interests will gain. Neither of these processes of internationalization will lead to powerful transnational networks that could represent the interests of those who are disempowered at the national levels, as the internationalization of economics will not be strong enough to lead to worldwide full employment and hence bargaining power of labor. Political integration will lead to situations in which the emerging networks between governments will not trigger powerful movements that favor the formation of representative bodies at these new levels, but instead will favor patron-client relations between these governments and disempowered political groups at the national levels. Those who own the means of production are no longer challenged by the scarcity of labor that might force them to accept higher wages, shorter hours, and rights of labor. Those who have access to the political decisionmaking process expand their scope of action by interpreting the constraints they face in their international dealings in ways favorable to the protection of their own interests and their particularistic followers. The competing claims of more numerous groups are disqualified by the argument that they 211

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cannot be implemented at the international level. The state does not lose in its capacity to be an international player, but in accountability. It will become subservient to particularistic interests that have economic assets and access to the political decisionmaking process. The labor market is characterized by pressures from low-income labor in low-income countries with low-average and low-marginal productivity. All labor that does not have very specific skills at its disposal, within a framework of favorable conditions for their useful employment (complementary infrastructures, etc.), is disempowered and offers its services in these protected branches. Thus, even very qualified labor will be threatened. Solidarity between the protected and the nonprotected segments of the economy will decrease. The bargaining power of labor is based on full employment and the political strength of labor on the accountability of the state to the majority of the voters. These main mechanisms of capitalism—which is always characterized by expanding mass markets—are being undermined. The western pluralistic and mass-based economic, social, and political model is threatened by those who proclaim to support it. Hence the argument proposed in this volume focuses on the erosion of state sovereignty through international processes that make still powerful states subservient to sectional interests. These interests implement their policies with the result of further weakening the weight of numbers (voters, citizens, humans) in favor of the weight of assets and specific avenues to the political decisionmaking process. Sovereignty, which had for so long been described as the basis of international anarchy, appears in this volume as a potential source of influence for the masses against particularistic interests. These particularistic interests are served by the increasing weight of transnational networks that circumvent the sovereign state. Sovereignty appears as the basis of accountability of the state. The Difference Between the International and the National Arena

The new aspect of sovereignty can be discussed by looking into the anarchy–rule of law dichotomy described in the mainstream approaches to international relations. At the intrastate level, binding rules of behavior can be imposed on minorities even without the latter’s consent. In the international system, members can be bound by rules only with their consent or if sufficiently powerful and sufficiently committed active coalitions impose these rules on weaker coalitions. The nonbinding character of most majority decisions in the international system is still to be found in the most developed system of economic and political integration, the European

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Union, where any government can consider an issue as important enough to require a unanimous decision. Moreover, the preferences of majorities at the international level, whether majorities of states, majorities of numbers of populations represented, majorities of economic capacities, or even majorities of military potential, are not implemented by the simple fact that they are backed by majorities. Preferences have to be translated into activities in order to be imposed. Germany’s neighbors were certainly not happy about German rearmament in the 1930s, but these preparations for war were actively challenged only after it was clear that war was inevitable. As long as Germany’s ultimate aims could be considered as limited to the unification of the German-speaking population of central Europe, the transaction costs for opposing Germany were deemed too high by most of its neighbors, who therefore hesitated to mobilize their military resources. At the national level, a government will not increase taxes and call upon the services of its population in order to fight a gang of criminals or the practices of monopolists who use their market power in order to exploit other citizens. A government need not engage in such a fight, but if it nonetheless decides to do so, it is not dependent on the commitment of its citizens but simply employs the resources at hand. The difference is fundamental: At the international level, transaction costs matter greatly. Those who can afford to pay for these transaction costs are checked only if their success causes sufficiently high damage to sufficiently powerful others, inducing these others to create countercoalitions. At the national level the state is assumed to have authority as long as this state is not challenged by the constitutional bodies and, after the enfranchisement of the masses, by majorities. Even powerful lobbies and sectional groups can be defeated by means of the vote. The sovereign state gives voice to those who cannot afford high transaction costs but who draw their political weight from the sheer size of their numbers. The sovereign state disempowers sectional interests in favor of majorities, even if sectional interests exercise considerable influence. The contributions to this book make clear that the erosion of sovereignty through internationalization further enhances the powers of sectional interests. In Chapter 1, Fred H. Lawson describes non–ruling families in the Gulf states opposing regional cooperation for this reason. In Chapter 2, Barbara Jenkins highlights the loss of influence of labor in favor of limited business interests in the Mercado Común del Sur (Mercosur) integration process, whereas in Chapter 3 Davis B. Bobrow and Robert T. Kudrle make clear that intensified cooperation in the Asia-Pacific Economic Cooperation (APEC) forum leads to more discretionary power for governments in setting priorities for investments and growth perspectives, which ultimately means greater leverage for those sectional interests that are able to attract government preferences.

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Labor Disempowered by Marginality

The larger and the more heterogeneous the social groups to be mobilized, the more difficult the formation of a coalition that can agree on policies and aims. Capitalism is an economic system with relatively clear rules of behavior, at least for business. The nation-states of the west emerged as the result of a process in which patterns of politically relevant behavior were imposed against regional specificities. One of the most unnoticed aspects of this homogenization process was the uniformization of the public language even where there was linguistic diversity. Compare to this the search for linguistic diversity in the slave societies of the seventeenth century in the Caribbean, where slaves were imported from different African regions in order to render “combination” among them difficult. Capitalist entrepreneurs are forced by competition in the market to reduce costs; thus, their claims on the state aim at facilitating this cost reduction. Labor and any mass organization is at a disadvantage when presenting its own, different interest in high wages, as the opposing argument—the lower the cost of labor, the more employment—initially seems obvious. Labor is, however, strengthened in the case of full employment, so that it does not really need to have ideological leadership. Even according to the neoclassical theory of wage formation, capitalist growth is accompanied by real wage increases because business hires additional labor as long as its marginal product is higher than its cost. Even if productivity only rises in some sectors of the economy, business hires additional labor. Scarcity of labor may be the result. In this case, the price of labor increases not only in the innovative sector of the economy but also in the noninnovative one, provided that this sector still has a market for its products at relatively higher prices. Haircut productivity has not increased over the past 200 years, but barbers’ wages have. Labor’s empowerment is based on its productivity, more precisely on its marginal product, and the tendency to full employment. If these two conditions are met, labor and business empower each other without any further coordination: If business increases investment due to innovations, its demand for labor rises. If the economy is close to full employment, real wages also tend to rise. Markets will increase and create additional incentives for investment that labor cannot prevent from being financed. Labor cannot command more real income than the productive apparatus can supply in the form of goods from existing capacity, so that the investment in additional capacity is financed on the basis of prices that can be charged by business given the conditions of demand. The condition of all labor producing a surplus over its costs no longer holds if economies become competitive in a sufficient number of products but despite their additional exports do not achieve full employment. The

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globalization process that developed before 1913 was characterized by its comprising only societies of a similar type, which were able to increase their productivity in export goods on the basis of their overall advance in technical progress, their average progress in productivity. An innovative economy increased its exports in its innovative sector and experienced either rising wages or a rising exchange rate due to labor scarcity or a surplus of its balance of trade. The noninnovative economy achieved new comparative advantage in noninnovative products that it could transform into price competitiveness at low differences in real wages or low rates of devaluation. The lagging economy could maintain full employment on the basis of noninnovative products and hence continue to enjoy the capitalist mechanism of power diffusion in favor of labor. I call this type of globalization the “convoy model.” Suppose now that the differences in productivity in the nonexport goods of the two sets of economies that interact are very high, for example, because technology transfer takes place only in exportables, though not in all tradables. In this case, the lagging economy will have to proceed to very high rates of devaluation. Only then will its international price of labor go down to levels at which less productive labor becomes competitive in new exports and import-substituting production. An economy that produces the lion’s share of its wage goods can proceed to any level of devaluation if it favors employment because additional export workers can buy locally produced wage goods with their incomes paid in national currency. The principal condition for such devaluations is a surplus of agriculture, as is the case of the rice-based economies of Southeast and East Asia. The high productivity advances of the advanced industrial countries provides them with high trade surpluses and high exchange rates. High exchange rates render their labor too expensive in their less productive sectors, where their productivity advance in relation to devaluation-driven industrializing countries is less high than in their export sectors, even if they are also more productive in these less performing branches. There is no way to check this new competitiveness of devaluationdriven industrializing countries by wage restraint because the necessities consumed in the advanced industrial countries are more expensive than the necessities in the devaluation-driven industrializing economies. So the income of a second-quintile Chinese household is nine times higher in China than its equivalent at the prevailing exchange rate in Canada. The purchasing power parity explanation of exchange rates holds only between socially similar countries, not between advanced industrial and devaluation-driven industrializing countries. Labor in the advanced industrial countries becomes marginal because the exports of the high technology sectors do not create full employment, whereas the wage rate in branches under import competition from devalua-

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tion-driven industrializing economies is too high even in the case of a very low standard of living. In Chapter 7 Laura Macdonald describes this mechanism with respect to Mexican labor outcompeting U.S. labor in the North American Free Trade Agreement (NAFTA) and the ultimate consequence of a generalization of the Calcutta wage on a world scale. The New Quality of State Power

If labor is at least partially disempowered, full employment is no longer sought after along the lines of labor’s interests (higher earnings per worktime according to productivity increases) but along capital’s lines (lower costs of production including lower costs of labor in order to “remain” competitive). State power is used to promote cost reductions. Laura Macdonald and Erik Beukel describe this process with respect to the demise of the rights and bargaining power of labor. William P. Avery and Richard Friman show in Chapter 4 how under such conditions protection of the home market becomes dependent on state power. In their “two-level game,” the discretionary power of the state increases so that the state may favor or buy off some sectional interests in order to avoid large coalitions against its policies. The decision over which ones are favored depends on the capacity of the respective groups to create disturbances, hence on their capacities to afford transaction costs (their homogeneity, their degree of organization, their political and financial resources, their capacity to become vocal) and on the visions of decisionmakers about the future earning potential of branches and sectors of the economy, which, at least for advanced industrial countries, are always arbitrary. The state no longer relies on legitimacy based on majorities but on its capacity to buy off sectional interests and a new latitude in defining the options of the future, as described by Davis B. Bobrow and Robert T. Kudrle. It no longer provides a framework for labor to activate redistributive processes on the basis of its scarcity for the benefit of labor in branches with below-average productivity increases. Instead, labor becomes divided into segments needing less protection and segments needing more protection—though normally in different forms that the needy segments cannot agree upon—as shown by Laura Macdonald, Erik Beukel, and William P. Avery and Richard Friman. Instead, the state becomes an active player in the redistribution of resources in favor of vocal groups or promising branches of the future, as is shown by Davis B. Bobrow and Robert T. Kudrle. The challenge of globalization consists in the sectorally limited new competitiveness of labor in economies with low-average and low-marginal productivity, which outcompetes much of the labor in advanced

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industrial countries and hence disempowers most of this labor. Then the state, no longer under the control of the many, becomes subservient to the interests of the few, this being legitimized by the necessity to keep up in the race for high technology. The Ambivalent Character of Transnational Networks

It is not surprising that the analyses presented in this book do not deal with one topic widely dealt with in the contemporary literature on the positive effects of globalization. Many political scientists insist on the expansion of transnational networks that are formed by nongovernmental organizations (NGOs). They interpret this new dimension of the international system as an emerging worldwide civil society, considering civil society as being based on the existence of organizations that are not dependent on the state. It can be shown that such organizations can thrive only if there are economic actors who derive their incomes from competitive markets. A balance between the two main forces of a capitalist system hence depends on unintended, reciprocal empowerment. In the world where a substantial part of labor is marginal, as in the case of the underdeveloped world, and thus cannot produce more than it needs for its survival, one cannot expect a balanced representation of business and labor at the level of civil society. Luckily, the actual situation is characterized by these NGOs being largely based on contributions from the upper and middle classes of politically liberal countries, especially from the Anglo-Saxon world, which are committed to universalistic humanitarian values. This orientation of transnational networks is, however, not a necessity, as shown by NGOs in the worlds of Islam and Hinduism, which engage in social activities to gain influence over clienteles similar to the ones targeted by western NGOs and their local allies in the South. The realization is growing that such networks are not an expression of a democratization of the world. They tend to become paternalistic, even authoritarian with respect to their clienteles, as does any organization that is not controlled either by the market or the vote of majorities but by evaluation processes based on the yardsticks they greatly influence or even set themselves through joint negotiations. Therefore, Antje Wiener makes an essential point in Chapter 6. A transnational civil society—in her case within the framework of the European Union—cannot depend on transnational networks of NGOs but on citizenship within the area of integration. Citizenship not only implies political and social rights for the citizens that she describes but the capacity of the citizens to implement these rights, which can be achieved by means

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of transnational organizations that represent these citizens or by exit. Monetary union will either trigger such transnational mass organizations in the European Union or will fail. There are no other examples of these first foundations on which such a process of transnational mass organizations addressing themselves to institutions at the transnational level could be based. Instead, the barriers to migration increase, as Laura Macdonald demonstrates, considerably weakening the option of exit and the incentives for extending solidarity to groups with similar interests behind those very barriers, so that the “competition state” can further develop its own logic. An Alternative Perspective

Laura Macdonald, Erik Beukel, and Barbara Jenkins describe the inevitability of the economic globalization process and its negative impact on labor; William P. Avery and Richard Friman as well as Davis B. Bobrow and Robert T. Kudrle describe the resulting increase of discretionary power of the competition state. There seems to be no means to prevent the decline of labor. Labor is seen as depending on the resources of organization, and the capacity to unite in such organizations depends on historically achieved patterns of behavior, ultimately, on political culture. Political cultures vary very much due to historical experiences. Business can easily unite at the international level, but not labor, not even in a culturally relatively homogeneous setup such as the European Union. If labor’s bargaining power depended only on organization, the future of capitalism as described by a balanced distribution of power between labor and business would indeed be bleak. But because this organizational power is basically linked to a marginal product higher than the cost of labor, there are possibilities to return to the pre-1913 pattern of globalization with its convoy character, which fewer commentators have complained about. The condition for such a return is a spillover of the sectorally limited progress in productivity in the devaluation-driven industrializing countries, which until now have only been able to catch up sectorally. Such a process depends on expanding internal mass markets. This implies that there is no marginal labor that keeps wage rates at sheer levels of survival. Development policy such as agrarian reforms or employment programs, which may even take the form of “artificially” productive activities, allows removing marginality so that expanding export sectors will also make labor scarce in today’s low-income underdeveloped countries. Productivity in internal market–oriented industries will rise, with accompanying increases in marginal product and wages. The attempts of the competition states to counteract these tendencies can only lead to high export surpluses and

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hence to an appreciation of their currency, which also leads to higher international prices for their labor. Japan, Taiwan, and South Korea have followed this path and are no longer a challenge to the maintenance of a free world market. The implications of this argument are obvious. Labor should avoid following the recommendations of the competition state and accept wage restraint, which, if successful, decreases internal demand in relation to productive potential and raises the exchange rate. Instead, labor should struggle in the advanced industrial countries for productivity-oriented wage increases. In order to alleviate marginality in the underdeveloped countries, access to the markets of the advanced countries should be kept open for the developing countries. But increasing exports will not overcome marginality, as their impact may be too weak. Thus, additional development measures as implemented in South Korea and Taiwan should be actively supported. The employment of the poor, an estimated one billion people with their families, through an artificially productive industry in order to raise their incomes from $100 per capita to $150 per capita, the level of income of the next quintile, would cost just $50 billion, the amount of actual development assistance. It is clear that such a perspective can become politically relevant only if the actual intellectual climate is changed. Two arguments have to be reestablished: first, the basic Keynesian argument that capitalism is demand-driven and an institution in favor of labor (and not surplus-driven and an institution in favor of capitalists) and, second, that competition imposed on capitalists reduces the costs of production at constant cost of factors of production, so that in order to maintain labor’s bargaining power, worktime has to decrease or mass consumption has to increase. Note

Because this paper is a short commentary, I do not give references for literature. For references and a more elaborate statement of the theoretical background on which the commentary is based, see the following contributions of mine: “Rising Mass Incomes as a Condition of Capitalist Growth: Implications for the World Economy,” International Organization 37 (1) Winter 1983:1–38; “Rent, State and the Market: The Political Economy of the Transition to Self-Sustained Capitalism,” Pakistan Development Review 33 (4) December 1994:393–428; “Globalisation or Dutch Disease: Its Political and Social Consequences,” in Hans W. Singer and Rameshwar Tandon, eds., Technology Diffusion in Third World Contexts (New Delhi: D. K. Publishers, 1998); “Globalisation: Myths and Real Challenges,” Journal of the Third World Spectrum 4 (2) Autumn 1997:1–22; “Discourse on Economic Globalization vs. Problems of Marginality,” Journal of the Third World Spectrum 5 (1) Spring 1998:1–22; “Rent and the Transition to Capitalism,” Asien-AfrikaLateinamerika 25 (6) 1997:651–686; “Empowering the Poor for Succeeding in

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Liberalisation,” Indian Journal of Public Administration 42 (2) July/September 1996:302–308; and “Myth of Globalization and Necessity of Development Politics,” International Studies (New Delhi) 33 (3) July-September 1996:255–272.

Acronyms AAEs ABAC ACTPN AFL-CIO

AGOIC ANIP APAC APEC ASEAN ASPIC CAP CEE CEO CGT CITES CIU CNDH CTM CUT CUT DAEs DNC EAEC EAEG EC ECLA ECU EEC EFTA EMU EP EPG

advanced APEC economies APEC Business Advisory Council Advisory Committee for Trade Policy and Negotiations American Federation of Labor and Congress of Industrial Organizations Arab Gulf Organization for Industrial Consultancy APEC Non-Binding Investment Principles Agricultural Policy Advisory Committee Asian Pacific Economic Cooperation forum Association of South East Asian Nations Asia-Pacific Investment Code Common Agricultural Policy central and eastern European chief executive officer Confederación General de Trabajo (Argentina) Convention on International Trade in Endangered Species Cámara de Industrias de Uruguay National Human Rights Commission Confederación de Trabajadores Mexicanos Central Unica de los Trabajadores (Paraguay) Central Unica dos Trabalhadores (Brazil) dynamic Asian economies Democratic National Committee East Asia Economic Council East Asia Economic Group European Community Economic Commission for Latin America European currency unit European Economic Community European Free Trade Association European Monetary Union European Parliament Eminent Persons Group 221

222

Acronyms

EU EUA EZLN FAT FDI FRG FTA FTAA GATS GATT GCC GDP GDR GNP IAP IFDI IGC IMF IPE IPR LAFTA LAIA LDC MEED MENA MEPs Mercosur MFN MNCs NAAEC

NAALC NAFTA NATO NGO NICs NIEs NOx OEA OECD OFDI PAFTAD PBEC

European Union economic unity agreement Ejercito Zapatista para la Liberación Nacional Frente Auténtico de Trabajadores foreign direct investment Federal Republic of Germany free trade agreement/area Free Trade Agreement of the Americas General Agreement on Trade in Services General Agreement on Tariffs and Trade Gulf Cooperation Council gross domestic product German Democratic Republic gross national product individual action plan incoming foreign direct investment intergovermental conference International Monetary Fund international political economy intellectual property rights Latin American Free Trade Agreement Latin American Integration Association less developed countries Middle East Economic Digest Middle East and North Africa Members of the European Parliament Mercado Común del Sur most favored nation multinational corporations North American Agreement on Environmental Cooperation North American Agreement on Labor Cooperation North American Free Trade Agreement North Atlantic Treaty Organization nongovernmental organization newly industrializing countries newly industrializing economies nitrogen oxides open economic association Organization for Economic Cooperation and Development outgoing foreign direct investment Pacific Trade and Development Conference Pacific Basin Economic Council

Acronyms

PECC PICE PIT-CNT

PRD PRI PRONASOL RAEs SEA SEDESOL SOx TCVA TRIMs TRIPs UAE UEA UIA UNCHE USTR WFOEs WTO

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Pacific Economic Cooperation Council Programa de Integración y Cooperación Pacto Intersindical del Trabajo/Central Nacional de los Trabajadores (Uruguay) Party of the Democratic Revolution Institutional Revolutionary Party (Mexico) National Solidarity Program rising APEC economies Single European Act El Secretario de Desarrollo Social sulfur oxides Texas Citrus and Vegetable Association Trade-Related Investment Measures Trade-Related Intellectual Property United Arab Emirates Unified Economic Agreement Unión Industrial de Argentina United Nations Conference on the Human Environment U.S. Trade Representative wholly foreign-owned enterprises World Trade Organization

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Contributors and Commentators Paul Aarts is affiliated with the Research Center for International Political Economy (RECIPE) and teaches international relations in the Department of Political Science at the University of Amsterdam (Oude Zijds Achterburgwal 237, 1012 DL Amsterdam, Netherlands; e-mail: [email protected]). His research addresses the field of politics and economics of the Middle East and North Africa, focusing on the Gulf states. He has published in Arab Studies Quarterly, Orient, OPEC Review, and Third World Quarterly.

William P. Avery is a professor in the Department of Political Science at the University of Nebraska–Lincoln (Lincoln, NE, USA 68588-0328; email: [email protected]). His current research focuses on the political economy of trade in the Western Hemisphere. Articles on the NAFTA negotiations have appeared in Political Science Quarterly and Policy Sciences. He is a past coeditor of the International Political Economy Yearbook.

Erik Beukel is an associate professor in the Department of Political Science and Public Management at Odense University, Denmark (Campusvej 55, DK-5230 Odense M, Denmark; e-mail: erb@busieco. ou.dk). His research interests include international political economy and European integration. In 1998, he was visiting scholar at the Institute of International Relations, University of British Columbia, focusing on the political economy of trade and environment in regional and global conflicts. He has published books (in Danish) on global environmental protection as a public good and on European integration.

Davis B. Bobrow is a professor of public and international affairs and political science at the University of Pittsburgh (Pittsburgh, PA, USA 15260; e-mail: [email protected]). His recent and ongoing research addresses the evolution of the post–Cold War international system in comprehensive security and political economy arenas, with special attention to the roles of and relationships between the United States and East Asia. 259

260

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Hartmut Elsenhans is full professor at the Institute of Political and Administrative Science at Leipzig University (Augustusplatz 9, 04109 Leipzig, Germany; e-mail: [email protected]). His research focuses on the genesis and structure of the global system. He has worked extensively on the history of the capitalist world system and on development problems in Third World countries.

H. Richard Friman is an associate professor and assistant chair in the Department of Political Science at Marquette University (Milwaukee, WI, USA 53201-1881; e-mail: [email protected]). His research focuses on bargaining and negotiation, immigration and drug control policy, and the illicit global economy. His recent books include NarcoDiplomacy and a volume coedited with Peter Andreas, The Illicit Global Economy and State Power.

Teresa Healy is a lecturer in the Department of Political Studies at Trent University (Peterborough, Ontario, Canada K9J 7B8; e-mail: thealy@ trentu.ca). At present she is working on issues related to the struggle for counterhegemony in Mexico, with an emphasis on democratic movements of auto workers.

Barbara Jenkins is associate professor in the Department of Political Science at Carleton University (Ottawa, Ontario, Canada K1S 5B6; e-mail: [email protected]). Her interests include the political economy of international investment and the politics of global cultural production. She is the author of The Paradox of Continental Production: National Investment Policies in North America.

Robert T. Kudrle is professor of public affairs and law at the Hubert H. Humphrey Institute of Public Affairs, University of Minnesota (Minneapolis, MN, USA 55455; e-mail: [email protected]). Professor Kudrle is past coeditor of International Studies Quarterly and has published widely on industrial organization, public policy toward business, international economic policy, and the political economy of the social services. Much of his recent research concerns economic relations among the industrialized countries.

Fred H. Lawson is James Irvine Professor of Government at Mills College (Oakland, CA, USA 94613; e-mail: [email protected]). His research concerns the political economy of foreign policy in the contemporary Arab world. His most recent book is Why Syria Goes to War.

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Laura Macdonald is an associate professor of political science at Carleton University (Ottawa, Ontario, Canada K1S 5B6; e-mail: lmacdona@ccs. carleton.ca). She is the author of Supporting Civil Society: The Political Role of Non-Governmental Organizations in Central America and numerous articles on NGOs, civil society, global civil society, women and NAFTA, human rights and citizenship in Latin America, and Canada in the global political economy. In 1998, she was a fellow at the Center for U.S.Mexican Studies at the University of California–San Diego, working on a research program titled “Human Rights, Civil Society and Economic Integration in North America.”

Mary Ann Tétreault is professor of political science at Iowa State University (Ames, IA, USA 50011; e-mail: [email protected]). She is the author of three books dealing with various aspects of the international oil market, the most recent of which is The Kuwait Petroleum Corporation and the Economics of the New World Order. She is the editor of Women and Revolution in Africa, Asia, and the New World, recently named by Choice as one of the outstanding academic books published between 1992 and 1997. She is presently completing a book-length work on Kuwait, to be published in 1999, and a series of articles on various aspects of citizenship and political participation.

Kenneth P. Thomas is an associate professor of political science and a fellow at the Center for International Studies at the University of Missouri–St. Louis (St. Louis, MO, USA 63121; e-mail: [email protected]). His research is on capital mobility and competition for investment. His forthcoming book, Competing for Capital: European and North American Responses, focuses particularly on EU efforts to control investment subsidies.

Antje Wiener is an assistant professor in the Institute for Political Science at the University of Hanover (Schneiderberg 50, D-30167 Hanover, Germany; e-mail: [email protected]). Her research interests focus on citizenship, democracy, and polity formation beyond the nation-state. She recently published “European” Citizenship Practice— Building Institutions of a Non-State and is editing, with Karlheinz Neunreither, Institutional Dynamics and Prospects for Democracy in the European Union.

Index AAEs. See Advanced APEC economies Acid rain, 125 Acosta, Mariclaire, 184 Acquis communautaire (EC), 154, 164(n16) Adonnino Committee (EC), 151, 153 Advanced APEC economies (AAEs), 60, 69–71, 75 Advisory Committee for Trade Policy and Negotiations (ACTPN; NAFTA), 93–94 AFL-CIO. See American Federation of Labor and Congress of Industrial Organizations AGOIC. See Arab Gulf Organization for Industrial Consultancy Agricultural policy: in Arab states, 12; and Chiapas rebellion, 185; in Europe Agreements, 121, 129; U.S. on NAFTA, 89, 94–96, 99–100, 103, 104–105, 110, 111(n6), 112(nn 11, 14), 132 Agricultural Policy Advisory Committee (APAC; U.S.), 94–95, 106 Al-Hamad, Turki, 202 Alimoda, Hector, 46 American Farm Bureau Federation, 95–96, 100 American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), 97, 104, 109, 132 Americas Watch, 179, 183 ANIP. See APEC Non-Binding Investment Principles Anthony, John, 12, 29 APEC. See Asia Pacific Economic Cooperation APEC Business Advisory Council (ABAC), 83

APEC Non-Binding Investment Principles (ANIP), 69, 76, 82–84 Arab Gulf Organization for Industrial Consultancy (AGOIC), 9, 13, 16, 21–22, 26 Arab Gulf states: bourgeoisie in, 204–207, 208(n8); domestic constituencies in, 17–19, 28, 198, 203; economic liberalization in, 204, 205; nongovernmental elites in, 18–19, 28, 30, 31(n1), 198; pro-Iran sentiment in, 17–18; regionalization in, 201–208; security in, 15, 16, 17, 19–20, 22–23, 24–25, 27, 28–29; tariffs in, 16, 21, 27. See also Gulf Cooperation Council Argentina, 37–38, 55(n2); and Brazil, 38, 39, 40, 41, 48, 52, 53; business interests in, 42, 43, 48; extraregional relations of, 51–52, 53; labor in, 45; state intervention in, 35, 46, 47, 48, 54, 55; trade position of, 49–51; and U.S., 39, 40–41 Aron, Raymond, 144 ASEAN. See Association of South East Asian Nations Asian financial crisis (1997–1998), 69, 81, 86(n3) Asia Pacific Economic Cooperation (APEC), 3, 5, 57, 60; decisionmaking approaches in, 61–63, 68, 84–85; and economic liberalization, 71, 82, 83, 84, 85; labor in, 71, 72, 75; multilateralism in, 65; and NAFTA, 60–61, 64, 113–114, 197; national interests of, 63–69; preferences in, 79, 82; protectionism in, 70, 71, 72; tariffs in, 86(n6). See also Foreign direct investment

263

264

Index

Asia-Pacific Investment Code (ASPIC), 82 Association of South East Asian Nations (ASEAN), 67, 72, 73–74, 79, 80(table) Australia, 60, 67, 71 Automobile industry: Mercosur, 37, 43, 50–51, 53; NAFTA, 89, 105 Ayubi, Nazih, 206

Bacchus, Jim, 110 Baer, M. D., 181 Bahrain, 7, 17, 21, 22, 26, 27, 28, 29 Baltic countries, 125 Bangemann, Martin, 156 Banking institutions, 26, 27, 187, 190(n21) Baptist-and-bootlegger coalitions, 116, 120, 132, 134(table), 136, 137 Bargaining: labor, 218; in two-level game, 90–91, 111(n5) Baucus, Max, 95 Bayard, Thomas, 72 Bayerl, Alfons, 149 Beliefs, in policymaking. See Ideas/interests, in policymaking Bentsen, Lloyd, 95, 103, 104 Berting, Jan, 168 Bindi Report (EP), 142 Bishara, ‘Abdullah Y., 16 Bogor summit (1994), 82 Bonior, David, 109 Borders: EC, 151, 153, 154, 155, 159, 160, 161, 162, 163(n13). See also Migrant rights; Passport union Bourgeoisie: in Arab states, 204–207, 208(n8); in EU, 142, 147 Brazil, 37, 38, 39, 55(n2); and Argentina, 38, 39, 40, 41, 48, 52, 53; and business, 42, 43; and labor, 45; state intervention in, 35, 46–47, 54, 55; trade position in, 49–51; and U.S., 39, 40 Bretton Woods economic system, 148 Broadbent, E., 170 Brodie, Janine, 177 Brubaker, Rogers W., 146 Buchanan, Pat, 97, 179 Bush, George, 20, 88, 92, 97, 103, 104, 106, 131 Business interests, 116, 205; in Arab

states, 18, 20, 31(n1), 204–207, 208(n8); and environmental interests, 116; and Mercosur, 42–44, 48; and NAFTA, 92–93, 112(n9), 132, 133

Cámara de Industrias de Uruguay (CIU), 42, 43 Canada, 60, 71, 88, 170, 171, 175, 177, 180 Canada–United States Free Trade Agreement (FTA), 170, 177 Capital goods, Mercosur, 37, 43, 48, 55(n2) Capitalism, 62, 194, 214, 217 Cárdenas, Cuauhtémoc, 182, 184 Casillas, Rodolfo, 180 Central and eastern European (CEE) countries: and environmental regulation, 125–126, 127–128, 137, 138; and EU, 113, 114, 118–119, 138(n2), 156. See also Europe Agreements Central Unica de los Trabajadores (CUT; Paraguay), 45 Central Unica dos Trabalhadores (CUT; Brazil), 45, 46 Charter of Workers’ Fundamental Social Rights (1989; EC), 153 Chiapas rebellion (Mexico), 6, 182, 183, 185–186 Child labor, 98, 112(n8) Chile, 38, 39, 52, 60, 73 China, People’s Republic of, 60, 61, 62, 66–67, 116; and investment, 73–74, 75, 76, 78, 79, 80(table), 81; and overseas Chinese, 73, 79; and WTO, 66, 74 Choate, Pat, 98 Chrétien, Jean, 172 Citizenship (EC/EU), 1, 5, 141–144, 146, 157–159, 217–218; equal access to, 158, 160; policy for, 147–148, 150, 155, 156, 158–160, 162, 196; practice of, 141, 144–146, 147; and regional difference, 160, 162. See also Electoral rights; European identity; Special rights policy Citizens Trade Campaign (U.S.), 97, 108 Citoyen, in EU, 142, 147 Civic Alliance (Mexico), 184 Civil liberties, in Arab states, 18

Index Civil rights, 145, 163(n4); and NAFTA, 168, 172, 199 Civil society, 169, 182, 184, 186, 188–189; transnational, 217 Clientelism, 182 Clinton, Bill, 41, 64, 71, 94, 106–107, 109–110, 112(n15), 132, 133, 172 Coalition for Trade Expansion (U.S.), 93 Cohen, Stephen D., 93 Cold War, 118, 172 Collier, George, 185 Collor de Mello, Fernando, 39 Committee on Trade and Investment (APEC), 81 Community Charter of Workers’ Fundamental Social Rights (EC), 153 Competitiveness, 118, 124, 128, 189(n3) Confederación de Trabajadores Mexicanos (CTM), 174 Confederación do Brazil (Mercosur), 42 Confederación General de Trabajo (CGT; Argentina), 45 Conflict resolution. See Dispute resolution Consejo de Mercado Común (Mercosur), 37 Consultative Commission on Labor Matters (U.S.), 103 Convention of the Protection of Human Rights and Fundamental Freedoms (EC), 155 Copenhagen summit (1973; EC), 149 Council of the Americas, 93 Counterhegemony, 194–195, 198–199, 200 Cox, Robert, 200 Crespo, Enrique, 157 Crystal, Jill, 18 Cultural protections, 1, 4, 172 Currency, single, 2; in Gulf regimes, 25–26 Currency devaluations, 215; in Mercosur, 47–48 Customs unions: in Arab states, 25, 26, 27, 29, 30; Mercosur, 37 Czech Republic, 125

Damascus Declaration, 24 Davignon, Viscount, 148–149 Declaration on International Investment

265

and Multinational Enterprises (1976; OECD), 69 Defense. See Security Delors, Jacques, 152, 155, 158 Democracy/democratization, 3, 4, 6, 36, 181, 190(n16); in Arab states, 205, 206; in EU, 155, 157, 161–162, 170–171; institutions undermining, 173, 187–188; in Mexico, 168, 172, 181, 182, 184, 190(n16); and NAFTA, 168, 171, 180–181, 182, 187–188; and national wealth, 114; in nonelected bodies, 171, 187–188 Denmark, 129, 130 Dillon, John, 175 Dispute resolution: in Arab states, 26; Mercosur, 36, 37; NAFTA, 88, 124, 139(n8), 187 Doha Declaration (1990), 24 Donahue, Thomas, 109 Donnelly, Jack, 169 Dooge Committee (EC), 151 Double movement, in regional integration, 1–2, 7 Draft Investment Code (PECC), 82 Dreiling, Michael, 188 Drysdale, Peter, 83 Dubai, 22, 23 Dublin summits (1990; EC), 157, 158, 189(n12)

East Asia Economic Council (EAEC), 67 East Asia Economic Group (EAEG), 66, 67 EC. See European Community Economic Commission for Latin America (ECLA), 34 Economic liberalization: analysis of ideas/beliefs in, 115, 117–120, 130, 131, 132–133, 134(table), 136–138, 195–196; analysis of interests in, 115, 116–117, 119, 120, 130, 134–136, 137–138, 195–196; in APEC, 71, 82, 83, 84, 85; in Arab states, 204, 205; and environment, 113, 114–115, 119–120, 127–128; in Mercosur, 37, 38, 41, 42, 43–44, 55(n2); in NAFTA, 89, 99, 168, 181–182, 185; and national income differential, 113, 114–115; and political liberalization,

266

Index

28, 168, 181–182, 190(n16), 205, 208(n10); and state intervention, 33, 35–36. See also Globalization; High/middle-income country trade policies; Neoliberalism Economic Policy Institute (U.S.), 97 Economic Unity Agreement (EUA; 1981) (GCC), 29 Egypt, 24 Ejercito Zapatista para la Liberación Nacional (EZLN; Mexico), 185 Electoral rights: in EC/EU, 141, 142, 145, 154, 155, 157; in Mexico, 182, 184 Elek, Andrew, 83 Elites: in APEC, 59; in Arab states, 18–19, 28, 30, 31(n1), 198 Elliott, Kimberly, 72 Eminent Persons Group (EPG; APEC), 82 Enterprise for the Americas initiative, 40 Environmental degradation: in Eastern Europe, 125; and NAFTA, 90, 96–97, 98, 114 Environmental interests, 5; and economic interests, 116, 119; and NAFTA, 103, 104, 107, 108–109, 112(n10), 131–133, 139(nn 9, 10) Environmental regulation: analysis of beliefs/ideas on, 116, 118, 119, 120(table), 130, 131, 132–133, 136, 196; and competitiveness, 118, 124, 128; and Europe Agreements, 121–122, 125–126, 128, 130, 136; in Mexico, 126–127, 138; and NAFTA, 99, 103, 123–125, 127–128; and national anticipatory adaptation, 5, 127, 128; and national income differential, 116; and trade liberalization, 113, 114–115, 119–120, 127–128. See also Baptist-and-bootlegger coalitions; Green-and-greedy coalitions; High/middle-income country trade policies EP. See European Parliament EU. See European Union Euro-Mediterranean Partnership Agreement, 204 Europe Agreements, 113, 121–122, 127–128, 135, 136, 138(n2) European Commission, 128, 129, 130,

148, 152, 153, 154, 161, 162; white papers (1985, 1995), 122, 154 European Community (EC), 128–129, 141, 170; and market policy, 151, 152, 154, 155, 160–161; and 1974 Paris summit, 148–151; and 1984 Fontainebleau summit, 151–155; and 1991 Maastricht summit, 155–162. See also Citizenship; European identity; European Union; Passport union; Special rights policy European Council, 122, 128, 148, 154 European Economic Community Treaty (1958), 152, 153, 155, 170 European identity, 148–149, 150, 151, 152, 156, 161, 163(n6). See also Citizenship European Monetary Union (EMU), 156, 157 European Parliament (EP), 141, 149, 156, 158, 161, 170 European Social Charter (EC), 155 European Union (EU), 1, 2–3, 5, 157, 212–213; and APEC, 80(table); and central European countries, 113, 114, 118–119, 129, 130, 136; and environment, 128, 136, 137; and GCC, 26; as nonstate, 143–144, 147; political formation of, 142–149, 154, 156, 157, 158, 162, 164(n37); protectionism in, 130, 134(table); social protections in, 2, 170–171; trade liberalization beliefs/interests of, 134–138; trade policymaking process in, 128–130; worker rights in, 142, 152–153, 155. See also Citizenship; Europe Agreements; European Community European Union Council of Ministers, 130 Exchange rates: GCC, 26; Mercosur, 46, 47–48, 55 Exon-Florio legislation (1988; U.S.), 71, 86(n5)

Factors of production, 1, 3, 117, 135 Fast-track authority, and NAFTA, 93, 101–102, 104, 109, 131 FDI. See Foreign direct investment Feminist theory, 199 Flying geese approach (APEC), 62

Index Foley, Thomas, 109 Fontainebleau European Council (1984; EC), 148, 151–155 Força Sindical (Brazil), 45 Foreign direct investment (FDI), 5, 59–61, 62, 199; in APEC, 57–59, 62, 63–64, 81–85; Mercosur, 40, 52–53; multilateral clubs for, 57, 59. See also APEC Non-Binding Investment Principles; Incoming foreign direct investment; Outgoing foreign direct investment Four Tigers (Asia), 79, 80(table) France, 129, 153, 156 Free movement of persons. See Borders Free trade. See Economic liberalization Free Trade Agreement of the Americas (FTAA), 41

GCC. See Gulf Cooperation Council Geertz, Clifford, 206 General Agreement on Tariffs and Trade (GATT), 59, 137 General Agreement on Trade in Services (GATS), 58 General Law of Ecological Balance and Environmental Protection (1998; Mexico), 126 Gephardt, Richard, 94, 103, 104, 108 Germany, 118, 125, 129, 130, 143, 153, 156, 163(n13); unification of, 155–156 Gestrin, Michael, 53 Gibbons, Sam, 110 Globalization, 2–3, 170, 171, 189(n3), 194, 196, 200; convoy model of, 215, 218; and transnational networks, 217–218. See also Economic liberalization; Regional integration Goh, Chok-Tung, 75 Goldstein, Judith, 136 Gonzales, Felipe, 158 Gore, Al, 139(n11) Greece, 129, 164(n37) Green-and-greedy coalitions, 116, 134(table), 137 Greenpeace, 109 Grieco, Joseph, 9 Gross domestic product (GDP): in Europe, 115(table); in GCC, 10 Grupo Mercado Común (Mercosur), 37

267

Gulf Cooperation Council (GCC), 3, 4–5, 7–8, 198, 202; development of, 4, 14, 15–16, 30–31; economic integration in, 12, 15, 16, 21–22, 25–27, 29–30, 203–208; integration as twolevel game in, 13–15, 18–20, 30, 31; military operations in, 17, 22–23, 25, 28; 1980s multilateralism in, 15–20; 1990s multilateralism in, 24–30; structural/institutionalist integration in, 9–10, 11–13, 30; and trade, 23–24, 26, 29. See also Arab Gulf states Gulf Cooperation Council Supreme Council, 11, 12, 16, 17, 21, 22, 24, 27, 28, 29 Gulf Investment Corporation, 16 Gulf War (1991), 24, 28, 207 Gunter, Dan, 99

Harvey, Neil, 185 Harvey, Pharis, 175 Havel, Vaclav, 3 Hawkes, Bob, 67, 84 Health care, 2; NAFTA, 103 Hegemony, 170, 197; in APEC, 62, 81; in Arab states, 8–9, 10, 20, 203; in Europe Agreements, 121. See also Counterhegemony Held, David, 168, 173 High/middle-income country trade policies, 5, 113, 114, 115(table), 116, 117, 120; beliefs/interests of, 118, 119, 134–138; and environment, 125–128 Hills, Carla, 104 Hispanic groups, and NAFTA, 96, 132 Hong Kong, 60, 78, 79, 81 Hudson, Stewart, 109 Human rights, 6, 168–169, 199; in EC/EU, 170–171; in Mexico, 172, 183–185; and NAFTA, 171; and public/private sphere, 176–177; in U.S./Canada, 171–172 Human Rights Watch Americas, 186 Hungary, 125, 129

Ideas/interests, in policymaking, 116–119. See also under Economic liberalization; Environmental regulation; European Union; High/middle-

268

Index

income country trade policies; United States IFDI. See Incoming foreign direct investment Ikhwan, al-, 18 Immigration. See Migrant rights Import substitution, 72 Income differential. See High/middleincome country trade policies Incoming foreign direct investment (IFDI), 57, 59, 85(n1); by advanced economies, 69–71; national policies of, 69–75; 79; openness of, 69, 70, 71, 86(n5); opposition to, 70, 72, 86(n4); patterns for, 76–79, 80(table); by rising economies, 72–75 Indonesia, 60, 73, 74, 76, 77, 78, 86(n3) Industrial policy/projects: in Arab states, 12, 16, 21–22, 24, 206; Mercosur, 47 Industrial Promotion Law (Argentina), 47 Infrastructure, 2; in APEC, 73; in Arab states, 9, 27 Institutional Revolutionary Party (PRI; Mexico), 182, 183 Integration Treaty (1989; Mercosur), 39 Intellectual property rights (IPRs), 58, 74 Intelligence. See Security Internal frontiers. See Borders International Labor Rights Education and Research Fund, 174 International Mobile Satellite Organization, 26 International Monetary Fund, 25 International system, 212–213 Investment, 199; in Arab states, 16, 21, 24, 30; incentives for, 70, 73; in Mercosur, 39–40, 52–53; in NAFTA, 123. See also Foreign direct investment Investment Experts Group (APEC), 82 Iran, 17, 23–24, 25, 28–29 Iraq, 9, 15, 24, 28 Iraq-Iran War (1980–1990), 10, 19, 22–23 Ireland, 162, 164(n37) Islamic fundamentalism, 17–18, 29, 198

Jackson, Jesse, 97 Japan: in APEC, 60, 61, 62, 64–66, 70,

71, 219; FDI policy of, 70, 71, 75, 78, 79, 80(table) Job loss, NAFTA, 90, 132, 174 Johnson, Chalmers, 65

Kantor, Mickey, 108, 175 Katzenstein, Peter, 146 Kohl, Helmut, 156, 157 Korany, Bahgat, 204 Korea, South, 60, 62, 68, 72, 73, 74, 76, 78, 79, 81, 86(n3), 219 Kuching concensus (1990), 68 Kuwait, 7, 16, 17, 18, 21, 22, 23, 25, 26, 30; and Iraq, 24, 28

Labor, 2; in APEC, 71, 72, 75; in Canada, 174, 175, 188; in Mercosur, 33, 36, 44–46, 199; in Mexico, 174–175, 176; mobility of, 16, 44, 142, 152–153, 155, 178, 180; and NAFTA job loss, 90, 132, 174; and NAFTA workplace standards, 98, 103; productivity and employment of, 214–215, 216, 218–219; rights of, in EC/EU, 142, 152–153, 155; rights of, in NAFTA, 174–176; and trade liberalization, 135–136, 194, 205, 212, 214–215, 216–217; in U.S., 2, 97–98, 99, 103, 104, 107, 108–109, 112(nn 8, 9, 15) LAIA. See Latin American Integration Association Laissez-faire government, 35 Land reform (Mexico), 185 Latin America, 3, 33–35; bilateral agreements in, 38–39, 55(n1). See also Mercosur Latin American Free Trade Agreement (LAFTA), 52 Latin American Integration Association (LAIA), 38–39, 50, 55(n3) Leapfrogging approach (APEC), 62–63, 74, 86(n2) Liberalization. See Economic liberalization Liberation Party of the Peninsula, 18 Loaeza, Soledad, 184 Luján, Bertha, 175 Lustick, Ian, 203 Luxembourg compromise (EC), 154

Index Maastricht summit (1991), 148, 155–162 Maastricht Treaty (1993), 122, 141, 143, 158 Macdonald Commission Report (1986; Canada), 71 MacLaren, Roy, 172 Macroeconomic coordination, Mercosur, 46–49, 54 Madrid Hurtado, Miguel de la, 181 Mahathir, Mohamad, 67 Malangré Report (EC), 161 Malaysia, 60, 67, 73, 74, 76, 77, 78, 81, 86(n3) Manila summit (1996; APEC), 83 Maquiladoras, 96, 112(n7), 126, 131, 174, 178 Market relations. See Economic liberalization; Regional integration Marshall, T. H., 144–145, 158 Martin Report (1990; EP), 157 Meehan, Elizabeth, 144 Menem, Carlos, 39, 47, 48 Mercado Común del Sur. See Mercosur Mercosur, 3, 5, 33–34, 35, 36, 38, 49–51; and business interests, 42–44; common list of goods, 43; development of, 34–35, 38–42; economic compensatory measures of, 33, 37, 38, 43, 44, 51, 53–54; and economic liberalization, 37, 38, 41, 42, 43–44, 55(n2); extraregional trade of, 34, 51–53; goals/policies of, 36–38, 53–55; institutional structure of, 34, 35, 37, 55; and labor, 33, 36, 44–46, 199; macroeconomic coordination in, 46–49, 55; preferences in, 35, 38, 52; sectoral agreements in, 35, 36, 37–39, 43, 48, 54; and state intervention, 33, 35–36, 46–47, 197; subsidies in, 43, 46–47, 54; tariffs in, 34, 36, 37, 39, 40, 41, 43, 44, 48, 51–52, 54; and third-party bilateral trade, 52–53; and U.S., 39, 40–41, 52, 53 Mexico, 39; and APEC, 60, 73, 75, 76, 81; democracy in, 168, 172, 181, 184, 190(n16); and economic/political reform, 181–186; and environment, 96–97, 98, 103, 104, 112(n10), 114, 126–127; and human rights, 172, 183–185; and labor, 112(n9), 174–175, 176; migrants from, 178,

269

179, 180, 190(n14), 218; and NAFTA, 88, 89, 95, 96–97, 98, 103, 112(nn 7, 8), 123, 171, 172; and women’s rights, 177–178 Middle East and North Africa (MENA) Economic Conferences, 204 Middle East peace, 27 Middle-income country trade policies. See High/middle-income country trade policies Migrant rights: in NAFTA, 178, 179, 180, 190(n14), 218. See also European Union, worker rights in Military operations, in Arab states, 17, 22–23, 25, 28 Military powers, 187 Milner, Helen, 87 Ministerial Council (GCC), 11, 21, 22, 26 Mitterrand, François, 151, 156, 157 Molinar Horcasitas, Juan, 182 Mols, Manfred, 34 Monetary systems. See Currency, single Moravscik, Andrew, 87 Mubarak, Hosni, 24 Multilateral Agreement on Investment (OECD), 59, 69 Multilateralism: in APEC, 57, 59, 65; in GCC, 15–20, 24–30 Multinational corporations (MNCs), 70, 75, 132

Nader, Ralph, 98, 104, 110 NAFTA. See North American Free Trade Agreement National Action Committee on the Status of Women (NAC; Canada), 177 National Council of Farmer Cooperatives (U.S.), 106 National Farmers Union (U.S.), 100, 106, 112(n14) National Human Rights Commission (CNDH; Mexico), 183 National Solidarity Program (PRONASOL; Mexico), 182 National Wildlife Federation, 109 NATO. See North Atlantic Treaty Organization Natural Resources Defense Council, 109

270

Index

Neoliberalism, 41, 169, 171, 186, 194, 196, 198, 199 Netherlands, 129, 130 Newly industrialized economies (NIEs), 79, 80(table) New Middle East, The (Peres), 204 New Zealand, and APEC, 60, 71, 78 Nongovernmental organizations (NGOs), 217 North American Agreement on Environmental Cooperation (NAAEC), 123, 124 North American Agreement on Labor Cooperation (NAALC), 123, 175 North American Free Trade Agreement (1994; NAFTA), 6, 88–90, 108, 124–125, 131; advisory system for, 93–94, 106; and APEC, 60–61, 64, 113–114, 197; compliance with, 88, 108, 124, 131, 139(n8), 187; decisionmaking in, 187–188; and domestic interests, 91, 92–97, 132, 133, 197; and economic liberalization, 89, 99, 168, 181–182, 185; fast-track authority in, 93, 101–102, 104, 109, 131; and generic goodwill, 88, 91–92, 106; job loss in, 90, 103, 107, 132, 174; opposition to, 97–100, 131, 132, 139(n9), 168; and protectionism, 89, 108, 134(table); and rules of origin, 88, 89, 123; sanctions in, 98, 124; side agreements of, 107, 108, 109, 124–125; side payments/concessions in, 88, 91, 103–106, 107, 110, 133; snapback protection in, 89, 100, 103, 110, 123; and subsidies, 89; support for, 92–97, 134, 139(n11), 168, 181; and supranationality, 124, 132, 139(n6), 181, 187–188; tariffs in, 88, 89, 99, 123; as two-level game, 5, 87–88, 90–92, 100, 101, 102–103, 106, 107, 110–111, 197; U.S. Congress on, 94, 95, 100, 103, 104, 108, 109, 110, 112(n9), 132, 133. See also Agricultural policy; Environmental degradation; Environmental interests; Environmental regulation; Human rights; Labor; individual member countries

North Atlantic Treaty Organization (NATO), 3

O’Brien, Robert, 4 OECD. See Organization for Economic Cooperation and Development Oil, in Arab states, 16, 21, 23 Oman, 7, 16, 21, 23, 28 Ondarts, Guillermo, 34 Ordoñez, Fernandez, 158 Organization for Economic Cooperation and Development (OECD), 59, 60, 69, 84 Organization of Petroleum Exporting Countries (OPEC), 21 Ortoli, Xavier, 148 Osaka summit (1995; APEC), 68, 83 Outgoing foreign direct investment (OFDI), 58, 75–76, 80–81, 85(n1) Outrive, Lode van, 160, 161 Overseas Chinese, in APEC, 73, 79

Pacific Basin Economic Council (PBEC), 65, 83 Pacific Economic Cooperation Council (PECC), 65, 82 Pacific Trade and Development Conference (PAFTAD), 65 Pacto Intersindical del Trabajo/Central Nacional de los Trabajadores (PITCNT; Uruguay), 45 Panetta, Leon, 108, 112(n13) Paraguay, 36, 37, 39, 55(n2); business interests in, 42; labor in, 45; trade position in, 49–51 Paris summit (1974; EC), 148–151 Passport union (EC), 141, 148, 149, 150–151, 153, 154, 155, 160, 163(n13). See also Borders Peace interests, 3 Peninsula Shield formula (GCC), 25 People’s Europe, 151 Peres, Shimon, 204 Perot, Ross, 98, 139(n11), 174 Pesticides, and NAFTA, 99, 103 Peterson, Erik R., 15 Peterson, E. W. F., 95 Peterson, John, 22 Philippines, 68, 73, 74, 76, 77 PICE. See Programa de Integración y Cooperación

Index Poland, 125, 126 Polanyi, Karl, 1–4, 35–36 Political dissent, in Arab states, 17 Political liberalization: in Arab states, 28; and economic liberalization, 28, 168, 181–182, 190(n16), 205, 208(n10); and NAFTA, 168 Political rights: EC, 145, 146, 147, 158, 160, 162, 163(n4); and NAFTA, 168, 172, 199 Pollack, Mark, 11 Pollution, 114, 123; in Mexico, 96, 114, 126; and NAFTA, 123–124, 125 Portugal, 129, 130, 162, 164(n37) Preferential treatment: in APEC, 79, 82; in Mercosur, 35, 38, 52 Privatization, 28, 58–59, 178, 185, 189(n3), 205 Programa de Integración y Cooperación (PICE), 38, 43, 54 Protectionism: in APEC, 70, 71, 72; and environmental interests, 116, 120; in EU, 130, 134(table); in NAFTA, 89, 108, 134(table); in public choice theory, 116–117, 136 Protocol on Capital Goods (PICE), 43 Protocol on Common Goods (Mercosur), 43 Public choice theory, 116–117, 195 Public Citizen (U.S.), 99, 110 Public opinion, NAFTA, 92, 96, 106 Putnam, Robert, 5, 14, 87–88, 91, 92, 100, 102

Qatar, 7, 21, 22, 23, 25, 27, 29 Quotas: in NAFTA, 89 Quwaiz, ‘Abdullah al-, 27

RAEs. See Rising APEC economies Rainbow Coalition (U.S.), 97 Rapid Strike Force (GCC), 22 Reagan, Ronald, 104 Refugee rights, 179, 180, 190(n12) Regional integration, 4, 8–10, 11, 188, 193–194, 195, 201, 208(n1); and disparities, 1–2, 4, 9–10, 34, 35, 194, 195, 211–212, 217–218; and domestic constituencies, 14–15; double movement in, 1–2, 7; opposition to, 1–4, 194–195, 198–199, 200; as partisan mutual adjustment, 57; and

271

pragmatism, 34, 39, 54, 55, 197; and social relations of power, 195–196, 197, 199; and state, 8–9, 173, 198, 211–212, 216–217. See also Citizenship; Democracy; Globalization; Two-level games Relative disparity shift hypothesis, 9 Reserved domains of authority, 187 Rhodes, Martin, 171 Richmond, Anthony, 180 Riegle, Donald, 104 Rising APEC economies (RAEs), 60, 73, 74–75; and FDI, 72–81 Robinson, Ian, 173, 188 Robinson, James, 94 Roett, Riordan, 182 Rostenkowski, Dan, 94, 103, 104 Rugman, Alan, 53 Rules of origin, NAFTA, 88, 89, 123 Russian doll strategy, 155, 163(n12)

Salinas de Gortari, Carlos, 88, 172, 182, 183 Saudi Arabia, 7, 8, 9, 10, 17–24, 26, 27, 28, 30 Schengen Agreement (1985), 153, 160–161, 189(n12) Schorske, Carl, 1 Seattle summit (1994; APEC), 64, 67, 82 Sectoral agreements, in Mercosur, 35, 36, 37–39, 43, 48, 54 Sectoral interests, 116, 117, 120(table), 135, 136, 212, 216–217; in APEC, 70; in EU, 129, 130. See also North American Free Trade Agreement Security, 3, 8, 17; in APEC, 61, 64, 70, 71; in Arab states, 9, 15, 16, 17, 19–20, 22–23, 24–25, 27, 28–29; EC, 156, 160–161, 162, 164(n32) Seoul meeting (1991; APEC), 81 Shi’i activism, 17–18 Singapore, 60, 68, 73, 78, 79, 81 Single European Act, (1987; SEA) (EC), 151, 152, 154–155 Snapback protection, and NAFTA, 89, 100, 103, 110, 123 Social protections, 2–4, 46, 135, 170–171, 196 Social rights, 145, 158, 160, 162, 163(n4), 172

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Index

Sovereignty, 143, 168, 171, 187, 188, 213; and accountability, 212 Spain, 129, 130, 158–160, 162, 164(n47) Special rights policy (EC), 141, 147, 149, 152–153, 155, 158, 159 Spero, Joan, 64 State: and citizenship, 141, 144, 145–146, 147; in globalization, 2–3, 170, 188, 189(n3); and privatization, 58–59, 178; in regional integration, 8–9, 173, 198, 211–212, 216–217. See also Sovereignty Stateness, 145 Statistical levy (Argentina), 48, 50, 52 Strauss, Robert, 106 Subsidies, 59; in APEC, 71; in Mercosur, 43, 46–47, 54; in NAFTA, 89 Suffrage. See Electoral rights Sunni activism, 18 Suq al-Manakh, 21 Syria, 24

Taif summit (1989), 15 Taiwan, 60, 64, 68, 72, 73, 74, 75–76, 79, 219 Tariffs, 99; in APEC, 86(n6); in Arab states, 16, 21, 27; in Europe Agreements, 121; in Mercosur, 34, 36, 37, 39, 40, 41, 43, 44, 48, 51–52, 54; in NAFTA, 88, 89, 99, 123. See also Snapback protection Technical standards, 65 Technology interests: APEC, 70, 71, 74; in Mercosur, 47 Telecommunications, Mercosur, 37 Textile industry: Europe Agreements, 129; NAFTA, 89, 105, 132 Thailand, 60, 73, 74, 77, 78, 86(n3) Tilly, Charles, 145, 146 Trade-Related Intellectual Property (TRIPs), 58 Trade-Related Investment Measures (TRIMs), 58, 73 Trade sanctions, NAFTA, 98, 124 Treaty of Asunción (1991), 36, 39 Treaty on European Union (1993), 122, 141, 143, 158 TRIMs. See Trade-Related Investment Measures

Tutelary powers, 187 Twinam, Joseph, 13–15, 23 Two-level games, 5, 90–91, 111(nn 4, 5). See also under Gulf Cooperation Council; North American Free Trade Agreement Tyson, Laura D’Andrea, 108, 112(n13)

Unemployment, 135 Unified Economic Agreement (UEA; 1981) (GCC), 16, 29 Unión Industrial de Argentina (UIA), 42, 43 Unión Industrial del Paraguay, 42 United Arab Emirates (UAE), 7, 22, 23, 25, 26, 27, 28 United Kingdom, 118, 129, 130, 139(n8) United States: and APEC, 60–66, 69–70, 79; and APEC FDI policy, 69–70, 71, 75, 78, 79, 80(table), 81, 84–85; and Arab states, 23, 24–25, 27–28; and EC/EU, 150, 152, 163(n10); environmental beliefs/interests of, 136, 137; and Mercosur, 39, 40, 52, 53; trade liberalization beliefs/interests of, 118, 134–138; trade policymaking process of, 130–134. See also Bush, George; Clinton, Bill; North American Free Trade Agreement United We Stand America, 98 Uruguay, 36, 37, 39, 55(n2); business interests in, 42, 43; labor in, 45; trade position in, 49–51 Uruguay Round World Trade Organization agreements, 58, 170 USA-NAFTA Coalition, 93 U.S.–Mexico Environmental Agreement (1993), 126 U.S. Trade Representative, Office of (USTR), 92, 93, 94, 104 ‘Utaibah, Juhaiman bin Muhammad Al, 18

Valenzuela, J. Samuel, 187 Vancouver summit (1997; APEC), 83, 84 Velazquez, Fidel, 176 Vernon, Raymond, 62 Vogel, David, 127

Index Wage rates, 2, 215, 219; in APEC, 72; in Mercosur, 44; in NAFTA, 174, 175 Wallach, Lori, 99 Ward, Justin, 109 Washington consensus approach (APEC), 62 Weldon, Jeffrey, 182 Wilson, Pete, 179 Women’s rights, 176–178 Worker adjustment programs, in NAFTA, 103, 107 Workers. See Labor

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Workplace standards, in NAFTA, 98, 103 World Bank, 25, 73 World Investment Report (UN), 58 World Trade Organization (WTO), 58, 59, 66, 68, 74

Yamazawa, Ippei, 83 Yerxa, Rufus, 98 Youth, in EC, 152

Zapatista rebellion, 6, 182, 183, 185–186

About the Book The intensifying proliferation of regional organizations over the past decade is explored in this volume, which focuses on the workings of APEC, the European Union, the Gulf Cooperation Council, Mercosur, and NAFTA. The authors examine a number of critical issues: How does politics shape the construction of regional agreements? To what extent do these agreements incorporate or limit economic liberalization? How have concerns over such matters as security, economics, democracy, and the environment affected the evolution of regional groupings? Taken together, the chapters describe a twofold movement to regionalize: a surge toward claiming an area within which economic actors and their political patrons can carve a protected space for their activities and the consequent mobilization of social forces seeking to extend democratic control over the newly expanded market.

Kenneth P. Thomas is associate professor of political science at the University of Missouri–St. Louis. He is author of Capital Beyond Borders: States and Firms in the Automobile Industry, 1960–1994 and Competing for Capital: European and North American Responses. Mary Ann Tétreault is professor of political science at Iowa State University. Her publications include The Kuwait Petroleum Corporation and the Economics of the New World Order and Women and Revolution in Africa, Asia, and the New World.

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