International Institutions and Issue Linkage:Building Support for Agricultur... Christina L Davis The American Political Science Review:Feb 2004:98.1:Research Library pg.153 American Political Science Review Vol.98,No.1 February 2004 International Institutions and Issue Linkage:Building Support for Agricultural Trade Liberalization CHRISTINA L.DAVIS Princeton University This article explains how the institutional context of international negotiations influences their out- comes.I argue that issue linkage counteracts domestic obstacles to liberalization by broadening the negotiation stakes.Institutions bolster the credibility of the linkage to make it more effective.I test the argument in the agricultural sector,which has been among the most difficult sectors for governments to liberalize.Statistical analysis of U.S.negotiations with Japan and the EU from 1970 to 1999 indicates that an institutionalized linkage between agricultural and industrial issues encourages agricultural liberalization in both Japan and Europe.Through case studies of key negotiations,I first examine why countries choose to link issues,then show how the linkage changes interest group mobilization and shifts the policy process to promote liberalization. Thy do some international economic negotia negotiation strategy that involves combining multiple tions bring major policy changes while oth issues to change the balance of interests in favor of a ers end in deadlock?The difference between negotiated agreement.Only when the institutional con- success and failure in these negotiations often amounts text supports a linkage strategy,however,will it appear to billions of dollars and the seeds of economic disorder credible.Once established,the institutionalized issue or cooperation.A successful negotiation can establish linkage applies greater pressure for liberalization than rules that open markets and promote coordination of threats or domestic political and financial constraints. policies.For example,the Bretton Woods conference of Moreover,issue linkage can bring liberalization even 1944 established the framework for postwar economic when it would be least expected in sensitive sectors. cooperation that promoted greater interdependence. Using agricultural trade as a hard case that has been Fifty years later,the Uruguay Round Agreement re- a frequent source of trade disputes,I present evidence duced agricultural and industrial trade barriers and ex- that linking negotiations on agriculture and other sec panded trade rules to regulate services and investment tors brings more agricultural liberalization than other On the other hand,failed negotiations often leave both strategies.Historically,agriculture stands out as a sector sides worse off as relations between participants de- where countries stubbornly defend domestic programs. teriorate.One such setback was the World Economic Farm lobbies represent the classic example of an influ- Conference of 1933,which ended without agreement ential pressure group (Olson 1965).Indeed,nearly all and was followed by retaliatory trade protectionism industrialized countries raise the levels of protection and competitive currency devaluations.Failures on a on farming as the sector's size in the economy shrinks smaller scale can also have significant consequences. (Hayami and Anderson 1986).Collective action incen- For example,inability to reach agreement on wheat tives motivate farmers to organize,and both strong support policies in the Tokyo Round led to a subsidy lobbies and electoral rules favoring rural districts guar- war between the United States and Europe during the antee that farmers wield political strength beyond their 1980s that drained their budgets and undercut the sales numbers.As a result,while bound tariffs on industrial of developing country farmers.While the consequences goods have fallen to an average rate of 5%for OECD of a negotiation may be far-reaching,the source of suc- countries,agricultural protection has remained high. cessful negotiation strategies lies in the details of the with bound tariffs averaging 60%(OECD 2002a,22). institutions that shape the negotiation process. Nontariff barriers remained common in the agricultural To explain negotiation outcomes,one must look sector long after they were eliminated for most indus- closer at how the agenda,rules,and procedures of a trial goods.Japan and Europe stand out among those negotiation influence state choices.Power and interests giving the most protection to agriculture. alone fail to account for the variation across negotia- Agricultural protection brings high costs in terms of tions.Strong states sometimes are unable to persuade financial expenditures,lost export opportunities,and weaker states to open their markets,and influential increased trade friction.Agriculture exporters,which lobby groups are not always able to prevent their gov- include the United States and the developing coun- ernment from signing a liberalizing agreement.This tries,demand liberalization because protection closes article focuses on issue linkage,which is a common off valuable markets.A study by the U.S.Department of Agriculture(2001)indicates that elimination of agri- Christina L.Davis is assistant professor of Politics and Interna- cultural protection and support could increase global tional Affairs,Princeton University.Address:Bendheim Hall Princeton University,Princeton,NJ 08544(cldavis@princeton.edu) I thank the following individuals for comments that helped to im OECD producer subsidy estimates for 2001 show that 59%of the prove this article:James Alt,Marc Busch,Cedric Dupont,Judith Goldstein.Shigeo Hirano,Kosuke Imai.Lisa Martin,John Odell value of farm production resued directly from govemen policies in Japan,while the corresponding figure was 35%for the EU-both Robert Paarlberg.Susan Pharr.Anne Sartori,Leonard Schoppa,and above the OECD average of 31%and the U.S.levels of 21%(OECD Steven Vogel. 2002b.160-61). 153 Reproduced with permission of the copyright owner.Further reproduction prohibited without permission
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. International Institutions and Issue Linkage: Building Support for Agricultur... Christina L Davis The American Political Science Review; Feb 2004; 98, 1; Research Library pg. 153
International Institutions and Issue Linkage February 2004 economic welfare by 56 billion dollars annually,which Iida 1993;Odell 2000).While two-level game analy- would be in addition to the direct budget savings.In sis has improved our understanding of how domestic Japan and Europe,on the other hand,where many politics affect outcomes,many studies treat the inter- producers are not competitive in world markets,liber- national level as an undifferentiated bargaining arena. alization threatens the welfare of rural society.Politi- Milner (1997.70),for example,writes,"The interna- cization and high economic stakes make for an ex- tional game adopted does not have a well-defined in- plosive combination that threatens the stability of the stitutional structure;politics on that level are assumed trade system.Japan and Europe both have risked trade to be anarchic,and international negotiations are gen- wars with the United States over food fights (Davis erally conducted without a constitutionally mandated 2003a).Agricultural issues have nearly blocked the sequence of moves."This disregards the dense network conclusion of successive trade rounds and generated of international institutions that shapes the conduct of half of all GATT trade disputes over the period 1960 any given negotiation. 89(Hudec 1993,327).Agriculture continues to present The institutions of the negotiation structure-the a central challenge for the successful conclusion of the agenda,rules,and procedures that guide the interac- new WTO trade round launched in November 2001 tion between states in a policy dispute-influence the in Doha,Qatar.The large share of agriculture in the negotiation outcome because they establish which al- economies of developing countries makes further lib- ternatives are considered and how they are decided. eralization of agricultural trade essential if the Doha As with other institutional constraints,such as interna- Round is to fulfill its development agenda tional treaties or legislative committee rules,the insti- Although agriculture remains protected in compari- tutions of the negotiation structure favor certain actors son to other sectors,liberalization has occurred.Over and policy options(Keohane 1984;North 1990;Shepsle the past 30 years,even Japan and Europe have agreed and Weingast 1995).In trade negotiations,institutions to reduce many trade barriers,and the share of im change both the mobilization by interest groups and ports in total consumption has increased.According the policy track for decision making. to the OECD measures of agricultural protection,the First,the negotiation agenda sets the negotiation total support for agriculture as a share of GDP has stakes and policy scope.Publicly announcing the issues declined from 2.4%for Japan and 2.6%for the EU that are up for discussion informs domestic actors of in 1986 to 1.4%for both in 2001 (OECD 2002b,187, the potential gains and losses.Interest groups are in- 196).In specific policy changes,market price support volved in the process of creating the agenda as they has been reduced,Japan dismantled its system of quota lobby for the inclusion or exclusion of their own issue. restrictions one by one,and the EU replaced its trade- Few,however,lobby beyond their own issue.Govern- distorting variable levy with a more transparent tariff ments must aggregate diverse demands from domestic system.Thus,negotiations on agricultural trade policy interests while also trying to accommodate other gov- have included both dramatic negotiation failures and ernments to produce a single agenda.The final agenda negotiations that brought substantial liberalization. reveals the full array of issues that then become im- portant for all groups with a stake in any one issue. Likewise,the issues on the agenda determine the scope FRAMEWORK FOR NEGOTIATION of bureaucratic and political committee jurisdictions ANALYSIS that will address the negotiation.This matters given the importance of who initiates policy proposals and who In negotiations that bring liberalization,what has al- makes the last decision(Garrett and Tsebelis 1996). lowed governments to overcome domestic interests Second,the negotiation procedures guide the se- that will be harmed?The literature on trade politics quence of decisions.If there are multiple issues on the highlights the importance of distributional stakes for agenda,for example,the negotiation could culminate in interest groups(Grossman and Helpman 1995;Hiscox a single decision on all the issues or separate decisions 2002:Milner 1997).I emphasize how the institutional on each one.As shown by the literature on institutions context of the international negotiation changes the in American politics,outcomes often differ according aggregation of these interests.Negotiations that link to which alternatives are presented to the legislature issues across multiple sectors have a different impact on (Shepsle and Weingast 1995). domestic politics than single sector negotiations.An in- Third,the nature of the rules determines the form stitutionalized linkage of negotiations on multiple sec- of commitments that are reached in the negotiation tors broadens interest group lobbying and bureaucratic Specifically,the rule framework creates the expecta- jurisdiction to counter the domestic bias that favors tion for whether a negotiated agreement will represent protection. a binding legal commitment with a monitoring mecha- Putnam (1988)introduced the analogy of two-level nism.This raises the costs of later defection from agree- games to characterize the observation that a leader ne. ments.Greater legalization adds the value of the rule gotiates simultaneously over domestic goals and the system and future cooperation as new incentives.Taken international bargain.Since then,a growing literature altogether,the institutions of the negotiation structure has attempted to explain how interest groups,domes- have a direct impact on the distributional consequences tic political institutions,or the bargaining strategies of of the negotiation. negotiators determine the range of possible negotia- There are multiple venues for trade negotiations, tion agreements(Evans,Jacobson,and Putnam 1993; and the institutional context influences the potential 154 Reproduced with permission of the copyright owner.Further reproduction prohibited without permission
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American Political Science Review Vol.98.No.1 for effective issue linkage.The General Agreement The decision to establish a linkage in a negotia- on Tariffs and Trade (GATT)and its successor,the tion agenda raises the possibility of a selection effect. World Trade Organization (WTO),form the core in- Skeptics caution that international institutions cannot ternational institution for trade policy.Within the change state behavior on hard issues that raise distribu- GATT/WTO framework,negotiations consist of com- tional concerns or strong domestic interest group oppo- prehensive trade rounds or legalistic dispute settlement sition(Downs and Rocke 1995;Mearsheimer 1994/95). procedures(DSP).The former bring together all mem- From this perspective,states would only agree to link bers and are launched with an opening declaration that issues in a negotiation agenda when there is no strong sets forth an agenda for discussion of liberalization opposition to any individual component of the agree- across sectors.Rounds proceed as a mix of informal ment(Moravcsik 1998).To address these concerns em- bargaining and consensus decisions that culminate in pirically,I investigate whether institutional linkages a multilateral agreement with binding commitments. promote agreements even when they involve an issue Issue linkages are integral to producing agreement where cooperation is unlikely on that issue alone- among the diverse economic interests of members.The agricultural liberalization by Japan and Europe faces Uruguay Round formalized more than any prior nego- opposition by strong domestic lobby groups.In order tiation the explicit commitment to a package approach, to account for variation among the agricultural negotia- which continues in the Doha Round tions,I include measures for other characteristics,such In contrast,linkages are more difficult to sustain in as budget and economic conditions,that could make other institutional contexts.The DSP negotiations re- liberalization more or less likely for a given case semble adjudication and begin with the filing of a legal Several factors facilitate the acceptance of issue link- complaint against a specific policy that leads to either age even when there is strong opposition to agricultural plea bargaining or a negotiated settlement after a panel liberalization.First,governments realize that a broad of judges provides a legal ruling.The narrow focus on agenda encourages wider participation and greater po- the legal status of a trade barrier tends to exclude link- tential gains from liberalization.Indeed,negotiations age among issues even while it raises normative pres- over the agendas that launched past trade rounds have sure.Outside of the GATT/WTO framework,other consistently added more issues in order to gain the types of trade negotiations include bilateral talks on consent of all members (Steinberg 2002,350-51).Sec- either a single policy or a broad agenda of issues.In ad- ond,protectionist interests face higher costs to mobilize dition,meetings of regional trade associations share the early in the negotiation.The broad diplomatic coordi- comprehensive character of trade rounds,but follow nation required for the meetings that set the negotia- different procedures.Asia-Pacific Economic Coopera- tion agenda privileges foreign policy elites and national tion (APEC),for example,emphasizes the voluntary leaders more than sectoral representatives.Although nature of participation in nonbinding agreements.In farm lobbies and agriculture ministries in Japan and bilateral and regional trade negotiations,linkages are Europe are likely to resist the inclusion of agriculture possible,but not always present. on the agenda,they will find it difficult to veto agenda items because the foreign policy decisions at this stage Interests and the Cholce to Link Issues of the negotiation lie outside of their jurisdiction.More- over,the decisions that shape the structure of the nego- I first consider the domestic and international politics tiation occur amidst uncertainty about the timing and that shape negotiation structures.Since states design shape of the future agreement.This is particularly true institutions in order to address particular policy prob- for trade rounds,which bring together many countries lems,"institutions are both the objects of state choice and often last five to eight years.For politically sensi- and consequential"(Martin and Simmons 2001,451). tive cases,linkage in a multilateral setting will be more In addition to the anticipated functions performed by appealing than a bilateral negotiation or legal dispute. an institution,path dependency can make the initial The longer time frame as well as the broader context choice of rules constrain policy choices even after it no avoids placing the spotlight on a single product,which longer serves those interests.For example,in an his- makes it easier for protectionist interests and diplo- torical irony,the United States shaped GATT rules in mats to reluctantly agree to talk about the issue(Davis 1947 to create special exceptions to fit protection pro- 2003b).Facing strong U.S.demands,the EU and Japan grams for U.S.agriculture.Later,when U.S.agricultural may prefer to negotiate their most vulnerable products interests had shifted to favor exports and other coun- in a linkage setting rather than in a bilateral or DSP tries had developed entrenched agricultural protection, negotiation.3 the United States could not easily change these rules (Goldstein 1993).2 3 Some cases may simply never be raised in any kind of negotiation. 2 The exception in Article XI:2(c)of GATT 1947 rules allowed agri- For example,this could occur when there is strong resistance by the cultural quota restrictions when applied in conjunction with domes. EU or Japan and the United States is willing to forgo its demand for liberalization of the product.The key point for this study,however,is tic supply constraints,and the exception in Article XVI:3 allowed that when comparing those products that are raised in negotiations, the use of export subsidies for primary goods.These exceptions did some of the toughest negotiation topics are likely to arise in negotia- not exclude agriculture from GATT rules,and GATT panels have tions that embrace an issue linkage.Within the sample of negotiated strictly interpreted their applicability.Nevertheless,the regulation products,the selection bias,if anything,leads to underestimating the of agricultural trade has been problematic in part because of these exceptions.See Hudec (1993.326-36). effect of linkage because harder cases may go to a negotiation forum with issue linkage. 155 Reproduced with permission of the copyright owner.Further reproduction prohibited without permission
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International Institutions and Issue Linkage February 2004 The Uruguay Round illustrates how these factors costs of mobilization,and uncertainty about outcomes helped persuade governments to accept an agenda call- encourage acceptance of the issue linkage in the agenda ing for liberalization across all sectors.When negotia- despite resistance to liberalization of one component. tors tried to formulate the agenda for a new trade round in 1986,developing countries such as Brazil and India were reluctant to discuss service sector liberalization Package Negotiations:Institutionallzed and intellectual property rights as part of the Uruguay Cross-Sector LInkage Round.Eventually,however,they agreed to participate Issue linkage has long served as a basic tool for politi- because they expected to benefit from liberalization in cal bargains and diplomatic deals.Sebenius(1983,287) other areas to be included on the agenda,namely,agri- provides the definition that issues are linked "when cultural and textiles trade.For France and other Eu- they are simultaneously discussed for joint settlement." ropean states,the incentives were the opposite;poten- This definition encompasses side-payments,log-rolling tial gains from service sector liberalization persuaded bargains,or a formal agenda on a broad range of issues. governments to agree to a negotiation agenda includ- The focus of this article is on tactical linkages,which ing agriculture.During EC decision making for the combine issues that do not substantively require joint acceptance of the Uruguay Round agenda,the scope settlement.&In such cases,multiple issues are included of jurisdiction favored foreign affairs officials over the in the final settlement in an effort to create a balance representatives of specific sectoral interests.The Com- where both sides gain enough to accept the costs.Trade mission Directorate for External Relations produced liberalization,in particular,has relied upon negotiating initial proposals,and all of the important decisions across a range of products as countries exchange re- were discussed in the trade committee and COREPER ciprocal concessions.Under what conditions will issue (the committee composed of heads of delegations)and linkage promote agreement? then forwarded to the General Affairs Council for ap- One challenge for successful linkage is finding com- proval (Vahl 1997,80).Nevertheless,agriculture inter- plementary issues.Sebenius(1983)points out that sim- ests were not shut out entirely.Their consent reflected ply adding issues does not necessarily promote agree- that many in the Commission and national delegations ment.Rather,adding a nonnegotiable issue to the believed that the final agreement would not require agenda can cause the collapse of the entire negotia- substantial changes of the Common Agricultural Policy tion.Much of the study of issue linkage focuses on (CAP)(Josling,Tangermann,and Warley 1996,172). combining issues so that all participants gain from the A Commission negotiator for the agriculture group agreement(Mayer 1992;Tollison and Willett 1979).A negotiations of the Uruguay Round said,"We knew second challenge is the difficulty of convincing all actors agriculture might be a problem,but this was not re- to believe that agreement on one issue is conditional ally clear until the mid-term review in 1988.Nobody in on agreement on the other issue.Tactical linkages can Europe thought there could be a negotiation that left be unstable when some participants resist the linkage. out agriculture,but it was hoped that there might not Several scholars voice skepticism about issue linkage have to be major reforms-like in the Tokyo Round."5 because of this added credibility problem (Aggarwal Similar logic led Japanese government officials to 1998;Eichengreen and Frieden 1993;Morrow 1992) plead with the U.S.government to address rice market Lohmann (1997)counters that it is possible for issue access as an issue in the Uruguay Round rather than in linkage to promote cooperation if actors care suffi- a bilateral negotiation.5 Yet at the same time,the Diet ciently about future interaction on one of the issue di passed a unanimous resolution against any liberaliza- mensions for this "credibility surplus"to spill over and tion of the ban against rice imports.An official from an increase incentives for cooperation across issues.While agricultural interest group explained in an interview issue linkage can promote cooperation in some cases that his organization did not oppose the government either the wrong combination of issues or an inability promise to discuss rice liberalization in the Uruguay to credibly commit to the linkage may undermine the Round because his group hoped to get support from effectiveness of a linkage strategy. France and other countries and thought the talks would I examine how a particular kind of linkage,a pack- go better than if Japan faced the United States alone age negotiation structure,addresses these two problems in bilateral talks.?Yet in the end,the Uruguay Round Package negotiations have a formal agenda that com did bring substantial reforms in the agricultural sector bines distinct issues for joint approval or rejection.This as well as in the industrial and service sectors,leading resembles the bargaining tactic Raiffa(1982)refers to to both an overhaul of CaP and the partial opening as a"single negotiating text"that unifies discussion of of Japan's rice market.In sum,economic interests,the different issues.I focus on the use of package nego- tiation structure to institutionalize cross-sector issue linkages.These negotiations address agriculture and 4 For more on the importance of linkage in getting the Uruguay industry sectoral issues along with other trade topics Round started,see Croome 1995,31,and Paemen and Bensch 1995 in a single negotiation.The cross-sector scope of the 31-48. 5 Official of the Commission.Directorate General for Agriculture agenda combines issues to produce overall gains,while Interview by author.Brussels,4 July 2000. 6 Asahi Shimbun,24 October 1986.9 April 1987. Former official of Zennorin.Interview by author.Tokyo,26 See Aggarwal 1998,16-17,and Haas 1980for discussion of different October 1998. kinds of linkages 156 Reproduced with permission of the copyright owner.Further reproduction prohibited without permission
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American Political Science Review Vol.98,No.1 the institutional context promotes the credibility of the tural policy setting,it will create new opportunities to linkage. promote agricultural liberalization. Evidence confirms that the international setting has Cross-Sector Interests.Liberalization depends on an impact on the domestic policy jurisdiction.With re- overcoming the collective action problems and institu- gard to Japanese trade negotiations,for example,Fukui tional biases at the domestic level that favor protection (1978)argues that the Foreign Ministry influence was For trade policies in general and agricultural issues in greater in the Tokyo Round,while the domestic min- particular,those who demand protection have strong istries such as the Ministry of Agriculture had more incentives and high levels of organization,while those influence in bilateral negotiations on narrow issues. who pay the costs are loosely organized taxpayers and Similarly,Japanese government decision making dur- consumers(Lindert 1991;Olson 1965).Protection poli- ing the Uruguay Round brought top officials from five cies also persist because policy makers with a vested ministries together to coordinate policies.This enabled interest in the status quo retain control over decision ministries such as the Ministry of International Trade making.The closed policy communities formed by the and Industry (MITI)that typically have no voice on ties among farm groups,agriculture ministries,and po- agricultural trade issues to play a role in agricultura litical committees in Japan,the EU,and France have policy decisions because these decisions also affected been described as forming a corporatist relationship the progress of the entire negotiation.9 (Keeler 1996;Mulgan 2000;Sheingate 2001).Using is- In the EU,the comparable question centers on which sue linkage to mobilize industry groups and to broaden officials in the Council of Ministers shape the negotia- the policy jurisdiction helps to counter both problems. tion mandate.Although the agriculture ministers meet- Cross-sector issue linkage offsets the influence of ing in the Agriculture Council dominate decision mak- farmers by engaging interests important to other pow- ing for issues directly related to CAP,broader trade erful lobby groups.Japan and the EU must offer conces- policy issues related to negotiations are likely to be ad- sions in agriculture,while both can gain much from lib- dressed by the foreign and trade ministers meeting in eralization in the industrial and service sectors.When the General Affairs Council.Member states opposing there is a credible cross-sector linkage,industry lob- agricultural reform prefer to maintain control within bies also advocate agricultural liberalization in order the Agriculture Council,while those favoring reform to achieve specific gains for industry from conclu- try to push issues into the trade committee or the Gen- sion of an overall agreement.Finding domestic allies eral Affairs Council.10 The scope of issues in the ne- to support foreign demands has been a critical fac- gotiation influences which council is likely to take the tor in explaining variation in outcomes across differ- lead role and which procedures are followed under EU ent U.S.-Japan bilateral negotiations (Mulgan 1997; treaty provisions. Schoppa 1997).The importance of the expansion of actors has also been widely commented on in stud- Institutions and Credibility.Many have pointed to ies of European and American politics(Gilligan 1997; the role of international institutions in facilitating pos- Lieber 1970).Schattschneider(1960,40)argues that, itive linkages that promote cooperation (Haas 1980; by expanding the scope of confict,losers try to "in- Keohane 1984:Martin 1992).First,as Keohane (1984. volve more and more people in the conflict until the 91)writes,more quids make it easier to reach agree- balance of forces is changed."In the case of agricul- ment in quid pro quo deal making.The institutional tural liberalization,farmers represent the entrenched context of the GATT/WTO promotes the kind of cross- interest group,and issue expansion offers one route to sector issue linkages discussed above.Equally impor- dilute their influence by forcing competition with other tant,the institutional context adds credibility to the interests. decision to link issues because it makes the deci- Not only does issue linkage lead to competition sion represent a commitment in an ongoing process among interest groups,but also among actors across of repeated negotiations.Martin(1993,129)explains jurisdictional boundaries.The framing of issues in the "Deals cut within an institution rather than outside one negotiation shifts the policy discussion from one venue gain stability because members put increased value on to another in the domestic arena.Studies of domestic their reputations for living up to agreements."The costs institutions have long emphasized the importance of of backing down from a commitment to link issues are agenda setting given the substantive impact of differ- greater because such action damages their"ability to ences between domestic actors.Baumgartner and Jones reach mutually beneficial cross-issue deals"in the fu- (1993,31)argue that"each institutional venue is home ture.The institutional context also endows the linkage to a different image of the same question."The view of with greater legitimacy by providing a common set of the problem and preference for a solution will reflect procedures and norms that justify use of the linkage the particular ministry's own bias and interests-the strategy. agriculture ministry favors farmer interests,the trade Publicizing the issue linkage as a formal agenda ac- ministry favors industry interests,and the foreign min- complishes two purposes:First,it creates a focal point istry tries to balance national interests with concern for maintaining better foreign relations.Similar differ- 9 Ministry of Foreign Affairs Official.Interview by author. ences occur across the boundaries of political commit- Cambridge,MA,18 November 1999;and MITI official.Interview tees.To the extent that the negotiation lifts decision 38mae2c3alMfyaMRol.Aeiuiersnd making outside of the corporatist ties in the agricul- Fishery.Interview by author.Bonn,20 July 1999. 157 Reproduced with permission of the copyright owner.Further reproduction prohibited without permission
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International Institutions and Issue Linkage February 2004 from which negotiators are reluctant to retreat:second. tries to set their own pace for the timing and scope it signals to domestic groups that the success of any part of liberalization in any particular sector (Aggarwal of the negotiation will depend upon reaching an overall and Morrison 1998,13).Likewise,bilateral negotia- agreement.The formal agenda of the negotiation estab- tions may also address multiple issues,but they often lishes whether talks will address multiple sectors and do not bind them together with a formal agenda.For whether agreement on the entire range of issues will both aPEC and comprehensive bilateral negotiations form a single package.Considerable time and hard bar- tradeoffs across issues in the negotiation are possible gaining go behind the creation of the agenda,and this The lack of a formal commitment to the linkage,how- inhibits frequent renegotiation.Subsequent behavior ever,makes it more difficult to signal that concessions by states reinforces the linkage.By obstructing discus- in one area are necessary for gains in another sions in one negotiating group to match the deadlock There was a moderate linkage between agricultural in another negotiating group,a state can force parallel and industrial issues in the Tokyo Round.The declara progress on different issues.The combination of the tion that set the agenda for the Tokyo Round stated that formal agenda and the support for each agenda issue the negotiation"shall cover...both industrial and agri- by some participating states creates a more credible cultural products,"but also added flexibility by urging cross-sector linkage.Information that liberalization for that the negotiations should"take account of the spe- any sector is conditional on agreement on all issues cial characteristics and problems in this agricultural provides an incentive for interest groups and officials sector."11 It established several negotiation groups that to closely follow all parts of the negotiation rather than produced agreements from which nations could pick just the part related to their own sector.As a credible and choose:"GATT a la carte"(Jackson 1997,47) signal,the institutionalization of the issue linkage in the The agricultural group had a particularly weak link- agenda and procedures of the negotiation strengthens age with the rest of the round.Subgroups for dairy, the incentives for those who gain from free trade to meat,and grains discussed separate commodity agree- lobby against protectionist interests. ments rather than general principles for agricultural policy.Moreover,at the U.S.initiative,which wanted Linkage Hypothesis.The more institutionalized the to include the Soviet Union (a major purchaser on linkage among multiple sectors in a negotiation,the grains markets that was not a GATT member),the talks more likely that the negotiation will liberalize agricul- on grains were primarily conducted outside the Tokyo tural trade barriers. Round in the context of the International Wheat Coun- Different levels of institutionalization form a weak or cil (Winham 1986,252).These talks ultimately failed to strong linkage among issues.The two key institutional produce a new commodity agreement on grains,and features concern whether the agenda commits to lib- states were able choose whether to join the dairy and eralization of multiple sectors and whether procedures meat commodity agreements regardless of their posi- call for a single agreement with binding commitments tion on other issues in the round(GATT 1979,26).In on all of the agenda issues.An agenda that only calls sum,the agenda statement and the procedures that al- for liberalization of one sector does not have any insti- lowed stand-alone agreements provided only moderate tutionalized cross-sector issue linkage.An agenda that institutionalization of an issue linkage. includes multiple issues but provides for flexibility to In contrast,a strong cross-sector linkage character- reach settlements on each issue separately forms a weak ized the Uruguay Round.The Punta del Este Dec- linkage.In contrast,a package negotiation structure es- laration that set the agenda for the Uruguay Round tablishes a strong linkage by explicitly mandating that called for 15 groups to negotiate issues ranging from the negotiation will proceed in an all-or-nothing ap- industrial goods to agricultural goods to reform of proach that ties together deals on multiple sectors and GATT trade rules.In the declaration,the term single issues to culminate in signing a single agreement.Com- undertaking referred to the commitment to decide parison of two GATT trade rounds and one APEC ne- jointly on all the parts of the negotiation and supported gotiation illustrates these differences.The agendas for the refrain among negotiators that"nothing is agreed the two GATT negotiations,the Tokyo Round(1973- until everything is agreed"(Croome 1995,34).Two 79)and the Uruguay Round(1986-94),as well as the later events further strengthened the linkage credibil- Kuala Lumpur APEC ministerial meeting in 1998,gave ity.First,some Latin American states walked out of the a mandate for talks on a wide range of issues including 1990 Brussels meeting,declaring that they would not both primary and industrial sectors and other rules re. negotiate anything if the United States,EU,and Japan lated to economic activities,such as investment regula- would not agree to a substantive agricultural liberal- tions and product standards.Nevertheless,the agenda ization package.Then,at the end of 1991,the GATT and procedures of each negotiation present observable Director-General Arthur Dunkel independently pro- differences in the commitment to the cross-sector link- duced a draft agreement binding all parts of the negoti- age ations into a single text.12 A procedural step reinforced Weak institutionalization of the cross-sector link age characterized the APEC "Early Voluntary Sec- toral Liberalization"agenda.APEC trade liberaliza- 11 Text of the Tokyo Declaration issued at the ministerial meeting held in Tokyo,12-14 September 1973,in Winham 1986,414. tion talks jointly address trade sectors ranging from 12 The "Draft Final Act Embodying the Results of the Uruguay agriculture to automobiles.The principles of volun- Round of Multilateral Trade Negotiations"specified terms for all ne- tarism and flexibility,however,explicitly allowed coun- gotiation groups,including agriculture.Its provisions for agricultural 158 Reproduced with permission of the copyright owner.Further reproduction prohibited without permission
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American Political Science Review Vol.98,No.1 the concept of a single undertaking:The final agree- Domestic Polltics in Japan and the EU ment texts would form a single charter for a new trade organization such that accepting all agreements was Bargaining models that incorporate domestic politics a condition of membership (Hudec 1993,193).Given imply that Japan and the EU will be less likely to lib- this strong linkage,one would expect more liberaliza- eralize agricultural policies when the government is in tion in the Uruguay Round than in other negotiation a weaker position.A negotiator whose hands are tied fora. by domestic resistance has a smaller range of possible On the other hand,less liberalization is expected agreement (Schelling 1960),and this situation may when there is no cross-sector linkage.The U.S.-Japan force the United States to accept less liberalization. talks on beefand citrus in 1983 and the U.S.-EU talks on When the government has a narrow majority it can cre- wine in 1991 are examples of single-sector negotiations dibly argue that agricultural liberalization is politically that focused exclusively on agricultural products.This impossible because politicians must appeal to the im- observable variation in the agenda,rules,and proce portant farm vote.Political strength at home,therefore, dures across negotiations in terms of the sectoral scope can translate into weakness at the bargaining table. and institutionalization of the commitment to a linkage Japan provides an interesting case for testing approach facilitates testing the linkage hypothesis. whether a stronger majority will make liberalization more likely even when the ruling party favors farm protection.Farmers have long formed one of the key ALTERNATIVE EXPLANATIONS support bases for the conservative Liberal Democratic Many factors influence why countries liberalize poli- Party (LDP).Although the LDP maintained ruling cies.In order to evaluate the relative importance of a party status from its formation in 1955 until 1993,there cross-sector issue linkage,I also consider the following nas been intense competition over district seats and alternative explanations. a continued majority has not always been a certainty. When the LDP majority is slim,the party leadership finds it difficult to persuade party members to consent U.S.Influence:Threats and Appeals to an agreement that would inflict pain on an important constituency like farmers (George 1990,133).Conse- One way for the United States to exercise its power quently,liberalization will be more likely when the LDP in economic negotiations is by threatening to close off has a stronger majority in the Japanese Diet. access to U.S.markets through retaliation.It is a re- In the case of the EU,domestic politics and inter- current pattern in U.S.trade policy for the administra- governmental politics between member nations calls tion to pursue the goal of freer trade while threatening for playing a three-level game(Patterson 1997).For the protectionism(Bayard and Elliott 1994;Gawande and sake of the aggregate analysis,however,I only exam- Hansen 1999).United domestic support for the use ine two levels by considering politics in the Council of of sanctions will increase the credibility of this strat- Ministers as representing the domestic politics of the egy (Odell 2000;Zeng 2002).Public threats would be EU.National governments in the Council approve the expected to increase the likelihood of liberalization mandate to give negotiating authority to the European because the prospect of retaliation triggers lobbying Commission.Thereafter,the Commission acts as the by targeted industries.Although implicit diplomatic sole negotiating authority.Since the final negotiation threats and linkage with alliance relations are also im- agreement must also gain Council approval,however, portant sources of leverage,they are difficult to ob- the Council continues to play a role setting limits on serve in any given negotiation.Moreover,both Japan negotiation agreements(Meunier and Nicolaidis 1999). and most EU member states have been allied with the The rotating office of the president of the Council of United States over the period of this study.Therefore, Ministers offers a proxy for variation in Council poli- I focus on threats of economic retaliation. tics.Although any member can try to build a coalition The bilateral trade balance will also influence the against an agreement,the government that holds the effectiveness of U.S.pressure.During times of large Council presidency has a stronger role as agenda-setter trade deficits,political demands in the United States (Sherrington 2000).When France,the strongest oppo- urge protectionism at home and push for export ex- nent of agricultural liberalization,holds the influential pansion.In response,industries in Japan and Europe post of Council president during the key initial or fi- dependent on exports to the U.S.market may urge their nal years of a negotiation,Commission negotiators can government to reduce trade friction with compromises more credibly argue that their hands are tied so that on agricultural trade disputes.Thus a growing deficit they cannot accept any liberalization. could increase pressure for liberalization.In addition, from the perspective of balancing the U.S.trade deficit and promoting U.S.priority items,one might expect Budget Constraints a pattern favoring liberalization of products that con- tribute most to U.S.agricultural export earnings. Liberalization may occur because a government de- cides it no longer can afford the costs of protection in terms of budget expenditures and inefficient use of eco- nomic resources.Studies of EU and U.S.agricultural policy changes broadly outlined the final agreement that was ac- reforms cite cost-cutting as a major motivation for low- cepted,although some revisions were made(Croome 1995,296) ering agricultural trade barriers and subsidies(Moyer 159 Reproduced with permission of the copyright owner.Further reproduction prohibited without permission
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International Institutions and Issue Linkage February 2004 and Josling 1990;Paarlberg 1997;Orden,Paarlberg, and Roe 1999).The EU devotes more than half of its TABLE 1. Types of Negotiation Contexts ncluded in the Dataset total budget expenditures to agricultural programs,and European officials openly discuss the need to reform Percentage agricultural policies in order to reduce expenditures.13 Japan EU If budget constraints are the force behind liberal- Trade Arena (153 Cases) (114 Cases) ization,then one would expect liberalization to occur Tokyo Round 18.95 11.40 during periods of belt-tightening when there is a reduc- Uruguay Round 12.42 22.81 tion in agricultural budget expenditures.Conversely, Dispute adjudication 29.41 36.84 one could also argue that rising expenditures will make Bilateral 34.64 28.95 governments want to start cutting programs so they APEC 4.58 would be more likely to liberalize agricultural poli- cies when agricultural budgets grow rapidly.The role of commodity prices further complicates the budget dispute adjudication cases as well as negotiations out- dynamic because low commodity prices increase both side of the GATT/WTO institutional framework,such agricultural budget expenditures and farmer demand as bilateral talks and the 1998 Kuala Lumpur meet- for protection.This article provides one test of the role ing of APEC(Table 1).14 Some of the negotiations in of agricultural budget growth,but further analysis is the dataset addressed only agricultural trade barriers, necessary to explain the connections between prices, while others involved multiple sectors.A negotiation spending,and trade protection. on an agricultural trade barrier forms the unit of anal- ysis.A negotiation is defined as an "exchange between Number of Participants two or more countries that begins with a demand for policy reform and concludes when there is either an Another important characteristic of many interna- agreement or a decision to indefinitely halt talks on the tional negotiations is multilateralism.The term multi- issue"(Davis 2003,85).The Appendix provides details lateralism often refers to both multiple countries nego- on coding rules. tiating and the kind of institutions that are established Each case is a single commodity or commodity group to facilitate such negotiations.This tendency to conflate among those being negotiated.Hence,in a large ne- the institutional features of the negotiation structure gotiation like the Uruguay Round there are multiple with the number of participants can interfere with anal- cases,while another negotiation will focus exclusively ysis of the sources of cooperation.I evaluate whether on a single commodity.Within negotiations,there is it is the number of participants per se or the need for considerable variation that can be hidden by aggrega- linkage that accompanies negotiations with many par- tion of products.During the Tokyo Round,for example, ticipants that provides the leverage of multilateralism. no liberalization occurred for grains,while both Japan Studies about whether more is better have con- and the EU agreed to partial changes for beef.Multi- cluded that it depends on the issue and the nature ple negotiations on a single commodity are treated as of the cooperation problem (Kahler 1992;Martin separate cases when there is a clear initiation and end 1992;Sebenius 1983).On the one hand,more partic- to one negotiation and a second initiation for the next ipants promote cooperation because there are more negotiation.In order to consider the special nature of opportunities to find agreements with mutual gains. such repeated talks on similar issues,I include a count Multiple countries making the same demand as the variable for the number of the particular negotiation in United States could increase the pressure for liberaliza- the sequence of negotiations on the same product. tion.On the other hand,the problem of free-riding and Negotiated policy liberalization is defined as the re- the difficulty of bargaining increase with large numbers duction of explicit trade barriers through agreement in (Oye 1985).One could also argue that the lack of coun- negotiation.Negotiation outcomes are categorized into terbalancing by a coalition would make it easier for the three levels of liberalization:none,minor,and major United States to maximize its leverage in a bilateral policy change.The explanatory variables used to pre- negotiation.Therefore,the number of participants rep- dict liberalization are summarized in Table 2,and de- resents an important feature of the negotiation context. scriptive statistics and coding definitions are provided in the Appendix.I test my main argument using a link- age variable that is a four-level ordinal scale for the AGRICULTURAL TRADE NEGOTIATION institutionalization of an issue linkage between agri- DATA cultural and other sectoral issues.Cases negotiated in I analyze an original dataset of 267 cases of agricultural the Uruguay Round are coded four for the strongest commodities that were the subject of U.S.negotiations linkage while Tokyo Round cases are coded three for with Japan or the EU during the period between 1970 and 1999.The dataset includes both trade rounds and 14In Table 1.a case is categorized as dispute adjudication if a for mal complaint was filed under GATT or WTO dispute settlement procedures.Some cases ended after consultations,while others were 13 The European Agricultural Guidance and Guarantee Fund ex. concluded after a final panel ruling.See Busch and Reinhardt 2001 penditures on agricultural policies were 89%of the 1970 total EC and Davis 2003a for analysis of the effect that these rules have on budget and 51%of the 1999 budget(EC 1999). trade negotiations. 160 Reproduced with permission of the copyright owner.Further reproduction prohibited without permission
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American Political Science Review Vol.98,No.1 TABLE 2.Summary of Model for Policy Liberalization Result Variable Predict Japan EU Operationalization(Measure) Linkage × + Strength of cross-sector linkage (1-4) Threat × Specificity of threat (1-4) Trade balance × Bilateral trade balance in goods(U.S.billion $ Product value + Product share in total U.S.agr.exports(%) Politics + × NA LDP share of Lower House seats(%) NA French presidency of council(1-3) Budget Annual agriculture budget growth(%) Growth Annual growth(per capita GDP)(%) Multi + Multiple-country demand(0-1) Export NA Case about export subsidy(0-1) Count + Case number in series of repeated negotiations(1-6) Note:Variables represent those used in the regression analysis.The second column gives the expected direction of the variable's influence on liberalization outcomes.The Result columns summarize the direction of influence for statistically significant regression estimates(base models in Table 3),which are discussed in text.NA,not applicable. a moderate linkage.Cases in multisector negotiations area where GATT trade law has been weakened by with a weak linkage in the agenda are coded two,and exemptions and vague language(Hudec 1993,147-54). negotiations that only addressed agricultural topics are The combination of stronger interests and weaker rules coded one. makes these among the toughest negotiations with Additional variables represent factors that other the- the EU. ories have highlighted as important for trade negotia- tions.The coercive influence of U.S.threats is measured EMPIRICAL ANALYSIS by a four-level ordinal scale,ranging from absence of threat to a specific threat or the initiation of retaliatory I evaluate the effect of issue linkage by analyzing data sanctions.Two variables,the bilateral trade balance from U.S.-Japan negotiations and U.S.-EU negotia- and the value of the specific product in the profile of tions.I choose not to combine the Japan and EU U.S.agricultural exports,control for possible sources datasets since separate analysis allows me to examine of variation in the pressure from the U.S.demand for whether the same variables have different effects in liberalization. each political context.Given that the dependent vari- The idea that domestic political constraints may add able measures policy liberalization with three ordered bargaining leverage is represented in the Japan model categories,I use the ordinal probit model. by the strength of the LDP majority.A proxy of tied Table 3 presents the regression analysis.The results hands in the EU analysis is the power of France over the show that in Japan and Europe,cross-sector linkage negotiation,which is assumed to be relatively greater significantly increases the likelihood of liberalization when it holds the presidency of the EU Council of Min- There is also evidence that threats and LDP strength isters during the initial or concluding year of the nego- promote liberalization by Japan and that the role of tiation.Domestic political constraints are expected to France along with budget conditions influences liber- be higher when the LDP is weak or when France holds alization by the EU.The impact of these other factors, the EU presidency. however,appears to be smaller compared with the im- A variable for agriculture budget growth tests the pact of cross-sector linkage. argument that the need to reduce spending motivates The findings were robust to different model specifica- liberalization.Periods of budget growth apply less pres- tions.The results were consistent when a probit model sure for liberalization than when there are budget cuts. is estimated using a recoded liberalization variable that A variable for economic growth controls for other eco- collapsed the top two categories of major and minor lib- nomic factors that may influence decisions about trade eralization to form a simple binary outcome.Recoding policy. linkage into a binary variable for whether the agenda Finally,I include an indicator variable for multiple included only agricultural issues or multiple sectors countries being involved in the negotiation.This allows also produces a significant positive effect.Results were me to evaluate the effect of linkage,while controlling also consistent when I introduced a time period vari- for the fact that most negotiations with linkage also able to account for interconnection between cases not involve many participants. captured by the other variables.15 As a test for omit- For the EU,another variable is necessary to account ted variables related to the different agricultural prod- for the special nature of negotiations dealing with pro- ucts,I ran a fixed effects model including commodity tection oriented toward export promotion.Since Japan has minimal agricultural exports and no export subsi- dies,this variable is not applicable to the Japan model. 15 The time period variable divided the 30 years into five categories In the EU policy context,however,export subsidies related to the two major trade rounds:1969-72(pre-Tokyo Round). are a core policy of CAP.Moreover,they represent an 1973-79 (Tokyo Round),1980-85 (pre-Uruguay Round),1986-94 (Uruguay Round),and 1995-99(WTO). 161 Reproduced with permission of the copyright owner.Further reproduction prohibited without permission
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International Institutions and Issue Linkage February 2004 TABLE 3.Ordinal Probit Regression Models Japan EU Variable Base Model Fixed Effects Base Model Fixed Effects Cross-sector linkage 0.635* 0.914m 0.490° 0.609* (0.183) (0.211) (0.203) (0.215) Threat 0.388* 0.508 0.079 0.148 (0.112) (0.165) (0.123) (0.136) Trade balance -0.010 -0.026 0.053* 0.056* (0.011) (0.015) (0.015) (0.015) Product value to the U.S. -0.059 -0.077 0.001 0.004 (0.033) (0.046) (0.022) (0.025) Budget growth -0.023 -0.006 -0.025* -0.032 (0.017) (0.022) (0.007) (0.008) Economic growth 0.017 -0.015 0.571* 0.632* (0.062) (0.069) (0.171) (0.172) LDP strength 0.117 0.139 (0.027) (0.040) French Council presidency -0.906* -1.068* (0.303) (0.329) Export subsidy -1.114* -1.693* (0.267) (0.413) Multicountry demand -0.360 -0.271 -0.791 -0.648 (0.307) (0.454) (0.527) (0.551) Count -0.170 -0.004 0.140 -0.132 (0.116) (0.123) (0.101) (0.116) First threshold 6.699 7.386 -0.885 -0.234 (1.502) (2.195) (0.669) (0.798) Second threshold 7.690 8.770 0.391 1.169 (1.522) (2.243) (0.655) (0.783) log-likelihood -137.283 -102.399 -99.608 -90.952 T statistic 0.665 0.860 0.754 0.790 (0.075) (0.042) (0.076) (0.072) N 153 153 114 114 Note:The constant is set to zero.Robust standard errors are in parentheses.The fixed effects models include 17 commodity categories for the Japan data and 13 commodity categories for the EU data,although these coefficients are not reported here.Significant at the 5%level.Significant at the 1%level. indicator variables.This model attempts to capture through selecting the agricultural sector for analysis product-specific effects related to the unobserved po- and including a commodity fixed effects model to allow litical or economic characteristics of the commodity be- for variation among agricultural products.17 Examples ing negotiated.For example,some products with more such as the decision to negotiate Japan's rice import ban political clout in terms of the number of farmers or in the Uruguay Round also indicate that cases with high campaign contributions,etc.,could be less likely to be li- domestic opposition can arise in linkage negotiations. beralized.Following the OECD Agricultural Accounts This reduces concern that only cases that will be easy to commodity categories,I classified the 153 Japanese liberalize have a strong linkage.Nevertheless,more sys- cases into 17 commodity groups and the 114 EU cases tematic study is necessary to understand the selection into 13 commodity groups.16 The fixed effects models mechanism for the institutional setting of negotiations. give results similar to the base models used for the anal- Table 4 shows how a shift in the level of one variable ysis below.Given the possibility for some correlation will affect the predicted probability of major liberaliza- among negotiation cases,the estimates in Table 3 are tion while all other variables are held constant.18 Use based on Huber/White robust standard errors. It is possible that there is endogeneity in the agenda- setting process so that the level of domestic opposition 17 An alternative approach would be to use a two-stage selection model where the choice of negotiation forum is modeled in the first to liberalization influences whether there is a strong stage and the effect of linkage is estimated in a second stage.The linkage.This article has addressed this issue in part use of such selection models requires a valid instrument,a variable that affects the negotiation outcome only through the linkage choice. The recent literature has found that without such an instrument,the 16 See the Appendix for a list of commodity categories In some cases, model could yield misleading results (e.g.,Heckman et al.1998). I made a deviation from the OECD categories,such as separating rice In this case,it seems that any variable that is related to choice of into a separate category for Japan while leaving it in the cereals group negotiation agenda is also related to the other variables that influence for the EU,where there is less reason to expect special treatment. liberalization outcomes. Processed products are included in the closest raw material category. 18 Holding other variables constant involves setting variables to their e.g.,pasta is in the cereals group.Industrial crops is used as the base mean levels and multiplying these means by their coefficient esti- category. mate.In Table 4,I only summarize the change in the top category of 162 Reproduced with permission of the copyright owner.Further reproduction prohibited without permission
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