Constraining Development in International Trade: Q&A with Rachel Thrasher

By Samantha Igo

In the wake of the COVID-19 pandemic and growing climate crisis, it is becoming increasingly apparent that there is an unresolved tension between the network of rules that make up the global trading system, and the needs of that system’s individual countries.

The new book by Rachel Thrasher, Constraining Development: the Shrinking Policy Space in the International Trade Regime, explores the recent troubling trends in treaty-making and international jurisprudence that present obstacles to national governments when pursuing policies for domestic economic growth, financial stability, debt sustainability, public health and environmental protection.

Thrasher, a researcher with the Boston University Global Development Policy Center, answers questions below on her book and how the international community can better work together to build a more flexible trade regime:

Q: First and foremost, tell us about how you found yourself in this field and your unique expertise in law and global policy?

When I entered law school, I had a vague sense that US foreign policy through free trade agreements suffered from some severe deficits, especially in its impact on Mexico and the countries in Central and South America. What I didn’t know was what could be done. A short piece by Howard Mann introduced me to the importance of small turns of phrase in these treaties and how they might be used to challenge even common environmental regulations. After I graduated, I began to explore the myriad of ways trade (and investment) treaties impact domestic policymaking.

Q: Your book reviews decades of international trade treaties and, essentially, calls for a reevaluation of how global economies do business – shifting away from broad, inflexible trade agreements to shallower multilateral treaties that can provide more policy space. Where did the impetus to investigate this topic come from?

The seed for this idea was planted during a research project just after graduate school, in which Kevin P. Gallagher, Director of the Boston University Global Development Policy Center, asked me to explore whether treaties between different country-parties would limit access to industrial policy in varying ways. That forced me to explore how these treaties are written and structured. After that point, almost by accident, each of my research projects began to ask the question – “How do trade and investment treaties affect domestic policymaking in X way?” As I explored each of these avenues, the overarching narrative wove itself through the research. Over and over again, countries were trying to put in place policies to protect vulnerable people, protect the environment and provide jobs, financial stability and more to their citizens and they faced obstacles in the form of international trade disputes at the World Trade Organization (WTO) or worse, investor-state arbitration with ad hoc tribunals.

 Q: Looking at your book from a 30,000-foot view: How have trends in international treaty-making changed since World War II? How have those trends exacerbated, or even obstructed, emerging markets and developing countries from achieving meaningful advances in development?

At the close of WWII, the goal of treaty-making was essentially to create a world where such wars were a thing of the past – where global commerce was integrated so that countries economically dependent on the supply or demand from their neighbors would think twice before taking military action. But that integration was never meant to be comprehensive. As Dani Rodrik has said, countries wanted to eliminate as many barriers to trade as possible while allowing countries to regulate as they’d like. Even the United States rejected the initial model of international trade integration (the International Trade Organization) because it interfered too much with their own domestic policy goals.

By the mid-1970s, however, developed countries began to become impatient with the ways that non-tariff barriers and behind-the-border measures continued to interfere with the free flow of goods across borders. They wanted rules that dismantled those obstacles as much as possible. At the same time, developing countries complained that they were not afforded enough special treatment to enable them to take advantage of the gains from increased market access globally. Inequality among nations was increasing rather than decreasing. A handful of emerging economies were able to harness the power of the state and existing policy flexibility to build up new high-tech industries and everyone else was left behind. The formation of the WTO in 1995, however, resolved the debate between developing and developed countries in favor of the developed ones.

In a move Ha-Joon Chang describes as “kicking away the ladder,” many of the policies deployed by today’s developed countries were made inaccessible to the developing countries because of discriminatory effects in international trade. Despite an effort to frame a new round of negotiations at the WTO specifically around the concerns of developing states (the “Doha Development Round”), no real progress has been made to change the status quo.

 Q: In a time marked by the COVID-19 pandemic and vast vaccine inequity, climate change, a looming debt crisis and much more, there’s a battle in the public square over what policy issues need the most attention. What makes this issue of shrinking policy space so critical right now?

This issue of shrinking policy space is critical because it lays at the root of all these issue areas. In every case, the global trade rules have stood in the way of countries attempting to meet these crises. Global intellectual property rules have already interfered with countries gaining access to essential medicines – especially vaccines – during the COVID-19 pandemic, and they stand a good chance of similarly restricting access to essential innovations and technologies to combat climate change, as well. Investment rules, both at the WTO and in international investment agreements have been used to challenge policies promoting access to medicines, a transition to renewable energy and a stable financial system. Meeting global economic, health and environmental crises requires policy innovation and experimentation – both of which are tightly constrained under existing rules.

Q: Your book traverses between different arenas of trade policy, from land grabs to sovereign debt restructuring and affordable medicines, but you close succinctly with three concrete policy recommendations that can help preserve policy space. What are they, and how did you come to them?

The three policy recommendations are (1) re-focus on multilateral negotiations and decision-making, (2) stop relying on investor-state disputes to resolve international conflicts and (3) increase compliance in areas of important global collaboration through capacity building rather than trade enforcement measures. Essentially, lead with carrots rather than sticks. These are rooted in the overarching recommendation that governments should step back from increasingly broad and deep trade agreements and return to a model reminiscent of that envisioned by the architects of the predecessor to the WTO, the General Agreement on Tariffs and Trade (GATT).

Admittedly, multilateralism is much more difficult with today’s almost 200 members of the WTO than it would have been in 1948 with the original 23 GATT members. Moreover, the highly integrated nature of the global economy has created a new set of challenges that require more collaboration than would have been necessary almost 80 years ago. Nevertheless, the spaghetti bowl of trade and investment agreements has not delivered a wealthier, healthier planet. The investor-state disputes are by far the most widely criticized aspect of international investment commitments and punitive trade enforcement measures are among the most widely disputed areas of the WTO dispute settlement mechanism. In order to strike a healthy balance between domestic policymaking and the global trade regime, these three recommendations act as foundational first steps toward a better system.

Q: What is the most surprising thing you discovered in your research and writing?

As a non-economist, I was blown away the day I discovered that economic theory describes all taxation as “welfare reducing.” While this statement may seem extremely basic to anyone who has taken Econ 101, I had been thinking of taxation as a way for governments to pay for improving welfare and the concept completely took me by surprise. Although this is a very specific example (that perhaps uncovers a lot of my own ignorance), it ties in with a larger idea that is often difficult to remember, if not surprising. Policymaking (taxation or otherwise) has real impacts in the world and some groups will benefit, while others will miss out as a result. That doesn’t mean it’s not necessary, but it should be done carefully. It is humbling to remember that I may not see all the possible impacts of new policies, and it pushes me to read broadly in my research.

Q: What policy change would you make overnight?

At a global level, I would like countries to enact a broad, comprehensive waiver to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) at the WTO for COVID-19 products. Many other changes need to be made over the long term, but as people are actively dying of this disease, we ought to do everything in our power to meet this immediate, global crisis.