Webinar Summary: Shrinking Policy Space in International Trade – A Conversation with Rachel Thrasher and Ha-Joon Chang

Istanbul, Turkey. Photo by Melih Karaahmet via Unsplash.

By Katie Gallogly-Swan

On Friday, November 19, Rachel Thrasher, researcher and legal expert of the Boston University Global Development Policy Center hosted a conversation with Ha-Joon Chang, renowned economist and prolific author, including the landmark book, Kicking Away the Ladder: Development Strategy in Historical Context. The conversation centered on Thrasher’s new book, Constraining Development: the Shrinking Policy Space in the International Trade Regime

Consisting of one multilateral trade agreement, more than 300 preferential free trade agreements and almost 3,000 bilateral investment treaties, Thrasher opened the event by explaining that the rationale behind the complex network of international trade and investment rules to establish a stable global trading regime. However, while the original project of liberalizing international trade had a relatively limited scope, treaty texts since the mid-1990s have encroached more and more on areas of domestic policymaking. This tension has surfaced during the COVID-19 pandemic, as national-level priorities have come into friction against trade rules and agreements. 

In her book, Thrasher explores this tension with an eye to restraints on the developmental policy toolkit: industrial and investment policy, capital flow management and debt policy, as well as health and climate policy. Moreover, a growing number of international legal cases at the World Trade Organization (WTO) and through investor-state dispute settlement (ISDS) mechanisms have demonstrated the teeth and staying power of these treaties.

Ha-Joon Chang’s own work is foundational to the arguments underpinning Thrasher’s new book. His groundbreaking research has demonstrated that the trade architecture in which the wealthiest countries where able to grow and develop was significantly more protectionist than the contemporary system, throwing into question the persistent assumption that further and deeper liberalization is a route to sustainable growth. His most recent work, Industrial Policy in the 21st Century with Antonio Andreoni, develops a new theory of industrial policy that can better reflect contemporary economic trends, including in trade, and serve as a useful tool for policymakers navigating a fast-changing world.  

The discussion took place in anticipation of the planned 12th WTO Ministerial Conference (MC12), which was due to take place from November 30 to December 3, 2021 in Geneva, Switzerland. Following the discussion, though, the conference has been indefinitely postponed after the discovery of the COVID-19 Omicron variant. Thrasher noted that aspirations for MC12 surfaced the persistent divisions between countries in what they desire from the multilateral trade regime: some countries look to extend rules into areas like investment facilitation and fisheries subsidies, while others look for ways to better align trade rules with the global vaccination drive and developmental recoveries from the pandemic. 

According to Thrasher, this gap in preferences is not new. Developing countries have been focused on making trade more development-friendly for many years, while trade rules in reality have encroached further and further into domestic policymaking. In her book, she explores this trend and concludes that developing countries are often prevented from making and maintaining the policies they need to sustain growth and financial stability. The book argues new trade and investment treaties should take a step back from encroaching on domestic policy space, and instead prioritize narrower and shallower integration. 

Commenting on her findings, Chang commented that the WTO has become “the best friend of lazy governments,” since it’s easy to assume that a vast range of policy tools are illegal under trade rules. This policy chill is a consequence of the expansion of trade policy rules and perceived restrictions and has led to a relative amount of pessimism for implementing interventions. As a consequence, he believes it is vital to uphold the possibility of available policy space, highlighting the importance of Thrasher’s analysis in translating the legal background of trade rules for use by economic policymakers.  

Chang went on to build the connection with his own work, which focuses on collecting historical evidence on how economies have developed, trying to understand perennial economic principles, exploring the contingencies in place and how they have manifested into diverse policies. In his experience, in any success story, there is always a more complex history and set of policies underneath it. But to transform these historical lessons into a concrete policy program, legal knowledge of the specificities of the policy space is needed, which Thrasher’s book provides. 

In their discussion, Thrasher and Chang also considered a wide variety of topics, including asymmetric protectionism, ISDS, capacity inequalities in trade negotiations and the crucial role of South-South solidarity in international negotiations. 

Read the Book