How Can International Institutions Help Overcome Obstacles to International Cooperation in the Global Economy?

How can international institutions help overcome obstacles to international cooperation in the global economy?

There is considerable debate as to whether international institutions can help overcome obstacles to international co-operation in the global economy. There is no agreed definition on what constitutes ‘institutions’. While North (1989, p.6) uses the term ‘institutions’ to refer to ‘rules, enforcement characteristics of rules, and norms of behaviour that structure repeated human interaction’, Bull (1977, p.74) points to specific elements such as ‘the balance of power, international law, the diplomatic mechanism, the managerial system of the great powers’ to define what constitutes ‘the institutions of international society’. Evidently the definition can be broad; therefore, this essay will interpret ‘international institutions’ as organisations that exist between states, such as the United Nations (UN), European Union (EU) and trade bodies such as the North American Free Trade Agreement (NAFTA). According to Keohane (1984, p.67) cooperation occurs ‘when actors adjust their behaviour to the actual or anticipated preferences of others, through a process of policy coordination’. This essay will analyse how obstacles to international cooperation still hinder collaboration, even within international institutions in the global economy, by drawing upon realism to firstly analyse the premises of relative gains and secondly, tough bargaining positions. The ways in which international institutions can help overcome obstacles to international cooperation in the global economy will then be studied, which is an argument that is primarily framed within liberal institutionalism. On this side of the argument I will first analyse the effects of long term cooperation, secondly, how rules foster compliance and finally how international institutions are sources of information. This essay will conclude that international institutions help overcome obstacles to international cooperation by providing transparent, rule-abiding environments which enables states to co-operation in a reliable manner overcoming concerns of relative gains.

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Realists believe that cooperation is difficult to achieve, especially effective cooperation. Waltz (1986, p.336) maintains that self-help systems “make the cooperation of parties difficult…. Rules, institutions, and patterns of cooperation … are all limited in extent and modified from what they might otherwise be”, while Grieco (1990, p.27) provides a summary stating that “realism presents a fundamentally pessimistic analysis of the prospects for international cooperation.”

A problem that realists such as Mearsheimer (1994) cite when discussing cooperation is relative gains and the idea that the international system is a politico-economic arena where states seek opportunities to take advantage of each other. A lack of transparency makes it difficult for one state to predict another’s behaviour and so relationships are characterised by distrust (Glaser, 1994, p.79). Offensive realism holds that states strive to be the most powerful actor in the international system and to ensure that no other state achieves a better position than its own because there is always a chance of war (Mearsheimer, 1994, p.9). Concern with the balance of power means that states are motivated primarily by relative gains when considering cooperation (Mearsheimer, 1994, p.9). For example, NAFTA has been re-negotiated and is now called the United States-Mexico-Canada Agreement because of President Trump’s concerns with relative gains; he wanted to lower the trade deficit between the US and Mexico and repatriate jobs to the United States (Villarreal and Fergusson, 2017, p.1). Even mutually beneficial cooperation will be rejected if other actors are likely to benefit more than they are themselves (Grieco, 1988, p.602). For example, despite the UN having been established in 1945, which according to liberal institutionalists would have fostered honesty, an arms race based on relative gains was pursued by the USA and Soviet Union for four decades as the two sought advantage over one and other (Keohane, 1998, p.90). However, whilst the relative gains argument highlights the difficulties of bilateral cooperation, it does not undermine prospects for cooperation in general (Snidal, 1991, p.702). In an international system with more than two actors, there are incentives for cooperation as two or more actors may cooperate to obtain relative gains over others (Ibid). Therefore, although realists have a strong argument in respect of bilateral relationships, it is not sufficient to use within a multipolar scenario such as the relationships between members of an international institution. Thus, international institutions can help overcome obstacles to international cooperation in the global economy. 

The second problem which realists highlight in the context of cooperation is that of tough bargaining. Although cooperation could lead to gains for the states involved, there is no assurance that solutions will be reached because of the tough bargaining positions adopted by some states (Fearon, 1998, p.283). States and their political leaders pursue tactics and hold information concerning others’ actions and interests, that will not necessarily lead to cooperation (Keohane, 1998, p.89). Therefore, if states take rigid bargaining positions, a compromise will be increasingly unlikely. The Kyoto Protocol, which is part of the United Nations Framework Convention on Climate Change (Ibid, p.88), is an example of this behaviour. While developing countries resisted binding limits on their emissions due to the belief that the already-developed countries are primarily responsible for the current levels of greenhouse gas pollution, the US Senate declared its aversion to ratifying any agreement not containing such guarantees by developing countries because of the potential negative consequences it would have on its economy (Ibid). Therefore, the problem of tough bargaining positions is a hindrance to international cooperation in the global economy even in international institutions because states have their own agendas that they wish to pursue (Fearon, 1998, p.283). Similarly, it is difficult to reach agreements when the environment is characterised by uncertainty; states are unable to predict how other parties to an agreement will interpret the terms of such agreements if conditions, whether they be internal or external, change (Ibid, p.86).

Liberal institutionalists such as Keohane and Nye (1985) challenge this negative view of cooperation within institutions, arguing that international institutions can change state behaviour and discourage states from acting solely on the basis of power maximization (Keohane, 1998, p.84).Whereas realists cite their concern with uncertainty in international institutions, it can be seen that institutions can reduce ambiguity in the actions of states by advocating transparent negotiations and providing a forum for the discussion of issues under similar rules over a long period of time (Ibid, p.94). This process fosters honesty since states will typically wish to develop a positive reputation within the international community; having a reputation for honesty in diplomacy creates the ability to resolve potential future disagreements using soft power instead of hard power (Ibid). For example, the positive effects of transparency are evident, with NAFTA quadrupling trade between the three members between 1993 to 2011 to reach $1 trillion (Villarreal and Fergusson, 2017, p.11). Monitoring states’ behaviour to ensure adherence is another way in which international institutions can reduce the obstacle of uncertainty in international cooperation (Keohane, 1998, p.94). For example, economic sanctions placed on Iran in 2006 after it was found developing weapons of mass destruction, forced the state to the negotiating table (Schott, 2012, p.190). As part of the agreement to lift sanctions, Iran agreed to be monitored to ensure its compliance to its side of the agreement (Ibid). Therefore, international institutions can help overcome obstacles to international cooperation in the global economy by promoting transparent negotiations encouraging honesty and the incentive for greater co-operation.

International institutions can also help overcome obstacles to international cooperation by facilitating compliance with rules and procedures. While realists point out problems of cheating and tough bargaining positions, the benefit of rules in trying to achieve compromises is disregarded. This can be the case even as states attempt to maximize their own position (Keohane, 1998, p.86). Rules within institutions encourage states to make compromises due to the shadow of the future; these compromises are necessary to solve the prisoner’s dilemma and thus recognise long term gains (Axelrod and Keohane, 1985, p.233). For example, the EU facilitates the free movement of goods between 28 national markets, comprising over 500 million consumers and 21 million businesses (Lelieveldt and Princen, 2015, p.23, p.189). When a member state does not obey an international institution’s rules, the institution can act as a vehicle of enforcement (Fearon, 1998, p.274). For example, in 2002, the government of the United States imposed a 30% tariff on steel imports, defending the tariff as a necessary safeguard against an import surge (Kono, 2007, p.764). The exporter states declared that the tariffs were a gross violation of the rules of the World Trade Organisation (WTO). The dispute settlement procedure within the WTO, designed to ensure compliance by the 164 states within the WTO, ruled the tariffs illegal, and China, the European Union and Japan stated their intent to levy retaliatory sanctions if the US did not abide by the ruling (Ibid). Consequently, the US dropped the tariffs one month after the ruling (Ibid). This illustrates the cost of non-compliance, and how ‘complying governments’ can use ‘sticks’ from the carrot and stick theory, sending signals to the market; the WTO has played a significant facilitating role, coordinating enforcement, something that would not necessarily have occurred if the international organisation did not exist (Ibid). However, it is important not to overstate the effectiveness of the dispute mechanism within the WTO and thus the liberal institutionalist case; 174 cases out of the 575 disputes that have been brought to the WTO remain ‘in consultation’ (World Trade Organisation, 2018). Disputes that were brought to the WTO in 1995 still have not been solved (Ibid). The EU also has a supervisory role, ensuring members abide by the regulation that nominal budget deficits must not exceed 3 per cent of economic output (Pelagidis, 2003, p.97). Italy is the latest country to have been threatened with sanctions for proposing to breach EU rules, however, a compromised was eventually reached (Blanchard and Zettelmeyer, 2018, p.1). This demonstrates that international institutions can help overcome obstacles to international cooperation in the global economy by bringing states that violate rules to account.

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International institutions also help overcome obstacles to international cooperation in the global economy by acting as a source of information for governments, thus creating incentives for states to co-operate. Whereas realists argue that states are concerned with relative gains, it can be seen that the concerns diminish with a transparent forum in which states can interact (Bradford and Linn, 2007, p.3). Information, especially on transnational issues, such as diseases, telecommunication frequencies and air and sea pollution, is desirable for all nations because it is a prerequisite for effective action, making a state’s desire to join an international institution stronger (Keohane, 1988, p.86). Furthermore, as states are likely to encounter disagreement over these issues, international institutions provide the necessary forums for neutral and depoliticized negotiations in a structured way (Bradford and Linn, 2007, p.3). Shared intelligence on security has proved pivotal in the past, for example, a UN initiative created in 1991 to inhibit Iraq’s potential use of nuclear, chemical and biological weapons uncovered evidence of wrong-doing and took steps to ensure the elimination of Iraq’s ability to create these weapons and thus proved successful (Scharf, Knox, Potter and Sund, 2000, p.782). This is an example of international institutions helping remove threats to the global economy by providing a channel through which mutually beneficial information can be shared.

In conclusion, international institutions help overcome obstacles to international cooperation in the global economy by providing transparent fora in which states can discuss issues, and establish rules that states feel compelled to adhere to by acting as a source of information. This is evident in international institutions that are successful in today’s global economy, for example the WTO and the EU. However, it would be naïve to assume that all of the obstacles can be overcome by international institutions; the arguments within realism concerning relative gains and tough bargaining stances do have ground as they still hinder cooperation. The issue of whether international institutions can help will remain a topical issue as US President Trump is concerned with a zero-sum game and thus adopts a more isolationist and protectionist approach. His preference for relative over absolute gains within the global economy for the USA is based on his belief that the USA has lost out to other states in the international system.

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