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Politics of Rulemaking, Orchestration of Standards, and Private Economic Regulations

Periodic Reporting for period 1 - PROSPER (Politics of Rulemaking, Orchestration of Standards, and Private Economic Regulations)

Reporting period: 2019-09-01 to 2021-08-31

In an era when economic populism has been threatening the global trade order, sustaining cooperation in global trade governance is becoming increasingly difficult. From the unilateral protectionist measures adopted by the US administration to the British exit from the European Union (EU), which has fueled the mobilization of domestic isolationist interests, states witness a number of challenges to the promotion and maintenance of a global, rule-based system to govern international commercial relations. Politics of Rule-Making Orchestration of Standards and Private Economic Regulations (PROSPER) aimed to shed light on the conditions under which such challenges can be met and to examine the role of private international actors, i.e. firms, which mobilize politically across global trade networks and influence trade policymaking in the European Union (EU). The overall objective of the project was thus to better understand the role of firms in trade governance. In terms of societal relevance, the project was able to shed light on the strategies of firms, e.g. multinational corporations (MNCs), and the ways in which they politically behave. Such investigation into the nature of firms' behavior is critical to better understand how policymakers can respond to these powerful actors' political mobilization, and also to ensure more (or less) equal interest representation.
The project was conducted under the supervision of Prof. Manfred Elsig at the World Trade Institute of the University of Bern, Switzerland, between 1 September 2019 and 31 December 2021. Original, mixed-method research was conducted over a two-year period with data collection and further examination. The most significant findings of the project can be summarized as follows.

First, the project has shown that firms are central actors in international trade governance. Through my book published thanks in part to the project, I showed that corporations play a critical role in maintaining trade commitments at the World Trade Organization. I demonstrate that firms and their supply chains act as drivers of an open world economy and keep protectionist interest in check under certain conditions. As firms internationalize their production, they have stakes in keeping trade barriers as low as possible. Considering this, I show that indeed global trade disputes are more likely to be resolved in a timely manner when they involve firms highly integrated into the global economy. As part of the book, I also published a publicly available dataset DISCOD (Dispute Settlement Compliance Dataset).

Second, the findings of the project point that multinational corporations (MNCs) dominate global production networks and act as drivers of trade policy making. Through our publication and the special issue that appeared in Business and Politics journal, me and my colleague Dr. Grace Ballor show that MNCs that sit at the centre of the global economy reap the lion’s share of benefits from international trade, shape the ways in which trade policy is conducted, and have significant implications for regulations. By examining the activity of MNCs over time, our collected edition shed light on the convergence and divergence of MNC preferences with those of policymakers both at the global and national levels. Our joint work also speak to the ongoing debates about the merits of global supply chains and the role of globalization in the wake of Covid-19.

Third, the project shows that the spread of global value chains allows firms to develop legal links with enterprises across borders through which they orchestrate political activity or delegate policy goals. The degree of flexibility between MNCs and associated firms determine the model of governance they undertake with corporations in their network. Through my working paper I show that firms engage in such costly coordination either to obtain legal standing in foreign jurisdictions or to cultivate a sort of critical mass that goes after a policy objective.

In order to better disseminate the results of the project, institutional emails and newsletters were utilized to dissemination each output - both at the host institution (World Trade Institute) as well as the European University Institute. Social media - i.e. Twitter - was also used to announce findings from the articles and links of the articles.
A large body work in liberal-institutional political science literature highlights the demands of mobilized domestic groups and their respective power as the primary force that shapes state policy. In the realm of trade, examining the domestic foundations of international cooperation involves incorporating the role of firms in international rule-making and rule-abiding. Yet, even though the importance of domestic sources of support for international trade has been noted, the function of global corporations in influencing international economic policies has received scant attention. PROSPER contributed to this strand of the literature by demonstrating the role of multinational corporations in trade governance, the political activities of firms, and the extent to which gains from trade liberalization are distributed among firms.

The project has broadly contributed to the nascent literature on globalization of production - or the so-called "global value chains" and firm-centric views of trade policy. It highlighted how firms' internationalization incentivizes firms to go after policy objectives and how institutional elements in a country mediate gains and losses from trade opening. Moreover, the interdisciplinary article & special issue that appeared in Business and Politics shed light on multiple dimensions of the relationship of firms to global trade governance. Contributions examine the ability of these powerful economic actors to mobilize politically, counterbalance global regulation, push for trade-liberalizing policies, and strategically organize their operations through GVCs, all to their benefit. While contributing to several streams of research, the collection highlights the need to apply an interdisciplinary perspective to the study of firms and economic governance.

Overall, the societal implications are twofold. First, with regards to the activity of firms, the project has shown that indeed firms are central actors in trade governance and act together with enterprises in their network. This finding indicates that firms not only go after their policy objectives on their own, but also support the mobilization of their corporate family members. In turn, this finding highlights the relative decline of sector associations and the increase in firms' independent political activity. As a result, since particularly resourceful firms are able to carry their political demands to policymakers, interest representation might be skewed in their favor. Second, with regards to the impact of globalization of production on economic governance, my project and the results I have achieved so far show that the largest and most productive firms - i.e. multinationals - dominate the political scene. My results contribute to the literature by showing that firms employ various strategies to achieve their political goals and policymakers face important choices with regards to regulating their access to public policy making.
Trade