Republic ofthe Philippines ISABELA STATE UNIVERSITY Cauayan Campus ‘SCHOOL OF ARTS AND SCIENCES Chapter 5: The International Political Economy (IPE) of the Global Environment Introduction Global environmental concems are the one major issue on which nations have to cooperate. Yet nation states are reluctant to commit to institutional and other arrangements that would constrain national policy autonomy, and often prefer to address environmental problems directly. Yet the global environmental agenda is growing constantly, and the politics and science of debates surrounding environmental issues are growing more complex and difficult to manage. This session will look at what some of the issues on the agenda are, how national and international systems prefer to respond, and discuss whether these approaches will solve these problems or not. Learning Outcomes 1. Identify the issues on global environmental agenda. 2. Understand the reasons of nation states for being reluctant to economic cooperation. 3. Determine the approaches of national and international in addressing the issue. 4, Analyze the outcomes of the approaches applied towards the issue. Content Global Environment In the context of political economy, global environment refers to the setting where economic activities and political processes of actors (nation states) have been done thru the concept of globalization. Whereas, the system within this environment possess anarchical type which means there is no central authority to control over the behavior of the actors within the arena. Therefore, governments are very conscious in enforcing agreements, even though they sought possible gains from the agreements. Likely, in the context of trade, nation states are afraid to liberalize their markets for imports because other partner countries may exploit them that deprive the benefits should they gain. As a result, cooperation is stymied; states are worse off than they could be, (Oatley, 2019). Hence, this setting is considered as dangerous Issues on Global Environmental Agenda @ Enforcement problem — refers to the fact that governments cannot be certain that other governments will comply with the trade agreements that they conclude (ConybeareRepublic ofthe Philippines ISABELA STATE UNIVERSITY Cauayan Campus ‘SCHOOL OF ARTS AND SCIENCES 1984; Keohane; 1984; Oye 1986). The statement above is paraphrased by Thomas Oatley, which means the government has the ability to conclude the trade agreements to other countries. Analyst sought this as a problem for the economic cooperation in the global environment that may deprive the opportunity of a government to gain from trades. As a result, even when government sees the benefits of doing 80, they will be hesitant to join into trade deals. Even though it may appear illogical, we can use 4 basic game’ theory model known’ as the prisoner's lemma to demonstrate how the enforcement problem can sabotage governments’ efforts to reach mutuality beneficial trade deals, (Oatley, 2019). The reason of the governments only wanted to open their markets for exportation of their goods and there is no intention to import products with high tariff imposed. Secondly, the In addition, the Figure 3.4 presents the bargaining space between the Group of 20 (represents the developing countries that produces agricultural goods and exports to developed countries) and United States/European Union (represents the industrialized or developed countries that specializes in exporting manufactured goods to developing countries) that indicates the trade bargaining. The The vertical line represents the protection of G-20 and horizontal line is for US/EU's protection to its product. Both lines precisely shows how both actors pursue a bargaining, that the vertical line starts from the bottom which indicates the protection is zero, until it goes up which means protection is increased; while similarly to horizontal line that draws from the vertical line initially starts but the movement of line shall be from left to right that once the line goes right, then it increases the protection. The points indicated for the both actors have been shown and it expressed the ideal trades they want to pursue. For example, the location of point for G-20 is at the northwest quadrant of the bargaining space, in which G-20 wanted an increase to its protection of goods at the same time lower protection to the goods they export, while inversely proportional for US and EU. Moreover, SQ in the figure represents the Status Quo, which means the trades for the both actors are fairly increase in protection.Republic ofthe Philippines ISABELA STATE UNIVERSITY Cauayan Campus ‘SCHOOL OF ARTS AND SCIENCES Group of 20 e sa ~—_______e Unilateral US JEU AgncuRure Lideralgaton G20 Goods Markets (a) ULS/EU Market for Agriculture FIGURE 3.4 : ‘Tariff Bargaining in the Doha Round Approaches of National and International Systems Prisoner's Dilemma European Union Uberalize Protect ut Lp Uberatze 7 1 G20 PL pp Protect e e Preterence Orders 6-20: PL>LL>PP> LP European Union: LP> LL> P.P> PLL FIGURE 3.5 ‘The Prisoner's Dilemma and Trade LiberalizationRepublic ofthe Philippines ISABELA STATE UNIVERSITY Cauayan Campus ‘SCHOOL OF ARTS AND SCIENCES In the Figure 3.5 of Oatley (2019), the nation states and WTO can easily identify the possible of strategies used by the countries involved in trading like the assumption of trades between European (represents the industrialized or developed countries that specializes in exporting manufactured goods to developing countries) and Group of 20 (represents the developing countries that produces agricultural goods and exports to developed countries). The ‘column area is the choices which the European Union shall choose strategy while the row area is the choices for the Group of 20 in trading. In order to understand this concept, Oatley (2019) has shown the four outcomes in using this symmetric game. Liberalize/Liberalize: Both eliminate tariffs, Group of 20 exports agricultural products to the EU, and the EU exports manufactured goods to Group of 20 countries. ] Liberalize/Protect: The Group of 20 eliminates tariffs, but the EU does not. The EU thus exports goods to the Group of 20, but the Group of 20 cannot export farm goods to the EU. Protect/Protect: Both retain their tariffs. No trade takes place. Protect/Liberalize: The EU eliminate tariffs, and the Group of 20 does not. The Group of 20 exports farm goods to the EU, but the EU cannot export manufactured goods to the Group of 20. sa WTO uses this game primary for determining the outcome for future activities and secondary, it was utilize for the application of reciprocity or also known as the ‘titfor-tat’ strategy. The concept of this strategy is simply when one actor acted differently from the agreement in the first round, then the next round, the other actor must act equally from the previous round. For instance, G-20 and EU enforce an agreement that holds the liberalizefiberalize, and G-20 suddenly shifted its decision to protect like from liberalize to protect therefore, their agreement tured to protectliberalize and EU's least gain from trade. Consequently, the next round EU imposed protection on imports goods from G-20 to make the agreement fairly and no actors may improve its position while other actors worse off. Dispute Settlement Mechanism The WTO's unique contribution to global economic stability is dispute settlement, which is the key pillar of the multilateral trading system, he rules-based system would be less effective if there was no way to resolve conflicts since the rules could not be enforced, (WTO, 2021). The Disputes Settlement Mechanism shall formally have bodies namely the WTO Dispute Settlement Body or DSB (consisting of all members of WTO) in order to work for its primary job. DSB has methods applying in different level of disputes between countries, firstly, the consultation for the countries involved and if this unsuccessful, then DSB will create a formal panel to investigate the complaint that the panel is composed of three experts in trade law that selected by the DSB. This settlement mechanism would take 15 months to settle the disputes. The DSB shall conduct first consultation and if failed, then panel is created that served to review the evidence or statement that provides by each actors involved in the dispute. Next, the first hearing shall be conducted, and the second hearing is designed for the rebuttals between theRepublic ofthe Philippines ISABELA STATE UNIVERSITY Cauayan Campus ‘SCHOOL OF ARTS AND SCIENCES states involved. After those procedures, the DSB may consult to the experts for the preparation of first draft, and the panel submits a report about the two sides clearly containing factual statements and does not include findings and conclusions. Followed by an interim report, in which the panel submits this kind of report that includes the findings and conclusion. Subsequently, the review and panel may hold additional meetings for the two sides. Finally, the final report shall be passed to the two sides and all members of the WTO and follow through of the ruling to the disputes. Solving the Issues using the Approaches The governments are responsible for employing decisions in such economic activities like opening markets for exports and imports with the implication of the two strategies namely liberalize and protect. WTO serves as the center of these economic activities in the international arena that used several techniques and approaches to enforce trade agreements among countries for economic cooperation. The strategy of WTO used is prisoner’s dilemma along with the dispute settlement mechanism in order to eradicate disputes between countries. Also, WTO's responsibilty for the economic cooperation among nation states requires collection and dissemination of information about the trade policies towards its members which monitors the ‘economic situation to all of its members, like economic activities and stability. @ Prisoner's Dilemma The utilization of prisoner's dilemma can provide enough and accurate information for the future trades and its outcomes. Thus, both some governments and WTO uses this pattern for the trades, whereas, member countries can use the principle of reciprocity and principle of domestic safeguard as discussed in the previous chapter that reduces any disputes in trading which might happen. While, the WTO can easily determine if the countries involved in trading is, against the WTO rules like cheating in the trading, in which using the dominant strategy or protect without necessarily reasons intended that may deprived other countries in gaining from trades. This symmetric game is significant to all of the countries trading in the international trade in which it relatively affects the promotion of cooperation, in a situation that when governments fully discount future payoffs, the iterated game essentially reverts to a single round of prisoner's dilemma; when this happens, the threat of punishment in the next round of play is unlikely to encourage cooperation in the current world, (Oatley, 2019). Disputes Settlement Mechanism This part of WTO is relevantly needed for the fairly trades in the global environment. Using this mechanism shall eliminate the disputes among the member countries regarding trades. Disputes in trading between two powerful states can dominantly affect other non- involved countries in the present and future trades. Thus, WTO urgently addressed the issue between the countries involved in order to promote economic cooperation for fairly trades that either developed or developing countries gain from. Hence, the governments shall assurance for fairly trades and WTO indicates the promotion of economic cooperation through resolvingRepublic ofthe Philippines ISABELA STATE UNIVERSITY Cauayan Campus ‘SCHOOL OF ARTS AND SCIENCES the disputes. @ Importance of WTO Before knowing the importance of WTO, firstly, must comprehend the concept of trade. There are three core concepts which Thomas Oatley identified namely the Product Possibility Frontier (PPF) or simply the use of factors in production, consumption indifference curves refers to consumer utility, and characteristics of indifference curves or the possibility of consumers’ choice. The World Trade Organization is an international or intergovernmental institution that simply served as center for authority in for economic trading. Thomas Oatley viewed the WTO as: @ WTO helps governments gain the assurances they need in order to conclude trade agreements. @ WTO provides this assurance by allowing governments to monitor the behavior of their trade partners and to enforce agreements they reach. @ WTO enables societies to capture welfare gains the trade provides. Conclusion Global environmental agenda is to gather all the countries and governments for international cooperation, particularly towards economic interest, and dissolve the issues in this agenda. The reason why nation states are reluctant for economic cooperation like enforcing trade agreements, in which there is a dispute that has yet been solved among the countries that it indicates the lack of power center in an anarchical system. So, WTO is a significant example for an institution that would stand at the center among the countries to regulate and address the issues in interational arena. WTO uses the trade bargaining, prisoner's dilemma, and dispute settlement mechanisms to help the countries enforce trade agreements to other governments and provides an assurance to each member countries for fairly trades that they would gain ‘enough and accurate from trading for economic development. Teaching and Learning Activity Activity 5 Write an essay that explains the importance of intergovermental organizations in addressing the issues in global environment. Recommended learning materials and resources for supplementary reading @ Thomas Oatley, International Political Economy: Interest and Institutions in the Global Economy (Pearson/Longman, Sth edition, 2016) @ Thomas Oatley, International Political Economy (Routledge, 6" edition, 2019) References:se ee Republic ofthe Philippines ISABELA STATE UNIVERSITY Cauayan Campus ‘SCHOOL OF ARTS AND SCIENCES John Ravenhill (ed.), Global Political Economy (Oxford, 5th edition, 2016) ‘Thomas Oatley, International Political Economy: Interest and Institutions in the Global Economy (Pearson/Longman, Sth edition, 2016) Thomas Oatley, International Political Economy (Routledge, 6" edition, 2019) World Trade Organization. 2021. Understanding the WTO: Settling Disputes Retrieved from www.wto.org/english/thewto_e/whatis_eltif_e/disp1_ehtm