political fragmentation: issue specialization in

PoliticalFragmentation

Robert Gulotty

Motivation

Model ofInfluence Costs

LinkingInvestment withTradeWTO Working Groupon Trade andInvestment

Discussion as Data

AnalysisDiscussions 1997-2004

Conclusion

Political Fragmentation: Issue Specialization inInternational Economic Agreements

Robert Gulotty

Department of Political ScienceStanford University

ERSDWTO

9-12-11


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Practice vs. Theory of Issue Linkage

In theory, joint negotiation of issues (issue linkage) ininternational negotiations facilitates cooperation.

In practice, linkage is the exception rather than the rule, andin some cases actively discouraged (ex. WTO - DSU 23.3;Tomz (2004))

Repeated efforts to link investment obligations to themultilateral trade system have failed (Havana Charter,Kennedy Round, Uruguay Round, OECD-MAI, Doha)


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Linkage: Grand Bargain vs Complexity

Advantages of Linkage in International NegotiationsLinkage allows mutually advantageous cooperation whengains from trade are uneven in one issue area (Keohane andNye (1977), Sebenius (1983), Martin (1995), Davis (2004),Koremenos, Lipson and Snidel (2001)...)

Imperfect Enforcement: Cross-Retaliation can substitute forenforcement in other issues (Bernheim and Whinston (1990),Limão (2005))

(Unmodeled) Costs of ComplexityLinked agreements are more difficult to conclude, may‘unravel’ (Morgan (1990)).


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Bureaucratic Frictions and Issue Fragmentation

Negotiations require agency participation.

Agencies battle for turf, linking negotiations entails tradingoff concessions in one policy space for another.

Frictions between functional agencies is an important sourceof linkage costs.


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Theories of Bureaucratic Conflict

Agency Cooperation for Shared RewardsFormalization of James Q. Wilson (1989): Theory of ‘TurfWars’: Herrera and Ting (2011); Dessein, Garicano, andGertner (2010)

Tradeoff between eliciting information and having to shareprize from success (ex. CIA-FBI)

Cooperation over Regulatory ConstraintsIn IPE context, central tradeoff occurs between agency policyautonomy and national gains from cooperation.


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Influence and its implications for negotiation

A policy oriented Executive seeks expertise to prioritizeissues in a negotiation.

Expertise is centered in agencies that have jurisdiction in anissue area.

International negotiation may constrain these agencies.

Influence Cost: An agency benefits from issue prioritizationand so may spend effort trying to outcompete rival agenciesby providing information (Milgrom and Roberts 1988).


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Executive’s preferences over linkage

Executive decision of whether to link an agency’s issue intonegotiations depends on a tradeoff between the costs ofinfluence and the benefit of the correct prioritization.The Executive will not want to link issues if :

The costs of influence are high relative to the importance ofthe negotiationThe costs to the agency from potential concessions are high,the agency will over-invest in influence.


Robert Gulotty

Motivation



Discussion as Data


Conclusion

When are influence costs highest?

Governments should avoid issue linkage if:

The return for picking the correct priority is low and interestsare balanced across issues.

Agencies are sensitive to negotiated policy constraints,regulatory needs are high relative to benefits available fromnegotiation.


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Incorporating Investment into the MultilateralTrading System

Negotiators have discussed tying Investment rules to tradesince the Havana Charter of the ITO.

Inter-departmental friction over linking investment rules intothe GATS almost prevented the creation of the WTO(Marchetti and Mavroidis 2011).

From 1995-1998, OECD members failed to create aMultilateral Agreement on Investment, in part because ofintra-ministerial incoordination (Henderson 1999).


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Working Group: Discussion not Negotiation

WTO members formed a Working Group to “examine therelationship between trade and investment” (MinisterialDeclaration 1996).

Intended to set stage for negotiations, WGTI had 22 formalmeetings between 1997 and 2003.

55 governments participated, presenting their government’spositions, experiences and research.


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Texts of Discussions as Data

The representative of COSTA RICA described howthe increase in FDI inflows since the early 1990s hadcontributed to an improvement of his country’sbalance-of-payments position.

- WGTI, March 10, 2001.


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Coding Procedure

Randomly divide sample of 1326 "documents."Read and "hand code" 200 documentsSet aside half as "Gold Standard"100 used to create dictionary of negative words.

Code each document using dictionary, and classify thedocuments as either negative or not.

Compare dictionary classified texts with hand coded texts.


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Dictionary of Negative Words

abandon, adverse, afoul, controversial, creep, deprive, desperate,difficult, disappoint, disaster, dismiss, dogmatic, doubt,exacerbate, fail, failure, fear, force, harm, hastily, impose,incorrect, incur, inferior, injury, insurmountable, lacklustre, loss,meaningless, mischaracterize, misconduct, mislead, naive,onerous, oversimplify, prevent, reluctant, unacceptable,undesirable, unjustifiable, victim, victimisation, weak, worries,worsen, wrong


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Example Text Classification

“The representative of EGYPT stated that ... In view of thegrowing power of multinational enterprises relative to nationalgovernments it was difficult to see how an internationalinvestment agreement could attain the objective stated in Japan’scontribution of striking a balance between disciplines andflexibility and between rights and obligations of investors and hostcountries. The loss of policy freedom on the part of host countriesresulting from such an agreement was unlikely to be matched bycommitments on the part of foreign investors for example inrespect of the transfer of technology.”- WGTI, March 10, 2001.


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Dictionary Method Text

“The representative of EGYPT stated that ... In view of thegrowing power of multinational enterprises relative to nationalgovernments it was difficult to see how an international investmentagreement could attain the objective stated in Japan’s contributionof striking a balance between disciplines and flexibility andbetween rights and obligations of investors and host countries.The loss of policy freedom on the part of host countries resultingfrom such an agreement was unlikely to be matched bycommitments on the part of foreign investors for example inrespect of the transfer of technology.”- WGTI, March 10, 2001.


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Dictionary Method Text Challenge

The representative of the UNITED STATES responded that in theexample she had described the absence of investment rules meantthat India’s neighbours could take steps for example imposingvalue added or export performance requirements that woulddeprive India of investment or that forced exports into India’seconomy rather than having an investment taking place in Indiathat would have supplied India’s economy


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Classification Performance

Accuracy = # Correctly labeled# Incorrectly Labeled+ # Correctly Labeled = .86

91% of positive labeled document were positive in handcoding.

65% of negative labeled documents were negative.

Negative documents had lower precision because they wererelatively rare: 20% of the hand coded documents


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Variation over time

1998 1999 2000 2001 2002 2003

0.0

0.2

0.4

0.6

0.8

1.0

Negative Statements over Course of WGTI Meetings

year

Neg

ativ

e S

tate

men

ts (P

erce

nt)


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Overall Member Activity in WGTI

On average each member submitted a total of 30 documentsover the course of the period.

In any given year of negotiation, the average country submitson average 3 documents, with a long tail.

37% of the documents are classified as negative.

Czech RepublicNew ZealandMoroccoSlovak RepublicZambiaEuropean UnionNorwayDominican RepublicPolandTurkeyCubaColombiaJapanEl SalvadorJamaicaSenegalUruguayHungaryIndonesiaVenezuela, RBUnited StatesAustraliaHong Kong SAR, ChinaPeruThailandSingaporeCanadaSwitzerlandArgentinaPakistanChinaKenyaCosta RicaIndiaChileEgypt, Arab Rep.MexicoPhilippinesBrazilMalaysia

0.0 0.1 0.2 0.3 0.4

Average Negativity by Member

Average Percent Negative Statments


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Working Group Contributions And RegulatoryNeeds

The proportion of negative statements during the WorkingGroup meetings may reflect the regulatory needs of the state:

-> The more important foreign investment (FDI) is to theeconomy, the more the state values investment regulation andthe less the executive would be willing to sacrifice regulatoryauthority for gains in the trade issue.

-> The more important foreign market access (Export) is to theeconomy, the more likely governments are to supportlinkage, trading off regulatory authority on investment forgains in market access.


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Negative Statements ∼ Regulatory Needs

OLS EstimatesFDI (% of GDP) 0.02

(0.0001)Export (% of GDP) -3.02

(0.014)ln(GDP) 0.4

(0.009)ln(GDPpc) -0.8

(0.008)# of Contributions 0.02

(0.00)Year 0.0005

(0.0001)Fixed Effects 53 States


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Working Group Contributions by Multiple Agencies

WTO published who attended the meetings of the WGTI.

Six governments sent representatives from both functionalagencies to the WGTI, (COL, JPN, NOR, TUR, USA, VEN).

Those governments that send mixed departmental delegationsshould be less likely to submit negative statements.


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Negative Statements ∼ Delegation Composition

OLS Random Effects ModelMixed Delegation -0.18

(0.001)# of representatives 0.076

(0.055)FDI (% of GDP) 0.017

(0.009)Export (% of GDP) -0.35

(0.603)# of Contributions 0.019

(0.004)Year 0.050

(0.0082)


Robert Gulotty

Motivation



Discussion as Data


Conclusion

Conclusion

Domestic agency coordination may explain organizationalinefficiencies in international negotiations.

A new dataset shows how some of these factors may havelimited international lawmaking in an important area ofconcern: trade and investment.

These frictions may be amenable to intervention at relativelylow cost.

political fragmentation: issue specialization in

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