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Policy Analysis

Toward Multipurpose Trade Policy? How competing narratives about globalization are reshaping international trade cooperation

A new approach to trade policy is taking shape—multipurpose trade policy. Nicolas Lamp, associate professor at Queen's University, highlights the evidence for this paradigm shift in trade policy, outlines the key challenges that it presents, and explores its implications for international trade cooperation.
By Nicolas Lamp on January 15, 2023

After years of upheaval in international economic relations, a new approach to trade policy is taking shape: multipurpose trade policy. Inspired by competing narratives about globalization that bring different values to the fore, this approach no longer just tries to achieve an efficient international division of labour through trade liberalization. Rather, it tasks trade policy with achieving other substantive policy objectives as well, which include bolstering labour rights, addressing inequality, building resilient supply chains, safeguarding national security, and mitigating the climate crisis.

Trade officials have long been attentive to the effects of trade on other policy objectives, often portraying them as either positive or negative externalities of trade liberalization. On the positive side, increased international interdependence was expected to promote peaceful international relations. Some expected that rising incomes would lead to better working conditions and more support for environmental protection. Others argued that trade produced negative externalities, such as the overexploitation of resources and environmental degradation, and advocated for the expansion of exceptions to trade obligations to resolve conflicts between trade and other objectives. Since the early 1990s, trade agreements have also often featured provisions regarding labour rights and the environment to ensure that greater international competition does not take place on “unfair” terms.

A new approach to trade policy is taking shape: multipurpose trade policy.

The key distinguishing feature of the more recent shift to multipurpose trade policy is that other policy objectives no longer come into the picture as externalities of trade liberalization or as safeguards against unfair competition. Instead, those other policy objectives have taken a place alongside, and in some cases the place of, trade liberalization as the immediate objectives that trade policy is supposed to pursue.

The purpose of this article is to sketch the evidence for this paradigm shift in trade policy, outline the key challenges that it presents, and explore its implications for international trade cooperation.

The Crisis of Globalization

It is now commonplace to observe that globalization is in crisis. One piece of evidence of this crisis is that the establishment view of globalization as an inevitable force for good is increasingly being challenged by other narratives that bring a range of competing values to the fore. From the economic establishment’s perspective, free trade and an efficient international division of labour have the potential to make everyone better off—if governments implement the right policies domestically to help workers adjust to the dislocations that competition in a truly global economy may cause.

The establishment view of globalization as an inevitable force for good is increasingly being challenged by other narratives that bring a range of competing values to the fore.

As Anthea Roberts and I show in our book Six Faces of Globalization, many other narratives are testing this view. There are those who argue that the damage that job losses cause to certain groups of workers outweighs the benefits of cheaper products and additional economic opportunities that globalization may create in other places and for other professions. Another narrative maintains that the investment and intellectual property protections in international economic agreements contribute to rising inequality. There are also rising concerns about the security implications of international economic interdependence; Russia’s invasion of Ukraine is only the latest illustration of why it may be unwise to become overly reliant on a trading partner whom one cannot trust. Yet others point out how the COVID-19 pandemic has exposed the fragility of global supply chains and our economic systems’ lack of resilience to shocks. And finally, the drumbeat of news about floods, droughts, extreme heat, and wildfires provides a daily reminder of how the global diffusion of Western patterns of production and consumption has set the world on a path to climate breakdown.

The Turn to Multipurpose Trade Policy

We can understand the shift to multipurpose trade policy as a response to these narratives. As European Union Director General for Trade Sabine Weyand has written, it is now “normal to ask what trade can do to address the big tests of our time. How can it help combat climate change? How can it promote labour rights globally? How does it impact security?” Weyand notes that “trade is seen as a tool to attain broader objectives more than ever.” Trade policy is increasingly moving away from efficiency as its primary objective. United States Trade Representative Katherine Tai has argued that the pursuit of efficiency has created a “quite fragile global economy” and that “in refashioning globalization to a Globalization 2.0 … we [need to] adapt the rules of trade to incentivize firm behavior to take into account more than just efficiency, but to promote and to reward decisions that are made to pursue sustainability for our people and our planet.” The U.S. initiative for an Indo-Pacific Economic Framework, which the United States is negotiating with 12 countries in the region, foregrounds the objectives of “resilience,” “inclusion,” and “sustainability.” At the same time, ever more aspects of U.S. trade policy are dominated by considerations of national security, especially in its relationship with China.

Multipurpose trade policy also plays an increasingly prominent role in the World Trade Organization (WTO). The Agreement on Fisheries Subsidies is the first WTO agreement that primarily pursues a sustainability objective. In the wake of the global supply chain crisis and rising food and energy prices, food security has taken a much more prominent place on the WTO’s agenda. And the debate about how the WTO can help its members do a better job of weathering the next pandemic is in full swing.

The bottom line is that trade policy is now expected to pursue a much broader range of objectives than even a few years ago.

Not all new objectives enjoy universal support. While some goals, such as sustainability and resilience, are broad enough to garner virtually universal assent, others, such as the use of trade measures to promote labour rights or shore up national security, are more controversial. Even on the widely supported objectives, there is disagreement on how best to achieve them. However, the bottom line is that trade policy is now expected to pursue a much broader range of objectives than even a few years ago.

The Challenges of Multipurpose Trade Policy: The domestic dimension

Given the complexity of the challenges to which multipurpose trade policy is designed to respond, it is not surprising that implementing this policy shift is difficult. Domestically, I see four main challenges:

How to Trade Off Incommensurable Goals?

Trade negotiators have always had to navigate trade-offs—for example, they needed to balance export interests that were looking for trade liberalization against import-competing industries that favoured protection. As politically fraught as these trade-offs were, they were largely seen as running along a single metric: economic gains and losses. In other words, they were commensurable. This commensurability opened up the opportunity to mollify the losers with side payments, such as trade adjustment programs or outright monetary compensation.

Multipurpose trade negotiators face trade-offs of arguably greater complexity. For one, the trade-offs present themselves along multiple axes. How do you find the right balance not just between the economic interests of different domestic constituencies but between economic efficiency, security concerns, climate objectives, and resilience? The calculation is further complicated by the fact that these different objectives are not reducible to a single metric—economists may try to express a security risk or the danger of climate breakdown in economic terms, but their calculations are unlikely to capture fully what is at stake. To a greater extent than their predecessors, multipurpose trade negotiators have to develop frameworks for integrating and balancing radically different and incommensurable goals.

How to Break Down Silos of Expertise?

Weyand has noted that “not so long ago,” trade officials would have considered issues such as climate change, labour rights, and security “outside their competence.” Most trade officials have not suddenly become experts on these issues—which would not be a problem if they could draw on the expertise on these matters that resides in other parts of their governments. The challenge is to make this expertise accessible to trade negotiators—or to bring trade expertise to those parts of the government that are increasingly making decisions with profound trade implications. Some governments are better than others at forging links among their departments. However, this is not the only obstacle to an effective transfer of expertise: different disciplinary backgrounds, institutional cultures, and habits of mind also complicate the development of an integrated understanding of the policy challenges that trade officials are increasingly tasked to tackle.

How to Identify the Right Instrument?

Are import bans the best way to tackle forced labour in supply chains? Are rules of origin a useful tool to reshape supply chains in ways that will result in higher wages and less carbon—or do the administrative burdens outweigh any conceivable benefits? The temptation to adapt familiar tools of trade policy to tackle the new policy problems is great, and trade negotiators have shown great creativity in developing schemes designed to halt illegal logging in the Amazon or promote the formation of independent unions in Vietnam. The question is whether trade policy tools are the most effective, efficient, and legitimate instrument for achieving the objectives in question.

Who Decides?

Another challenge concerns the allocation of decision-making authority. If the ambit of trade policy increasingly overlaps with the competence of other policy areas, who should be in the driver’s seat—and how can governments make sure that whoever is in the driver’s seat is sufficiently attentive to the perspectives and concerns of other government departments? In some contexts, implementing multipurpose trade policy may also require legal reforms to allow decision-makers to take into account a broader range of policy concerns: trade remedy systems are one area where the current rules are not designed to accommodate the broad range of objectives that trade policy is now pursuing.

The Challenges of Multipurpose Trade Policy: The international dimension

What does the turn to multipurpose trade policy mean for the prospect of cooperation and conflict in the international trade relations?

From Rules to Tools? The complicated relationship of multipurpose trade policy to international trade law

When trade policy was mostly about pushing liberalization ever further, it made most sense to pursue that policy through international negotiations, preferably in a multilateral format. While there is a strong economic case for unilateral liberalization, the benefits of liberalization could be maximized by bringing others along. There was thus a strong alignment between the goals of trade policy and the construction of multilateral trade rules.

On many subjects on the multipurpose trade policy agenda, a multilateral approach would still be the optimal solution, especially in areas that present collective action problems. However, WTO members that are at the forefront of the multipurpose trade agenda have also shown a greater willingness to pursue unilateral or minilateral approaches in areas where multilateral action seems a long way off—which is virtually all of them, with the notable exception of fisheries subsidies and other environmental initiatives in the WTO. In addition, states increasingly seem to be adopting a “whatever it takes” approach to policy problems, with the result that questions of legal compliance come to be seen as secondary.

The result is that multipurpose trade policy regularly bumps up against existing rules. This has long been apparent in the climate area, where domestic content requirements have been a common feature of subsidy programs. These were regularly attacked as contrary to WTO rules and were, in many cases, subsequently removed. However, the tide seems to be turning against letting WTO rules trump what are perceived as political economy imperatives for marrying climate action with industrial policy. Even the European Union’s mild-mannered criticism of the Inflation Reduction Act was criticized as “losing the plot”—that is, not recognizing that times have changed.

States increasingly seem to be adopting a “whatever it takes” approach to policy problems.

This is perhaps most apparent in the case of the United States, in which the turn to multipurpose trade policy has coincided with a broader shift from the international to the national level as a site to make trade policy. But even staunch defenders of multilateralism such as the European Union appear willing to tolerate a greater degree of legal friction where doing so seems necessary to pursue objectives such as climate mitigation more decisively, as for example in the implementation of the Carbon Border Adjustment Mechanism, which poses a host of legal conundrums. At the same time, developing countries, including Indonesia and India, have been using the space created by the intensifying security competition between the West and China to pursue their own objectives, often in a way that is in tension with WTO law. Overall, it seems safe to say that international trade law will play a less central role in shaping trade policy than it did in the past.

Is Everyone on Board? Multipurpose trade policy and the developed/developing country divide

So far, the shift to multipurpose trade policy has been most notable in major developed countries, particularly the United States and the European Union. Developing countries have long been skeptical of some of the objectives that developed countries have been pursuing under the banner of multipurpose trade policy, especially the improvement of labour standards, and this skepticism shows no sign of abating. Developing countries may also worry that the new objectives are just a pretext for not engaging in further liberalization or even rolling back the existing level of trade opening—U.S. steel and aluminum tariffs purportedly adopted on security grounds and some EU actions on climate provide examples.

At the same time, developing countries could note that they have always said that trade cooperation should not be primarily about liberalization, but rather about other objectives, such as development or food security. From this angle, the shift to multipurpose trade policy in developed countries represents a conversion to the perspective that many developing countries have long held. Of course, developed and developing countries will not necessarily agree on the new objectives that should take priority: food security makes no appearance in most announcements of the new trade policy approach by developed countries, for example. Other objectives that may be of interest to developing countries, such as facilitating the movement of people and technology transfer, are also noticeably absent.

What Role for the WTO?

Multipurpose trade policy is institutionally highly fragmented. Much of it is implemented through domestic instruments that are sometimes more or less loosely coordinated with allies. A wide variety of international organizations play a role in the space, from the World Food Programme’s efforts to ensure food security to the World Health Organization’s work on pandemic resilience. What role remains for the WTO?

The potential role of the WTO varies greatly from subject to subject. The greatest scope for the WTO is on sustainability objectives, where there might even be some potential for the WTO’s traditional specialty—formal lawmaking. In other areas, such as pandemic preparedness and response, the WTO would ideally be a forum for policy coordination. In yet other areas, such as security measures, the best we can hope for may be that it will serve a monitoring function and as a forum for debate. In yet others, such as on labour rights, it is unlikely that the WTO will play a role in the foreseeable future. WTO members will need to carve out a role for the organization that varies depending on the scope for multilateral cooperation that each subject provides.

Conclusion: The promise and pitfalls of multipurpose trade policy

Multipurpose trade policy is a response to a (perceived) policy failure, namely, the pursuit of a more efficient international division of labour at the expense of other important policy objectives. A clear benefit of the shift to multipurpose trade policy is that it brings the trade-offs between different policy objectives into the open and constantly forces trade officials to ask what international trade law and the trade regime are for. However, the shift also presents momentous challenges that we are only beginning to understand.

Nicolas Lamp is an Associate Professor at the Faculty of Law of Queen’s University in Ontario, Canada.