MIAMI UNIVERSITY The Graduate School. Certificate for Approving the Dissertation

Transcription

1 MIAMI UNIVERSITY The Graduate School Certificate for Approving the Dissertation We hereby approve the Dissertation of Abdullah Yuvaci Candidate for the Degree: Doctor of Philosophy Director (Dr. John M. Rothgeb, Jr.) Reader (Dr. Abdoulaye Saine) Reader (Dr. Ryan J. Barilleaux) Graduate School Representative (Dr. Sheldon Anderson)

2 ABSTRACT INTERNATIONAL POLITICS, SPECIAL INTERESTS AND FOREIGN TRADE POLICY: A STUDY OF TURKISH-AMERICAN TEXTILE TRADE RELATIONS by Abdullah Yuvaci This project makes an attempt to analyze under what conditions and to what extent international political considerations influence trade policy, especially when a powerful special interest group is involved in the process. Trade incentive as a foreign policy instrument has been neglected in the economic statecraft literature. In addition, the literature ignores how trade incentives are used against strategically important countries to gain their immediate political cooperation and whether special interest groups in the sender state are able to influence the process. It is argued that textile trade policy-making can be examined to understand the relative influence of America s international political considerations and its domestic politics because a powerful import-competing textile lobby fights to gain protection while political allies and strategically important countries pressure the United States to gain a privileged access to its market. To analyze the relative importance of international and domestic influences on foreign trade policy-making, the study examines the evolution of American-Turkish political and textile trade relations through primary documents research and interviews. This study suggests that the U.S. textile industry was effective in large part in protecting its economic interests against a politically important country. This was even the case in the immediate aftermath of the September 11 terrorist attacks that significantly increased Turkey s political importance. However, the U.S. textile industry was especially powerful in 2002 because it gained a unique access to U.S. policy-making when the textile state

3 representatives support for the passage of the 2002 Trade Promotion Authority legislation became crucially important for the U.S. administration. However, the textile industry s influence over foreign trade decisions was cut off when the Bush administration was successfully able to present Iraq as a national security threat to the United States, which shifted policy-making power from Congress to the administration. Thus, the U.S. administration was able to offer textiles as a short-term trade incentive to gain Turkey s military cooperation against Iraq. In short, the study produces evidence that trade is political and an understanding of both international and domestic politics is central to the study of international trade.

4 INTERNATIONAL POLITICS, SPECIAL INTERESTS AND FOREIGN TRADE POLICY: A STUDY OF TURKISH-AMERICAN TEXTILE TRADE RELATIONS A DISSERTATION Submitted to the Faculty of Miami University in partial fulfillment of the requirements for the degree of Doctor of Philosophy Department of Political Science by Abdullah Yuvaci Miami University Oxford, Ohio 2010 Dissertation Director: Dr. John M. Rothgeb, Jr.

5 Abdullah Yuvaci 2010

6 TABLE OF CONTENTS LIST OF TABLES.vi DEDICATION..vii ACKNOWLEDGEMENTS...viii CHAPTER 1: INTRODUCTION 1 CHAPTER INTRODUCTION...1 THE LITERATURE REVIEW...2 The Economic Statecraft Literature.2 The Alliance-Trade Relations as a Long-Term Engagement...7 The Interaction of Domestic and International Politics and Foreign Trade Policy CASES AND METHODOLOGY RESEARCH QUESTIONS AND ARGUMENTS CHAPTER CONCLUSION CHAPTER 2: AMERICAN-TURKISH ALLIANCE RELATIONS..26 CHAPTER INTRODUCTION A BRIEF OVERVIEW OF THE AMERICAN-TURKISH POLITICAL RELATIONS DURING THE COLD WAR. 27 AMERICAN-TURKISH POLITICAL RELATIONS THE POST-SEPTEMBER 11 PERIOD. 43 CHAPTER CONCLUSION.. 52 CHAPTER 3: THE U.S. TEXTILE COMPLEX AND THE EVOLUTION OF THE U.S.-TURKISH TEXTILE TRADE RELATIONS..56 iii

7 CHAPTER INTRODUCTION THE U.S. TEXTILE INDUSTRY AND POLICY-MAKING THE WORLD TEXTILE TRADE SYSTEM AND U.S. TEXTILE TRADE POLICY THE TURKISH TEXTILE INDUSTRY AND THE TURKISH- AMERICAN TEXTILE TRADE RELATIONS...71 A Brief Overview of the Turkish Textile Industry. 72 Turkish-American Textile Trade Relations CHAPTER CONCLUSION CHAPTER 4: INTERNATIONAL POLITICS, SPECIAL INTERESTS AND U.S. TEXTILE TRADE POLICY: THE QIZ TALKS.87 CHAPTER INTRODUCTION THE TURKISH QUALIFYING INDUSTRIAL ZONES TALKS. 90 CHAPTER CONCLUSION CHAPTER 5: INTERVIEW RESULTS CHAPTER INTRODUCTION THE INTERVIEW EVIDENCE Turkey s Political Significance to the United States 117 Political alliance, Special Interest Groups and Textile Trade Policy. 120 Political Alliance, Special Interest Groups and Short-Term Trade Incentives Political Alliance and Economic Relations..127 CHAPTER CONCLUSION CHAPTER 6: CONCLUSIONS iv

8 REFERENCES..139 APPENDIX: INTERVIEW QUESTIONS v

9 LIST OF TABLES TABLE 2.1. Main U.S.-Turkish Bilateral Agreements and Initiatives TABLE The Phaseout Plan of Textile Quotas for WTO Members According to the Agreement on Textiles and Clothing TABLE Turkey's World Export and Import Profile in Textile and Apparel Trade, TABLE 3.3. Turkish Textile and Apparel Exports to the United States, TABLE 3.4. Governmental and Nongovernmental U.S.-American Trade/Business Organizations 79 TABLE 3.5. Turkey s 2001 Textile and Apparel Quotas in Selected Categories in Comparative Perspective.83 TABLE U.S. Tariff Collections on Turkish Imports vi

10 DEDICATION To my father ( ) vii

11 ACKNOWLEDGEMENTS There are a number of people that I would like thank for helping me complete this dissertation project. First, I would like to thank my dissertation director, Dr. John M. Rothgeb, for his guidance and offering excellent constructive criticism. I would also like to express my deepest gratitude to Dr. Abdoulaye Saine, Dr. Ryan J. Barilleaux, and Dr. Sheldon Anderson for participating as members of my dissertation committee. I would also like to thank my dear friends in Danville, Kentucky, Roz and Herm Heise, for their proofreading assistance. I would also like to recognize those who participated in the interviews. Lastly, but certainly not least, I want to thank my wife, Neslihan, and my children, Mehmet Erdem and Ekrem Tugra, for their understanding and love. This research project would not have been possible without their support. viii

12 CHAPTER 1 INTRODUCTION CHAPTER INTRODUCTION Are political alliances important factors influencing governmental decisions when it comes to trade policy-making? When do states grant trade inducements to strategically important countries to secure their political cooperation? To what extent do international political considerations drive trade policy, especially when such considerations are in conflict with domestic economic interests? When and to what extent do strategically important countries receive economic concessions from a great power? These are some questions that remain largely unanswered in the international political economy literature. To help fill this gap in the literature, this study examines the degree to which international political relations and special interest groups shape U.S. textile trade policy-making. To analyze the relative importance of international and domestic influences on foreign trade policy-making, the study focuses on the evolution of American-Turkish political and textile trade relations. This chapter serves as an introduction to the study. It first reviews the relevant literature on international politics and trade policy. After the literature review, it presents research methods and questions. Chapter 2 is designed to illustrate the political importance of Turkey to the United States and the development of U.S.-Turkey political relations. Chapter 3 provides information about the U.S. textile industry and the evolution 1

13 of US textile trade policy. Chapter 3 also reviews U.S.-Turkey textile trade relations. Chapter 4 is devoted to the detailed examination of the Turkish-American qualifying industrial zones (QIZs) talks that centered on textiles and apparel trade. Chapter 5 concludes the study by summarizing the research and discussing its findings and theoretical implications. THE LITERATURE REVIEW Are international political considerations important factors influencing trade relations? Although liberal economists suggest that international trade should be free from international and domestic political pressures in order for nations to realize economic and social benefits to the greatest extent, states often intervene in the process and manipulate their bilateral trade relations to accomplish their political goals. States are politically motivated and have policy tools - such as economic sanctions, antidumping investigations, and bilateral trade agreements that regulate tariff and nontariff barriers - that they use to manage how their and foreign firms exchange goods and services. Scholars have made attempts to understand this interaction of trade and politics. For example, the hegemonic stability literature claims that global trade flourishes when a hegemonic power provides collective goods like an open international trading system at the international level. However, the hegemonic stability theory proves to be less useful in understanding the politics of bilateral trade relations (Gowa 1994, 11). Instead, a big portion of the literature analyzing the degree to which international politics influences bilateral economic relations is found in the economic statecraft and the alliance-trade literature. The Economic Statecraft Literature Economic statecraft is the use of foreign economic policies (e.g., embargoes, boycotts, foreign aids, sanctions, preferential trade arrangements, technology transfers, etc.) to accomplish political goals. One can roughly divide the economic statecraft literature into two groups of works: economic sanctions and economic incentives. Economic sanctions is the most widely explored subject in the economic statecraft 2

14 literature, and they are a clear illustration of how politics influences trade. In an economic sanction a state, called sender, uses its economic relationship (e.g., trade) to impose its political demands on a target state, which may also be called receiver. Thus, the underlying premise is that trade policies are put in the service of statist political objectives. A significant portion of the literature on economic sanctions studies whether they are effective in achieving their policy objectives. Many of these studies conclude that economic sanctions are largely ineffective in accomplishing their intended political goals (for examples, see Pape 1997 and 1998), yet others suggest economic sanctions are effective under specific conditions (for example, see Hovi, Huseby and Strinz 2005). In their review of the literature on economic sanctions, Grieco and Ikenberry (2003, ) state that one may view economic sanctions as effective when considering the fact that they may be the only reasonable policy option for states to implement among the alternative policies that include war. Moreover, the authors argue that economic sanctions may weaken target countries economically, militarily and politically; and, send signals to international and domestic constituencies about acceptable and unacceptable behaviors. Overall, the economic sanctions literature assumes that political considerations drive economic relations and therefore finds its place within the realist research paradigm that emphasizes the supremacy of international political considerations over economic relations. The economic sanctions literature shows how states use trade policies to achieve their political goals, but in addition to ignoring domestic political influences, it only focuses on extreme political cases that tell little about trade policy-making towards strategically important countries and the nature of trade policy interactions between political allies. An economic incentive may be defined as the provision or promise of economic benefits to induce changes in the behavior of a target state (Mastanduno 1999, 304). Scholars distinguish two types of economic incentives: long-term engagement and short-term (immediate) economic incentives (Mastanduno 1999). A sender state may provide relatively long term economic inducements to a strategically important target country or military ally to deepen bilateral economic and political relationships. A longterm engagement is usually unconditional, meaning that the sender state tends not to 3

15 increase or decrease economic benefits in the short-run according to changes in target behavior (Mastanduno 1999, 306). American economic inducements to Japan following the Second World War and the Marshall Aid program to Europe can be given as examples. Immediate economic incentives, on the other hand, are designed to bring about changes in the target state s foreign or domestic policy in the short-term. The most important difference between short-term and long-term economic inducements is that economic benefits in short-term incentives tend to be conditional: In return for the economic benefits, the sender expects to gain clearly defined immediate political concessions from the receiver state (Drezner 1999, 189). This study is designed to make a contribution to the economic incentives literature by analyzing long- and short-term trade incentives. Unlike economic sanctions, economic incentives in general and trade incentives in particular remain largely unexplored in the international political economy scholarship. In fact, there are only a few studies that analyze trade incentives as a foreign policy instrument (Blanchard, Mansfield and Ripsman 1999, 4). Moreover, under the influence of the economic sanctions literature that was briefly reviewed earlier, the existing studies on trade incentives tend to examine under what conditions they are effective in achieving their political goals. In other words, the trade incentives literature studies the receiver side of the relationship. For example, scholars argue that trade incentives work when they are able to alter the receiver s domestic political environment. If powerful domestic pressure groups in the receiver state benefit from the trade inducements proffered by the sender state, they put strong pressure on their government to give the demanded political concessions to the sender to secure the promised trade concessions (Long 1996; Blanchard and Ripsman 2008, 372). In short, scholars argue that trade incentives provide an economic stake for the receiver country to cooperate with the sender politically. Drezner (1999) also studies the use of economic incentives and argues that economic incentives tend to be less frequently utilized by states when compared to economic sanctions. This is in large part because of the fact that although states may agree on a deal, there is always the possibility for states not to honor their agreements after payment has been delivered (Drezner 1999, 193). In other words, in an anarchic world, one state may always cheat and not give the political/economic 4

16 concession that it promised once it receives its payment. Thus, Drezner argues that economic incentives work better between democratic dyads because transparency, limited power of the executive branch, and public pressure in democracies make cheating more difficult. However, the economic incentives literature, while studying domestic political environment in the receiver state, ignores how domestic politics in the sender state influences the process. In addition, strategic importance of the receiver state to the sender has yet to be taken into account by the international political economy scholarship when analyzing economic incentives. Thus, this paper aims to help fill this gap in the literature by arguing that domestic politics within the sender state may complicate the use of trade incentives even against strategically important countries. However, it should be noted in advance that states utilize multiple economic tools to advance their political and strategic goals. For example, Schraeder, Hook, and Taylor (1998) analyze how countries foreign aid policies are influenced by their national interest calculations. The authors quantitatively study American, Japanese, French, and Swedish aid programs to 38 African countries from 1980 to 1989 and find that each country is driven by a different national interest motivation in its aid program, depending on its geo-political and economic interests, its position in the international system, and its historical development and capabilities. Sweden is driven by its middle power status and regional interests; the U.S. is driven by its hegemonic status and geo-strategic and ideological interests; Japan, being under the military security protection of the United States, is largely driven by sheer economic interests; and, France is driven by its neo-colonial and geo-strategic interests in Africa. Thus, the authors suggest that detailed scrutiny of the individual cases is required to gain a better understanding of how countries employ their economic programs to enhance their national security concerns (319). Besides foreign aid decisions, IMF lending policies have also been analyzed by scholars, especially to understand whether US allies are more likely than non-u.s. allies to receive IMF support. For example, Thacker (1999) examines the IMF lending decisions from 1985 to 1994 to 87 developing countries and tries to understand whether American allies ( political alignment variable) and countries moving toward the United 5

17 States on international political issues ( political movement variable) are more likely to receive IMF lending. The political alignment and political movement variables are measured through developing country voting records in the United Nations General Assembly on strategically important issues for the United States. By conducting two separate tests for the and periods, Thacker finds the political movement variable statistically significant but the political alignment variable not significant for the Cold War period ( ), and both the political movement and political alignment variables statistically significant for the post-cold War period (1990-4). The study reveals that (Thacker 1999, 69): the end of the cold war has been associated with the increasing politicization of the IMF by the U.S. There is evidence that the U.S. has been willing to reward friends and punish enemies only since During the cold war (at least in its last few years), unless they were moving closer to the U.S. politically, allies of the U.S. had no greater chance than its adversaries of receiving assistance from the Fund. Only in the post-cold war period have these countries been able to cash in on their political allegiance. In addition to providing evidence that the end of the Cold War is not associated with a decrease in the usage of economic policy as a foreign policy instrument, Thacker s study also tests whether strategic importance of a developing country matters in its loan receiving (1999, 65-6). Thacker measures a country s strategic importance to the United States by its commercial energy production and finds no statistical significance between strategic importance to the United States and receiving IMF assistance. However, Thacker s definition of strategic importance is highly limited. Moreover, it is also possible that countries with high commercial energy production may be less financially troubled and for that reason less in need of IMF assistance. It should also be noted that among various economic incentives such as IMF lending, foreign aid and trace incentives, one may argue that trade incentive is one of the most contentious foreign policy tools that states use in their foreign relations. This is in large part because trade issues cannot be easily isolated from domestic politics where special interest groups, such as import-competing industries like the textile industry in the United States, constantly try to shape foreign trade policy-making to advance their own 6

18 narrow economic goals. In other words, in most trade issues state policymakers often find themselves caught between international political considerations and domestic pressures. Thus, this study is based on the premise that one should focus on trade relations to gain a better understanding of the interaction of domestic and international political considerations. In short, the economic statecraft literature examines how states use a variety of economic instruments, such as economic sanctions or incentives, to achieve their political goals. The economic statecraft literature in large part focuses on economic sanctions, but ignores how states utilize trade incentives to secure the political cooperation of a strategically important country. In addition, the existing few studies on trade incentives analyze under what conditions trade concessions accomplish their purposes, but pay no attention to special interest groups in the sender state which may influence the process. In addition, under what conditions states provide trade incentives to strategically important countries has yet to be fully explored in the economic statecraft literature. The Alliance-Trade Relations as a Long-Term Engagement When compared to the short-term trade incentives literature, the alliance-trade literature is significantly more extensive. The alliance-trade literature tends to be quantitatively-oriented and analyzes how political alliance (defined in most studies as formal military agreements between states) influences trade relations. Thus, one may view the alliance-trade relationship as a form of long-term economic engagement and it is therefore possible to analyze it within the economic incentives literature. However, because of the relatively large number of studies specifically examining the alliance-trade relationship, this section of the Chapter will review it separately from the economic incentives literature. In a very influential and oft-cited work, Gowa (1994) provides a theoretical framework that explains why political-military alliances may generate trade. Gowa argues that states use their economic relations to enhance their military-security capabilities. Accordingly, trade produces security externalities, which means that increasing trade is associated with increasing economic efficiency and wealth that 7

19 eventually translates into military strength. For that reason, political-security allies promote trade with one another to enhance each other s economic strength which in turn adds to the collective military power of the alliance. On the other hand, states take a protectionist position against countries with which they have an adversary relationship because states don t want to strengthen their adversaries economic and thus military capabilities through trade. In fact, by examining great power alliances and trade relations from 1905 to 1985, Gowa demonstrates that states tend to trade more with their politicalmilitary allies while taking a more protectionist position towards their adversaries. Similarly, Gowa and Mansfield (2004) study the relationship between major power trade relations and political-military alliances from 1907 to Gowa and Mansfield argue that political-military alliances promote the aggregate flow of trade between states. Because open trade increases the real income and thus the potential military strength of each participant, states are likely to trade more freely with their allies than with actual or potential adversaries (2004, 783). Pollins (1989) also takes on the issue and builds on the gravity model of bilateral trade flows, which is widely utilized by economists and based on the premise that bilateral trade is a function of states economic sizes and geographic proximities. He includes relative prices, membership in an economic union such as the GATT and European Community, and the general political climate (conflict or cooperation) between potential trade partners into the basic gravity model to understand whether political relations between states have an impact on their trade flows. In his quantitative study, Pollins analyzes twenty-five countries bilateral trade and political relations between 1960 and By focusing on the importers side of trade relations, Pollins argues that states are more likely to import from states with a friendly relationship and less likely from states with they have conflictual relationship. Pollins demonstrates that nations will adjust their commercial relations to satisfy security objectives even as they attend to economic concerns such as production capacity, prices, and transportation costs (1989, 758). However, Pollins suggests that bilateral flows should be analyzed in case studies to explore how changing political, environmental and power relations influence trade flow (1989, 757). 8

20 Summary (1989) also includes a number of political variables into the basic gravity model to study the political determinants of US bilateral trade relations with 66 countries in 1978 and In her model, she uses arms transfers from NATO members to a U.S trading partner, the number of civilian U.S. government employees in a U.S. trading partner, and the number of agents (e.g., foreign business associations) that a U.S. trading partner has in the United States as measures of political alliance and friendliness. Her model also includes a political freedom variable to test whether the United States is more likely to trade with democracies and democratizing countries to support the democratization process. While finding the democracy variable is statistically insignificant, Summary finds the foreign agents variable is significant in some cases and the arms transfers and the number of civilian employees variables are positively correlated with U.S. bilateral trade flows, suggesting that international political considerations should also be taken into account when studying international trade transactions. Thus, Summary concludes that the United States trades significantly more with politically friendly countries (1989, 182). Focusing on U.S. trade with 76 nations from 1966 to 1973, Dixon and Moon (1993) study the impact of similarity in political system and similarity in foreign policy orientation on US trade relations. They use the UN voting records of these countries as an indication for foreign policy similarity and democracy for political similarity with the United States. They find the foreign policy similarity and political similarity variables statistically significant in explaining U.S. trade relations and argue that the United States promotes trade with other countries sharing similar foreign policy orientations and political systems. In addition, American firms are more likely to trade with other democracies because the existence of a similar culture and familiarity and trust with democratic systems make it easier to establish and maintain social contacts and trade relations (Dixon and Moon 1993, 10-1). Mansfield and Bronson (1997) analyze the impact of alliances, preferential trading agreements and major powers on international trade from 1960 to By relying on the COW (Correlations of War) dataset, they find that the political-military alliance variable alone is an important determinant of bilateral trade flows. Thus, they 9

21 argue that political-military allies trade more to enhance their collective security. In addition, political-military allies engage in opportunistic behavior (e.g., putting nontariff barriers) against each other less often not to diminish bilateral trade relations that may ultimately weaken the alliance. Mansfield and Bronson also demonstrate that allies sometimes sign preferential trading agreements, such as free trade areas and customs unions, and the interaction effect of alliance and preferential trading agreements provides a more powerful explanation for bilateral trade since alliance creates incentives for trade and trade agreements diminish trade barriers among allies. In addition, Mansfield and Bronson find trade is higher and more durable among alliances which include a major power; because a major power has economic resources and market power to offer trade incentives that promote trade relations. However, Morrow, Siverson and Tabares (1998) also rely on the COW data set to test several arguments in the international political economy literature: Democracy-trade, foreign policy similarity-trade, political conflict-trade, and alliance-trade relationships. They find the foreign policy similarity (common interests) and the democracy variables are statistically associated with trade flows while, in conflict with Mansfield and Bronson (1997), the political-security alliance and militarized interstate dispute variables are not statistically associated with trade flows. Recently, a number of works have made attempts to refine the alliance-trade literature. According to Long, scholars reach conflicting conclusions in the alliance-trade relationship in large part because they define alliance too broadly, counting every formal security agreement as an alliance. However, for Long, not all alliances are the same. Some political alliances, like defense-pacts that require the signatories to cooperate with each other in the case of a military conflict, have more powerful bilateral political commitments than others, such as neutrality or friendship treaties that only stipulate impartiality or recommend consultation in the event of an attack. According to Long (2003), defense-pact alliances should promote greater trade among allies for two main reasons. First, as theorized previously by Gowa (1994), states are more likely to open their markets to their allies to enhance their collective security. However, Long (2003) argues that defense-pact allies should trade more, because only defense-pact alliances 10

22 have collective security provisions and strong security commitments. Secondly, firms trade with their allies because they expect that allies avoid opportunistic behavior against each other. States may engage in opportunistic behavior against foreign firms by imposing new investment requirements or tariffs. However, Foreign governments should be less likely to act opportunistically toward [defense-pact] allies because doing so will reduce trade between the states and reduce the political-military power of the alliance (Long 2003, 540). Testing his theory against a data set that includes major-power trade flows from 1885 to 1990, Long (2003) indeed demonstrates that defense-pact members trade more, while finding no statistical relationship between trade and non-defense-pact alliances. In addition, Long (2003) shows democracy is a significant variable influencing trade, while finding militarized interstate dispute and common foreign policy interests are not statistically related to trade. In another study attempting to refine the alliance-trade relationship, Long and Leeds (2006) demonstrate that the alliance variable is significantly correlated with trade when an economic agreement is explicitly linked to political cooperation. Studying trade flows among European states from 1885 to 1938, the authors argue that stronger commercial ties may be a carrot used to encourage acceptance of an alliance by a reluctant partner. States tie security cooperation to economic cooperation because linking issues may pave the way for cooperation by creating zones of mutual benefit that might not have existed on a single issue dimension (Long and Leeds 2006, 435). In other words, when State A values economic cooperation more while military cooperation is more important to State B, linking political and economic cooperation bring compliance on both dimensions. Failing to fulfill military obligations would put commercial exchange in danger, and failing to adhere to trade agreements could lead to alliance termination, making unilateral defection on either less attractive (Long and Leeds 2006, 437). In addition to finding linked alliance significantly related to trade, the authors also show foreign policy similarity and militarized interstate disputes are not statistically associated with trade, while democracy plays an important role in explaining trade flows. Long and Leed also demonstrate that non-linked alliances - military alliances that are not linked to economic agreements - are not statistically correlated with 11

23 increasing trade. Moreover, several studies call attention to the impact of the systemic environment on alliance and the alliance-trade relations. For example, Steinberg (2002) shows that powerful states are restrained by their strategic calculations in their pursuit of economic interests. In theory, WTO s negotiation, voting, and dispute settlement processes are based on the principle of sovereign equality, yet in practice, as Steinberg argues, most powerful states dominate the negotiation-making process in the WTO. The author demonstrates that free from the Cold War pressure, the United States was able to pursue its economic interests aggressively during the Uruguay Round. In other words, American economic interests preceded its political interests in the Uruguay Round negotiations. However, the United States was constrained by its geo-political concerns when negotiating the Tokyo Round, which took place under the Cold War pressure and the developing countries were thus able to gain significant concessions from the United States. However, Steinberg suggests that the war on terrorism may be the next systemic constraint and create new opportunities for developing countries to extract concessions from the United States (2002, 369). Finally, Mastanduno (1998) reviews the interaction of economic and security objectives in different systemic configurations. Mastanduno identifies several variables, such as international structure and domestic economic competitiveness, that help explain the extent to which economic policies are subordinated to and supportive of security concerns (1998, 827). Mastanduno argues that the number of great powers in the international system and their dependence on their allies lead major powers to subordinate their economic policies to their political objectives. In the multi-polar environment before the Second World War, political alliances were relatively less stable and great powers were highly dependent on their allies to achieve their political goals. Thus, it became a routine element of diplomacy to use economic policies for political ends. In the early years of the Cold War, perceiving the international environment unsafe, American policymakers put the American economy in the sevice of politics to fight against communism. American policymakers designed the Marshall Plan, established the Bretton Woods economic system, and helped the reconstruction efforts in Japan and 12

24 Europe, thanks to the powerful and highly competitive American economy. However, by 1968 the bipolar alliance system became stable and the American economy appeared to be losing its competitiveness in the international markets. Thus, freeing itself from political constraints to some extent, the United States started pursuing its economic policies aggressively. However, alliances once again became less stable in the post-cold War environment, and with the perceived American economic superiority from the mid- 1990s onward, the United States has started pursuing a strategy of preponderance policy. Accordingly, the United States is now concerned with the maintenance of its superiority and the stability of the political and economic system. Thus, according to Mastanduno, economics and security interests are again integrated in the post-cold War era. In short, the alliance-trade literature examines to what extent political alliance influences bilateral trade relations. However, the alliance-trade literature reach conflicting findings, some concluding that political allies trade more while others suggest that political alliance has no influence on bilateral trade. Yet some others argue that only some form of political alliances, like defense alliances, facilitate trade while most alliances have little or no impact on trade. Moreover, the alliance-trade literature is quantitatively oriented and tends to focus on the Cold War period data, reflecting the unique political tension between the East and the West. Thus, the literature has little to say about the post- Cold war environment, although it has been shown that the end of the Cold War is not correlated with a decrease in the usage of economic foreign policy tools (Thacker 1999). In addition, the alliance-trade literature ignores the impact of special interest groups on trade policy. This is due in large part to the difficulty of combining the domestic and international levels in a quantitative study. Yet few case studies make an attempt to explore the relative importance of domestic and international politics in trade policymaking, as discussed below. Thus, this study aims to make a contribution to the international political economy literature by analyzing the degree to which international political considerations influence trade policy, especially when international demands are in conflict with powerful domestic group interests. 13

25 The Interaction of Domestic and International Politics and Foreign Trade Policy Scholars who follow the liberal research paradigm emphasize the impact of special interest group influences on trade policy. In fact, significant amount of research has been devoted to examining the domestic determinants of trade policy making. For example, Lee and Swagel (1997) study the domestic political determinants of nontariff barriers in 44 countries and find that weak, declining, and politically important industries tend to receive protection from foreign competition, whereas competitive industries tend to receive little to no trade protection. In another study, Eicher and Osang (2005) provide statistical evidence that politicians determine trade tariff levels under the influence of political campaign contributions of special interest groups. Irwin (2005) shows that changes in domestic institutional and legal frameworks, unemployment, foreign exchange rates, and import penetrations are important determinants for the increasing anti-dumping activity in the U.S. Read (2005) provides a case study on a steel dispute between the United States and the European Union and argue that the declining international competitiveness of the American steel industry, problems in the US economy in the end of the 1990s and the strength of the steel lobby explain the 2001 U.S. emergency safeguard measures on steel. In addition, Read argues that national politics was also influential as Bush needed to win the key steel producing states, such as Ohio and Pennsylvania, in the 2000 election campaign. Overall, the literature on the domestic determinants of international trade assumes that international trade policy making is in a large extent a function of domestic political influences. This research tradition is especially established within the liberal research paradigm and provides extensive information about the impact of domestic variables on trade policy-making. In short, interest group theories tell us that domestic influences should be taken into account when analyzing trade policy. However, there are only few studies that analyze the interaction of domestic and international factors in trade policy-making. In one study, Zeng (2002) focuses on the domestic determinants of the implementation and effectiveness of Section 301 of U.S. trade law. Studying the Section 301 cases from 1975 to 1995, Zeng concludes that Section 301 trade law was more effective against countries with competitive trade 14

26 relations than against countries with complementary trade relations. Specializing in the same productions of goods and services, the United States has competitive trade relations with industrialized countries like Japan, Canada, South Korea, Taiwan, and the European Union. In other words, when the United States and its competitive countries specialize in the same factors of production, U.S. special interest groups are more likely to be unified and mobilize their resources in seeking protection against these competitive countries. On the other hand, complementary markets, such as China, India, Argentina, and Brazil, supply goods and services that are no longer efficiently produced in the United States but are still in great demand and also used by several U.S. producers as inputs. Therefore, in the case of complementary trade issues, domestic interest groups are divided since there are powerful constituency groups benefiting from the existing complementary trade relationship. Therefore, the author finds that it was easier for the United States to gain concessions from countries with competitive trade relations. However, in this study Zeng quickly dismisses the possibility that militarypolitical alliances may also explain why the United States is able to extract more concessions from Taiwan, Japan, South Korea, and Canada than it does from China, India, Brazil, and Argentina. The author claims that such strategic considerations in purely economic issues are ambiguous since U.S. trade policy is driven mainly by economic interests in trade negotiations (Zeng 2002, 96). Zeng s quick dismissal of strategic factors is not well-grounded since numerous studies reviewed above have found that economic and security policies are often intertwined. Hansen and Park (1995) and Mansfield and Busch (1995) combine domestic and international variables into their quantitative model to test whether trade policy is influenced by domestic and international considerations. Hansen and Park (1995) examine the degree to which the pluralist model and the statist approach of trade policy explain the decisions of the International Trade Administration in granting protection to domestic industries between 1980 and The pluralist model focuses on the ability of special interest groups to shape trade policy and includes such variables as industry size, concentration, political representation in Congress and campaign contributions to politicians. On the other hand, the statist approach assumes that an autonomous state 15

27 designs its economic policy independently from domestic political influences to achieve its strategic goals; and, it includes such variables as NATO alliance, GATT membership and bilateral trade deficit and tariff rates. The authors find both statist and pluralist factors statistically significant and conclude that one should study statist and domestic factors simultaneously to reach a better grasp of trade policy-making. Similar to the research done by Hansen and Park, Mansfield and Busch (1995) also view pluralist and statist variables as complementary to explain the determinants of non-tariff trade barriers found in fourteen states from 1983 to However, the authors also note the difficulty of quantifying and defining national interests of states in a quantitatively designed study with a large number of cases (Mansfield and Busch 1995, 728). Yet few case studies have made an attempt to simultaneously analyze the impact of domestic and international political considerations on trade. One major study by Friman (1990) uses a theoretical framework that combines both international and domestic political influences. Friman studies why Germany, Japan and the United States adopted different forms of protectionist policies in textiles (e.g., tariffs, quotas, voluntary export restraints, etc.) against foreign competitors. The author finds in his book that protectionist policies adopted by states become more overt as domestic economic pressures get stronger. In addition, Friman argues that domestic concerns trump international political considerations when special interests are represented by powerful political groups. The strength of special interest groups is determined by two factors: industrial alliance strength (the degree to which the industry has a unified voice and legislative representation) and the degree of institutional access (the degree to which a political group has an access to policymakers to voice its interests). Among these two, Friman finds, what matters most is the degree of institutional access. According to Friman s work, interest groups gain a high level access to policymakers in the United States when national elections take place or at the times when policymakers depend on those special interest groups for the passage of important legislations. In fact, in his analysis of U.S. textile trade policy in the 1950s and late 1960s, when the United States was constrained internationally because of the Cold War political environment, Friman shows that the United States took the risk of injuring its alliance with Japan and Hong 16

28 Kong by pressuring them to accept voluntary export restraints or putting quotas on their textile exports. But why would the United States not act against the dictates of the international political environment? Friman demonstrates that the textile industry gained high level institutional access during those times when the U.S. administration relied on the Congressional members from the textile states (such as North and South Carolina) for the renewal of Reciprocal Trade Act or when national elections provided unique access channels to the textile industry (e.g., Kennedy relied on the Carolinas for his presidential party nomination). In short, Friman demonstrates that domestic concerns may trump international political considerations. In another case study that focuses on the textiles trade, Destler, Fukui and Sato (1979) examine the U.S.-Japan textile trade relations from 1969 to The United States had a textile trade dispute with strategically important Japan in the late 1960s and early 1970s when cheap Japanese textile exports posed a threat to the well-being of the U.S. textile industry. However, Japan s strategic location, large population, economic potential, and the important role that it played during the Cold War made Japan also an important political ally. However, once again, the United States would risk injuring its alliance with Japan to protect its textile industry. The authors note that the U.S. administration had opened its market to Japan and tolerated Japanese trade restrictions against U.S. goods following the end of the Cold War (Destler, Fukui and Sato 1979, 25). But Dextler and his colleagues now show that the United States pushed its alliance to its limits in the late 1960s and early 1970s when the U.S. textile industry demanded protection. Why? One important reason was that by the end of the 1960s the Cold War had lost its tension to a large extent and Americans had started viewing the world in less in cold-war terms (Destler, Fukui and Sato 1979, 26). Japan was also having large trade surpluses with the United States, and the American people had started seeing Japan as Japan, Inc., a business conglomerate taking advantage of open U.S. markets. Thus, broad foreign policy considerations served less as a constraint on the United States in the late 1960s (Destler, Fukui and Sato 1979, 27). In addition, in Friman s words, the U.S. textile industry gained a unique access to policy-makers when Richard Nixon relied on the delegates from the textile states, South and North Carolina, to secure his 17

29 party candidacy in Thus, Nixon promised the textile industry protection and, upon his election as President, made a secret textile deal with Japanese Prime Minister Sato in Accordingly, the United States would remove its nuclear bases from Japan s Okiwana; and, Japan would voluntarily restrain its textile exports to the United States in return. However, Sato also faced strong pressure from his own textile industry at home, so he was therefore unable to keep his promise to Nixon. The U.S. Congress then threatened to introduce quotas on textiles unilaterally and not to ratify the Okiwana base removal, forcing the Japanese to accept a deal on U.S. terms. Thus, the authors view the case as an example showing the predominance of domestic economic interests in relations even between political allies and conclude that Economic and trade issues are not necessarily subordinated to high policy strategic issues; they can even come to dominate these issues (Destler, Fukui and Sato 1979, 320). CASES AND METHODOLOGY Several conclusions can be drawn from the literature review. First, trade incentive as a foreign policy instrument has been neglected in the economic statecraft literature which tends to focus on sanctions. There are few works that study trade incentives, but they ignore how trade incentives are used against strategically important countries to gain their immediate political cooperation and whether special interest groups in the sender state are able to influence the process. Second, in addition to the fact that the causal direction between economics and politics is still open to debate among scholars, a review of the literature shows that scholars have reached inconclusive findings regarding the impact of political alliance on trade policy-making. The alliance-trade literature examines whether states involve in a long-term engagement with their allies to strengthen their economy by encouraging open trade. While some scholars find that political alliance positively influences trade relations, others dispute this claim suggesting that alliance and trade are not related. Yet some other scholars claim that only defense alliances promote international trade. In short, additional work is needed to understand the impact of alliance on trade relations. Third, although it has been well-established that special interest groups are important in shaping trade policy in a pluralist political system, 18