Import-dependent firms and their role in EU- Asia Trade Agreements Final Exam Spring 2016 Name: Olmo Rauba CPR-Number: Date: 8 th of April 2016 Course: Business & Global Governance Pages: 8 Words: 2035 STU count: 13654 Copenhagen Business School, 2016
Introduction In an increasingly interconnected global economy with increasing capital mobility and lower barriers to trade, investigating the democratic process which governs international trade and finance is necessary. Private actors, especially businesses and their representing interest-groups have been observed to exert increased influence in the policy-making process, in areas of public discourse, agenda-setting, rule-setting and the formation of legislation. The power and legitimacy that private business holds is drawn from the control over enormous resources and the influence on public discourse over economic matters. Who stands to gain from public policy, especially on a supranational level such as the EU, is difficult to assess and analyze. This paper makes an attempt at shedding some light on the mechanisms, structures and consequences of EU-level trade policy, focusing on the role of private actors in the policy-making process. The following research question will guide the analysis and discussion: To what extend do Baron s and Fuchs theoretical approaches complement each other in the understanding of the role of private economic societal actors in the governance of EU trade agreements. The analysis will be conducted by first contextualising the two theories of Baron and Fuchs to the literature on the role of private actors in issues of global governance. In the second part, first Baron s and then Fuchs theory will be applied to the case of the role of import-dependent firms in EU-Asia bilateral trade agreements. The third part will compare these two analyses, followed by the fourth part where the findings, learnings and shortcomings of this approach will be highlighted. 1
Literature Review Theoretical approaches to the role of private actors include a range of different angles. The theoretical framework of the supply and demand of access goods by Bouwen (2002) investigates the organizational structure of firms and the structure of access mechanisms to the EU policy-making process. Based on resource dependence theory, corporate power is defined by access, and access is determined by organizational form, size, economic strategy and domestic institutional environment. The degree of access is derived from the criticality of an access good, and is linked to legitimacy (ibid.) Looking at how the TRIPS agreement came into being, the power of business based on their potentially enormous access to resources is explained by Sell (1999). Private businesses increased the legitimacy of their claims by operating through a variety of channels and thus gaining support, amidst a discussion of the actual merits of the protection of intellectual property rights. There is to be derived a mutual benefit from the exchange of information, and private actors seek to increase the legitimacy of their claims and goals. This approach focused on structure and agency couples well with the investigation of different institutions of access to EU decision-making bodies as presented by Gstöhl (2013). Private actors have influence over the policy-making process at different stages, and the mechanisms of access are facilitated by EU institutions. Furthermore, it is highlighted how EU policies have to be navigated through a complex web of objectives and goals, where commercial policy often collides with the policy output of non-commercial areas. One area of research focuses on regulatory capture, highlighting that global regulation takes place in a space between capture in the form of narrow interests and public interest. With a focus on supply and demand of information, interest and ideas, the framework attempts to explain the level of influence private actors can have over 2
change in international regulation (Mattli & Woods, 2009). With a focus on financial regulation, Baker contributes with a four-dimensional approach to regulatory capture, investigating lobbying, the degree of political salience, institutional design and intellectual and cognitive capture (2010). The approach by Fuchs can be aligned next to Baker s, where the latter focuses on regulatory mechanisms, and the former makes for its basis of analysis the three dimensions of power. In investigating the distribution of gains and harms in international trade regulation with a focus on ecomonics, Baron (2010) argues that private actors have gained increased influence in trade regulation. Distribution of gains and harms leads to reciprocal pressures for protection and liberalization, which ultimately result in interest-group politics. Having contextualized the two theories to the literature on private actor influence on policy-making, the paper will now briefly outline the theories and apply them to the case of import-dependent firms and EU-Asia trade agreements. Baron Baron presents the theory of an Integrated Strategy, which stresses the importance of viewing the non-market environment as a competitive playing field that needs to be addressed just as the market environment. In that environment, timing is essential, the earlier a private actor gets involved in the life cycle of an issue, the more influence it can exert on the outcome of that issue. Firms position themselves in three stages with increasing legitimacy and influence. Starting at public sentiment, where merely the soft support of the public is ensured to some degree through framing and greenwashing, that is association with environmentally conscious motives. The next stage is involvement at the decisionmaking level, with political and especially legislative bodies, exercised through lobbying efforts and contributions. The last stage is within the legal arena, where the 3
use of patents and the use of anti-trust and IPRs carry significance. In sum, this theoretical approach seems very technical, management based and focused, based on rational decision making with utility maximisation, albeit incorporating soft areas such as the framing of motives and discursive practices, without delving deeper into the latter (Baron, 2010). Baron in Eckhardt & Poletti Applying Baron s framework to the case of import-dependent firms influencing the EU- Asia preferential trade agreements, it shows how the private interest influenced and facilitated the liberalization of import policies. The import-dependent industry, mainly in the form of manufacturing and retail, positioned itself well within the non-market environment of domestic and EU-level politics. The importance of non-market strategies is high, as import regulations are under control by the supranational EU legislative apparatus. Bargaining power is gained through the leverage of market size and concentration. The import-industries large market share and increasingly interdependent global value chains incentivised the implementation of non-market strategies in favour of liberalization, while also legitimizing these claims in the public eye on the backdrop of economic arguments. The import-dependent industry was supported by the export industry and import-competing industry, with the same argument of economic gains of trade (Eckhardt & Poletti, 2015) Fuchs The three-dimensional framework of power as presented by Fuchs focuses on instrumentalist, structural and discursive power. To avoid more in-depth discussions about the definition of power, which are always a challenge to this kind of analysis, this 4
paper adopts and follows the very broad principle of power as the ability of entity A to somehow affect the behaviour of entity B (Fuch, 2007). Instrumentalist power refers to direct actions taken by private actors toward the public arena, which includes lobbying and contributions. In this perspective, it is the available resource of an actor that determines its power. Fuchs does not engage much with this facet of her framework, seeing as it has been subject to wide discussion within the literature already. It is highlighted that this dimension lacks the consideration of systemic and structural pressures. Nevertheless, its importance should not be neglected in face of the other, potentially more interesting because new ways of analysing private actor influence (ibid.). Structural power covers the two ways that private actors can exert power based on the underlying structures of the global economic system and the co-dependency of legislators and private businesses. First, passive structural power is exerted through the threat of moving investments and job out of a constituency as a response and punishment to policy choices. This results in agenda-setting power for businesses. Second, active structural power is illustrated through self-regulation and PPPs (publicprivate partnerships), which provides influence on the input side of the policy process. It is thus through materialistic structures that private actors gain rule-setting power, as they regulate their operations partially independent from public policy (ibid.). As a consequence, policy-makers have to adapt to those best practices in their considerations concerning policy change. Discursive power stems from the ability to influence public debate and thereby gaining public authority. This is based mainly on the perceived expertise of business, and supported by the active efforts of businesses to increase the moral legitimacy of their objectives. It is also important to note that power not only serves interests, but can also 5
create them. This leans on structuration theory, where agency and structure shape and reinforce each other reciprocally. By influencing normative ideas and societal norms, private actors can both enable and constrain the scope within which public policy discussion takes place, an observation that is not easily dismissed and, according to Fuchs, deserves continued attention and consideration (ibid.). Rather than being independent from each other, the three dimensions of power are contingent; they correlate and influence each other in a many-to-many relationship. They offer different and complimentary ways to influence decision makers and public opinion. Changes in one dimension of power are facilitated by and influence in return the other two dimensions, and can thus be utilized in conjunction with each other, as well as operationalized as substitutes to each other when needed (ibid.). Fuchs in Eckhard & Poletti Looking at the empirical evidence provided by Eckhard & Poletti, the exercise of all three dimensions of power by private business and representing interest groups can be observerd. The supranational interest groups Eurocommerce and FTA, and national associations, have directly lobbied the Commission and national governments in favour of import liberalization (Eckhardt & Poletti, 2015). This instrumental power has been enabled and facilitated by the structural power that these organizations have attained through the increased market share of imports in the EU and increased market concentration to fewer, larger players. Also, the collaboration between interest groups and the integration of industry expert knowledge into the national and EU level policy apparatus further manifested the structural power itself. The structural power has also been reinforced through the increased involvement of the industry in governance issues and the proliferation of its objectives in the public eye. The third aspect of discursive influence is seen on the general lingo of the import-dependent industry in openly and 6
actively backing up the Commission on the liberalization of trade, with repeated arguments of widely distributed economic gains, large market shares and the industries importance to the European economy as a whole. Export groups and import-competing groups have had interests that aligned with those of the import-dependent industry, which further strengthened the legitimacy and power of the latter (ibid.). Comparison and complementarity Baron s very practical and managerial approach of integrated strategy serves well to illustrate the success of private actors in influencing the policies of the EU-Asia trade agreements. However, the analysis utilizing his framework appears to be lacking explorative quality regarding the incentives of private businesses beyond economic, rational thinking. It is here that Fuchs framework supports the issue elegantly by allowing for a deeper insight into the underlying systemic and structural factors that determine private actor influence and power, and ultimately policy outcome. The two theories work well together in painting a broader picture of the significance, efficacy and, ultimately, morality of the influence that private corporations have over the policychoices that govern and have a direct effect on the well-being of the citizens of the EU and its trading partners. However, a normative discussion of the distribution of gains and harms of trade policy is outside the scope of this paper. Conclusion This paper set out to analyse the role of private, societal economic actors in the decision-making process of EU-level trade policy. After contextualizing the two applied theories to the literature, an analysis of each of the theories is conducted on the case of the role of import-dependent firm in EU-Asia trade agreements. It is found that while Baron s economical and managerial approach explains the rational decisions of private actors, and their ways of access to the policy 7
making process, it is also lacking explorative powers regarding the underlying systemic structures that enable this behaviour. Fuchs supplements this very well with her framework of the three dimensions of power, where structural and discursive power serves well as an underlying explanation to the issue. Bibliography Baron, David P. (2010A): "Integrated Strategy, in Business and its Environment, Pearson, Prentice Hall. Baron, David P. (2010B): The Political Economy of International Trade Policy, in Business and its Environment, Pearson, Prentice Hall. Baker, A. (2010): 'Restraining regulatory capture? Anglo-America, crisis politics and trajectories of change in global financial governance in International Affairs, 86(3). Baker, A. (2013): The new political economy of the macroprudential ideational shift. In New Political Economy 18(1). Bouwen, Pieter (2002): "Corporate lobbying in the European Union: the logic of access." in Journal of European Public Policy 9(3). Eckhardt, Jappe and Poletti, Arlo (2015): The Politics of Global Value Chains: Importdependent Firms and EU-Asia Trade Agreements in Journal of European Public Policy. Fuchs, Doris (2007): "Business as an Actor in Global Governance, in Understanding Business Power in Global Governance, Boulder & London: Lynne Rienner. 8
Gstöhl, Sieglinde (2013) The European Union's Trade Policy in Ritsumeikan International Affairs Vol. 11. Mattli, Walter., & Woods, N. (2009): "The politics of global regulation in W. Mattli, & N. Woods (Eds.) In whose benefit? Explaining regulatory change in world politics. Princeton: Princeton University Press. Page 1 9