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Abstract

The post-World War II liberal international order coupled trade liberalization with a range of flanking measures, both outward-looking and inward-looking. This system, coupling domestic-level compensation with international-level flexibility, no longer functions as effectively as it once did. To consider how a renewed set of flanking policies might address, or even prevent, a backlash against trade liberalization, we explore why the earlier system (embedded liberalism plus temporarily tolerated relief) did not always function effectively. We note the challenges associated with generous domestic compensation schemes, especially in the face of capital mobility and fiscal pressures. We discuss the interstate tensions generated by the use of temporary relief measures, such as escape clauses and safeguards, and we also discuss how the expansion in membership of the multilateral trade system (and particularly the inclusion of countries with a greater array of economic institutions and factor endowments) exacerbates these challenges. Finally, we consider how the domestic politics of flanking policies could differ from those used in an earlier era.
ORIGINAL ARTICLE
A Domestic Political Economy of Package Treaties
Layna Mosley1and B. Peter Rosendorff2
1
Princeton University, USA and
2
New York University, USA
Corresponding author: Layna Mosley; Email: layna.mosley@princeton.edu
(Received 14 February 2024; accepted 22 April 2024)
Abstract
The post-World War II liberal international order coupled trade liberalization with a range of flanking
measures, both outward-looking and inward-looking. This system, coupling domestic-level compensation
with international-level flexibility, no longer functions as effectively as it once did. To consider how a
renewed set of flanking policies might address, or even prevent, a backlash against trade liberalization,
we explore why the earlier system (embedded liberalism plus temporarily tolerated relief) did not always
function effectively. We note the challenges associated with generous domestic compensation schemes,
especially in the face of capital mobility and fiscal pressures. We discuss the interstate tensions generated
by the use of temporary relief measures, such as escape clauses and safeguards, and we also discuss how
the expansion in membership of the multilateral trade system (and particularly the inclusion of countries
with a greater array of economic institutions and factor endowments) exacerbates these challenges. Finally,
we consider how the domestic politics of flanking policies could differ from those used in an earlier era.
Keywords: Liberal international order; trade liberalization; embedded liberalism; domestic compensation; temporary relief
measures
1. Introduction
Trade and financial liberalization offer material benefits to developed as well as developing coun-
tries. Classical models of international trade suggest that the owners of relatively abundant factors
reap relative gains, as do owners of factors in demand in expanding, exporting sectors (Heckscher
and Ohlin, 1991). The more recent models highlight the benefits from trade (and investment)
earned by the more productive firms in an industry where varieties are both imported and
exported (Melitz and Ottaviano, 2008). Technology and transportation improvements have fur-
ther enhanced these benefits, allowing firms to source inputs and intermediate goods from distant
locations. A system of globally integrated production benefits not only superstarfirms (and their
workers and owners, Kim et al., 2017), but also consumers who have access to wider varieties of
products, typically at lower prices (Krugman, 1979).
Liberalization also brings negative effects owners of scarce factors, less efficient firms, or
workers whose skills are easily routinized and offshorable (Owen and Johnston, 2017)facepro-
nounced income shocks when governments liberalize trade and investment. Those who lose from
openness and have a political voice which is not always the case will resist, or seek to roll back,
liberalization. The beggar-thy-neighbortrade policies pursued by European governments in the
late 1920s and early 1930s, for instance, can be attributed to the rising power of labor unions and
left-leaning political parties (and the broader enfranchisement of male working-class citizens).
Governments, therefore, may seek to balance the broad benefits of liberalized trade and capital
flows against the concentrated costs to some groups in society. The classical solution’–evidenced
by policies implemented in a range of European countries in the mid-twentieth century, and
© The Author(s), 2025. Published by Cambridge University Press on behalf of The Secretariat of the World Trade Organization. This is an
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World Trade Review (2024), 23, 645657
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ushering in the so-called golden ageof capitalism (Marglin and Schor, 1991)was the com-
promise of embedded liberalism (Ruggie, 1982). This compromise paired trade liberalization
with domestic social protection; governments used domestic tax and spending policy to redistrib-
ute some of the gains from liberalization. Those who stood to lose from liberalization were none-
theless willing to support it, once they were offered various forms of social protection, including
active labor market policies, health care, and old age pensions.
1
Indeed, mass opinion surveys
from wealthy democracies indicate greater support for liberalization, all else equal, where welfare
state policies are more generous (Cameron, 1978; Rodrik, 1997; Burgoon, 2001).
Embedded liberalism at the domestic level was complemented by the design of the post-World War
II international trade system. One core and mutually agreed principle of the GATT (and then WTO)
was that, in the face of pronounced economic shocks, governments had the option to temporarily sus-
pend their commitments to openness, providing short-term relief to affected industries, firms, and
workers (Rosendorff and Milner, 2001). This tolerated protection safeguards, escape clauses, anti-
dumping duties, and more offered governments some reassurance that they could use treaty-based
mechanisms to avoid severe domestic political backlash when import surges occurred. Although these
measures were designed to be temporary, implemented at some administrative cost, and subject to
adjudicative review, they offered opportunities, at the international level, for flexibility to deal with
the threat of domestic political losses associated with the negative effects of trade liberalization.
This system compensation at the domestic level and flexibility at the international level no
longer functions as effectively as it once did. The average citizen in wealthy countries has been
supportive of economic globalization over many decades, and remains that way today.
However, the stability of mass attitudes masks the negative shift in opinion among a significant
subset of voters those who experience labor market insecurity in the face of increased import
competition are more likely to believe that global economic forces (trade, immigration, and inter-
national institutions, to varying degrees depending on the country) are to blame (Bisbee et al.,
2020; Bisbee and Rosendorff, 2024). Political elites have responded to this shift, often implement-
ing policies that limit global economic engagement (Walter, 2021).
While such policies are a hallmark of right-wing populist parties and candidates, a range of
governments and political parties have taken steps to reduce their countriesengagement with
the global economy. These policy shifts pre-date the COVID-19 pandemic, the war in
Ukraine, supply chain fragility, and friendshoring.
The contributors to this special issue suggest that package treatiesmay be a more effective
means of addressing, or even preventing, these domestic politics-based challenges to the post-
World War II liberal international order. To help assess the prospects for package treaties, it is
useful to explore why the earlier system did not always function effectively as well as how the
domestic politics of package treaties might differ from the domestic politics of embedded liber-
alism and temporary tolerated relief. In doing so, some research questions that are important to
developing a greater understanding of the potential effects of package treaties are described.
1. The Limits of Embedded Liberalism
The logic of embedded liberalism, developed to explain how governments in western Europe in
the 1950s and 1960s restored domestic political support for trade liberalization, relies on the
coupling of more open trade with generous social protection, effected via government redistribu-
tion (Katzenstein, 1978; Ruggie, 1982). Strong labor unions, typically those with close ties to
left-leaning political parties and able to effectively mobilize voters, rewarded governments for
developing and maintaining such policies. Countries with proportional electoral systems were
especially inclined toward redistribution, as those systems tended to favor center-left parties
(Rogowski, 1987; Iversen and Soskice, 2006).
1
In this special issue, these broader policies can be thought of as mitigating measures.
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The mass public worried less about trade-induced volatility, given the availability of (in various
degrees) publicly funded education, unemployment insurance and retraining, health care, old age
pensions. and childcare (Burgoon, 2001,Hays,2009). This claim is echoed in more recent ana-
lyses of the anti-globalization backlash, some of which find that access to compensatory programs
(such as Trade Adjustment Assistance in the United States) reduces the appeal of populist
right-wing political candidates (and softens the effect of the China shockon political outcomes
(Kim and Pelc, 2021; Ritchie and You, 2021)).
Since at least the 1990s, however, observers have questioned the viability of the embedded lib-
eralism compromise. First, the compromise emerged at a time when capital account liberalization
was quite limited. Capital controls were a central feature of the Bretton Woods monetary and
financial system. The International Monetary Funds Articles of Agreement offered governments
the option to restrict capital (financial) account convertibility, obligating members to allow the
free exchange of currencies only for current account transactions.
2
In much of Western
Europe, even current account convertibility did not fully emerge until the second half of the
1950s.
Limits on capital mobility made it easier for governments to tax financial as well as productive
capital. Tax revenues funded many of the public policies that served to embed trade openness in a
system of social protection. Firms could not easily threaten to move abroad in response to high
taxes (or in response to labor market and other regulations), and bond market investors an
important source of government borrowing in wealthy democracies could not dramatically
raise interest rate premiums in response to government fiscal expansions or imbalances.
With the shift toward capital account liberalization the result of policy as well as technology,
emerging first in wealthy democracies in the late 1970s and 1980s, and then in low- and
middle-income countries in the 1990s and after the balance -between labor and capital shifted
(Przeworski and Wallerstein, 1988). French president François MitterrandsU-Turn’–the aban-
donment of many of his planned policies between 1981 and 1983, in response to speculative
attacks against the franc as well as dramatically higher sovereign interest rates suggested to
many that financial market actors had become less willing to tolerate the interventionist and
expansionary policies associated with embedded liberalism. As part of a broader ideational
shift toward neoliberalism, many governments in Europe as well as in other regions turned
away from state-led intervention and toward capital account liberalization.
Subsequent scholarship called into question the extent to which globalization had gone too
far(Rodrik, 1997), in terms of governments being unable to fund generous systems of social pro-
tection, lest they provoke capital flight or dramatically increase borrowing costs while also facing
greater exposure to trade competition and shocks. Some scholars noted that claims of a race to
the bottomin, for instance, corporate taxation were overblown; domestic interest groups and
political institutions remained important determinants of social and tax policies (Huber and
Stephens, 2001; Basinger and Hallerberg, 2004). Others pointed out that institutional investors
did not necessarily penalize governments for keeping generous social policies in place, provided
that governments did not run excessive fiscal deficits or pursue inflationary monetary policies
(Mosley, 2003).
At the same time, the question of whether left-leaning parties indeed could continue to act
left(Garrett and Smith, 1999) highlights important features of the embedded liberalism com-
promise. The compromise assumes that governments have an interest in compensating those
who suffer negative effects from trade liberalization. Groups that stand to lose from, or to be
exposed to, greater volatility as a result of trade liberalization must be important to governments
political survival. However, this is not always the case. In the United States, for instance, orga-
nized labor often has not played a central role in national policy making. The frequent exclusion
of labor from national policy making, including in the 1920s and 1930s, left a much more limited
2
IMF Articles of Agreement (1944), Article VIII, www.imf.org/external/pubs/ft/aa/index.htm.
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and, for workers, a much less generous compromise in the United States (Goldstein and Gulotty,
2021). Meanwhile, with working-class white voters perceived as important to the Biden adminis-
trations 2024 electoral prospects, the Trump-era tariffs on many Chinese imports remain in
place. Electoral politics have generated a bipartisan unwillingness to rely on reciprocal openness,
the hallmark of the post-war international order (Bowen, Broz, and Rosendorff, 2022).
In many low- and middle-income countries, workers who, by virtue of their abundance rela-
tive to capital, ought to capture the gains from liberalization have an even weaker political voice.
In Bangladesh, admittedly an extreme case, the government continues to limit the ability of work-
ers to associate freely and bargain collectively. Meanwhile, the owners of apparel factories which
account for the vast majority of the countrys exports are well represented in the countrys par-
liament. It is therefore no surprise that, even in the face of industrial accidents and international
pressure to improve labor standards, the countrys workers continue to reap only a small share of
the gains from trade liberalization.
A first lesson is therefore that compensation for workers exposed to global shocks, as well as
distribution of gains to the owners of relatively abundant factors, depends on various features of
national political systems. The viability of package treatysolutions is also likely to vary with
domestic political institutions and interests. We should expect democratic countries (versus non-
democratic countries) to be more inclined to implement, and commit to, mitigating measures as
well as flanking policies, either unilaterally or via mutual agreement with other like-minded coun-
tries. Within democracies, social protections that are more generous are more likely to occur in
the presence of higher rates of unionization, in countries with stronger left and center-left polit-
ical parties, and in countries with proportional representation electoral systems.
A second lesson from the era of embedded liberalism is that providing compensation requires
fiscal capacity. Governments must redistribute (via taxation) some of the gains from openness to
those who are more vulnerable, or governments must rely on other mechanisms (proceeds from
state-owned enterprises, sovereign borrowing, or foreign aid) to fund compensation schemes.
Governments generally hesitate to raise taxes; the mobility of international capital and firms
increases this reticence.
The regional and global supply chains enabled by earlier efforts at trade liberalization also have
made it more difficult for governments to tax firms. Facilitated by communication and transporta-
tion technologies, firms often can easily source from abroad or offshore their directly owned pro-
duction, reducing their tax liability (and their general presence) in home countries. Accordingly,
Mansfield and Rudra (2021) suggest that technological change and the digital revolution have
made it difficult for governments to implement embedded liberalism-style compromises.
Multinational firms also engage in tax avoidance strategies, booking corporate profits in lower-
tax jurisdictions, making it difficult, thus far, for national governments to take collective action to
impose a global corporate minimum tax.
3
Of course, governments could tax individual (rather
than corporate) income, or they could impose consumption taxes. Yet consumption taxes
often are regressive, and most governments have been disinclined to tax the wealthiest individuals
(Marti, Martinez, and Scheuer, 2023).
This means that compensatory policies at least, to the extent that they involve direct govern-
ment expenditures often require sovereign borrowing. This is generally cheaper, in terms of
interest rates, for governments of high-income countries where investors assume that default
risk is low. Governments of low- and middle-income countries, by contrast, face higher borrow-
ing costs on average.
4
3
Led by the OECD, 130 countries agreed in October 2021 to work toward a global minimum tax; an initial implementation
phase is planned for 2024.
4
Although the available sources of finance for these countries have expanded in recent years (to include not only bilateral
official creditors and multilateral development banks, but also sovereign bond issuances and collateralized loans (Mosley and
Rosendorff, 2023)) developing countries typically face higher financing costs than their developed country counterparts.
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Perhaps more importantly, low- and middle-income countries are more exposed to the
global capital flow cycle. When global liquidity is high, such countries may have relatively
easy access to finance; but when liquidity is low (and risk aversion is high), capital flow
booms reverse, and borrowing costs can skyrocket (Wibbels, 2006; Ballard-Rosa, Mosley, and
Wellhausen, 2019). Hence, we can expect the capacity for compensation to vary cross nationally
with income per capita (and natural resource endowments), as well as over time (with cycles in
global commodity prices and liquidity). Hence, the viability of inward-looking flanking
mechanisms may vary with the level of economic development, as well as across the global eco-
nomic cycle.
2. The Use and Abuse of Flexibility
Mechanisms that redistribute directly from winners to losers via taxes and subsidies introduce
fewer international distortions and are therefore more efficient from a social welfare point of
view. As the above discussion suggests, however, such mechanisms often are not available: states
may not have the political or economic capacity to institutionalize such a redistributive system.
The post-World War II liberal international order also relied on outward-looking, mutually
agreed measures, allowing for the temporary abrogation of liberalization.
Governments could provide breathing room’–time to adjust, retrain and retool to local
industries and workers by suspending their commitments to openness negotiated at the
GATT/WTO or in preferential trade agreements. The post-World War II trade regime offered
governments a range of flexibility instruments in response to unfair trade practices abroad
(dumping; some subsidies), national security considerations, balance of payments problems,
and even tariff overhang (the gap between applied and bound tariffs).
These flexibility provisions may sustain international agreements longer, and admit a greater
variety of states to participate (Rosendorff, 2005; Kucik and Reinhardt, 2008). More flexibility is
also associated with deeper agreements member states, especially democracies, offer greater
concessions at the point of negotiation (Baccini, Dür, and Elsig, 2015). Flexibility, however,
comes with a cost. The more frequently governments invoke these exceptions, the lower the
gains from trade and integration. The use of flexibility provisions also reduces the overall level
of cooperation. The incentives for governments to use these provisions is particularly strong in
political systems with higher accountability.
While administered protection was, in theory, a useful alternative to direct redistribution and
compensation, it was not very successful. It angered trading partners and delayed adjustment out
of declining industries. Governments accused one another of using temporary administered pro-
tection as a means to disguise (and unjustified) protectionism; the WTOs dispute settlement
body often agreed, instructing governments to remove such measures.
5
3. Issue Linkage to the Rescue?
Many governments recently have found domestic compensation whether it be taxes and sub-
sidies, unemployment insurance, worker retraining, or publicly funded social security to be too
expensive, economically as well as politically. Similarly, flexibility provisions and administered
protection have threatened to undermine international cooperation and sew frustration with
international trade institutions, while also failing to adequately address the negative effects of
trade liberalization.
The inadequacy of the compensation and flexibility mechanisms is due, in some part, to
changes in the international economic environment. As low- and middle-income countries
abandoned inward-focused development strategies (sometimes at the behest of international
5
Indeed, much of the USs recent dissatisfaction with the WTO stems from the adjudicatory bodys willingness to rule
against the US in these sorts of cases.
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financial institutions and in the wake of severe financial crises) and turned their attention out-
ward, wealthy countries found themselves competing with a broader, and more diverse, set
of nations.
For the most part, the compromise of embedded liberalism was largely concentrated in
wealthy democracies. Although these countries varied in the precise nature of their political insti-
tutions and social policies, they generally were characterized by strong labor and human rights
protections. There was, in essence, a consensus about a minimum floor, in terms of (for instance)
workplace health and safety protections, the right to organize and bargain collectively, and a pro-
hibition on child as well as forced labor. The limited heterogeneity among GATTs early signa-
tories, in which the conditions under which a good was produced were not legitimate grounds for
imposing barriers, rendered the product versus processdistinction feasible. Factory conditions
and labor standards might have varied between Canada and Italy, but the differences were
relatively small, and they were deemed irrelevant to the competitiveness of exports.
As low- and middle-income countries increasingly participated in international trade institu-
tions, wealthy countries sometimes crafted trade rules which blunted developing countriescom-
parative advantages. For instance, barriers to agricultural imports typically remained high in the
US and Europe, and unilateral trade preference programs, permitted under GATTs 1979 enab-
ling clause(officially, Decision on Differential & More Favourable Treatment, Reciprocity &
Fuller Participation of Developing Countries) allowed developed countries to offer more favor-
able schemes to developing countries but also to exclude from those schemes certain products.
The US Generalized System of Preferences scheme, for instance, did not apply to apparel and
footwear.
6
Similarly, between 1974 and 1995, apparel and clothing trade under GATT was gov-
erned by the Multifibre Arrangement, which allocated quotas for export to developed countries
across a wide range of low- and middle-income producers.
With the expanded participation in global trade networks of countries with political institu-
tions that were more diverse, levels of economic development, degrees of state intervention,
and environmental and labor standards, processconsiderations became more salient. While
much is made of the tensions generated by Chinas 2001 entry into the WTO, this dynamic
was apparent in the late 1980s and 1990s as well. Governments and interest groups in wealthy
democracies more frequently argued that behind the borderpolicies generated (unfair) trade
advantages. Low standards for worker health and safety, weak environmental regulation, or the
lack of minimum wage legislation were often labeled as illegitimate. Similarly, the lack of intel-
lectual property rights protections, or burdensome sanitary or phytosanitary measures, were
viewed as putting wealthy country exporting firms at risk. Additionally, developed country
labor unions and environmental activists expressed concerns that a race to the bottomwould
ensue, as rich countries found themselves increasingly in competition with lower-standards coun-
tries in the Global South.
7
To the extent that rich country governments increasingly viewed their firms, products, and
workers as competing with countries with weaker standards and with lower capacity to imple-
ment generous social protections, the compromise of embedded liberalism became less appealing.
Sustaining the compromise could generate capital flight and offshoring, and it often was insuffi-
cient to protect firms and workers from import competition. Governments in the Global North
6
At the product level, the US GSP program also provided for the removal of a countrys GSP benefits when its exports of a
product to the United States crossed a certain threshold.
7
These are claims about the incidentalnegative effects of liberalization. Under some conditions, participation in global
supply chains and exporting to high-standards countries could result in the upgrading of labor standards in developing coun-
tries. This was particularly the case where multinational firms had material or home country regulatory incentives to insist on
higher standards in their subsidiaries and suppliers. These conditions often were not present, however, and market-based
upgrading was in any case a longer-term process. See Greenhill, Mosley, and Prakash (2009), Locke (2013), and Malesky
and Mosley (2018). It is worth noting, however, that Guasti and Koenig-Archibugis(2022) recent study finds no evidence
that export competition generates a race to the bottom in labor standards.
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thus faced a domestic political dilemma: many firms, consumers, and workers stood to benefit
from trade liberalization. However, other firms and workers were exposed to greater competitive
pressures, all whilst governmentswillingness and ability to compensate were eroding.
Sensitive to the tensions between developing and developed countries, the WTO refused to
address labor rights issues. Its member countries disagreed over whether lower domestic stan-
dards implied a comparative advantage or an unfair trading practice. In 1998, the organization
declared that the WTO was a second-best mechanism for the pursuit of core labor rights, and
that the ILO, with its 1988 Declaration on Fundamental Principles and Rights at Work, was
the most appropriate venue. The WTOs position was consistent with the global trade regimes
attention to productbut not to process.The GATTs nondiscrimination principle implied
that the conditions under which something was made labor laws, environmental degradation,
domestic regulation were irrelevant to the treatment of the good by its trading partners.
Developed country governments responded in several ways. While labor-related issues were
taken off the table at the WTO level, developed countries did push globally for harmonization
in some areas, such as intellectual property rights and health and safety regulations. They also
argued, often successfully, that Article XX of GATT allowed for trade-restricting measures pro-
tecting human, animal and plantlife.
8
With respect to labor rights, developed country governments often employed a different strat-
egy. Even before the WTO took labor-related issues off the table, some governments responded to
domestic labor groupsdemands by including labor rights-related (or civil and political
rights-related) clauses in their preferential trade agreements (Hafner-Burton, 2009). PTAs offered
governments wide latitude to link access to trade and investment with labor, environmental, and
other conditions (Baccini, Dür, and Elsig, 2015; Lechner, 2016), and developing countries, eager
to expand their export networks, were often willing to accept these legally linked flanking mea-
sures. For instance, reflecting pressure from labor unions and a few Democratic members of
Congress, the 1984 United States Trade Act directed the US Trade Representative to include
internationally recognized worker rightsin all future US preferential trade agreements. The pre-
cise way in which these provisions were included varied; they were placed in a side agreement of
the North American Free Trade Agreement rather than in the main treaty. There was a separate
and arguably weaker adjudication procedure for complaints related to compliance with the
labor side agreement. In later US PTAs, labor conditions were included in the main treaty text.
The depth of labor relations provisions also grew over time: the USJordan agreement (2001)
required governments to enforce their domestic labor legislation, whatever its content. In the
USColombia free trade agreement, which came into force in 2012, the parties committed to
adopt and maintain in their laws and practicethe ILOs 1998 set of core labor rights. The labor
rights provisions are subject to the same dispute settlement procedures as other parts of the trade
agreement. During the negotiation phase, the US also insisted that Colombia take various steps to
address violence against trade unionists and to enforce worker rights provisions.
9
Furthermore, in
renegotiating NAFTA, the US government included stronger enforcement for labor provisions. As
a result, the 2020 USMCA won the (somewhat unprecedented) support of the AFL-CIO. Given
the legal requirement to include labor rights in US trade agreements, as well as the domestic political
pressure to do so (Kay, 2011), potential partner countries might be inclined to improve their labor
protections ex ante, to make themselves more attractive agreement partners (Kim, 2012).
Labor-related provisions are now widely used: as of 2022, the ILO identifies approximately 115
trade agreements with labor provisions (ILO 2022). The inclusion of labor-related (and, to an
8
This logic may face further challenges at the WTO as the European Union implements a Carbon Border Adjustment
Mechanism.
9
During negotiations for the Trans-Pacific Trade Partnership, the US insisted that Vietnam make similar reforms, offering
labor unions the right to organize and bargain collectively. The USVietnam bilateral plan, which never came into effect,
went beyond the labor conditions included in the main agreement.
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extent, environment-related) provisions in preferential trade agreements often reflects domestic
concerns of firms, industries, and labor unions in wealthy countries. Actors who stand to lose
from global competition may not have enough political voice to prevent an agreement entirely,
but they may have sufficient leverage to insist on the inclusion of non-trade issues. In wealthy
democracies, demands for labor-related provisions often were framed as labor internationalism:
workers in rich democracies were sincerely concerned about protecting workers elsewhere in
the world, but such calls often were interpreted as veiled protectionism: excluding exports
from labor-intensive countries protects firms andworkersinimport-competingsectors.
Indeed, in her analysis of the inclusion of non-tradeissues in PTAs, Lechner (2016) finds
that strong import competition and downward wage pressure motivate domestic losers
from trade agreements to lobby their governments for design changes, especially when one
partner country has high levels of civil and political rights, but other partners do not. This
is consistent with Hafner-Burton and Ronsaccount(2009), which notes that human rights
conditionality is explained largely by domestic political pressures in wealthy countries.
The presence of rights conditions in PTAs offers a mechanism by which domestic and trans-
national rights advocates can pressure governments to address labor rights violations. Doing so
may help boost public support for trade openness in countries exposed to import competition,
and to reduce public perceptions that import surges are due to unfair practices abroad. The inclu-
sion of conditions at the negotiation stage, however, offers no guarantee of their implementation.
Many PTAs with labor-related provisions do not provide for regular monitoring of compli-
ance. Rather, just as with commercial policy disputes, these provisions require governments
(or, in some cases, other actors with standing) to bring complaints to an administrative agency
or dispute settlement body. This means that there must be credible information about violations
in partner countries, as well as some expectation of success of the claim. Moreover, even when
complaints are brought, national governments and dispute settlement bodies may hesitate to
impose penalties, as doing so reduces the material benefits of the trade agreement.
10
It therefore is reasonable to question the effectiveness of labor provisions in PTAs. Carrère,
Olarreaga, and Raess (2022) consider whether labor provisions in trade agreements are asso-
ciated with changes in bilateral trade flows, especially between NorthSouth country pairs.
Using data for the 19902014 period, they find that for Global South countries with weaker
labor standards, labor provisions appear to increase exports from Southern countries to
Northern countries. This is driven by labor provisions featuring institutionalized cooperation
(for instance, capacity building), rather than by labor provisions characterized by strong
enforcement mechanisms. This finding suggests that not all labor-related PTA provisions are
a veil for protectionism for the subset of governments that are willing to improve their
labor standards, such negotiated flanking policies could be a means of increasing exports.
Using the same measures of labor rights provisions and a global sample of countries, Raess
and Sari (2020) find that trade agreements with institutionalized cooperation provisions are
linked with reductions in labor rights violations in developing countries. This finding stands
in contrast to earlier studies of labor provisions, which tend not to differentiate according to
their precise type, and which find little effect on labor rights.
Others note, however, that labor provisions typically apply only to workers in the formal sec-
tor; high degrees of labor market informality in many countries dilute the overall effectiveness of
such conditionalities (LeClerq, 2022). Moreover, to the extent that the threat to workers in
wealthy countries comes more from automation than from workers in countries with lower stan-
dards (see Anelli, Colantone, and Stanig, 2021), labor provisions may lose effectiveness as a pos-
sible package treaty component.
10
On the operation of this process in the context of the US Generalized System of Preferences program, see Hafner-Burton,
Mosley, and Galantucci (2019).
652 Layna Mosley and B. Peter Rosendorff
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Research on PTAs with labor conditions therefore suggests that there is a limited set of con-
ditions under which the elements of package treatiesmight address some of the incidental
negative effects of trade liberalization. Indeed, prior research on the determinants of the PTA
structure suggests that where governments worry about their ability to monitor the implementa-
tion of conditions, they are less likely to sign agreements in the first place. Baccini (2010) finds
evidence for this dynamic in the context of the EUs PTAs. When partner countries are more
transparent economically and politically, the EU is more likely to conclude PTAs, and those
PTAs are more likely to include flexibility provisions such as escape clauses and anti-dumping
protections. Hence, governments of wealthy democracies may view flexibility provisions as appro-
priate and useful instruments only under certain conditions.
It also is worth investigating more directly whether the inclusion of labor (or other non-trade)
provisions in PTAs generates greater public support for those agreements. Do individuals most
exposed to trade liberalization who work in labor-intensive industries, or who are most vulner-
able to offshoring have a more favorable assessment of trade and trade agreements when they
are aware of their labor-related clauses?
4. Package Treaties and Issue Linkage
The package treaty solution is a treaty, convention, or agreement that includes legally binding
commitments on both trade liberalization and mutually agreed flanking policieswhere these
flanking policies (domestic or international) are intended to mitigate negative effects of trade
liberalization, or the concerns of domestics shareholders or both. The reference to domestic
policy suggests a more explicit connection between international liberalization and domestic
protection than the embedded liberalism compromise entailed, a more direct (legally or factually)
connection between liberalization and behind-the-borderissues. The package treaty solution
also aspires to address trade-related dislocations ex ante and comprehensively (rather than ex
post and selectively, as in the case of flexibility provisions).
Package treaties therefore increase the dimensionality of agreements. They can broaden the
scope of non-trade issues linked to trade agreements and deepen the obligation to address
such issues. As such, package treaties can help preserve joint gains from trade, while also allowing
special interests to gain protections. Package treaties also may share some of the features of issue
linkage: trade is linked to other dimensions, to address distributional and political concerns.
The standard issue linkage entails a swap of concessions across issue areas perhaps tariff
reductions in exchange for improved respect for worker rights, or reduced barriers to foreign dir-
ect investment in exchange for intellectual property rights protections. Linking access to export
markets with more stringent regulations abroad may limit the gains from exporterscomparative
advantages, while also reducing losses for trade-exposed groups in importing countries.
Presumably, the net gains from trade remain positive on both sides, albeit not as large as they
might have been absent the upgrading in labor, or environmental standards, or the protection
of exposed firms, industries, and workers. Linkage also promises increased domestic political sup-
port for liberalization. At the same time, when negotiations include a wider variety of issue areas,
the negotiation process is more complex, or longer in duration and less likely to succeed
(Koremenos, Lipson, and Snidal, 2001). Moreover, linking standards or behaviors with market
access involves some degree of coercion: if a participating state does not follow through on its
commitments on non-trade issues, or violates treaty obligations related to the linked dimensions,
trade sanctions may be applied.
Package treaties also link trade liberalization with non-trade policies, possibly including
compensation to affected firms, industries, and workers, as well as upgraded labor, environ-
mental and governance standards, and opportunities for administered protection and tempor-
ary safeguards. These linkages, however, may exist within the trade agreement itself (legally
linked flanking policies), or across levels and types of governance (factually linked flanking
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policies). One might even imagine that some governance of non-trade outcomes (labor, climate,
development) could be achieved through private market standards, in which firms have (legal
and/or material) incentives to commit to improvements throughout their subsidiaries and sup-
plier networks.
11
It is important to consider how package treaties might overcome the challenges faced in the
previous uses of compensation, flexibility provisions, and issue linkages. To what extent will part-
ner governments worry that the compensatory elements of package treaties will be used oppor-
tunistically? Under what conditions will governments have the domestic will and capacity to fund
compensatory social policies? Additionally, at the negotiation stage, under what circumstances
will governments commit to linked sets of policies, and when might they prefer not to be
bound by such commitments? It may be the case that when left or center-left governments
hold office, but worry about future electoral turnover, they find package treaties an appealing
means of tying the hands of future governments, locking in some level of compensation for
those likely to bear the negative (necessary or incidental) consequences of trade liberalization.
Partisan shifts also raise the question of compliance with package treaty commitments.
Assuming governments are willing to negotiate (and, where necessary, ratify) such deals, under
what conditions are governments willing to implement them? Labor provisions in trade agree-
ments and preference schemes often have been weakly implemented. Partner governments
may hesitate to bring complaints against one another; civil society groups have limited resources
to participate in adjudicatory processes; and adjudicatory bodies may refrain from rendering
judgments that reduce the material benefits of trade agreements.
National governments may sometimes face political incentives not to offer flanking and miti-
gating measures, especially if the beneficiaries of such measures are not electorally important, or
if such compensation provokes resentment among some of their constituents. At the international
level, and in the case of mutually agreed flanking measures, it is difficult to imagine an enforce-
ment mechanism in which a failure of one government to compensate its domestic constituents
was met with the imposition of barriers to that countrys exports the analog to how labor- or
environment-related provisions typically operate. Indeed, to be effective ex post, package treaties
may need credible mechanisms for compliance and enforcement; but the very existence of such
mechanisms makes them difficult to negotiate ex ante.
Supply chain integration adds even more complexity. Evidence suggests that deeper GVC inte-
gration makes legal instruments, such as Bilateral Investment Treaties (BITs), less inviting, espe-
cially in democracies. When the linkages between domestic and foreign firms are deeper, there are
fewer political gains to be had from taxation and expropriation of foreign firms (Johns and
Wellhausen, 2016), rendering BITs less important. Ge (2023) explains BIT withdrawals and
exit as a consequence of deep supply chain integration, suggesting that deeper integration is
not necessarily helpful for treaty survival. However, Fiorini et al. (2023) find that trade through
global value chains (GVCs) increases PTA formation, especially for backward GVC linkages. The
findings raise questions for the package treaty approach, suggesting that multidimensionality may
affect treaty negotiation and survival in different ways depending on both the direction of flows,
and the depth of integration.
5. Conclusion
The liberal international economic order has faced a series of challenges during the last decade, ran-
ging from tensions related to the national security implications of foreign investment and trade
11
The reliance on private standards raises the important question of how to achieve compliance with such standards.
Despite earlier enthusiasm about corporate social responsibilityand the current focus on ESG investing, it is not clear
that private standards are a substitute for, rather than a complement to, public sector governance. Locke (2013) and
Bartley (2018) each suggest that there is an important interaction between transnational private rules and local and national
governments, especially at the implementation stage.
654 Layna Mosley and B. Peter Rosendorff
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flows (and the related rise of investment screening measures and export controls in many countries)
to the fragility of supply chains revealed by the COVID-19 pandemic and the war in Ukraine.
Among these challenges is a backlash against economic openness among some members of the
mass public, especially in wealthy democracies. This backlash, and the associated success of
right-wing populist parties and candidates, raises the question of why the embedded liberalism
compromise ultimately was insufficient, and what other mechanisms have promise for facilitating
a return to broader public support for openness and for global governance of trade and invest-
ment. Package treaties represent one such potential mechanism.
An even broader concern, however, is that most of what might be contained in package treaties
addresses the material effects of (trade) openness. The backlash against globalization in many
wealthy countries is driven only partly by material considerations. In some instances, anti-
globalization views are driven by views on immigration, rather than on trade or investment; in
other cases, mass attitudes toward trade appear conditioned by race and racial attitudes
(Guisinger, 2017; Baccini and Weymouth, 2021; Ballard-Rosa et al., 2021). Along these lines,
Goodman and Pepinsky (2021) have recently argued that the embedded liberalism compromise
succeeded for a time only because it limited the rights of migrant workers.
Moreover, the material conditions to which voters react are the result not only of trade liber-
alization, but also of automation. Milner (2021) finds, for instance, that while trade globalization
is associated with increased vote shares for far right parties in western European countries, auto-
mation also increases support for such parties. Similarly, Colantone and Stanig (2019) find that
the rise in support for economic nationalist and radical right parties in Western Europe is the
result not only of globalization and technological change, but also of immigration and the finan-
cial and sovereign debt crises of 20082009 and 20112013. Their analyses suggests a broader
challenge to mainstream political parties: governmentsinability or unwillingness to address
broader distributional challenges rising income and wealth inequality may render it difficult
to recapture mass support for the liberal international order. While package treaties may aid in
this process, by offering a novel means of addressing adjustment issues, they certainly are only
part of the solution.
Acknowledgements. We thank participants in the Package Treaties workshop at the Geneva Graduate Institute, Center for
Trade and Economic Integration, June 2023, for comments on an earlier version.
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