Transnational Regulatory Integration and Development:Institutional Change and Economic Upgrading at the Intersection of International Relations and Economic Sociology

Long gone are the days when the creation of global markets was framed largely as a function of trade and financial liberalization. The 21^st Century is undoubtedly about transnational regulations. International organizations like the WTO, regional regimes like the EU, NAFTA, CAFTA or the Mercosur, and a host of non-state actors, including multinational corporations (MNCs) and international NGOs, are attempting to create transnational regulations. Motivations for these efforts vary, ranging from the goal to integrate regional markets by harmonizing diverging and conflicting domestic regulations, the aspiration to manage the social or environmental externalities of more open markets, to the desire to weaken competitors.

The problems of transnational integration have become the focus of lively debates in international relations/IPE as well as in comparative economic sociology.  Yet these debates have largely stayed separated. In IR/IPE, the debates over global governance have highlighted how international organizations, intergovernmental negotiations, together with the dramatic growth of private standards have led less to uniform, harmonized global rules and more to a ‘patchwork’ of transnational public and private regulations, further segmenting rather than integrating markets. Differences in regulatory norms are increasingly seen as the key barriers to the growth of regional and global markets, and regulatory disputes make up some of the most contentious issues in word politics.

But regulation has long been central to comparative institutional analysis and economic sociology.  Whether one views regulation as the rules that reduce transaction costs or that protect weaker members of society from negative externalities, regulations shape the distribution of opportunities and wealth as well as the allocation of rights and obligations among socio-economic actors.  Seemingly simple changes in regulations might deprive thousands of producers of their livelihood, or alternatively, increase their market power and dramatically boost their economic opportunities. In turn, market regulation remains the locus of ongoing contestation by public and private actors that vary in their capacities to shape the definition of rules, the way they are implemented, and the distribution of their attendant costs and benefits.

This paper examines how the extension of regulatory integration to developing countries affects the nature of these contestations and their outcomes both in terms of the spread of coordinated transnational regulations and in terms of their developmental outcomes.  The dramatic increase in the attempts at regulatory integration involving less developed market economies brings a special twist into the patterns of contestation and the accompanying scholarly debates. The traditional concerns over transaction costs, social reproduction, and economic order are now linked to issues of differences in the capacities of advanced and developing countries to shape transnational rule making and benefit from the attendant redistribution of rights and obligations. As much as transnational regulatory integration could foster domestic reforms of regulatory institutions in the developing world, it could as easily foster resistance and repellence.  Indeed, as John Ruggie suggested over thirty years ago, integration could leave the “regime takers” marginalized or force the “regime makers” to adjust their goals and the way they use their powers.

In considering developmental outcomes, I argue that transnational markets do not emerge in a sustainable fashion by merely liberalizing trade or by imposing the same rules on countries at the different levels of development. Rather, integration strategies vary in their ability to decrease the negative and increase the positive developmental consequences of transnational regulations. The strategies that aim to create sustainable common rules should make transnational rules a common good. Such strategies have to face the problem of differences in domestic institutional conditions that prevent many of the private and public actors in less developed countries from implementing and benefiting from new transnational rules. While actors in more developed and more powerful countries might gain from finding ways to link the issue of transnational regulatory integration with concerns about development, the transnational institutions that could help solve the attendant coordination problems are often not present.

Using cases on a variety of regulatory domains from Latin America and Eastern Europe, the paper offers an analytical framework that identifies the diverse starting conditions that can shape the various paths of initial regulatory integration attempts. It then identifies the components of regulatory integration strategies that could address the interlinked requirements of moving ahead with the creation of common market rules and making them a common good.

The new framework makes explicit use of work of the schools of thought in this mini-conference.  First, it advances a comparative analysis by bringing together in a novel way the seemingly distinct literatures on transnational regulatory integration and development. The literature on transnational regulatory capitalism rarely considers the impact of this process on emerging market countries or the regional integration regimes in which they are embedded.  In contrast, by bringing developmental issues and the mediating roles of regional regimes to the forefront, we help identify the conditions under which attempts at transnational regulatory integration are more or less sustainable.

Second, the framework helps identify dynamics – how different approaches to integration can alter or conserve regulatory quality and the distribution of their benefits. Building on research about transnational public and private regulation, it notes how pre-existing transnational and domestic institutional conditions can vary and shape in different ways the starting opportunities of the actors participating in transnational rule making. But many of the initial outcomes represent unstable equilibriums. In turn, the framework shows how different combinations of transnational integration strategies alter the parameters of the starting institutional conditions and in this way change the outcomes of the integration attempts. We extend their approaches by highlighting how problems linked to domestic institutional weaknesses in less developed countries changes the dilemmas of governing the joint search for common rules with broad-based benefits.

A detailed illustration is then presented via a careful comparison of the diffusion and implementation of international food safety standards in value chains in Mexico, Argentina, Poland, and Romania.