Friendship in International Trade

• In Event: Understanding the Ties That Bind States: Institutions, Networks, and Community

Abstract

Why are so few formal disputes filed under bilateral free trade agreements (FTAs)? We argue that bilateral treaties are more than legal agreements – they both result from and give rise to social relations among states: “Friendships” are built between state representatives through on-going joint management and the practice of lenient reciprocity. Accordingly, even though they operate in the shadow of formal institutions, states show restraint in their conduct and in the use of formal dispute procedures in order to sustain their social relationships. Formal dispute settlement mechanisms are rarely invoked in order not upset these underlying social relations. Therefore, disputes are mainly initiated by non-state actors, which entails much less of a threat to reciprocity and therefore does not upset interstate relations. We test our friendship argument using extensive data on trade disputes and two case studies: Various stages of institutional change in the Andean Community stress the role of the access of non-state actors, while data on sub-threshold disagreements from Mercosur reveal that most potential disputes do not reach the formal stage - even if they remain unresolved.

Authors

• Karolina M. Milewicz, University of Bayreuth

• Duncan Snidal, Nuffield College, Oxford

• Kenneth Stiller