Trade-related investment measures (TRIMs) have been a key issue in regional and multilateral trade negotiations, but they have received little attention in theoretical work to date. This article analyzes the political economy of TRIMs to illuminate why regional arrangements have been a popular framework for eliminating them. The main argument is that multinational firms often demand safeguards when TRIMs are being liberalized, particularly if they have large sunk costs due to asset specificity. In general, regional arrangements are better equipped than multilateral rules to incorporate the safeguards these firms demand: regionalism requires governments to make binding commitments, and it creates opportunities to discriminate against outsiders. A case study of lobbying by U.S. companies with FDI in Canada from the early twentieth century to the negotiation of the Canada-United States Free Trade Agreement illustrates these points. The article concludes that regional arrangements are likely to remain more active, and more successful, than multilateral discussions in managing the commitment problems inherent in liberalizing TRIMs.

Theories of trade and domestic politics have been applied extensively to manufacturing and agriculture; the political economy of trade in services, however, remains poorly understood. This article examines how the “offshoring” of services segments labor markets and places low-skilled and high-skilled labor at odds on trade issues. Drawing from a case where trade has been politically contentious of late—motion picture services in the United States—the article finds that offshoring can aggravate wage inequality, creating incentives for low-skilled workers to demand policy remedies. Consistent with this expectation, an ordered probit analysis of labor-group lobbying reveals that low-skilled occupations in motion picture services were most likely to support countervailing duties and Section 301 action against productions filmed abroad. The findings suggest that when services are tradable, labor-market cleavages are not purely factoral or sectoral, but occupational. This new politics of trade in services has important implications for trade policy in the United States and multilateral rulemaking in the World Trade Organization.

The design of rules of origin in free trade agreements (FTAs) arouses spirited lobbying campaigns that mostly escape public attention. This article argues that the domestic groups generally most favorable to FTAs differ in their preferences over rules of origin: industries with large returns to scale favor strict rules of origin to gain scale economies in an FTA, while industries with multinational supply chains prefer lenient rules of origin to accommodate offshore procurement. An econometric analysis of rules of origin in the North American Free Trade Agreement (NAFTA) finds tougher rules of origin the higher the external trade protection and the larger the returns to scale, and more permissive rules of origin the greater the involvement in foreign sourcing. The results suggest that rules of origin may be critical to building domestic coalitions for FTAs. Industry preferences toward rules of origin therefore have important implications for the politics of FTA ratification.

The Evolution of the Trade Regime: Politics, Law, and Economics of the GATT and the WTO. By John H. Barton, Judith L. Goldstein, Timothy E. Josling, and Richard H. Steinberg. Princeton: Princeton University Press, 2006. 256p. $29.95.

The scope of this book is impressive. Eight chapters detail the history and institutional design of the World Trade Organization and its forebear, the General Agreement on Tariffs and Trade (GATT), analyze their successes and failures over nearly 60 years, and outline challenges that the regime must manage to remain politically viable. As the subtitle suggests, the authors examine the politics that have shaped and sustained the trade regime; legal issues, particularly in the settlement of trade disputes; and economics as an underlying factor in the regime's evolution, along with the trade effects of its presence.

The GATT treaty's loophole for free trade areas in Article XXIV has puzzled and deceived prominent scholars, who trace its postwar origins to US aspirations to promote European integration and efforts to persuade developing countries to endorse the Havana Charter. Drawing from archival records, this article shows that in fact US policymakers crafted the controversial provisions of Article XXIV to accommodate a trade treaty they had secretly reached with Canada. As a result, the free trade area exemption was embedded in the GATT–WTO regime, even though neither the Havana Charter nor the US–Canada free trade agreement was ever ratified. Theoretically, the case is an important example of how Cold War exigencies altered the policy ideas of US officials.

This article examines lobbying in the United States on the North American Free Trade Agreement (NAFTA). I argue that economies of scale and production sharing across borders create incentives for firms to seek regional trade liberalization. Statistical analysis demonstrates that sectors with these characteristics were more likely to lobby for free trade in North America; these sectors were also exposed to free trade more rapidly under the tariff-phasing schedule in the NAFTA treaty. However, corporate restructuring to rescale production for the regional market and to increase offshore assembly presented adjustment costs for U.S. workers, which created divisions between labor unions and their employers. I conclude that regional arrangements are an attractive mechanism to liberalize trade for firms in need of larger-than-national markets to take advantage of economies of scale or to develop production-sharing networks.