From an institutional perspective, this analysis suggests that the design of escapeclauses and related loopholes in trade institutions is of vital importance to the
success of these organizations. Scholars have picked up on this idea and developed
fairly precise arguments about the appropriate design of such loopholes. Rosen-
dorVand Milner ( 2001 ) show that escape clauses enhance the durability and
stability of trade institutions in the face of domestic political uncertainty. However,
to prevent the abuse of these clauses, states must bear a cost for using them. This
‘‘self-enforcing penalty’’ appears to be reXected in various dimensions of the WTO,
for example, requiring oVsetting concessions for the use of escape clauses. Barbara
Koremenos ( 2001 ) considers theXexibility built into agreements in more general
terms. She sees the fundamental problem as one of assuring a certain distribution
of gains across states, rather than a response to unexpected domestic pressures.
This sort of uncertainty explains the incidence of renegotiation provisions in many
agreements.
Of course, all of this discussion of institutional bargaining, dispute resolution,
and design begs the question of the overall eVect of trade institutions on patterns
of international trade. Have tradeXows responded to the creation of global and
regional institutions? This is a complex issue, involving many counterfactuals,
that has barely begun to be explored. However, one inXuential study of the
GATT/WTO argues that it has, in fact, made little diVerence in patterns of
trade (Rose 2004 ). Controlling for other factors that determine tradeXows,
there is little evidence that GATT membership per se has increased observed
levels of trade. However, Rose doesWnd that developing countries that partici-
pated in the Generalized System of Preferences under the GATT (a major
deviation from the general norm of non-discrimination) did experience
increased trade. It is also possible that the great powers, which were able to
dominate the terms of debate, derived the greatest beneWts. Clearly, further work
on this issue is required. For example, to determine accurately the eVects of trade
institutions studies will have to deal adequately with the challenge of selection
bias: Controlling for the factors that determine which states join liberalizing
institutions in theWrst place.
Overall, research on global and regional trade institutions nicely bears out the
major themes of this chapter. In many ways, the design and functioning of these
institutions reXects the basic strategic dilemmas of international trade. Promoting
beneWcial exchanges requires that institutions structure bargaining, monitor com-
pliance with commitments, and provide enforcement mechanisms. We also see that
the ongoing struggle between rule-based interaction and the exercise of power
plays out continually in these trade regimes. While rules attempt to constrain
the processes of bargaining and dispute resolution, the best empirical studies
conWrm that the actual functioning of these institutions reXect continuing realities
of power politics. I next turn from trade toWnance, to consider the functioning of
the IFIs.
international economic institutions 665