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CHAPTER 5 The Politics of External Trade Introduction In July 1991 the European Union and Japan adopted a “voluntary trade agreement ” on automobiles, which has been c haracterized as “one of the most unusual understandings in modern international economic diplomacy” (Mason 1994, 427). It represented a singular depar ture from the pr inciples governing the completion of the single market, and it was at odds with the rules governing trade among the member stat es of the General Agreement on Tariffs and Trade (GATT). Why did the establishment of a common external trade regime fall so short of free-trade principles? Were the institutions ofthe EU ineffective? The explanation is a simple one:the mass-market auto producers,in direct contrast to the policy outcome in emissions control described above, were united by a very strong interest in the outcome. This political weight was decisive. In the analysis that fol lows I show how the distribution of fi m and government preferences fostered cohesion among them and gave rise to influentia coalitions. I also show how the weak institutional environment allowed an outcome far shor t of external openness. The absence of a formal, rule-governed process had two significant onsequences: it limited the set of actors who had influen e on the policy-making process, and it allowed for an expanded set of possible outcomes, some at odds with the objectives of the single market program . The united front presented by the producers in combination with these two elements gave them significant ontrol over the outcome. I begin by discussing the preferences of governments and fi ms. The preferences imputed to them in chapter 3 are assessed in greater detail, and the set of choices before them are specified In particular I show how the issues of external trade and transplant production were closely linked. The analysis continues by looking at the history of EU relations with Japan, and the legal basis 111 for the trade regimes practiced separately by the member states before the passage of the Single European Act. I show how the passage ofthe SEA ended these regimes and forced the issue of external trade onto the agenda. Of course, once national restrictions were to be submerged by an EU-wide regime, then EU institutions w ere bound to play a significant ole in international bargaining. However, such was the informal character of the bargaining process that industry interests were privileged, due to their cohesion and influ ence over the Commission, while the formal procedures established by the SEA, which in other issue areas structured outcomes in ways favorable to openness, played no part. A crucial question is why those interests favorable to greater openness were not able to shelter behind the institutional structures of the EU. How was it that an informal process governed this outcome? I return to this question at the end of the chapter.However,worth noting here is the perverse way in which the very absence of escape clauses in EU and GA TT rules,in a situation in whic h a blocking minority was opposed t o a pur e liberal outcome, pushed the barg aining outside the institutional en vironment and so e xpanded the set of possible outcomes. The fact that new t rade barriers were accompanied by a liberal investment regime reveals divisions among producers and governments, rather than the effects of institutional constraints. The analysis concludes by giving an account of the bargaining behind the agreement. I show how crucial changes that oc curred in the aut o producers’ transnational industry association during the negotiations increased their political weight. These changes refle ted the forces, identified in hapters 2 and 3, that shaped interf rm cooperation and had the effect ofincreasing the power of the industry over the outcome. I also show how this power was unmediated by a formal institutional en vironment, which condition was endogenous t o the cohesion among producer interests. The Preferences of Governments and Firms As noted in chapter 2, the preferences of governments for radical integration would be shap ed by the deg ree to which they imagined it w ould foster even greater rationalization in industry. That is to say, if greater openness further divided national producers into winners and losers, then the preferences of governments would, likewise, diverge. It was c ertain that overall all the member states would gain something from integration; the problem was that the gains would be asy mmetrically distributed. While there would be...

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