ABSTRACT
This chapter seeks to understand the interaction of firms and states in the development and conduct of international trade policy. The steady, if geographically uneven, internationalization of business can be seen as a key development which has profoundly altered the content and conduct of firm-state relations. The growth of multinational enterprises (MNEs) and, now, international strategic alliances is significant for trade relations because it demonstrates the importance of technological development and changing patterns of production for changes in trade preferences of firms. Firms now confront government with a bewildering array of policy demands, many of which would not strike someone as having much at all to do with trade politics. What is distinctive about these policies is the degree to which they centre on domestic arrangements of states rather than on external economic policies. Modern trade politics is as much about what goes on inside states as between them. Trade policy now is a bundle of industrial and regulatory policies and this has brought firms and states into new types of interaction over new issues.1 In contrast to earlier decades where there was a clearer distinction between the outside world of trade and the inside realm of the domestic economy, industrial policy questions are now inextricably bound up in trade issues. A state’s industrial policy can be an important element of trade politics because it implies an effort on the part of the state to alter market outcomes. Thus, firms’ competitive prospects in the international economy can be shaped by state policies. The link between corporate activity-whether it be inward investment, trade or acquisition-and regulatory regimes, whether national or international, is very tight. Moreover, it means that firm-firm activity, such as a merger, can now occur simultaneously with a government-government negotiation about the revised regulatory regime to cope with the putative corporate arrangement. Thus, international trade matters are less and less about ‘trade’ as conventionally defined. Rather they are about the complex interplay between corporate strategies and government regulatory regimes. Thus, it is misleading to say that firms simply demand an ever more deregulated marketplace. True, liberalization has been the predominant theme of political economy in recent years. However, in many ways the international economy is more, not less, regulated than ever; more areas of business activity are coming under national or supranational scrutiny. Intellectual property protection, health and safety standards, to say nothing of competition policies, were not on the trade agenda thirty years ago; now they are.
