Economic Progress

Welcome to the new deal-based order

A combination photo shows U.S. President Donald Trump (L) trying twice to let go of a handshake with France's President Emmanuel Macron (R) as Macron holds tight, before a working lunch ahead of a NATO Summit in Brussels, Belgium, May 25, 2017.  REUTERS/Jonathan Ernst     TPX IMAGES OF THE DAY - RC18F0B65C10

'Deals have always played a role in international relations.' Image: REUTERS/Jonathan Ernst

Philip Shetler-Jones
Programme Lead, International Security, World Economic Forum
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The recent state of world politics has academics, commentators and pundits gloomily reflecting on the demise of the “global, rules-based order”. Signs are seen in the attitude of President Trump’s “America First” policy, Europe's handling of its refugee crisis, and the impunity with which sovereign borders are violated in Ukraine and elsewhere. But as respect for rules erodes, a new way of structuring international relations may be materializing in its place. Welcome to the “deal-based order”.

Deals have always played a role in international relations. However, there is a difference between deals that complement the rules and those that undermine them. There is a growing body of evidence to suggest that the deals being struck today fall more into the latter category. But why is this happening and what could be the result?

The rise and fall of the rules-based order

This rules-based order (or RBO for short) exists on two levels. On the abstract level, it is an assumption shared among those with the power to make or break a given order that the fairest and most efficient way to avoid or resolve costly disputes is to follow a set of pre-agreed rules. This is an act of self-interest. Because rule sets make actions more predictable, they can reduce risk and enable a more efficient allocation of resources to a plan or policy that can be expected to deliver results. On a practical level, rules exist in institutional form, like the articles of the UN Charter, which governs the rules between sovereign states, or the World Trade Organization’s rules, which provide the framework that supports free trade. A more recent example is the UN Convention on the Law of the Sea (UNCLOS).

Two conditions must exist for a RBO to work properly in the context of geopolitics:

  • Rules need to be agreed among most, if not all, stakeholders. At a minimum, the ruleset needs the consent of those people who have enough power to feel they might get away with breaking the rules.
  • The rules need to be policed and – in extremis – enforced. For this, you need members of the rule-abiding community to invest resources and develop the capacity to play a policing role to deter or impose a cost for violations. The proof of this can be seen in historical precedents of a regional or global RBO that feature one or more powerful states willing and able to act in the policing role. The Roman Empire kept the rules in Europe for a few hundred years. The British Empire played this role in certain respects (e.g. maritime trade, counter-slavery) on a global level up until World War I. The interval between 1919 and the outbreak of World War II showed what happens when the role of the powerful nation state or empire is delegated to an institution lacking enforcement capacity – in this case the League of Nations. Without the power and wealth of the global power of its day (the USA) at its back, the League failed to maintain order.

After World War II, the United States of America very deliberately stepped into the role, aided by new innovations such as the Bretton Woods institutions and the UN Charter. The UN embodied a set of rules that provided the most powerful states with the reassurance that their interests would be protected in the form of permanent membership of the UN Security Council with veto power over enforcement. This order survived alongside superpower competition until 1989, and in the following decades, the United States continued to see itself acting as a global cop or “indispensable nation”. The rules-based order seemed to be working so well it could almost be taken for granted.

But the economic “flattening” effect of globalization has brought about two big shifts that are pulling the rug out from under the key conditions for sustaining the RBO. First, a huge transfer of economic power has reduced the relative dominance of the USA and Europe and raised non-Western actors like China, resulting in a more multi-polar power landscape. The number of powers that have a say in rule-making has increased and so has the diversity of their interests.

Related to this shift, the United States has become less willing, and perhaps also less able, to perform the global policing role. Some of this is because of the perceived failure of post-9/11 policies in Iraq, Afghanistan and Libya, which has bred scepticism among the Western public regarding military interventions. Elsewhere, the fact that the West invaded Kosovo and Iraq without the blessing of the UN also meant that other stakeholders, like China and Russia, felt their interests were no longer being taken into account.

The withdrawal of the US from the role of global policeman became evident in President Obama’s approach of “leading from behind”. Yet President Trump still campaigned against the “idealism” of Obama’s foreign policy and in his inauguration speech said: “For many decades, we’ve enriched foreign industry at the expense of American industry; subsidized the armies of other countries while allowing for the very sad depletion of our military; we've defended other nation’s borders while refusing to defend our own; and spent trillions of dollars overseas while America's infrastructure has fallen into disrepair and decay (…) But that is the past. And now, we are looking only to the future. From this day forward, it's going to be only America first”. Subsequent policy statements indicate that this means alliance relations and trade agreements were going to be reformulated to give America a better deal.

The following incidents can be seen as marking the outlines of an emerging “deal-based order” (or DBO). Firstly, under President Obama, Iran’s failure to satisfy the terms of the non-proliferation treaty was answered by the UN. But rather than act to enforce them - as the ‘rules’ demand, a deal was done with Tehran instead, whereby sanctions were lifted in return for various moves to halt the country’s nuclear weapons programme.

Secondly, when President Trump came into office, he took the perennial Washington headache of European NATO allies under-spending on defence but put it in the context of the US-Europe or US-German balance of trade. On 30 May 2017, he tweeted: "We have a MASSIVE trade deficit with Germany, plus they pay FAR LESS than they should on NATO & military. Very bad for U.S. This will change". Was he leveraging trade to get Europeans to share the allied defence burden, or was he threatening to abandon European defence to gain leverage on trade? Perhaps both, but the point is a geopolitical relationship that has been anchored in treaties (the NATO Charter and the Trans-Atlantic Trade and Investment Partnership, or TTIP), is now approached as a deal.


Something similar is happening in Asia. The challenge of North Korean nuclear proliferation is not met merely by appeals to the Nuclear Non-Proliferation Treaty or by relying on UN Security Council Resolutions, but by structuring a deal. Even though China has been “raping” the US on trade, President Trumps has said: “if China helps us (on N. Korea), then I feel a lot differently towards trade”.

The current US President wrote The Art of the Deal, but it would be a mistake to see this a phenomenon of purely American foreign policy. In addition to all permanent members of the UN Security Council, Germany and the EU were parties to the Iran ‘deal’, which had to be defended against a charge that it was accompanied by secret side-agreements.

In fact, the Europeans that are such vocal proponents of the rules-based order seem equally inclined to overlook the rules when a good deal is on offer. In the case of Eurozone regulations on deficits and borrowing, the shortcomings of French fiscal policy and Greek indebtedness was resolved not by enforcing Eurozone rules, but by striking a deal. Likewise, the process of Brexit has become all about getting a deal, rather than relying on a shared rules framework.

The clearest example is migration, where the UN Refugee Convention that “outlines the rights of the displaced, as well as the legal obligations of States to protect them” has been put aside in favour of a deal with Turkey. As a report by Amnesty International puts it: “European leaders had met in Brussels and, blithely disregarding their international obligations, agreed that every person arriving irregularly on Greek islands – including asylum-seekers – should be returned to Turkey.” More recently, European Parliament President Antonio Tajani recommended an extension of this approach to Africa: “Europe gave Turkey €6 billion to close the Balkan route. Now it’s the moment to do the same with Libya”.

Deal-making is nothing new, of course, and a degree of deal-making always goes on around the writing of rules and their interpretation. Nor is it the case that rules don't matter anymore, but rather that there seem to be more and more cases where the deal instead of a set of rules is the preferred option for structuring an international agreement.

The art of the deal

What makes a DBO different from the RBO?

1. The DBO makes international relations more narrow, bilateral and transactional. If you want to structure agreements with a large number of partners, sets of rules are more efficient than deals, which would require many parallel negotiations with all counterparts feeling more or less generously treated. One consequence of this is that a set of rules is more likely to encompass multiple issues, which can encourage horse-trading. Often, a broad multilateral rules-based agreement comes with a desire to create community and as a result, the sets of rules involved often mix values with interests (e.g. the EU Treaty). Deals are more appropriate for structuring transactional relations between two or three partners. The DBO is, therefore, more bilateral and defined on a single issue of the relationship or a trade-off in a couple of areas.

2. The DBO is more fragile. Rules imply sanctions for rule breakers and frequently come with mechanisms for monitoring compliance and policing violations. But where the relationship is struck on a deal, non-compliance is more likely to be followed by one side simply walking away. Another reason for this fragility is that deals are more likely to be premised on delivery within a short timeframe. In a rules-based order, non-delivery can be spun out via arbitration and quibbling over the means of verification. Where the set of rules is complex or multilateral, it may require consensus among the rule taking community before the violator is punished or excluded. But in the pure DBO, failure to deliver is quickly apparent and likely to spell the collapse of the deal. For these reasons, a DBO is more fragile than the binding RBO.

3. A DBO is less transparent and accountable. Bluff and deceit are classic elements of dealmaking. The importance of deception in the DBO makes it more secretive than the RBO, which has to be transparent enough to allow monitoring and enforcement mechanisms to function. The 1916 Sykes-Picot agreement and the secret protocol of the 1939 Molotov-Ribbentrop pact between the USSR and Nazi Germany are two famous examples of deals done away from prying eyes. Despite the fact that the League of Nations and UN Charter outlawed this practice, such deals are by their nature difficult to prevent. Deals with secret clauses are easier to carry off in authoritarian systems, where leaders are less subject to oversight through political mechanisms or a free media. However, the value of deception in the DBO may pose challenges for democratic systems.

4. The DBO is more directly shaped by power dynamics. Chapter 5 of The Art of the Deal is titled “Use your Leverage”. This is a reminder that power is an important element in dealmaking. Unlike sets of rules, where the advantages of power are limited by the need to be consistent with a wider set of those who conform to a common set of rules, or the intervention of a third party institution (an ombudsman, secretariat or court), the DBO is more directly shaped by power imbalances.

So what?

If a DBO is emerging, then what does that say about the character of global politics today?

Firstly, it means the world may be heading for a more volatile period when international relations will be more dynamic and less predictable, and relationships more fragile.

Secondly, the transactional style of a DBO makes it harder to promote issues like human rights by bundling them into sets of rules that are fundamentally about something else, like trade relations or mutual defence. The rise of the transactional style reflects a world with less interest in building transnational communities.

Thirdly, a DBO may entrench or deepen inequality among nation states, because of the way deals allow more powerful parties to exploit a weaker counterpart.

Have you read?

In some ways, the DBO may be brought down by the same weaknesses that, all those years ago, led nations to commit to the system of international rules, courts and guardian institutions that are familiar to us today. Of all the above factors, the Achilles' heel of the DBO may prove to be its need to deliver. Recall that one of the maxims contained in Donald Trump’s The Art of the Deal is to always deliver the goods: “You can't con people, at least not for long. You can create excitement, you can do wonderful promotion and get all kinds of press, and you can throw in a little hyperbole. But if you don't deliver the goods, people will eventually catch on.”

Lower levels of trust in alliances and multilateral structures to keep order force all the actors in the international system to consider a “self-help” approach to security, which translates into a need to provide more for your own defence. That means diverting resources away from social spending or policy measures designed to address other challenges, such as adapting to climate change or the impact of the Fourth Industrial Revolution. The opportunity cost is considerable.

What is the alternative?

Avoiding the volatility, cold transactional nature and exploitation of the DBO means facing up to the fact that rules do deliver, but at a cost. Energy must be invested both in upholding existing sets of rules that reflect common interests and negotiating new ones if necessary. Resources and political will must be committed to their just enforcement. In the long run, we may find that rules represent the best deal after all.

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