The global trading regime is characterized by the co-existence of bilateral and multilateral politics. In this article, we offer a political economy explanation for this regime complex, by tracing public actors’ institutional choices back to political incentives for economic sectors and the firms active within them. First, we argue that product differentiation creates mixed motives on the part of firms, which in turn leads to a preference for the segmentation of markets, and thus bilateralism. Second, we contend that among these firms, multinational corporations (MNCs) are particularly well-positioned to exert influence over policy decisions in multiple international fora, both bilateral and multilateral. This provides incentives for multinationals to push governments to create and sustain regime complexes in the form of nested regimes. We show how these expectations are largely born out in an empirical test for six different economic sectors.
- Large multinational corporations with differentiated production often have a preference for discriminatory market segmentation and are perfectly fine with advocating bilateralism.
- Since small and medium-sized enterprises can less easily afford to continuously participate in those bilateral policy processes, policymakers should beware of the risk of undersupplying them with privileged access to key markets as well as the public good of non-discrimination.
- The re-shoring of supply chains in response to the coronavirus pandemic is more likely in sectors with highly differentiated production, reinforcing demand for bilateral modes of interaction.