Example 1: It is well known that many countries are aggressive in pressuring other countries to weaken regulations or preferential tax or subsidy treatments that restrict international firms’ business activities and global and regional multilateral agreements are the most direct ways by which extra-territorial factors shape the choice of policy instruments. But these exist only in very few sectors, and often have large areas of exclusion even when they are present. Trade and investment agreements such as the World Trade Organization (WTO) agreements and the North American Free Trade Agreement (NAFTA), for instance, often specify in great detail the measures that governments can or cannot adopt vis-à-vis domestic and international producers. But, powerful as these treaties are, they only prohibit the use of a small number of very specific instruments such as tariffs and quotas to assist domestic producers, and even then they often contain exceptions to those bans. The use of subsidies of various kinds specifically intended to assist domestic producers, for example, is restricted by countervailing duty clauses and other similar measures, but activities in the cultural and agricultural realms are usually excluded from these measures.
Example 2: More general political agreements, whether formal or informal, can also have a constraining direct effect on the choice of policies and policy tools. The European Union is an extreme case of the formal transfer of decisionmaking authority to a supra-national centre, for example, which often severely limits what national governments can do and the instruments they can employ to effect their decisions (Kassim and Le Galès 2010). However even here the restrictions on national governments’ abilities to employ regulatory and fiscal tools on their own are often less significant than often assumed (Halpern 2010). And, even when they are, national governments are often able to craft their own specific solutions to ongoing policy problems with little regard to EU policy through mechanisms such as ‘subsidiarity’ or the ‘Open Method of Coordination’ which allow local states to determine and design their own policy responses to EU-level initiatives (Meuleman 2010; Heidbreder 2010; Lierse 2010; Tholoniat 2010).
Thus, while there is no doubt that the evolution of these kinds of international treaties and arrangements is an important development, in many sectors and areas of government activity they impose only very minimal or no constraints on the choice of policy tools utilized by governments; nowhere near those alleged by both proponents and opponents of globalization-led promarket reforms (see especially Palan and Abbott 1996; Clark 1998; Weiss 1999; Bernhagen 2003). There are few international agreements that specifically require governments to privatize or deregulate, for example, and the sectors which have experienced the deepest deregulation and privatization in recent decades – financial, telecommunications and air transportation services – predate the General Agreement on Trade in Services (GATS) negotiated under the WTO umbrella.
Hence, to date, the actual impact of globalization on domestic state policy designs is much less than often alleged, outside of several well-known sectors and events. The direct international constraints on policy designs typically cited by proponents of the globalization thesis have largely been confined to cross-border economic exchanges and do not cover much of what governments do and how they do it. Traditional command and control instruments of governance, such as regulation by government or independent regulatory commissions, state-owned enterprises and direct taxation and subsidization, are far from antithetical to globalization as is evident in their continued, and at times even increasing, use in policy designs in a variety of national and sectoral settings (Jayasuriya 2001, 2004; Vogel and Kagan 2002; Jordana and Levi-Faur 2004; Ramesh and Howlett 2006).