Tuesday, July 14, 2015

Lee Kuan Yew: the passing of an era – Raymond Woo

Lee Kuan Yew, the man who made modern Singapore in his image and became known as “the sage of the east” who was venerated the world over, has died.
As history now tells us, Kuan Yew was an indomitable figure in a chaotic post-colonial Southeast Asia who had a laser-like focus on what he wanted out of his tiny country, and also on how he would like to deal with his often-hostile neighbours of Malaysia and Indonesia as well as the world beyond.
Calling Kuan Yew multifaceted would be an understatement: he almost single-handedly rallied his political lieutenants in his People’s Action Party to collaborate with and then betray the communists in Singapore, fought for a merger with the territories of Malaya, Sabah and Sarawak to form Malaysia only to see Singapore unceremoniously kicked out, turned a slum-like city into a gleaming metropolis with one of the world’s highest per capita GDP (gross domestic product), micro-managed his citizen’s public and private behaviour, preached “Asian values” and much more.
Of course, he was given many monikers in his lifetime – the best bloody Englishman east of the Suez, Chinese chauvinist, street fighter, nanny of a nanny state, benevolent dictator, elder statesman, and the sage of the East. 
But what was he to me, an ordinary young Malaysian who was born in 1980s and grew up under the administration of former prime minister Tun Dr Mahathir Mohamad? Why does Kuan Yew even matter to me as a non-Singaporean, and matter enough for me to pen my thoughts here?
In fact, Kuan Yew matters greatly for myself and my country because he was very much part of Malaysia and Malaysian history, out of which the modern Republic of Singapore came into being. Kuan Yew was not only a historical figure in Malaysian history, but one of the founding fathers of Malaysia itself. It was Kuan Yew who first raised the idea of Malaysia to the reluctant then-prime minister of Malaya, Tunku Abdul Rahman, and through his superlative powers of co-option and persuasion, the Tunku and the leaders of Sabah and Sarawak agreed with Kuan Yew, and the rest of history.
Even after separation, the push and pull of Kuan Yew never waned in Malaysia, and multitudes of citizens are still inspired by his vision of a meritocratic and multiracial Malaysian Malaysia, while others loathe his attacks on Malay and indigenous Bumiputera privileges as prescribed under the Federal Constitution.
But even more than that, Kuan Yew’s presence never waned in the coffee shops, warung or roadside eateries and the market places where the ordinary folk of Malaysia who were once part of his Malaysia dream would gather. Even after 50 years of separation, Kuan Yew and his Malaysian Malaysia ideals are still being talked about and argued against in public places, including in national politics.
The cosmopolitan gleam of the economic miracle of Singapore, a result of Kuan Yew’s unrelenting determination to prove that he and his country would succeed in spite of having been forced out of Malaysia, will always cast a shadow on the country he left behind. He took a lonely road out of Malaysia, and his steely determination and success as a statesman have come back to haunt Malaysia ever since.
Since separation, generations of Malaysians have made their way to prosperous Singapore to attend its universities whose meritocratic admission policies are a contrast to the race-based quota system for university enrolment back home. Hundreds of thousands more decided to immigrate to Singapore to gain higher paying employment.
Malaysia and Singapore, which had always been close as a result of their common British colonial heritage, had their ties strengthened further with the post-separation influx of Malaysians into Singapore. So many Malaysian families have relatives or friends working or living in Singapore that Singapore, and by extension Kuan Yew, have entered into the popular consciousness of Malaysia, or even their living rooms in the forms of chatter on the happenings in Singapore through updates from Malaysians living in Singapore who were returning for the holidays, through political manipulation of Kuan Yew’s image in Malaysia, through a hopeless longing of what the future could have been with Kuan Yew and Singapore still in Malaysia.
Indeed, Singapore and by extension, Kuan Yew, have become so ubiquitous, omnipresent, even suffocating (“Send your sons and daughters to Singapore! Education is good, salaries are good!”, say the returning relatives) among the ordinary folk, particularly the middle-class Chinese Malaysians. That was the cultural milieu I grew up in, as a middle-class Chinese Malaysian kid growing up in the suburbs of Subang Jaya, Selangor.
And yet, Malaysians have also heard of Kuan Yew’s excesses. The graduate mothers’ scheme, the ban on chewing gum, the draconian punishments on minor infractions like littering or jaywalking, the promotion on Chinese language and culture to the exclusion of minority Indian, Malay and other ethnicities. Disneyland with the death penalty. The “Fine” City. The crackdowns on the Catholic social workers, the long imprisonment of political detainees such as Chia Thye Poh who was in jail for more than 30 years. The defamation litigations against opposition politicians which often bankrupted them.
And yet, Malaysians often brushed off these alleged excesses in praise of Singapore’s efficiency and wealth. Furthermore, Malaysians themselves know of similar anti-democratic restrictions of freedom in their own country, coupled with greater socio-economic inequality and interethnic friction. After all, Malaysia and Singapore, as different as they are in ethnic composition and culture, were and still are in reality similar semi-democratic, developmental states.
Singapore, and of course by extension, Kuan Yew, will always be the shining beacon of what Malaysia could have been, or so Malaysians like to say.         
Singapore and Kuan Yew, with his single-minded ruthlessness in pursuit of economic growth and prosperity, have affected Malaysia in many ways, down to the personal and familial levels.
And yet, with better education among the younger generation in Southeast Asia, including Singapore and Malaysia, people are starting to see beyond economics and money. People want to have a say in their own destiny and be heard by their leaders. The youths who are often fighting for an existence which may be worse off than their parents’ in the midst of global recessions, religious conflicts and structural economic changes due to technological innovation which may result in massive loss of jobs, are no longer content to go to a good university and get good jobs which are getting scarce anyway. They want something more.
The era of strongmen in Asia is coming to an end as we are already halfway into the second decade of the 21st century. Strongmen like Suharto, Dr Mahathir, and of course Kuan Yew have come and gone. Spontaneous popular uprisings have occurred in Malaysia, Taiwan, and even usually docile Hong Kong. The once dictatorial South Korea has been a liberal democracy for nearly 3 decades now. The younger people no longer seem content to be told what to do, and are seeking ways to determine their own destiny.
Good bye, Kuan Yew. You have been an inspiration. With your passing, I feel that not only has an era passed in which you were one of its beacons, but I also feel that part of my own childhood and my growing-up years has gone with you.
Whatever your excesses may have been, you have achieved what almost no other statesman has achieved for the people of Singapore, for which prosperity, high levels of safety, good governance and an excellent education system are now considered to be societal norms. Indeed, your imposition of sheer will power onto Singapore and also the rest of the world without a care for your detractors is by itself an inspiration for me.
And now, you have moved on, and so we Malaysians will move on too.
Thank you for being a presence in my life, and my country will chart its own path, and hopefully be as single-minded in pursuit of our own happiness. – March 25, 2015.
Raymond Woo is a management and public sector consultant.
* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insider.

日本のインフラ輸出と三角開発協力 第二編


執筆:デロイト トーマツ ファイナンシャルアドバイザリー株式会社
Raymond Weng Pong Woo

Sunday, February 1, 2015






執筆:デロイト トーマツ ファイナンシャルアドバイザリー株式会社
Raymond Weng Pong Woo


世界のインフラセクターにおける開発途上国のパートナーとしての役割の進化と、日本企業によるインフラ輸出の状況を踏まえ、日本企業による開発途上国におけるインフラ関連事業の展開・プロジェクト受注の活性化について、本稿では、政府開発援助(以下、ODA 〔Official Development Assistance〕)分野における三角開発協力(以下、TDC 〔Triangular Development Cooperation〕)という概念を考察したい。


Wednesday, August 7, 2013

On Post Partisanship
by Raymond Woo
Mat 29, 2013

What is post-partisanship?

According to American political theorist Mark Satin, it is an approach to dispute resolution between political factions in which collaboration and compromise are emphasized over party discipline and ideology. However, unlike bipartisanship which Canadian health policy expert Neil Seeman described as “horse-trading”, where patchwork legislation is crafted to allow all sides to feel satisfied that some thread of their vision or ideological essence found its way into law, post-partisanship is a solution-based approach to complex public policy problems in which the input of all sides are considered and utilised based on agreed-upon principles.

In the aftermath of the highly-divisive and emotional Malaysian 13th General Elections (GE), it is clear from the poll results that there are fundamentally two Malaysias — not necessarily Chinese and Malay, but urban and rural, or West Malaysia and East Malaysia. All sides have made their stance quite clearly, where urbanites of all races have cast their lots with Pakatan Rakyat, while the mostly-Malay rural heartland stuck to the symbol of the status quo, Barisan Nasional. The accumulated anger and distrust between the symbols of the two Malaysias have been laid bare.

And yet, the governance of Malaysia must not be allowed to remain stuck in May 5, 2013 forever. Somehow, solutions to mundane local and national problems must continue to be found.

It is known that Malaysia faces a lot of ills — a deteriorating national education system, rising national debt and inflation, corruption and abuse of power, increasing socio-economic policy and a disunited nationhood. These are the true concerns of most urban Malaysians regardless of race and religion, and patronage and communitarian identity are not as important to urbanites as they are to the rural folk. I believe it was the lack of attention and the will to address those national concerns that has led to the decimation of urban support for BN.

Yet, I believe that Malaysians who love their country from both sides of the political divide believe that these problems must be solved to prevent Malaysia from being labelled as the “sick man of Asia”. But the question is, of course, how?

Perhaps, post-partisanship may be useful. This approach does not necessitate the avowal of political neutrality amongst warring parties; rather, broad but clear objectives can form the basis of technical cooperation to achieve common outcomes. Compared to other countries, Malaysia is already fortunate in that we do have many rules of the game that mainstream parties agree upon and would not violate — a democratic and representative system of government, an equitable capitalist economic system, constitutional monarchy, and the need to take care of the welfare of all communities in Malaysia.

Post-partisanship in Malaysia involves building upon those agreed-upon rules and principles to pursue technical solutions for technical policy problems. Intermediate issues that are seen to be politically intractable and not directly related to the policy problem should be left alone, to be settled another day.

One method that can be used is the multicriteria decision analysis, where different parties are allowed to select weighted-solution criteria, and enables a neutral and independent body with assigned legislative powers to identify and remove partisan biases in any final policy solution. An example of this would be the bi-partisan Congressional committees on various policy issues in the US.

As an example of a policy issue, take the case of improving Malaysia’s competitiveness in our national education system. How do we judge an education system’s competitiveness? Usually, we rely on international math or reading scores, and this is where Malaysia has declined dramatically in the past few years. Now, who do we engage in a dialogue on this? Education policy experts, of course, from both sides of the political divide, such as PR’s Dr Ong Kian Ming and Tony Pua, apart from the Minister of Education and its senior civil servants. Then, we can sit down and plan how to improve math and English skills of our students, and how to give more autonomy and incentive to our public universities to improve their faculties and student bodies, and so on. Maintaining or abolishing vernacular school systems or UiTM is an intractable political problem that should be left for another day. Yet, increasing the education quality at these schools without abolishing any of them can also be done to improve general national competitiveness, as the pursuance of national unity may not be directly related to educational excellence.

Or take the issue of health policy, which has even less “political hot potatoes”. The current shortage of drugs and high prices in public hospitals may be due to the lack of suppliers, which are heavily regulated and subscribed by the Ministry of Health. Incidentally, pharmaceutical supply is subject to the Bumiputera quota rule. Sensibly, we should increase the quality and quantity of the suppliers to resolve the problem of drug shortage. If the sacred cow of Bumiputera quota has to go, it has to be done, as affirmative action may not be a necessity to the general public’s access to medicine and healthcare. Again, we can get healthy policy experts from both sides of the political divide to concretise the problems and solutions.

Once emotions from the GE have died down and heads become cooler, I hope Malaysians of all stripes can put aside their political beliefs and convictions and aim to resolve some of the pressing issues that eventually affect every single citizen in a methodical and results-based manner.

Monday, October 15, 2012

The Case for a “Sovereign-Debt Restructuring Agency”

by Mark Pui and Raymond Woo

Malaysia-based consultants with a multinational professional services firm, Raymond Woo and Mark Pui analyse the impending Greek financial bailout and indicate possible moves to ease the crisis.
The tragic inevitability of Oedipus’ life is well-known. He was the ancient Greek drama character who, despite having tried his best to prevent the fulfillment of the prophecy that he would murder his father and marry his mother ended up doing the same. Mirroring this inevitability, the markets see a significant probability of a Greek sovereign default and its exit from the euro-zone. Despite the recent slim victory by pro-bailout Greek parties, as long as the still-powerful anti-austerity Greek parties refuse to cooperate to follow the terms of the austerity package as imposed by the European Central Bank (ECB) and the International Monetary Fund (IMF), trouble still looms.
The disagreement among EU member states on a long-term stabilization plan not just for Greece but also for all the crisis-hit EU periphery countries increases the probability of default too. In fact, The Economist (May 19 2012) predicted that a “Grexit” will happen in a matter of weeks.1 As recent as last week (15 June 2012), the Wall Street Journal ran an article citing operational plans and preparations being made by financial services firms for the eventual exit of Greece from the Euro-zone.2
The troubles of the Euro Zone are far from confined to one isolated nation.  Nary has a day passed without mention of severely worsening economic and fiscal conditions at other Euro Zone countries as Portugal, Italy and Spain.  Therefore, this issue – and the proffered solutions to it – are of great relevance to policymakers and investors alike.
Recovery via austerity is not a “silver bullet”
The initial proffered solution, as laid out by the ECB and IMF, was “recovery via austerity”.  The bailouts for Greece in 2010 and 2011 were conditioned on Greek implementation of the austerity terms, with the second bailout being further conditioned on all private and public creditors agreeing to a restructuring of Greek sovereign debt. As part of the second bailout conditions, private creditors agreed to a 53.5% haircut3 on Greek bonds held, among others. However, the uncertainty over how to quickly and effectively restructure the debt of Greece and the periphery countries, and how to stimulate growth in the EU economy again is killing the global economy. Sovereign bond yields and interest rates continue to rise incessantly, and the recession risks being prolonged further than necessary, which leads to increasing concern among global players such as the US, China and the IMF. It is becoming clear that despite the restructuring after the second bailout which involved deep haircuts and bond-swapping, the market is not confident Greece will be able to repay or service its debts, and this leads to a vicious cycle of recession and further default risk. Indeed, we argue that the current practice is akin to throwing money at crisis-hit countries without having control of restructuring debt and fiscal policies.
Spending-led recovery as an alternative
The other proffered solution, as championed by the Federal Reserve Bank and by economists such as Paul Krugman, was “recovery via spending”. During recessionary periods, fiscal policies such as stimulus packages and monetary policies such as quantitative easing and reduction of interest rates are implemented to boost demand. Such policies should lead to increasing economic growth and employment. However, expansionary fiscal policies can lead to higher national debt load and fiscal deficit. Expansionary monetary policies can lead to higher inflation, and if the policies do not create more economic growth, stagflation (a combination of high inflation and low economic growth) will occur. Further, even if expansionary monetary policies do not lead to higher inflation, low growth or even deflation can still persist such as in the case of Japan where nominal interest rates are almost zero and monetary policy has very limited power in boosting the economy. The critical issue is that structural problems must be addressed.  Expansionary fiscal and monetary policies are not long-term solutions in the face of unsolved structural problems in the economy.
Championing a workable alternative:  A supranational sovereign debt restructuring and asset management agency
As a workable alternative, we propose the establishment of a supranational sovereign debt restructuring and asset management agency to manage new challenges.  Using Danaharta as a reference point, we believe that a supranational debt restructuring and asset management agency, a Super-Danaharta if you will, is required to address this crisis – and future potential crises.
Before we explain why such an agency is needed and how the agency will work, we first explain the fundamental problems involved with the current status-quo of providing bailout money to sovereign-debt crisis-hit countries.
Flawed thinking exists that bailout money is the solution
The notion that a country cannot go bankrupt is mainstream thinking; the state will always have the power to impose further taxation to improve revenue, or depreciate its currency (i.e. print more money) to reduce the real value of its debts. The state’s sovereignty in itself is the basis for issuing sovereign debt, and thus such debt are not backed by tangible assets such as property. However,  three factors are increasingly proving this thesis wrong: the loss of monetary sovereignty such as after Greece joined the euro currency union; the rise of bonds and derivatives like CDOs (collateralized debt obligation) that has changed the nature of international creditor-debtor relationship by making international creditors more atomized and dispersed, which gives rise to collective action and collective representation problems for creditors;4 and, rise of populist measures in states due to the rise of representative democracy and social media that shifts policy priorities and erodes the trust in countries to repay its sovereign debts as seen in the example of Greece.
Features of a supranational debt restructuring and asset management agency
Using Anne Krueger’s (2002) proposed core features of a sovereign debt-restructuring mechanism that are based on corporate debt-restructuring models,5 our proposed sovereign-debt restructuring agency includes the following features.
1. Stay on credit enforcement by qualified majority creditor vote
A temporary stay on creditor litigation in the time before a restructuring agreement is reached but after debt-related payments have been suspended would support the effective operation of the majority restructuring provision.6 The stay will be activated by a qualified majority of creditors, whose resolutions and decisions are binding on the minority creditors. This approach can alleviate the collective action problem inherent in such a complicated undertaking, in which the problem can disincentivize both states and creditors from undergoing debt-restructuring.
2. Assuring the agency’s independence to verify all credit claims
First, there is an issue of conflict of interest as the IMF and the World Bank are lenders of last resort and their members with voting power might have other interests that might not align to the best interests of the sovereign-debt crisis-hit country. In the IMF in particular, each member state has a number of “basic votes”7 with an additional vote for each Special Drawing Right (SDR) of 100,000 of a member country’s quota.8 The basic votes generate a slight bias in favor of small countries, but the additional votes determined by SDR outweigh this bias.9Second, the agency must be absolutely independent in order to verify the true value of all claims to prevent the debtor from inflating its debt stock10 through currency depreciation and other means, and also to prevent creditors from deliberately withholding the stay on credit enforcement to pressure the IMF to carry a higher proportion of the burden in the debt-restructuring.
3. Priority financing
The agency can incentivize new financing by providing an assurance that any new financing to support the debt-restructuring such as bailout money extended after the activation of the stay would be given priority.11 We propose that priority financing be extended to all claims, both public/sovereign debt owed to other countries as well as preexisting private debt.
4. Management of assets during sovereign debt restructuring
The last and potentially most controversial feature is the management of state assets in the process of debt-restructuring. By managing the assets, the proposed agency can have more control over the process, and thus increase confidence among creditors and the sovereign-debt market which can stabilize bond yields. Sovereign debts are not backed by any tangible assets, and at the same time we have seen the possibility that the trust in governments to be able to repay their debts can decline as seen in Greece and other EU periphery countries. In order to implement this, debt-and-asset valuation must be performed, and the proposed agency’s independence should be able to mitigate hesitations from both the state and the creditors. The concern about losing sovereignty is valid, but it can be argued that the concept of sovereignty has evolved, and the country that is most affected by a sovereign-debt crisis, Greece, had surrendered monetary sovereignty after joining the euro-zone. Further, the concept of “new sovereignty” has emerged, as is illustrated in the writing of Chayes and Chayes (1995):
It is that, for all but a few of self-isolated nations, sovereignty no longer consists in the freedom of states to act independently, in their perceived self-interest, but in membership in good standing in the regimes that make up the substance of international life. To be a player, a state must submit to the pressures that international regulations impose… Sovereignty, in the end, is a status – the vindication of the state’s existence as a member of the international system.12
Thus, it is implied that a unilateral default on sovereign debt that can endanger the stability of the international financial market and system, cannot continue to be legitimized and hidden behind the veneer of “old” state sovereignty. Debts and assets can be restructured with the welfare of the crisis-hit state given top priority, but just walking away from repaying the debt might become increasingly unacceptable for the international community.
Creditors have a vested interest in managing and funding this agency
Lastly, we come to an important question: who will manage and fund this supranational agency? We have already expressed hesitation of it coming under the Bretton Woods institutions, in order to preserve its independence which is vital as an impartial arbitrator between creditors and a credible valuer of national assets. There are two possible options to manage the agency: to come up with a new international treaty which creates an organization to manage it and requires funding from member states; or, rely on the Paris Club, which is an informal group of official creditors that finds coordinated and sustainable solutions to the debtor countries’ debt-repayment problems. The former option is problematic, as the lengthy and difficult process of negotiating a new treaty with dozens of nations is well-known. The latter option is more manageable, as getting the informal group of creditors to fund and manage the proposed agency is a step to systemize and formalize their existing objectives.
Alternatively, the agency can dispense bailout funds from the IMF and other lenders of last resort through a contractual agreement, and manage national asset management and repayment of sovereign debt to creditors in an orderly, predictable and institutional manner to prevent instability in the international capital markets. The creditor nations will then fund only the operations and daily management of the agency, with rescue package funds coming from elsewhere.
To summarize, there are two rationales for our proposing the sovereign debt-restructuring agency. First, collective action problems will most likely prevent creditors of all claims from working together on their own, hence a need for an agency to mitigate such problems through measures such as majority voting on the stay of credit enforcement. Second, an independent agency to enforce sovereign debt-restructuring in an equitable manner to both the sovereign state and creditors can prevent the moral hazard of default of sovereign debt due to lack of disincentives and punitive measures against it. Basically, the agency shows that the international community is serious on insisting that sovereign debt must be repaid without overly large injuries to creditors through steep haircuts and defaults, but the international community is there to help the crisis-hit country get its feet back by stabilizing bond yields and interest rates so the state can continue to borrow again quickly.
It’s time for a rethink of the way we manage sovereign debt defaults
In conclusion, recovery, whether by way of austerity or spending, is not the only component of the solution.  Dealing with sovereign debt crises requires a more thorough re-thinking of the way that the world’s policymakers, acting as a collective group of nations, enforce and manage debt defaults at the sovereign level.

All views and opinions presented in this article are solely those of the authors and do not represent any employer directly or indirectly.
“The Greek run,” The Economist, May 19, 2012, May 25, 2012.
“Banks Prepare for Possible Greek Exit from Euro Zone”, the Wall Street Journal, June 15, 2012.
“Eurogroup Statement,” February 21, 2012, May 25, 2012.
Amita Batra, “Sovereign Debt Restructuring”, Indian Council for Research on International Economic Relations Occasional Paper, October 2002, 6, accessed May 25, 2012, http://icrier.org/pdf/OP02SovDebt.pdf.
Anne Krueger, A New Approach to Sovereign Debt Restructuring (Washington DC: International Monetary Fund, 2002), accessed May 25, 2012, http://www.perjacobsson.org/external/pubs/ft/exrp/sdrm/eng/sdrm.pdf.
Ibid, 15.
“About the Membership,” International Monetary Fund, accessed May 27, 2012, http://www.imf.org/external/about/members.htm#function.
Brock Blomberg and J Lawrence Broz , “The Political Economy of IMF Voting Power” (paper presented at the  The International Political Economy Society (IPES) Conference, Princeton University, Princeton, New Jersey, November 17-18, 2006), 4, accessed May 28, 2012, http://www.princeton.edu/~pcglobal/conferences/IPES/papers/broz_blomberg_F1030_1.pdf.
10 Anne Krueger, A New Approach to Sovereign Debt Restructuring (Washington DC: International Monetary Fund, 2002), 32, accessed May 25, 2012, http://www.perjacobsson.org/external/pubs/ft/exrp/sdrm/eng/sdrm.pdf.
11 Ibid, 28.
12 Abram Chayes and Antonia Handler Chayes, The New Sovereignty: Compliance with International Regulatory Agreements (Cambridge, MA: Harvard University Press, 1995), 27.

A Critique on the Theories of Treaty Compliance

A Critique on the Theories of Treaty Compliance

by Raymond Woo
(originally published in LoyarBurok, 29 May, 2012, http://www.loyarburok.com/2012/05/29/critique-theories-treaty-compliance/)

An analytical book review comparing Goldsmith and Posner, Chayes and Chayes, Raustiala, et al.
Goldsmith and Posner’s book, “The Limits of International Law” [1] articulates the various theories by well-known scholars on the formation and compliance of treaties, and non-legal agreements. The authors keenly agree or disagree with, as well as add to or deduct from many well-established theories and empirical studies in the field of treaty compliance, while forwarding their own findings and theories. Nonetheless, I found the book to have several contentious points, on which I will elaborate in this book review.
First, Goldsmith and Posner attempt to explain the reason behind the empirical observation of states preferring formal treaties to non-legal agreements. They reason that it must be due to the added values of treaties as compared to non-legal agreements, and thus offered examples of those added values: (i) treaties usually require legislative
consent, which convey important information about state preferences for the treaty, (ii) treaties implicate certain interpretive default lines, and (iii) treaties convey a more serious commitment compared to non-legal agreements.
However, their reasoning of the prevalence of treaties among states is simplistic. In the article, “Form and Substance in International Agreements”, [2] Raustiala offers a more sophisticated explanation by using both functionalist and liberal methodologies to explain the empirical abundance of contracts, which is Raustiala’s term for treaties. He raises Abbott and Snidal’s four conditions under which states would prefer treaties: when the risk of opportunism is high; when noncompliance is hard to detect; when they may serve as a sorting device to form clubs of like-minded parties; and when executive branches use them as a means of committing other branches of government. [3] This functionalist analysis emphasizes credibility and flexibility when trying to understand state preference, in which rational states would trade off ex ante credibility for ex post flexibility.
Raustiala also provides the central explanatory variables from the functionalist perspective that Goldsmith and Posner do not provide, other than their ambiguous proposition of the added value of treaties. Raustiala’s variables are: (i) uncertainty in the underlying cooperative issue; (ii) desire for speed or confidentiality, (iii) the risk of opportunistic behavior by other states; and (iv) diversity in interests and preferences. Accordingly, treaties would become more concentrated in cooperative-type situations as compared to coordination-type situations, due to higher uncertainty and less risk of opportunism of the latter. Thus, treaties are often found in cooperation-type issues such as global warming and fishery controls, as compared to coordination-type situations such as the international monetary system and telecommunications codes. The liberalists, however, would give three different explanatory factors instead, which are: domestic preferences, domestic institutions and relative state power. Indeed, domestic “constituencies for cooperation” would affect state policy depending on their relative power, and since there is an inherent bias among domestic constituencies towards contracts when it comes to reliability, Raustiala concludes that domestic actors who prefer cooperation would exhibit a tendency in favor of treaties.
Second, Goldsmith and Posner propose sanctions as a primary incentive for treaty compliance. According to them, retaliation is actually a form of sanction against non-compliance in the absence of a third-party enforcer, and this is usually the most common commitment mechanism for multilateral treaties, in particular that of cooperative games such as the World Trade Organization (WTO). Thus, when one talks of retaliation, the discussion will invariably lead back to the perpetual controversy of the importance of sanctions in treaty compliance.
However, there is literature espousing sanctions as not being an important factor in compliance. For example, Chayes and Chayes’ propose the managerial model of ensuring compliance in their book, “The New Sovereignty”. [4] To begin, they move away from the traditional rational-choice instrumentalist explanations, and first look at why states comply with treaties. They give three factors, which are: efficiency, interests and norms. Regarding efficiency, government and individual resources for public policy are in short supply, and it is plainly a waste of time and resources to recalculate the cost and benefits in the absence of convincing evidence that circumstances have changed since the original situation, and the alternative is to simply comply with the treaty. In regards to interest, it can be assumed that the parties’ interests are served when they entered the treaty in the first place, for modern treaty-making is not only seen as a creative enterprise where states merely weigh the benefits and burdens of commitment, but also explore, redefine and sometimes discover their own interests. Empirically, no state would negotiate a treaty with the idea that they can break them when it becomes “inconvenient”. In regards to norms, the idea of ‘pacta sunt servanda’ (treaties are to be obeyed) is not only ingrained in the minds of international actors through long-time socialization and custom, but have also become domestic laws in countries like the US. Schauer and Kratochwil has said that the norm itself is a “reason for action” and thus becomes an independent basis for conformity of behavior. [5]
The reason why Chayes and Chayes rejected the sanctions thesis is because of cost and legitimacy problems. Although they base their argument on the example of the lack of third-party enforcement in the international arena, we can also see how retaliation might not even be a primary aggregate factor in making states comply in cooperative games, as the actors would know that it depends on relative state and economic power for such to be effective. Even then, retaliation would be expected to be intermittent and ad hoc due to multiple preferences among other states, thus making cooperation to effect retaliation difficult, and therefore ameliorating the negative effects and also increasing the persuasive power retaliation has on states. Based on the aforementioned factors, Chayes and Chayes built their managerial model to encourage compliance among states, by having an array of pointed activities to reinforce the effect flowing from participating in the regime, attending meetings, responding to requests and meeting deadlines that will realign domestic priorities and agendas. These activities include ensuring transparency, dispute settlement, capacity building and the use of persuasion.
Third, Goldsmith and Posner’s assertion of treaties conveying a more serious commitment – as compared to non-legal agreements – as an added value of treaties ought to be qualified. Although Raustiala has highlighted the inherent bias among certain domestic constituencies for treaties, care must be given to disaggregate domestic constituency preferences with state and other preferences across the board. Just because one constituency treats treaties more seriously does not mean that others should or would. Raustiala categorizes agreements into “deep” and shallow” ones, regardless of whether they are treaties, or non-legal agreements (or what Raustiala calls “pledges”). If one were to use only functionalist explanations, Goldsmith and Posner’s assertion would be true, because functionalist analysis does not distinguish between “deep” and “shallow” treaties or non-legal agreements. Accordingly, there can be shallow treaties and deep non-legal agreements. “Deep” agreements would mean that the parties have to significantly change their policies and thus pay for significant material and political costs, while the reverse would apply to “shallow” ones.
Raustiala also argues that the functionalist argument provides two contrasting conclusions. The first is that legality and depth are negatively correlated, as when credibility reflects expectations about performance – the more shallow the commitment, the more likely performance will be, and therefore the more credible the commitment ex ante. As such, negotiating commitments as treaties should lead to a reduction in the depth of those commitments – all else equal – because states seek a “compliance cushion” or a large margin of error. On the other hand, the second conclusion that legality and depth are positively correlated occurs when states fear the prospect of cheating by other parties, especially when they negotiate deep commitments which are costly to implement, and casting such commitments as treaties raises the costs of nonfulfillment. Thus, the deepest, most costly commitments are contracts to maximize the probability of compliance by other parties, and are reflected in the experiences of the World Trade Organization (WTO), the North American Free Trade Agreement (NAFTA) and many arms control agreements. Both conclusions are plausible, as the first is illustrated by the question, “are states more concerned about the risk of their own noncompliance?”, while the second is illustrated by the question, “are states more concerned about the risk that other parties will fail to comply?”.
Next, Raustiala argues the need to distinguish the structures of international agreements, regardless of whether it is a treaty or a non-legal agreement. He categorizes agreement review structures as “strong” or “weak”. “Strong” structures render individualized decisions about state performance; these decisions may, but not necessarily be accompanied by sanctions, and they also need not address particular disputes, as they may be statements about individual actors and their performance. On the other hand, “weak” structures either make no such evaluations, or make evaluations only about collective party behavior, and in either case the evaluation does not specify any tangible sanction. Taking into consideration Raustiala’s analysis of the legality-depth correlation as well as the structure of international agreements, we can conclude that there exists “shallow” and “weak” agreements, like environmental accords (for example, the Kyoto Protocol), as well as “deep” and strong” non-legal agreements, like international monetary accords (for example, the Plaza Accord). Therefore, Goldsmith and Posner’s assertion that treaties are always more “serious” than non-legal agreements is flawed.
In conclusion, although Goldsmith and Posner’s account of international agreements can be a tad shallow and simplistic, they are nonetheless very accommodating towards the views and theories of political scientists and international law scholars from different schools of thought.

1. Jack Goldsmith and Eric Posner, The Limits of International Law, (USA: Oxford University Press, 2005).
2. Kal Raustiala, “Form and Substance in International Agreements”, American Journal of International Law, Vol. 99; Numb. 3 (2005).
3. Kenneth Abbott and Duncan Snidal, “Hard and Soft Law in International Governance”, International Organization, Vol. 54; Issue 03 (2000), 429-430.
4. Abram Chayes and Antonia Handler Chayes, The New Sovereignty: Compliance with International Regulatory Agreements (Cambridge, MA: Harvard University Press, 1995).
5. See Frederick F. Schauer, Playing by the Rules: A Philosophical Examination of Rule-Based Decision-Making in Law and Life (Oxford: Clarendon Press, 1991), and Friedrich Kratochwil, Rules, Norms and Decisions: On the Conditions of Practical and Legal Reasoning in International Relations and Domestic Affairs (Cambridge: Cambridge University Press, 1991).