*Originally published in 2020. Get E-International Relations delivered to your inbox, free of charge. As you sign up, consider becoming a paid subscriber, or make a donation, to support our work.

Over the past decade, rising powers have been acting to induce institutional change in major international institutions, including the World Trade Organization (WTO), the International Monetary Fund (IMF) and the World Bank (WB) (Hopewell 2015; Vestergaard and Wade 2015). Since established powers defended the institutional status quo rather successfully, China and its partners decided more recently to establish new international institutions, such as the Asian Infrastructure Investment Bank (AIIB), the New Development Bank and the Chiang Mai Initiative Multilateralization Agreement. Thus, rising powers have responded to their dissatisfaction with the degree of change they have been able to effect within the existing institutional order by setting up a set of new international institutions which overlap in their competences with legacy institutions. In conceptual terms, rising powers have exercised contested multilateralism (CM) (Morse and Keohane 2014). The essence of CM is that a group of states strategically uses one international institution – existing or newly created – as an instrument to contest the governance activities of another international institution.

Contested Multilateralism as Credible Signaling

In a recently published paper, we analyze how pursuing CM impacts on the ability of states to reap joint gains through institutionalized cooperation. We conceptualize CM as embedded in institutional adjustment bargaining between defenders and challengers of a given institutional status quo (Urpelainen and Van de Graaf 2014). More precisely, we understand the exercise of CM by the challengers of the institutional status quo to be a reaction to deadlock in institutional adjustment bargaining. Our premise is that deadlock results from challengers’ inability to credibly communicate the degree to which they are resolved to challenge defenders over the institutional status quo.

Since CM aims at “crafting rules in one elemental regime that are incompatible with those in another” (Raustiala and Victor 2004: 301–302), it erodes the causal mechanisms through which – according to the logic of “cooperation under anarchy” – international institutions facilitate cooperation. CM breaks the convergence of expectations that define cooperation while it reduces the capacity of international institutions to serve as focal points among states (Drezner 2013). Thus, by re-introducing uncertainty about the behavior of actors, CM lessens the individual and collective gains states can capture through institutionalized cooperation.

However, we argue that precisely because it generates such costs, the exercise of CM can be an informative and credible signal that helps revitalize deadlocked processes of institutional adjustment bargaining. Because of its immediate political costs and risks, CM represents a clear signal of the challengers’ dissatisfaction with the status quo and of their resolve to challenge it. By sending these signals, CM changes the institutional and strategic environment for institutional adjustment bargaining. In doing so, it can help prompt defenders and challengers to find new cooperative arrangements. Thus, our argument is that the very act of CM, precisely due to the costs it creates, may bring new dynamics into institutional renegotiations.

Moreover, we outline a path through which the revitalized negotiations can bring about the re-creation of the cooperation gains that were lost in the exercise of CM. We propose that functional needs are likely to push the two competing institutions – the original focal institution and the one brought into the game through CM – to seek coordination and cooperative arrangements in their everyday work. We argue that these pressures may lead to a new inter-institutional arrangement that emerges gradually, in an iterative process, accommodating the conflicts between the two institutions. If such an arrangement is indeed arrived at, CM will re-create the gains states realize through institutionalized cooperation.

Why China Created the AIIB and How It Relates to the World Bank

China’s decision to create the AIIB and the evolving relationship of this newly established multilateral development bank with the WB exemplifies our........

© E-International