A paradox of trade agreements: From global to bilateral negotiations

Hence, we are mostly back to what I suggested already:  if a preliminary deal is to be struck, it could be in November when leaders at all levels have a series of planned meetings around APEC and assorted other international gatherings. 

Again, many people will try to argue that the timeline is not terribly important—getting it done right, after all, is better than rushing to get it done.  I might argue that more than five years of negotiations, more than 20 full negotiating rounds, and four different multi-day ministerial meetings (not to mention endless assorted intercessional meetings, chapter negotiations, sideline meetings, video conference sessions and the like) hardly appears to suggest unseemly haste in closing.

As we linger over the dog days of August, it is worth pondering again an interesting paradox in trade talks:  while the benefits of larger agreements are becoming ever greater, it may have gotten even harder to conclude larger deals. 

This observation, which I will elaborate in a moment, also leads to an even more troubling paradox: current difficulties in getting large-scale agreements done with many participants will likely lead officials back to creating more bilateral arrangements.  But more bilateral agreements make it increasingly less likely that larger deals can ever be completed.

Trade agreements get signed for all sorts of reasons—to cement relationships, reward friends, give bureaucracies something to do, promote officials, provide newscopy, and more.  But fundamentally, a good trade agreement is supposed to help businesses create more trade between partners. 

For businesses, the most helpful kind of trade agreements are those that include the largest set of members.  After all, few companies plan to buy and sell to or from only one other country.  Even the smallest firm usually has aspirations of someday being able to tap on a global marketplace for materials, contracts, vendors, and consumers. 

Firms would like to have a seamless experience (or as close to seamless as possible) in navigating multiple markets.  This includes things like consistent border and customs procedures using the same set of required paperwork.  Companies would like consistent coverage of their products with similar rules, including sorting out differing standards that make trade difficult. 

This desire for fewer barriers to trade does not mean that firms are automatically hostile to regulations or are resistant to rules and procedures.  Very few firms are clamoring for unfettered trade access.  Instead, most would argue more strongly for consistency since what firms really need is to minimize uncertainty and risk. 

This is where trade agreements have a role to play in setting the ground rules for business and in creating market opportunities for firms.  From a business perspective, the largest possible trade agreement is infinitely preferable to trying to sort out multiple smaller arrangements that may—or may not—provide improved access to partner markets.

However, the global trade regime is clearly stuck.  The Doha round of the World Trade Organization (WTO) began in 2001.  Officials were tantalizingly close to finishing in the summer of 2008 and have barely been able to move ahead since then.  An “intense” period of consultations earlier this year failed to make much headway either and the WTO has just missed another deadline for moving ahead with the Doha agenda. 

Even the area with particular promise for businesses—the Bali agreement on trade facilitation—remains jammed.  Although the agreement would help smooth some of the barriers faced by companies at the border, countries have been extremely slow to ratify the deal.  Until significantly more WTO members sign on, the agreement will not be implemented.

The fine print has not yet been released on the Information Technology Agreement II (ITAII).  This agreement is meant to lower tariffs on a range of electronic products of interest to IT companies.  However, since the text has not been released as far as I know, it’s not exactly clear how much additional benefit firms will receive from this deal.

The lack of forward movement by the global trade regime has raised the stakes for regional agreements like the TPP.  If important deals cannot be struck in Geneva, then perhaps commitments can be undertaken by like-minded countries operating in smaller settings.

Now, however, the TPP has also become stuck (hopefully not as permanently as the WTO).  Similarly ambitious agreements like the Trans-Atlantic Trade and Investment Partnership (TTIP) between the United States and Europe are also progressing slowly.  As I mentioned from Myanmar over the weekend, the Regional Comprehensive Economic Partnership (RCEP), while not in quite the same leagues of high ambition as the others, has been moving along at a crawl.

The net result of a lack of movement at the global level and foundering efforts at the regional level is likely to leave governments searching for new ways to unleash new sources of competitiveness and economic growth.  If getting a deal done with more players is hard, perhaps, officials will surely start to think, perhaps we should return to negotiating smaller deals with fewer partners?  Or even revert back to bilateral agreements? 

A bilateral deal is faster to negotiate and requires fewer resources.  An agreement between two parties could be more ambitious (although it might not be ambitious at all).  The consequences of both success and failure are lower.

Yet a stampede back to bilaterals could just compound the difficulties of getting to yes with a larger group of members in the future.  This is because each layer of agreement between members adds to the complexity of the new deal. 

Of course, this makes intuitive sense.  But I do think the scale and scope of the problem has not been sufficiently appreciated. 

For example, the TPP talks foundered in Hawaii in part because of two different commitments from the North American Free Trade Agreement (NAFTA).  Under NAFTA, Canada was allowed to shield dairy and poultry from market opening.  This set up additional challenges in the TPP since continuing the stance would undermine the high quality aspirations of the TPP.  But not continuing the stance, as we have clearly seen, undermined the enthusiasm of the Canadian government to wrap up the talks—particularly with an election looming in Ottawa in October and the potential for facing a very upset group of voters in key provinces. 

The TPP also got stuck over rules of origin in autos.  Mexico objected to changes in the level of local content proposed for the TPP that would undermine the balances struck in NAFTA for autos. 

Similarly, a bilateral agreement between the United States and Australia over sugar access has compounded challenges in addressing sugar in the TPP.  In another example, Singapore’s (and now Vietnam's) commitments to protecting geographical indications with the European Union also caused hiccups in the TPP as both ASEAN members cannot agree to new regional rules that contradict promises made to Europe. 

The more countries sign up to wide-ranging, deeper commitments with one another, the harder it may be to craft good regional and global deals in the future.  Members rushing to sign and upgrade “easier” bilateral agreements could paradoxically find themselves increasingly constrained.  Many governments could be unable to create the kinds of large scale agreements that might be most helpful for businesses going forward.