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Talking Trade blog

Why business needs to remain involved in trade agreements

Published 23 September 2015

While we wait for the possible closure of the Trans-Pacific Partnership (TPP) negotiations next week (fingers crossed!), it is worth pondering why businesses must be engaged as much as possible in the process of negotiations. Without business input and pressure, officials are likely to create a final agreement that does not suit the needs of companies on the ground.

Completing an agreement is only half the battle.  Once the texts are finished, participating countries must take steps to implement their commitments.  Without business pressure, implementation measures are often half-hearted or even non-existent. 

We can see these problems in different settings across Asia.  Take, for example, trade facilitation efforts.  Asian governments have made promises to speed up and reduce costs associated with moving goods across borders in this region. 

The trade facilitation agreement (TFA) signed with great fanfare in Bali, Indonesia, in December 2013, is still awaiting ratification and implementation.  This is a signature achievement of the World Trade Organization (WTO) after more than a decade of negotiations. 

On September 18, Liechtenstein became the 17th country to have taken official steps to move the agreement towards implementation.  The agreement requires 2/3 of the WTO membership before the deal actually enters into force.  This means that more than 140 additional countries must agree to participate—preferably before the end of this year—before any of the provisions in the agreement can be activated.

While this agreement may bring substantial benefits for businesses, especially in many developing countries where getting goods across borders remains slow and expensive, businesses have not been particularly active in pushing TFA. 

In general, businesses long ago lost interest in most of the agenda under discussion at the WTO.  This is not, I will hasten to add, necessarily because the agenda itself is unimportant.  Mostly, I think, it’s because companies do not have the same type of time horizons that the WTO seems to operate on these days.  No firm can afford to spend a decade pushing topics without any clear returns from this investment.

But the net result is a bit of a chicken-and-egg dilemma.  Governments are not going to rush to negotiate or implement an agreement like TFA absent business interest.  However, businesses are loath to push on TFA without clear signs that the payoff will arrive shortly.  There is frankly little upside to convincing corporate bosses that your efforts helped Liechtenstein sign an agreement.

Another problematic area of trade facilitation can be found in ASEAN.  Although the 10 members of ASEAN made a commitment in 2005 to create by 2012 what are called National Single Windows (NSWs) for trade, not all members have actually implemented these provisions.  NSWs are intended to make it easier for firms to move goods by allowing the entry of data only once and the simultaneous processing of that information by all the relevant agencies so that arriving goods can clear customs speedily. (Note that NSWs are only the first step, as ASEAN also pledged to hook them together and create an ASEAN-wide Single Window.)

Despite significant efforts and the involvement of the ASEAN Secretariat and various ASEAN Dialogue Partners like the United States, Vietnam’s launch of its own NSW earlier this month meant that only 7 of 10 members officially have active systems.   Even here, the record from the ground is less impressive, as many businesses report obstacles to using NSWs.

Again, part of the problem has been getting significant business pressure mobilized to ensure that ASEAN governments implement commitments in a timely manner.  Businesses that have been active in this issue could be feeling burned by the extensive time it has taken for their efforts to bear fruit in the form of faster and easier trade facilitation in ASEAN.

Ironically, however, trade facilitation ought to be one of the easier topics for mobilizing business engagement with trade officials.  After all, delays at the border are obvious and costly.  It is relatively easy for a firm to show the impact of reducing barriers to their own supplies and goods at customs. 

Other elements of the trade agenda can be much harder for businesses to push.  For example, while it may be true that opening up services sectors will result in substantial benefits, even for manufacturing companies, it is harder to show clearly the bottom-line impact of doing so.  Hence, getting firms to mobilize behind broader trade negotiations can be tough.

Larger agreements could result in greater benefits for companies, but they come with a trade-off:  bigger deals take longer to produce an impact.  The TPP negotiations have been under way for more than five years.  Even if we get a deal next week, the fastest timelines for implementation and entry into force is likely to be in mid-2017. 

One thing, however, is quite clear.  Absent business interest and mobilization, trade agreements are less likely to meet the needs of businesses today.  Officials will try to negotiate better deals, of course.  No one ever announced their intention to create “low quality, 19th century” outcomes. 

But getting better provisions requires sustained attention from businesses and governments.  The other megaregional agreement under negotiation in Asia, the Regional Comprehensive Economic Partnership (RCEP), is going into the 10th round of talks in Busan, South Korea.  Officials have largely had limited contact with many of the companies in this region that are likely to have an interest in RCEP rules.

We are holding an event at RCEP on October 14 in Busan that seeks to bring together regional businesses and government officials engaged in this trade negotiation for the first time.

Without better connections between government and businesses in the region, RCEP runs the risk of creating a trade agreement not particularly well suited to the demands and interests of the business community.  Given that trade agreements are primary intended to be a vehicle for facilitating trade by companies, a low-quality outcome in RCEP accompanied by little business interest would be an enormous missed opportunity. 

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Dr. Deborah Elms is Head of Trade Policy at the Hinrich Foundation in Singapore.  Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).

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