Handicapped chances for trade liberalization
Reaching consensus on improvements to the global trading system will take at least a decade despite continuing efforts by many developing countries to reach an agreement, William Reinsch, president of the National Foreign Trade Council, said Nov. 18 in Seattle at a conference organized by the Washington Council on International Trade.
The failure of the Doha Round of multilateral talks over key sticking points such as agricultural subsidies means that some countries will seek trade liberalization in more tailored geographic or issue-oriented packages than through a comprehensive deal, while other countries sit on the sidelines.
Multilateral buy-in on trade rules that minimize non-tariff trade barriers requires developed countries to relinquish some power and emerging economies to accept new obligations, Reinsch said.
“Currently neither is handling that very well, and I think we’re in for a rocky five to 10 years. Eventually, however, new roles get sorted out, countries recognize where their interests, rather than their rhetoric, lie and begin to act accordingly. This is why I am a short-term pessimist and a long-term optimist about the multilateral system,” he said, according to a copy of his speech.
Countries eager to speed up trade liberalization are searching for alternatives rather than waiting until conditions are ripe for a perfect omnibus deal.
Twenty-three parties, including the European Union, have continued to make negotiating progress this year on a plurilateral services agreement. Notable by their absence are Brazil, Russia, India and China — the BRIC countries. It is unclear whether any final deal will provide benefits only to signatories, or whether it will be open for non-participants to join, too. What the group of countries decides will essentially set the rules for trade in services for decades, according to experts. Reinsch said the U.S. business community strongly supports the trade agreement because the United States has a comparative advantage in services and it “will send an important signal to those countries that were the obstacles in the Doha Round that much of the world is prepared to liberalize trade with them or without them.”
Talks are separately proceeding on expanding the multilateral Information Technology Agreement, also without the participation of the BRICs except for China. Under this track, any tariff-reduction benefits that arise will be available to countries who do not participate in the negotiations. But the gesture is not as magnanimous as it seems because the countries engaged in the talks account for more than 90 percent of the production of the items under discussion.
Meanwhile, regional players are working together on two large free-trade agreements. The United States is trying, along with 11 other countries, to wrap up a Trans-Pacific Partnership (TTP) agreement and bilateral talks between the United States and European Union began last summer.
Reinsch said TTP is at a dangerous point because the issues have been narrowed to a handful of politically difficult ones, but he predicted leaders have the willpower to overcome their differences and will announce agreement in principle when they meet in Singapore in December. The nations will then spend the next six months straightening out the details.
The Transatlantic Trade and Investment Partnership has a more difficult road ahead, the former Capitol Hill and Commerce Department operative said. The second round of talks concluded in mid-November and the third round is scheduled for Dec. 16-20. The United States and European Union see eye-to-eye on many matters, but their regulatory approach often differs and officials have not been able to harmonize standards and protocols for 20 years. Reinsch said concern about competitive challenges from China and other emerging economies will lead the two sides to narrow their differences.
But any good intentions will have to overcome fundamental concerns about privacy protection, which has been made more complicated by recent revelations of spying by the National Security Agency on European leaders, and Europe’s preference to promulgate regulations that aren’t necessarily tied to proven science. Both sides will be under intense pressure from their respective legislatures and interest groups not to compromise on certain principles, he said.
Reinsch said it is hard to imagine a deal being concluded by the end of 2014, when the current term of the European Commission expires.
Both TPP and TTIP “are about the elephant that is in the room but not at the table — China. Both of them are engaged in writing rules for the trading system that China and the other BRICS will come under pressure to adhere to, either because they want to join TPP or because they want to access the transatlantic market,” Reinsch said.
“That is one of the reasons why a plurilateral approach is attractive. It’s a way to create better rules without having to negotiate directly with the countries most likely to oppose better rules. If it works, we have better rules and more rapidly growing markets, with those left behind clamoring to get in. And they can get in, if they accept the rules, which takes us down a road that leads back to multilateralism.
“If it doesn’t work, we are still left with better rules that will work to our advantage in two very large markets. Of course, we always have the possibility of total failure — an inability to reach agreement even within the narrower confines of a plurilateral negotiation, but right now I choose to be optimistic about our ability to complete both sets of talks,” he said. Experts say the president will need Trade Promotion Authority restored to conclude the Pacific trade deal. TPA allows the White House to submit any free-trade agreement to Congress for a straight up or down ratification vote without any amendments. Without it, other countries may be reluctant to go out on a limb if they think Congress will put in more conditions.
House and Senate leaders are prepared to move trade promotion legislation, which expired in 2007, and Reinsch believes the imminent conclusion of a TPP agreement will spur Congress to act. But passage will not be easy because anti-trade forces are still vocal and “the business community, I’m sorry to say, has failed to respond to the challenge, particularly at the state and local government level,” he said.