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Perspectives: 2021 – What political leaders want from trade policy

The stories told by politicians and the trade expert community are increasingly divergent, and need to come together for us to make progress on our priorities, writes David Henig.

Deal-making vs. systemic crisis

In one sense, there was a big end to 2020 for trade policy.

Mid-November, the signing of the 15-country Regional Comprehensive Economic Partnership known as RCEP. It brings together for the first time in a trade agreement China, South Korea and Japan, and adding in ASEAN, Australia and New Zealand. The United Kingdom and the European Union reaching an agreement on Christmas Eve. An EU-China Investment Agreement between Christmas and New Year.

This came on top of a year which had already seen a US-China trade deal, and New Zealand, Singapore, and Chile breaking new ground with the Digital Economy Partnership Agreement. Add the upcoming implementation of the  African regional trade area- AfCFTA – and outside observers might think all was well.

Certainly politicians still think trade deals are worthwhile.

Mismatched narratives

Our trade policy community however tells a different story, a story of concern.

The World Trade Organization is under severe strain, its appellate body suspended – though the multi-party interim appeal arrangement could count as another 2020 success. Multilateral and plurilateral negotiations are going nowhere quickly, and the US vetoed the nomination of a new Director General for the world trade body.

There are obvious strains in global trade, those exacerbated by President Trump with the EU and China, more recently between China and Australia.

There is a strong Covid-19 narrative, that for many demonstrated the need to bring back manufacturing to the EU or US. One sees noticeable moves towards digital protectionism in particular with regard to the US and TikTok.

Creating a coherent narrative from trade policy is difficult. There are contradictions, for example countries apparently in trade conflicts also signing agreements. Perhaps because such agreements lack value, particularly one between the UK and EU that makes trade less free. We could see them as worst case guarantees against a failure of the WTO. Maybe those closest to a system are most likely to be concerned.

However perhaps there is something more fundamental, namely that we are not aligned with the politics.

Our community of experts, whether government officials, business specialists, economists or lawyers, can be quite a bubble. We typically talk more about WTO reform than of tackling Covid-19, delivering more jobs particularly in manufacturing or the battle against climate change: these are the subjects political leaders seem to prioritise.

On Covid-19 we can argue that trade is delivering, but with qualifications, and without acclaim.

Vaccinations are being rolled out globally with little attention paid to the joint international effort of delivery. Global personal protective equipment supplies responded as we’d hope, with a huge increase in supply.

But the crisis also revealed the complexities and vulnerabilities of the modern trading system, ranging from difficulties in container shipping to problems in services trade when travel becomes difficult.

Protectionist temptations post COVID-19

The simplistic answers of producing everything at home are seductive and instinctive for politicians, and the trade policy community does need to be pushing back on this. But we also need to take seriously the worry that in future crises export bans and weakened domestic manufacturing will leave economies vulnerable, and suggest possible solutions in the real economy, not just WTO revisions.

Jobs and manufacturing is a difficult issue for trade politics. Political leaders in the United States and Europe have lost faith in the ability of free trade to deliver economic benefits, talking in the abstract of a fight against protectionism, and happy to sign deals, but also implementing protectionist measures. Many in other countries never had such faith to start with.

The assumed benefits of trade compared to a counter-factual may be visible to economists but is less obvious to politicians; the relationship between economic performance and jobs is similarly difficult. Global supply chains may dominate trade patterns, but politicians think of domestic companies struggling after losing contracts within their supply chains. There is a clear problem here that we need to acknowledge and tackle.

The election of a US President with a commitment to the battle against climate change provides an opportunity to deliver on the trade and climate change agenda. The EU are already considering a Carbon Border Adjustment Mechanism, and the climate change sections of the UK-EU agreement go further than any previous trade agreement.

Quest for WTO value

Another New Zealand led ‘plurilateral’ agreement, the Agreement on Climate Change, Trade and Sustainability  – ACCTS – is under negotiation. This should be an area where trade policy can be an unequivocal support. Yet there are concerns that substantive proposals, particularly for imports, will fall foul of WTO rules, which seems the wrong way round. We need to make sure there are good proposals that are compliant.

Perhaps this simple point could be taken more widely, that we need to be thinking more about how trade policy supports policy priorities, and less about the mechanics.

It may well be that the route to WTO reform comes first from demonstrating to politicians the value of an organisation committed to open international trade. Only then will the leaders commit more effort to making the organisation reforms and endures.

Not that we wouldn’t like, at the very least, a Director General to be in place at the WTO in Geneva soon. Just that the priority of that individual might be initially to make the political, economic and environmental case for trade, with support from all of us as the trade policy community.

 

 David Henig runs the column ‘Perspectives’ on the politics of global trade for Borderlex. He is also a UK director at the think tank ECIPE.

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