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Perspectives: Reasons to be cheerful about trade policy’s future

Despite all the gloom about the future in global trade policy circles, there are many reasons to be cheerful. At this turn of the year it might be good to remind ourselves that international agreements do get done and that many frictions end up being resolved, often quietly.  

2023 was not an easy year in trade policy.

As the year closed difficulties mounted, including conflicting approaches in EU-US steel and aluminium talks, WTO 13th ministerial conference preparatory meetings struggling for consensus, and the conclusion of EU-Mercosur trade negotiations proving as elusive as ever.

There is a more positive story. In each of these cases, negotiations are still ongoing: deals may yet be reached.

Or, as in US-EU relations, worse outcomes, such as tariffs returning, are postponed.

The EU also concluded new agreements in 2023. Signing the upgraded EU Chile framework agreement was a pre-Christmas highlight.

Countries continue to see the need to negotiate agreements, and to talk and find specific deals in all manner of trade-related policy areas. These include critical raw materials, economic security, digital trade and climate change – among others.

Isolationist nostalgia for apparently simpler times when production was national may hold a powerful attraction to some politicians. Most governments are however understanding that extensive global trade is here to stay. And with that comes the recognition of the need for international cooperation.

Governments talking about shared challenges will not always lead to meaningful agreements. The fact that there are such discussions, and that the possibility remains alive that they lead somewhere is however the basis for hope of better times.

Keep on talking

As well as the Chile agreement, in 2023 the EU also signed a free trade agreement with New Zealand. These two partners are of course known in trade policy as among the most straightforward countries with whom to negotiate agreements.

But amidst the general gloom, any such successes should be celebrated.

There are other agreements in prospect.

A way forward on the problematic EU-Switzerland relationship finally seems possible.

Mercosur negotiations missed their latest deadline, but still continue. EU-Mexico and EU-Australia agreements look problematic but conclusion remains possible.

Other bilateral FTA negotiations are less advanced, but continue in the hope of future agreement.

Then there are the digital agreements such as that concluded with Japan in October. This builds on the previously agreed digital partnership. There are now four such partnerships after the latest was agreed with Canada in November.

As for all agreements, their content sometimes disappoints. Evaluating the value of ‘digital chapters’ in trade agreements is particularly difficult given the broad exceptions to the general principles of free or facilitated trade included in them.

Notwithstanding this caveat, having agreements always offers the possibility of developing them further. Talking is the first step of any process.

This is particularly the case when many negotiating partners have major concerns about EU regulatory approaches in various areas. Talks with uncertain prospects are better than waves of retaliatory measures.

Global institutions continue efforts to find negotiated solutions

As Another WTO ministerial conference approaches in February, expectations are not currently high that there will be any outcomes, whether on fisheries subsidies, an e-commerce moratorium extension, dispute settlement reform, or agriculture subsidies.

Experts close to Geneva activity continually remind us that negotiations are just one part of the WTO’s functions. Trade measure notifications to Geneva continue, and valuable committee discussions continue. There was plenty of activity in September at the annual Public Forum. This is all positive.

There is also a point often forgotten about ministerial meetings and summits: their very presence provides the structure and incentive for officials to talk and seek solutions.

For the next two months this will mean extensive work to make MC13 at least a qualified success. History tells us not to underestimate the chances of at least some reasonable outcomes.

With regard to the broader future for global trade rules, there are clearly major tensions not least stemming from bipartisan US hostility to the multilateral trading system. What should be seen as positive is that even the staunchest US allies, the likes of the UK, Japan, and Australia, are not wholeheartedly following Washington.

Prospects are low for a change in US attitudes in the coming years. Despite that, and their lower dependence on trade than many others, the US is not leaving the discussions.

Troubled times for global trade rules will probably continue. Complete disintegration of the WTO is however unlikely.

Commercial and government global integration is deepening

The period spanning from the early 1990s until the mid-2010s was a period of trade liberalisation. Combined with technological developments, this means we are now a very different world compared to any previous period of protectionism, populism, or isolationism.

This is an age of global integration. Final consumer goods are assembled from numerous intermediate components sourced from anywhere. People are watching the same events broadcast globally, using the same technology.

There is no reason to believe this will change significantly any time soon.

Behind the activity is the mass of regulation and standards that determines how trade happens. Countries and companies must talk continually to find ways to meet their many distinct objectives.

Those involved in the process – whether governments or businesses – have options, perhaps to relocate or regulate differently. But they are always constrained in some way.

Companies have to respect rules of where they operate and sell. Governments want to govern and to meet their policy goals.

Such a complex interplay between regulatory and business logic lends itself to constant activity.

Countries in dispute find reasons for to resolve them, as for example Australia and China have been doing in recent months after a major fallout that involved a trade blockade. Corporates for their part adapt to regulatory change.

When there are new public policy challenges, there will be new national regulations and international discussions. This is becoming clear now with the rise of artificial intelligence.

Slightly ahead in policy development is the EU’s carbon border adjustment and deforestation regulation, where other countries are considering their responses to Brussels’ new rules. History suggests that over time there will be considerable diplomatic activity to reach at least informal accommodations between the EU and those countries with concerns.

Such solutions are rarely obvious at a time when countries are staking out their maximalist positions. Not knowing now what sort of landing zone may be found does not mean that it will not happen.

Misleadingly, the initial threats of by countries on the receiving end that they will raise disputes will receive more political and media attention than the subsequent slow resolutions of differences based on low-key diplomacy.

That patient international work, leading all the way to formal agreements, is the primary reason for optimism. Driven by the reality of our levels of global economic integration, it does deliver.

Frictions and conflicts are an ever-present political reality and threat. But these should not be seen as the only side of the story.

Cooperation and resolution of international issues is a story too little told.

 

 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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