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Perspectives: The no-commitment mood in trade policy might pass 

In today’s trade policy environment, Western countries reject new legally binding commitments and seek to (re-)assert their own ‘policy space’. Brexit may have been the first sign of this now wide-spread phenomenon.  

But the experience of the United Kingdom since then offers some hope that political leaders will start understanding that isolation is not an option in the current global economy. 

“Take Back Control” was the slogan used in the UK’s campaign to leave the European Union. Voters were attracted by the notion of greater domestic power to improve their lives. 

The desire for national control has clearly spread. Both the United States and EU now want more space away from international legal trade commitments.

In the case of the US, this is particularly visible in f domestic manufacturing subsidies. For the EU, the emphasis is on the freedom to set regulations with a global reach such as the carbon border adjustment mechanism. 

There is also, within the EU, the rise of national populists demanding powers returned from Brussels. 

Such nationalist attitudes make binding international commitments unpopular. 

This is the predominant reason why February’s 13th World Trade Organization Ministerial meeting ended in failure. 

Those complaining about the lack of deliverables from the EU-US Trade and Technology Council in Leuven in early April should also consider this context. 

If Brexit was the prototype for today’s international politics, one can see some good new rearing their heads. UK politicians and voters increasingly see that they have to engage with other countries. 

While many commentators write about de-globalisation, there is little evidence of it in trade data. 

Notably, even the US wants to engage in various international trade discussions. 

In the meantime, countries replace binding agreements with ‘cooperation’ agreements or platforms. It minimises the damage of the temptation to retreat – for the time being.  

This is however no time for complacency.  

If Donald Trump wins the election, he could breach the WTO treaty and therefore the US’s commitments on tariffs. 

In the EU there is serious pressure for ‘mirror clauses’ which could ban goods from entering the EU if they do not meet all EU production standards. To avoid economic damage responsible leaders must continue making the case for international approaches – including those that bind their own actions.  

Trade agreements in retreat

Bilateral free trade agreements best illustrate the increasing reluctance to sign binding treaties. For many years they were the workhorse of trade policy. 

The current European Commission will leave office in a few months, having only significantly liberalised trade with one market, New Zealand. Though this is of course one more than the US under president Biden.  

The failure of countries to agree strong binding regulatory disciplines within FTAs is as notable. A few years ago, politicians and commentators thought this should increasingly be their focus – reflecting a better way to tackle modern trade barriers. 

US and EU talks to create a trade agreement focused on regulatory alignment – in the Transatlantic Trade and Investment Partnership – failed. 

The EU-Canada Comprehensive Economic and Trade Agreement did advance to some degree in mutual recognition of conformity assessment for technical standards. This has not been replicated in other EU FTAs. 

Sectoral alignment in FTA annexes such as that between the EU and Korea has proven helpful but limited in scope. 

But ‘policy space’ exemptions are on the rise in trade agreement or specific digital trade agreements. 

All this shows that once upon a time one of the main purposes of trade agreements was to accept binding commitments on your own actions for mutual economic benefit. This willingness has now almost disappeared. 

Symbolically, even the annual US National Trade Estimate Report on Foreign Trade Barriers has removed some entries particularly in the digital sphere. This is claimed to respect other countries’ right to regulate. 

Cooperation and soft law 

Reluctance to make major binding commitments will obviously affect the WTO. Specialists have for many years seen plurilateral agreements among a subset of organisation members as the great hope to demonstrate the continuing relevance of global trade rules. 

There have been some advances. The agreement on Services Domestic Regulation has come into force, and the prospective agreement Investment Facilitation for Development could follow if India lifts its veto on incorporating it into the WTO rule-book. 

However, these agreements are more about encouragement – ‘best endeavours’ – ‘best practice’ and cooperation.They are not legally binding commitments to regulatory change or market access. 

Where more substantive commitments are under discussion, such as the proposed e-commerce plurilateral, there has been less progress. This is not just because the US withdrew its previous policy positions on issues such as data flows, though that played a role. 

And in the case of the e-commerce duty moratorium, there is a greater chance it will finally end in 2026. 

The reluctance to make binding commitments has not led to the end of the WTO, but its members into other directions. 

The WTO is becoming a venue for multi-country dialogues. In various permutations, members are talking about issues such as climate change and digital trade. 

Other cooperation arrangements are also increasing outside of the WTO. This can be seen in initiatives such as the US-led Indo-Pacific Economic Framework for Prosperity as well as the above-mentioned EU-US TTC. 

There is a possibility that world trade will move towards a ‘soft law’ approach, shaped by policy guidelines rather than hard, enforceable rules. Some see this trend as temporary, as an interim step until countries are ready to once again take on binding commitments. 

Any of this is worthwhile – if short of ideal. 

Purpose of domestic policy space unclear 

Brexit largely failed to deliver greater domestic control because of a contradiction between this objective and wanting to continue trading. 

Other countries are similarly not fully coherent in their reasons for wanting more policy space. 

The US, EU and China want to explicitly protect manufacturing jobs. This includes through subsidies, regulations, anti-dumping measures, or plain and simple protectionism.  

Again, there are challenges. Companies seek competitiveness through technology that reduces labour requirements, or placing production facilities in cheaper countries. 

Survival of farmers has become a totemic issue in Europe recently despite their heavy protection..  

Transitioning to net zero has been another reason for protecting policy space. This has however been under pressure from farmers among others. 

Those suggesting that countries take back economic power in a time of deglobalisation fail to reconcile this position with how businesses actually operate. Indeed, government ability to control how global trade flows affect their countries appears limited. 

Countries seeking more policy space may say this is inherently a good thing. In the UK, though, this has led to policy muddle and frustration. 

After a temptation to further withdraw from global legal commitments post Brexit, it appears that the country is now seeking to strengthen international cooperation and sign new treaties. 

Hopefully this is an indication the wider reluctance to take on commitments will pass.  

For today’s challenges – whether climate-related or economic – are global and need more than cooperation.  

 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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