Latest news, Perspectives

Perspectives: Trade liberals need to encourage alternatives to FTAs 

Free trade agreements have been the workhorse of the European Union’s trade policy for 25 years. As the von der Leyen term ends, this policy instrument is showing signs of ageing. Those pursuing greater trade openness after the European Parliament elections must seek other options. 

Business is asking for more free trade agreements as economic growth lags in Europe. 

This is notwithstanding the difficulties of negotiating new FTAs when their content has expanded so much. Or their marginal economic gains linked to limited coverage of services and regulations. 

FTAs are often more important as symbols of commitment between administrations than for their actual impact on trade. In turn, every stakeholder demands their particular interest is reflected as an EU ‘value’. 

The public also oversimplifies trade policy and reduces it to the FTA as its single tool. Free trade agreements have become more or less the only way in which governments are measured on the subject.  

On this basis India is the winner in the last year, with three new FTAs compared to two for the United Kingdom, one for the EU and none for the United States. 

Such a scorecard almost shows how absurd this focus is.  

In fact, EU trade policy has become increasingly based on regulation rather than international treaties. Large businesses work around whatever restrictions are imposed, though at an extra cost.  

There is more than one disconnect here, but there should be one clear message – FTAs cannot be the sole focus for those wanting to see trade barriers reduced. 

There is a need for a broad range of alternatives. 

Limits to the FTA agenda 

Free trade agreements have primarily served as a tool for tariff reduction. This made them ideal for removing export barriers of bulk commodities, such as agriculture. 

For modern trade within value chains, FTAs have been of less use. Not least as commitments on services and regulations often go little further than those already made at the World Trade Organization. 

Increasingly any such EU commitments are conditional on extensive rules for intellectual property, labour and the environment, among others due to public pushback. 

Potential FTA partners in turn have found what the EU offers an unattractive package as a result. 

The FTA ‘sustainability’ requirements do not even yet reflect recent EU regulatory developments such as corporate sustainability due diligence or carbon border pricing. 

Partners such as India have already started to raise the issue as part of their FTA negotiations with the EU – making their conclusion even more difficult. 

All this adds up to very difficult diplomatic engagement for what is likely to be a limited economic return. Tariffs are already low and trade is already happening within and between multinational companies. 

As the centrepiece of EU trade policy since the late 1990s, the most straightforward FTAs have also been completed. Where agreements are not in place or negotiations face difficulties, there are very good reasons. 

An EU-Mercosur FTA for example would be economically beneficial. But there must also be alternatives if this deal and others cannot happen. 

FTAs remain too important to ignore…. 

As the political virility test for governments backing trade, the possibility of new FTAs remains however too important to ignore. 

Ensuring FTAs are more inclusive of everyone’s issues has been seen as the answer. This has led to an increase in their page count but not created significantly more commitments nor made them more popular. 

There are those who advocate the opposite, returning to basic FTAs just about tariffs and market access. But that ignores civil society and the realities of the politics of trade.  

Negotiators have to continue to do their best to craft a balanced package. 

Arguably it is good that at least these efforts do have symbolic importance to the public.  

Thus, for all of their difficulties we will be stuck with FTAs as at the very least one of the main vehicles for trade policy in the near future. Their imperfections are however why we need to also build up alternatives. 

…but options need to be broadened 

With progress on new free trade agreements slower, the absence of strong alternatives left something of a vacuum.  

One of the reasons why the EU has for example been slow on regulatory or technical mutual recognition agreements or regulations is surely that there isn’t any political push. 

The void has arguably been filled by ‘autonomous’ trade measures. 

One of the most important lessons for business and trade specialists should therefore be to stop talking down anything other than FTAs as second best. After all, marginal economic gains can come in many different forms. 

While there were few deliverables from the EU-US Trade and Technology Council established in 2021, the very act of continued high-level engagement for four years had some value. Continuing and deepening major such dialogues in the coming years should be seen positively. 

Expanding old FTAs as has happened with Chile is an option deserving further attention. There are a number of similarly old agreements to which new provisions could be added. 

Enhancing newer agreements to the point where they can be considered a deeper partnership such as by including mutual recognition of technical or regulatory standards is another good option. This is already in play with Canada, the UK, Japan and South Korea may be other contenders. 

Such negotiations could involve fewer sensitive political issues around the environment or agriculture.  

Stand-alone Mutual Recognition Agreements have been overlooked for many years. This may be the result of the MRA negotiation not coming directly under the European Commission’s directorate for trade.  

In any case, there is scope for significant expansion MRA scope and coverage.  

One could go further and create a dialogue with third countries over the EU’s new regulatory agenda and potentially expand this into a formal or informal ‘trade and climate change club’. 

Such ideas have been discussed by think tanks and analysts for some time. But they typically receive little push from business or pro-trade voices in the institutions. 

More than ever, FTAs cannot be considered the only answer to current trade needs. A new pro-trade narrative needs building on the many different options that already exist.

Leave a Comment

Your email address will not be published. Required fields are marked *

*

This site uses Akismet to reduce spam. Learn how your comment data is processed.