In recent months, there’s been much talk in the United States about ripping up or renegotiating trade deals and in Britain about exiting the European Union and creating new trade deals with the world. In the latest chapter of the IRPP’s forthcoming trade volume, Robert Wolfe (Queen’s University) analyzes the reality of trade negotiations in a “G-Zero” world where no set of countries (not the G-7 or the G-20) is able or willing to lead on international trade issues.
In the era of complex global supply chains, trade agreements are more valuable than ever, but the negotiations are long and difficult. The 21st century trade agenda encompasses many tensions involving domestic (“behind the border”) issues, where it’s more difficult to secure public support.
As global power has shifted and become more diffuse in recent years — in large part due to growth in China — talks at the World Trade Organization (WTO) have largely stalled. Negotiators have shifted their efforts to other venues, thinking they might be able to create new trade rules more easily with smaller groups of like-minded countries. Canada has been active on this front, concluding (but not implementing) two major trade deals: one across the Atlantic (the Comprehensive Economic and Trade Agreement, CETA, with the European Union) and another across the Pacific (the Trans-Pacific Partnership, TPP). In pursuing this ad hoc preferential (rather than multilateral) approach, will negotiators ultimately succeed in rewriting effective rules of global trade for the 21st century? Wolfe thinks not, and foresees an eventual return to more constructive trade talks at the WTO.
Although some “megaregional” trade deals, such as CETA and the TPP, have been negotiated, they must still overcome significant obstacles if they are to be ratified and then implemented. Other ongoing trade negotiations, such as those between the Americans and the European Union, appear unlikely to reach agreement. Wolfe argues that institutional weaknesses mean that these deals will not be useful stepping stones toward a more coherent global trading system. He points out that the deals have critical shortcomings:
- The lack of transparency in current preferential negotiations, which may undermine the public support needed to ensure ratification.
- If implemented, the proposed new agreements will lack the institutional support needed to function effectively (for reasons such as the lack robust surveillance mechanisms, active committees/secretariats and effective dispute settlement mechanisms). This is a particular hindrance for important aspects of the trade policy agenda like regulatory cooperation.
- Most of the major negotiations omit systemically important traders, such as China (which is rationalized for geopolitical reasons, but which significantly limits the negotiations’ potential impact).
- Proliferating preferential deals create confusing overlaps and inconsistencies between agreements that will be unmanageable for many firms in the countries involved in free trade agreements.
Wolfe says that losing what’s left of the WTO’s moribund Doha Round wouldn’t be the end of the world for the WTO, but losing the WTO would be disastrous for megaregional deals like the TPP, since they’re effectively WTO side deals and depend on rules that must be determined multilaterally (including new disciplines for services, regulation, subsidies and trade remedies).
Strengthening the WTO, therefore, should be a central objective of Canadian trade policy. This objective requires overcoming the obstacles to agreement on long-standing issues, bringing new topics into the mix, and strengthening the WTO as an institution. Although Canada cannot reinvigorate the WTO alone, Canada can play a leading role. Wolfe sees the WTO as Canada’s best hedge against uncertainty about future trade and investment patterns, especially not knowing today which new markets Canadian firms will wish to pursue 10 years down the road.
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The crucial missing element needed to create a more coherent global trading system at this time is China-US accommodation, and China and the US disagree on many trade issues. Canada might not be able to do much about this impasse, but it could play a small role in building bridges between the two players. In the near term, Canada could choose to negotiate with, rather than around China, which is the world’s largest trader. Wolfe recommends that Canada seize the opportunity to launch bilateral talks with China as soon as possible. This would help both sides learn about further integrating China in the trading system.
Canada is not, and likely never will be, a significant partner for any of the major players in the global trading system with the exception of the United States. Here, Wolfe says, the primary objective of Canada’s trade policy should be to maintain access to the US market that is at least as good as that of other countries. Therefore, if the TPP fails, Canada will need to think of other ways to modernize trade rules with the US, our largest trading partner.
Photo: chuyuss / Shutterstock.com
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