Friday 20 Jul 2018 | 10:44 | SYDNEY
Friday 20 Jul 2018 | 10:44 | SYDNEY

Trade politics


Mark Thirlwell

1 May 2008 14:05

Graeme Dobell draws attention to one of the problems associated with negotiating (high profile) preferential trade agreements, or PTAs: once significant political capital has been invested in the negotiations, it may become extremely difficult politically to walk away from even a lousy deal. This was one of the difficulties with FTA negotiations I highlighted in my 2005 Lowy Institute Paper on the evolving international trading system, The New Terms of Trade. Is there anything that can be done to overcome this ‘political’ problem?

One stance is to argue that politics should never be allowed to pollute trade negotiations, which should only ever be about the economic merits. This is a non-starter. Domestically, trade policy decisions have distributional consequences: in other words, they create winners and losers. Therefore, it is inevitable that politics will be involved. And internationally, it is extremely difficult to think of significant trade policy initiatives that have taken place in a political vacuum. From the 1860 Cobden-Chevalier Treaty, which was intended in large part to improve Anglo-French relations, through to the formation of the GATT in 1948, which was driven by the contribution that international trade policy could make to international security, (geo-) political factors have been an important factor in trade policy decisions.

Perhaps the simplest option, then, would be to forswear engaging in any bilateral (or for that matter regional) trade negotiations, and stick with the multilateral system. While this doesn’t completely take politics out of the equation, it certainly removes a lot of the problems that are associated with PTAs. But this does nothing to help with ongoing negotiations, and given the current state of the international trading system, it seems highly unlikely that many governments would choose to bind themselves in this way. The list of countries not engaged in some form of PTA is now vanishingly small.

In my Paper, I made a case for producing a detailed policy framework that would set out a government’s objectives and requirements for future PTAs, including factors such as the minimum level of content such an agreement should involve (for example on agriculture and other key sectors), aims and objectives in terms of preferred international standards and codes, and an indication of which areas of domestic policy would (and would not) be up for grabs. 

Such a framework would provide a position statement for future PTA negotiations, and, by establishing a set of guidelines as to what would constitute an acceptable deal, it might then make it easier to walk away from an agreement that failed to meet those standards. If nothing else, it would at least add transparency to the whole process. One important complication here, however, is that there would be a potentially tricky trade-off to be managed between providing enough guidance in the framework to be meaningful (as opposed, say, to bland statements about WTO-compatibility) while still allowing the degree of flexibility required for what is, after all, a negotiating process.

Finally, there is one other option. If no decent deal is available, but the political cost of walking away is too high, then just let the negotiations drag on, and on, and hope that either something eventually comes along to break the deadlock (for example, higher food prices that make high import tariffs and production subsidies for agriculture a less attractive policy option), or that everyone just forgets about the whole thing. Cynics might suggest that the Doha round has been flirting with this strategy for some time now and that the China FTA negotiations have shown some signs of going the same way.