U.S. trade agreements today look nothing like they did forty-some years ago. Tariffs are generally low and, as explained in an earlier post, the spread of global value chains (GVCs) and growing importance of digital trade mean that policy attention now focuses on services, investment, and, behind the border, non-tariff barriers.
Regulatory coherence ≠ tariff cutting
Behind the border trade issues that impede GVC trade differ from traditional trade measures in key ways. With the removal of import restrictions, the generally accepted expectation is that everyone will benefit from lower prices, improved quality, and increased variety that competition brings. Of course, some import-competing industries and workers will suffer overall net losses because of lost jobs or lower wages, but in theory, the benefits are generally large enough to compensate the losers and leave no one worse off.
Non-tariff barriers that increase costs for global value chains or impede digital trade entail potentially more complicated trade-offs. While trade barriers usually protect particular sectors at the expense of the general public, regulations to ensure food safety, make medicines affordable, or protect privacy online are meant to do the opposite.
The quite reasonable rationale for including regulatory “coherence” or regulatory harmonization in trade agreements is that differences in regulatory content or practice create trade costs without necessarily achieving better outcomes for consumers. Reducing those differences would make everyone better off. However, if societies differ in their levels of risk aversion or their willingness to pay for certain public goods, such as clean air or water, then the value of the overall gains in public welfare may not be appreciated by the very populations that stand to benefit from them.
Behind the border issues need to be negotiated transparently
If regulatory coherence and other behind the border issues remain on the trade agenda, the process of negotiating and ratifying trade agreements needs to be more open and transparent. In traditional trade-bargaining situations, negotiators value secrecy because it allows them to reach compromises and avoid generating opposition to every proposed tariff cut before an overall deal can be reached. With negotiations on behind-the-border and regulatory issues that only indirectly affect trade, however, secrecy is more problematic – especially if you factor in the different values that one society or another may place on regulations governing health and safety or issues such as internet privacy.
A pragmatic reason to be more transparent is the difficulty in keeping anything secret in the internet age. The EU already releases many documents to the public, while various nongovernmental organizations, including Wikileaks, repeatedly get hold of negotiating texts and post them online. Moreover, despite USTR secrecy, U.S. positions are well known, since typically U.S. negotiators seek provisions in new trade agreements that are similar to what they sought in whatever is the most recently concluded agreement. In reality, U.S. negotiators gain little from hoarding information while increased transparency could help them ward off the exaggerated accusations of negotiating secret backroom deals.
Future progress on rules to facilitate global value chains and digital trade thus may require a different approach. These negotiations often address domestic regulations that incidentally affect trade, and using trade agreements to constrain regulatory flexibility often raises concerns among the general public. On the flip side, where there are technical regulatory differences across countries that impede competition and trade with minimal offsetting public benefit, “regulatory coherence” agreements are valuable. But these provisions should be negotiated transparently and openly.
The opaque process surrounding the negotiation and implementation of these 21st Century trade agreements undermines their legitimacy by feeding perceptions that they aim to protect the interests of multinational corporations rather than those of consumers, workers and the environment.
In sum, the content of trade agreements has changed markedly. The process of negotiating and ratifying them needs to do so as well.
Kimberly Ann Elliott is a Senior Fellow with the Center for Global Development and the author or co-author of numerous books and articles on trade policy and globalization, economic sanctions, and food security. Previously, she was with the Peterson Institute for International Economics. The views expressed here are her own.
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