Understanding Today’s and Tomorrow’s Trade Agreements
Many international trade observers still think of free trade agreements through the prism of lowering barriers, such as duties, tariffs, quotas, and taxes, to international trade.
Even the negotiators of the Trans-Pacific Partnership (TPP) brought that mindset to the original negotiations, a factor which contributed to a rocky start for those talks.
But the emphasis of trade negotiations have evolved beyond lowering trade barriers to focus on protecting investors and intellectual property and reforming regulations and harmonizing standards, explained Pascal Lamy, former director general of the World Trade Organization (WTO), at a presentation yesterday at the Peterson Institute for International Economics in Washington.
It is useful to categorize trade agreements at three simple levels: yesterday, today, and tomorrow. Yesterday’s agreements—such as the General Agreement on Tariffs and Trade (GATT), the WTO, and NAFTA—were dedicated to removing obstacles to international trade. Today’s agreements, as exemplified by the TPP, focus on investments and intellectual property. Tomorrow’s agreements, such as the Transatlantic Trade and Investment Partnership (TTIP), now being negotiated, emphasize the harmonization of regulations and standards, including environmental, safety, labor, and other protections.
“The agreements of the past have done a great job in removing trade obstacles,” said Lamy. “Efforts to protect producers in an era of global value chains are becoming less meaningful because they are importing, adding value, and exporting.”
But consumers are now demanding that their voices be heard. “People on this planet are becoming less poor, which is great,” said Lamy. “They have acquired the right to dream and they care more about protecting consumers, workers, and the environment, and less about protecting producers.”
Within that framework, consumers and producers find themselves in conflict, which is why today’s FTAs, such as the TPP, attempt to effect a balance between those two sets of interests for those reasons and also to make them politically palatable to the legislative bodies, such as the U.S. Congress, that must ratify them.
Harmonizing regulations and standards between the U.S. and the EU, a major focus of TTIP, will benefit international traders by leveling the playing field and allowing them to achieve economies of scale across major markets.
Contrary to popular perceptions, the U.S. exceeds the EU in precautionary regulations and standards in about one-third of the cases, according to Lamy, while the EU exceeds the U.S. in another third. In the remaining third, the regulatory levels are equal but the protective mechanisms employed are very different.
“To succeed, TTIP will require a great deal of transparency,” said Lamy. “The FTAs of the past involved trading off numbers; it was purely logical. The issues of the future involve more passion. They are about eliminating risks to the environment and to consumers. It is not about numbers; it is about good versus bad.”