An ABC of trade liberalisation negotiations
Politicians and commentators talk in general terms about the prospect of the UK’s negotiating a lot of individual trade agreements with other countries once Brexit has taken effect. Such trade agreements are commonly referred to as preferential or “free trade” agreements (FTAs). They are preferential in the sense that the countries that sign up to them give each other better terms of market access than they do to non-members, with whom they trade under the rules and conditions negotiated at the World Trade Organisation (WTO). In the strict sense of the word, trade under such agreements is not “free” because it is still subject to a wide range of rules and procedures agreed in the interests of all participants.
FTAs are supposed to go beyond the baseline of commitments and obligations specified under the WTO Agreements, which provide the backbone and the framework of all trade relations, including the many trade liberalisation agreements currently in force. But even taking these common features into account, every one of the UK’s new trade agreements will be unique – just as each of the European Union’s existing trade agreements is unique – because the economic realities of the parties, their priorities and strategies, will be specific to each case.
In practice therefore every negotiation will have to be prepared and conducted from scratch. That is why even well-prepared and efficient negotiations take a long time. And all new trade agreements must be notified to the WTO, where they are potentially open to challenge from other WTO members, if such members consider the provisions to discriminate unfairly against their own trade.
Trade permits countries to gain from exporting products (goods and, increasingly these days, services) which they can produce most economically; and at the same time, to benefit their own consumers by importing products which other countries can produce more cheaply, and often on the basis of superior technology. The fewer the restraints which are imposed on trade in the form of tariffs or other types of barriers such as quota limits or discriminatory standards, the greater the mutual benefits. So it is worth negotiating away as many of such barriers as possible. On paper it is multilateral negotiations, typically under the WTO where everyone undertakes the same obligtions, which offer the most efficient way of doing this. But in practice the inability of WTO members to make substantial progress on trade negotiations over the past two decades has diverted efforts to the negotiation of preferential agreements on more limited regional or bilateral bases.
With the emergence of cross-border value chains as a fundamental driver of production and world trade, countries have increasingly looked to trade negotiations as a way of negotiating common regulatory frameworks and standards, especially in areas such as data and intellectual property protection. Countries have also been motivated by the belief that first-movers in the areas of regulation and standards will be at an advantage, if value chains adopt these rules and norms.
Economic benefit is the basic, but not the only, reason for negotiating to reduce trade barriers. Often there is a geopolitical priority, for example to bind more closely together countries in a region where there are shared political, economic and social interests. Various such agreements exist in South-East Asia, the Americas, Africa, and pre-eminently in what is now the European Union. The first step in developing such a political association may well take the form of an economic and trade agreement, as was the case with the first establishment of the European Communities in the 1950s. Competition over value chains (see previous paragraph) is also an important aspect of geopolitical rivalry, and is one reason why the Trans-Pacific Partnership negotiations which were promoted by the US under President Obama did not include China .
Trade negotiations can have an altruistic motive also. There are various schemes through which developed economies grant preferential terms in the form of reduced or zero tariffs to imports from developing countries. These are essentially asymmetric, more or less one-sided, arrangements, designed to help developing countries to upgrade and diversify production and trade their way out of poverty. The developed countries offering such preferential terms accept that in the interest of the wider good, they may get less, or even no, benefit for themselves by way of extra trade into the beneficiary markets.
So a government entering into a trade negotiation must be clear about its reasons for doing so, because those reasons will be fundamental to the form which any eventual agreement will take. Often, different constituencies within a government will have different priorities: some will be orientated more towards economic benefits and others to geopolitical concerns. The “gravity model” of trade must also be taken into account: the fact that countries do more trade with larger markets closer to them than they do with smaller markets further away. What benefits will a successful negotiation bring, politically and/or economically? Are they likely to be worth the major effort and expense involved for all participants?
Factors common to all negotiations
Every trade negotiation is unique as to its participation and coverage. But there are procedures that are necessary in all negotiations. The guidelines which follow are a checklist for governments negotiating with one or maybe several partners for bilateral or regional trade liberalisation. Not all of them will be applicable, say, to negotiations for a different purpose such as accession to a multilateral regulatory or standards-setting agency that is governed by fixed treaty-based standards and procedures.
Clarify your objectives: What realistically do you want to get out of a proposed agreement? Those objectives will determine the type of data which you need to assemble to establish your position, the detail of the negotiation, and depending on its complexity, how long it takes. Carefully consider and learn from relevant statistical and policy studies.
Identify the many different domestic interests that will be affected, ranging from political groupings to industrial and business associations, trades unions, and civil society bodies concerned with matters like health and safety, environmental protection and gender issues.
Consult all these interests in the course of working out your negotiating policy and strategy. Explain the government’s aims to them and take their representations into account. There will be many conflicting and no doubt controversial views, so you must find a way of evaluating trade-offs between different interests and priorities. You can’t please everyone, but you need to show that you have listened.
Standard economics tells us that a country that reduces its trade barriers is doing itself a favour. But this logic, which applies to standard trade barriers like tariffs and quota restrictions, may not translate easily into areas of domestic regulation, which increasingly are the focus of trade negotiations. Good regulation seeks to correct market failures, and to improve the welfare of citizens. Setting the simple-looking aim of eliminating regulation in the name of reducing “red tape” may have the perverse effect of jettisoning not only redundant rules but also regulation which works for the public good. It is therefore essential that trade policy makers work closely with regulators well in advance of any negotiation.
Take care to understand the purposes of the other party or parties who are entering into negotiation with you. They will have their own valid political and economic objectives, and domestic political and social pressures acting on them. You must recognise these pressures in seeking an outcome that benefits both sides.
Make sure in preparing your negotiating position(s) that what you propose, if secured, will be legally, financially, socially and administratively viable. It’s no good building political and administrative castles in the air.
Make sure that your negotiating mandate includes a credible fallback or bottom-line position which meets your essential priorities and which at the end of the negotiation you will be able to justify to your domestic interests. Of course you will need to keep this confidential until the need for compromise becomes unavoidable, as it will; but hints in the corridors as to how far you may be able to move your positions if you get something worthwhile in return are indispensable in negotiations.
Set out your negotiating requests clearly and make sure that you can justify them, but don’t expect to secure everything you ask for: your partners are constrained by domestic interests and pressures acting on them too, as well as, possibly, by other international commitments.
Concentrate in the first place on areas of the negotiation where all sides stand to gain, and stressing the scope for mutual advantage. Establishing a basic framework of agreed objectives creates a better background against which to negotiate the more contentious points.
Keep up the domestic consultation process as the negotiation proceeds – preferably through setting up a standing committee of representative organisations which will meet regularly and through which you can communicate regularly with the wider public. Some interests will disagree with what you are doing, perhaps very noisily, and you cannot publicly reveal all your negotiating tactics; but systematic consultation puts you in a stronger position to justify what you are doing.
Maintain good manners at all times. You are negotiating in what you have identified as mutual interests, and your negotiating partners are not enemies. Explain your positions calmly and lucidly and avoid stridency. If in the unfortunate case that you feel the need to accuse other participants of bad faith, be very sure beforehand that the complaint is justified.
Don’t be put off when in the final stages of negotiation the outcome appears to get hung up on a point or issue which previously looked relatively unimportant but now suddenly becomes urgent. That often happens. Negotiators need to be able to demonstrate to their home constituencies that in the national interest they have extracted everything possible from the negotiation, and that there was no more to be gained from holding out further.
Avoid triumphalism, and in particular don’t talk in terms of “winning” or “losing” points. Trade negotiations are not a winner-takes-all enterprise. They are a positive-sum game designed to benefit all participants, and a successful outcome can be celebrated in that spirit.
-  President Trump has withdrawn the US from the TPP, whose other participants have nevertheless agreed to go ahead and implement the agreement.