With momentum building on the trade front despite ongoing concerns about globalization, here’s how leaders can earn an A in trade.
The trade horizon unexpectedly brightened last year, including in the United States, where some key successes pushed the trade agenda forward despite ongoing concerns about globalization and its effects. Congress delivered the votes President Obama needed to complete negotiations on an ambitious trade pact spanning the Pacific Rim and to reopen the embattled Export-Import Bank, while the U.S. also helped lead an international deal to significantly expand trade in information technology goods.
The gains were enough to earn a B+ for global trade policy leaders, according to trade experts Gary Hufbauer and Tyler Moran of the Peterson Institute for International Economics. If the U.S. and other countries can continue to build on the momentum, they face the prospect of acing the trade agenda and providing a much-needed spark to global growth.
“Leaders earned their B+,” says Hufbauer, the Reginald Jones Senior Fellow at the Peterson Institute. “The question for 2016 is whether leaders can up their game to an A by persuading legislators to ratify the pacts.”
Hufbauer and Moran, a research analyst at the think tank, share their take on past accomplishments as well as what unfinished business still needs to be taken care of:
Completing the 2015 Playbook
Trans-Pacific Partnership — The TPP remains the largest “loose end” in the trade box from 2015, and the most promising free trade agreement on the horizon. The 12 participants finalized the text of the pact in November 2015, but the deal must still be ratified by legislatures along the Pacific Rim. The deal faces stout resistance in the U.S. Congress, with some Democrats hoping to scuttle the TPP entirely and some Republicans hoping that a new GOP administration can strike a better bargain at the negotiating table. Critics are right when they claim that the 5,000-word package is not perfect, but no trade deal has ever met the imaginary “gold standard” held up as a template for the TPP. If the global economy is going to benefit from the progress made in 2015, the TPP should be ratified by the end of 2016 and enter into force by June 2017. When TPP is fully implemented in about 10 years, according to Peterson Institute calculations, member country exports will increase by about $440 billion (in 2007 dollars) and their collective GDP will rise by about $285 billion.
World Trade Organization. The November 2015 Nairobi Ministerial meeting of WTO members did not accomplish great things, but it did accomplish some things. Foremost, more members need to ratify the Trade Facilitation Agreement, which was signed in 2014, for the TFA to take effect as a binding WTO pact. Some 63 countries have already ratified the TFA; that figure needs to reach 109 countries, two-thirds of the total WTO membership. At Nairobi, many countries pledged to ratify the TFA in 2016, probably enough to get the agreement past the goalpost. Once implemented, the TFA will curb corruption and antiquated practices that hinder the movement of goods around the globe. Port and airport delays, corruption and duplicative inspections now constitute a bigger barrier to global commerce than tariffs. Faithful implementation of the TFA will eventually raise world exports by several hundred billion dollars and boost GDP to nearly the same extent.
The second important “deliverable” from the Nairobi Ministerial was the expanded Information Technology Agreement, dubbed ITA-2, signed by 53 countries that account for nearly 90 percent of exports and imports of information technology goods. The ITA expansion deal will cut tariffs on hundreds of products in the electronics and telecommunications sector. The ITA’s commitments will enter into force in July 2016, and tariffs on almost 90 percent of the covered goods will expire within three years. The expansion will be a major improvement over the original ITA and will liberalize about $1.3 trillion in trade.
New Initiatives in 2016
While legislators and customs officials are busy locking in the agreements inherited from 2015, trade negotiators will have new important contributions to make in 2016. Foremost is the Transatlantic Trade and Investment Partnership (T-TIP), which advanced much less quickly than TPP in 2015. While tariffs on both sides of the Atlantic are already quite low, the deal offers a major opportunity to harmonize regulatory standards, liberalize government procurement and make progress on rules surrounding privacy and digital trade. Tough negotiating issues are plentiful, but a strong commitment from U.S. and EU leaders could put T-TIP on a path towards completion in 2017.
As the U.S. and EU negotiators continue to work out T-TIP, they also supply the driving force in the Trade in Services Agreement (TiSA) negotiations with several other countries. In total, the negotiations involve 50 countries, which account for 75 percent of the global trade in services. TiSA is an attempt to put solid liberalization on the framework established in the General Agreement on Trade in Services back in 1995 and may attempt to “export” portions of TPP’s services chapter to a broader set of parties. A comprehensive TiSA would enable services around the globe greater opportunities to participate in foreign markets.
In short, 2016 has the potential to build on the momentum generated last year. If global legislatures sign off on the agreements struck by their negotiators, and if the negotiators continue to do good work, policy leaders will earn a solid A and the world trading system will continue its recovery.
(Top image: Courtesy of tetedelart1855)