Free Trade Deals, Or Tools of Global Governance?

February 18, 2014 Topic: EconomicsTradeGlobal Governance Region: United States

Free Trade Deals, Or Tools of Global Governance?

Efforts to include things like bans on shark finning in international trade agreements, while well-intentioned, are a mistake.

In recent weeks, the U.S. trade agenda has run into some serious roadblocks. While negotiations with our trading partners in the Pacific and Europe continue, prospects for getting completed trade agreements approved by Congress any time soon are looking dim.

Most experts believe that approval will not happen without Congress first granting Trade Promotion Authority, through which Congress gives the President guidance on what should be in these agreements and also promises an up or down vote on the final negotiated text. But in the Senate, Harry Reid has announced his opposition to granting such authority; and in the House, Nancy Pelosi has also said no. The incoming chairman of the Senate Finance Committee, Ron Wyden, has a relatively good record on trade, but apparently wants to take time to consult with his colleagues before moving forward. Over in the Executive Branch, President Obama did briefly mention the trade agenda in his State of the Union speech, but has not pushed very hard to convince others in his party. Clearly, the Democrats do not see trade as a winning issue for them.

On the Republican side, conservatives tend to be more likely to favor open trade, and John Boehner has called on the President to do more. But there are some on this side who have vague concerns about sovereignty or are unwilling to work together with President Obama on anything, which reduces Republican support.

As a result of all this, it is increasingly likely that no domestic action will be taken on trade matters until after the midterm elections.

But there is more to the story than politics. There are also policy reasons for the struggle to move trade agreements through the domestic process. Trade agreements are no longer just about tariffs and protectionist laws and regulations. They are also about a wide range of domestic policies, including intellectual property protection, labor rules and environmental regulations. Today's trade agreements affect domestic regulation—such as food safety, tobacco control and financial services, among others—and they do so in significant ways.

These issues were initially included in trade agreements in order to get new supporters on board. That may have worked at first. However, these additions to the trade agenda also gave others a reason to object. For every person brought on board by adding a new issue, someone else is now fired up to oppose the trade agenda. Intellectual property rules bring in industry support, but offend many consumer groups; new labor rules reassure liberals, but anger conservative groups worried about sovereignty. While the expanded agenda may have helped initially, it now may be hurting.

To get a better sense of these new topics, let's look at one in more detail. As part of the Pacific trade talks (the Trans Pacific Partnership, or TPP), there is controversy about the practice of shark finning, under which sharks are left to die after their fins are cut off. (The fins are used to make shark fin soup.) Environmentalists are concerned that the latest draft text of the TPP has no binding commitment to curb this practice. The Sierra Club has complained that "[w]e've been calling for a ban on shark finning, which should be in this chapter," but "[a]ll we got in the text was a suggestion that countries should come up with fish management plans that may include, as appropriate, measures to address shark finning."

Without a doubt, the treatment of animals as part of the food production process is an important issue, and there should be a vigorous public debate about it, in both national and international fora. However, trying to fit these issues into trade agreements may be a mistake. It's true that shark fins are traded internationally, which means there is a tie to trade. But just about every product is traded internationally, so if that is the criterion for inclusion in trade agreements, all product regulation could become part of trade negotiations. By this logic, trade agreements could spell out detailed regulations for cigarette labelling, car safety tests and lead in toys, among other things, which national governments would have to follow. This would fundamentally change the nature of trade agreements.

With all this in mind, the question for free traders is, if we want to open markets in the current political environment, where do we go with trade agreements in the future? Do we continue with what might be called the "global governance" model, where new items are continuously added to the agenda and trade agreements act as regulatory instruments? Or do we scale back, and focus on the core of free trade? Cutting tariffs and identifying protectionist laws and regulations is not necessarily glamorous, but in terms of improving both the economy and international relations, it works quite well. And by cutting out many of the most controversial parts, we could make passage through the domestic political process much easier.

This is not to say that intellectual property, labor rules and other policies are not important. But can trade agreements really govern everything? There are other international organizations out there, some of which already address these issues. It may be that setting out a simpler trade agenda would be a better way to accomplish important things on trade, and these other issues could be dealt with effectively elsewhere.

The trade establishment continues to push the same approach that it has used successfully in the recent past. But if progress remains elusive, it may be worth rethinking the current model.

Simon Lester is a trade-policy analyst at the Cato Institute.

Image: Flickr/ShnapThat! CC BY 2.0.