1 November 2016

Is “free-tradism” agonising? Why is it increasingly difficult to enter into free trade agreements?

CETA, TAFTA, EPA, the list is long of free trade agreements that are on the front page of the press and that succeed in mobilising an increasing number of opponents. Is it surprising to observe this trend that seems to gain momentum with time?

The answer is no, particularly as ‘free-tradism’ has been dominating trade policies for decades through, successively, the General Agreement on Tariffs and Trade (GATT), the Uruguay Round Agreements that led to the creation of the World Trade Organisation (WTO) in 1995, and since then a multitude of bilateral, regional and inter-regional free trade agreements.

So it is not suprising to see a slow down as most of the work has already been done. Moreover, free trade agreements are essentially the application of an economic principle that rests on the comparative advantage theory, developed by British economist David Ricardo (1772-1823) in the early 19th Century, that stipulates that free trade allows protagonists to capture benefits of trade by specialising in the production and export of the goods for which they are relatively more efficient and by importing those for which they are less efficient. This is a purely economic principle that gives topmost priority to the objective of economic growth that fits well with an economy of scarcity and poverty such as Great Britain’s economy in the first years of the 19th Century.

But now, in the 21st Century, the perspective has radically changed: since 1992 and the Earth Summit organised by the United Nations in Rio, Brazil, and the emergence of the concept of Sustainable Development, our societies have become conscious that economic growth per se is not a sustainable option and that development has to be considered with its social, environmental - and later political and cultural - dimensions, in addition to its economic dimension. The immediate consequence is that it is totally insufficient and misleading to evaluate economic policies - and in particular international trade policies - by considering only their impact on growth, whether growth of wealth or even growth of employment, particularly as the job impact expected is usually evaluated in terms of net employment created, which overlooks the distressing problem of redeployment of those who see their jobs disappear because of specialisation that is a direct consequence of trade development.

Indeed, it is increasingly clear that while exchanging goods, the actual exchange is not limited to goods and services for money but also involves exchanging technical, social, environmental and cultural norms as expressed by the diagramme below taken from our article on The European social model - The story of a political mistake. For example, as is the case for CETA, it is probable that the increase of imports into the European Union of Canadian beef will also lead to the development within the Union, in order to compete locally with these imports, of a beef production process that will be more industrialised. This will mean a change in the technological mix used to produce European beef and consequently a modification of the mix of beef qualities available on the European market.

Trade is not limited to an exchange

Trade negotiations can therefore no longer be limited to the economic dimension and must encompass other dimensions of the exchange. More importantly, even, one cannot limit communication to the public on the impact these agreements would have on economic growth. This is however what government authorities have been doing with the consequence of losing the trust of the people by touting extravagant resulting growth (of several tenths of a point of growth rate…), and sometimes employment generation (in thousands). Needless to say that these explanations are quite insufficient to convince the average citizen who cannot see how these agreements will directly impact on their livelihoods.

On the other hand, citizens are increasingly (and rightly so) sensitive to environmental issues (greenhouse gasses emissions whose importance is now well understood by almost everyone), health issues (norms, chemical residues in food, GMOs, etc.), social policy issues (social protection), political issues (the question of private arbitration tribunals) and even philosophical issues (European-type precautionary principle that is embodied in the French Constitution or the classical scientific principle adopted in North America that implies that one has to rely only on what has been scientifically proven), the consequences of which on their everyday life is increasingly well understood by people. All these dimensions would, of course, be difficult to evaluate by using just one unique monetary indicator (e.g. how could you possibly measure in monetary terms public authorities handing over part of their responsibilities to private organisations?) - if it were even a good idea in the first place. To commit to a trade agreement and only consider its economic and financial aspects therefore amounts to selling out covertly all these other dimensions of the exchange that will materialise and, in fact, a lifestyle, for dollars and cents that the great majority of the population will never see. Therefore, one cannot be surprised that opposition to these agreements is gaining in vigour and this has probably become the main reason why, along with forthcoming elections in key countries involved, negotiations on TAFTA/TTIP have been (probably at least temporarily) suspended.

In the case of Europe, the situation is further complicated by a confusing governance where international trade is considered a Union competence (for evident historical reasons because of the Common External Tariff that lies at the basis of this customs union), while other dimensions involved are competences of lower levels, national or even regional… At this point in time, as the European Union experiences its worse crisis since it was created, no-one would dare open the discussion on competences (temporarily settled at the time of the Lisbon Treaty with the introduction of the concept of mixed competences), by fear to see the Union explode. However, a clarification appears indispensable if Europe is to make headway not only in its trade relations but also on other important issues (fiscal policy, immigration and border management, etc.).

So it does appear difficult to engage in new trade agreements while not considering explicitly all these aspects, without increasing the transparency of negotiations or measuring effectively the impact that they may have on each of the affected dimensions. Or else, the risk is, for the hope of a minimal economic gain, to see a stronger resistance against these agreements that could be exploited by extremist parties and be expressed in the most negative way: an aggravation, if yet possible, of the most furious sovereignisms and nationalisms.

Danger!

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To know more:

1. -Dearden, N., Think TTIP is a threat to democracy? There’s another trade deal that’s already signed, The Guardian, 2016
   

2. -McDonald, Lande and Matanda, Why Economic Partnership Agreements undermine Africa’s Regional Integration, Wilson Center & Manchester Trade, 2013
   

3. -J.M. Caballero, M. Maetz and M.G. Quieti, International Trade: Some Basic Theories and Concepts in “Multilateral trade negotiations on agriculture - A ressource manual", FAO 2000
   

Articles on hungerexplained.org related to the topic:

1. -Free Trade Agreements Promote Corporate Interests, 2017
   

2. -The dark side of chocolate: a comparative study of ‘conventional’, ‘sustainable’ and ‘fair trade’ cocoa value chains, 2016
   

3. -The European social model - The story of a political mistake, 2015
   

4. -International trade in agricultural commodities, 2014
   

5. -Imposing the liberal economic model, 2013
   

6. -Agriculture and environment: UNCTAD’s wake up call, 2013

Last update:    January 2017

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