No more business as usual: Where to now for international trade?

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Policy Observatory | 13 Jul 2017

No more business as usual: Where to now for international trade?

By David Hall

What is the future of international trade in a world of re-emergent national populism and voter scepticism of big trade deals? This new report brings together thirteen authors who have written thirteen very different essays on the future of trade. What does the Paris Climate Agreement mean for trade? What can trade negotiators learn from internet governance? Is New Zealand getting the value we could from our exports? Are we past the era of flagship free trade deals? With the United States’ decision to leave the Trans-Pacific Partnership, there is no better time to ask fundamental questions and explore solutions. The contributors to this volume don’t agree on the answers – far from it. Some are more critical than others of the status quo. But none are wholly against trade, nor are any contributors wholly complacent toward business-as-usual.

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Foreword

David Hall, The Policy Observatory, Auckland University of Technology

When the Trans-Pacific Partnership (TPP) was signed in Auckland in February 2016, its advancement seemed inevitable. About as inevitable as a Trump Presidency did not.

This is why, when Donald J. Trump became President of the United States of America, it felt like the international community had turned a corner. Ordinary expectations had been inverted. No more business-as-usual.

But strains within the global system have persisted longer than this. The Global Financial Crisis, the Tea Party movement, Occupy Wall Street, the Eurozone crisis, the British vote to leave the European Union – all these events (and more) rearranged the political furniture. In New Zealand, the TPP showed a remarkable inability to win majority public support, especially given the country’s economic reliance on export markets. Collectively, these were signs that trade’s architects had taken too much for granted. As a result, the TPP – like the Transatlantic Trade and Investment Partnership (TTIP) – is on ice, perhaps to be thawed in a warmer season, perhaps to remain frozen where it last lay down.

The Italian theorist Antonio Gramsci (1891–1937) found a new lease of life last year, for his apt and poetic description of times of crisis: ‘the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.’ Trump is the most morbid of symptom yet, but it’s still hard to say conclusively whether he signals a false start, or the beginnings of the next great transformation. To paraphrase Gramsci again, present history might feel like a series of violent tugs, but is the definitive tug on the horizon? And if so, who will deliver it? The revolutionaries? The bullies? The masses? The Silicon Valley entrepreneurs? The global climate? Or can this definitive tug be avoided? Is it possible – with a few tweaks and compromises – to re-establish business-as-usual and to carry on as before? Another unlikely president, Emmanuel Macron, marched into the Élysée in 2017 on promises like this.

The New Zealand Government, in a less flashy way, toes a similar line with its conspicuously unadventurous ‘refresh’ of trade policy, Trade Agenda 2030. Still, there is no better time to ask fundamental questions. What does New Zealand want from international trade – and what don’t we want? What should we not be willing to compromise? Do the rewards of our trade arrangements justify the tradeoffs? And is the distribution of impacts fair, equitable and both environmentally and politically sustainable? Only by addressing questions like these can international trade refrain from sowing the seeds of its own undoing. Only by striving for real improvements can New Zealand trade policy overcome public ambivalence and regain the support of constituencies who responded to the TPP with a withering ‘yeah, nah’.

The contributors to this volume don’t agree on the answers – far from it. Some are relatively supportive, even protective, of the way that international trade has heretofore been organised. Others are more critical, committed to the view that the wrong sacrifices have been made – to equality, to democracy, to public goods, to added value, to environmental integrity. But it warrants emphasising – given the polarisation of past debates – that none of the contributors to this volume are against trade. No one comes remotely close to proposing that New Zealand cease all exports and imports. Nor are any contributors wholly complacent toward business-as-usual.

What this discussion paper offers is a range of suggestions about how trade might be improved. Some recommendations are highly demanding, others are more incrementalist, seeing the shortcomings of our trade regime with Beckettian stoicism: ‘Ever tried. Ever failed. No matter. Try Again. Fail again. Fail better.’

That pragmatic spirit animates Stephen Hoadley’s essay which draws on his newly published book, New Zealand Trade Negotiations, a survey of trade deals over the last half century. He derives lessons for the future from the past, highlighting New Zealand’s record of success as a trading nation. Our failures, he argues, are only really failures when held up to impossible standards, such as the avoidance of all compromise.

Hosuk Lee-Makiyama and Hanna Deringer, respectively Director and Policy Analyst for the European Centre for International Political Economy (ECIPE), offer an external perspective. Writing from the heart of the European Union in Brussels, they reinforce the view of a global trade system that is uniquely vulnerable today. In this context, they argue, New Zealand could play a critical role in holding together what remains of the rule-based global system – which includes pursuing a TPP-11 without the United
States.

Other contributors propose a more thoroughgoing reckoning of global trade institutions. Toby Moore takes an institutional perspective, focusing on the road not taken after the dissolution of the post-War Bretton Woods regime. Public disenchantment, in his view, won’t be easily undone, because the threats that people perceive from trade are as much political as economic. But this observation also
recommends a remedy: the importance of preserving a nation’s ‘policy space’.

On a similar tack, Robert Wade makes a case for managed trade by way of unpicking the economic rationale for free trade. He argues that the formal justifications for free trade, derived from classical economic theory, are unrealistic and overwrought. In the face of this, he endorses a more strategic approach that leaves space for domestic policy and more widely for international cooperation on pressing global problems.

Bill Rosenberg examines free trade in its political context, using Dani Rodrik’s trilemma between hyper-globalisation, national sovereignty, and democratic politics. These factors cannot grow together equally; one must always be subordinated. Until recently, the sovereignty of nation-state was weakened, which sowed the seeds for today’s nationalist upheavals, but these in turn undermine democracy. So why not restrain globalisation instead, asks Rosenberg, to ensure that international trade occurs in a world of stable democratic states?

Amy Baker Benjamin’s contribution expands upon a theme that is touched upon lightly elsewhere: regulatory harmonisation. Contemporary trade deals go beyond the ambitions of traditional ‘free trade’ to remove tariff barriers and seek to reform domestic policy. This involves a level of executive discretion that cuts against the democratic grain.

For the remainder of this discussion paper, the essays shift from broad brush-strokes to a finer grain, to particular problems and solutions within the wider sphere of international trade.

Rahul Sen comes from within the economic discipline and, from this perspective, he affirms the global and national benefits of trade. Yet he also recognises that this isn’t the entire story, that the gains of trade are not distributed evenly within nations, and nor are the risks. There is a need, he argues, for policy makers to anticipate and alleviate these consequences.

Facing trade’s problem of legitimacy, Jordan Carter explores whether certain strategies from the world of internet governance could be applied. The alternative he proposes is ‘multistakeholderism’ which could be adapted to overcome the criticism that trade negotiations are covert, elitist and undemocratic.

Dan Bidois addresses the question of New Zealand’s place within global trade, arguing that New Zealand should pivot from the Trans-Pacific to the Asia-Pacific, from the TPP to RCEP, a less comprehensive agreement that involves non-TPP members like China and India.

Carol Neill examines bilateral trade between China and New Zealand, operated through a free trade agreement that is currently under review. Despite its dominance – China has been our largest export market since 2013 – Neill identifies a significant opportunity cost given the lack of added value in our export goods.

Lida Ayoubi explores the issue of copyright and traditional cultural expressions, an issue of longstanding concern for Māori who have seen their cultural resources used inappropriately for commercial gain. Ayoubi argues that the balance is not yet right; indeed that the status quo is at risk of contravening indigenous rights. 

Pheh Hoon Lim surveys the state of intellectual property law, particularly for pharmaceuticals. This was one of the more controversial aspects of the proposed TPP, which gave substantial ground to United States’ interests in extended copyrights. Lim highlights the capacity of developing countries to advance their views through the existing trade framework.

Finally, Adrian Macey, a former trade negotiator for New Zealand, provides a note on how the global trade system could be reconciled to the Paris Climate Agreement, another complex feat of international negotiation.

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