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On Thursday, April 13, a lively panel explored the ambition and stakes of deep integration through trade agreements, and related issues for the Trans-Pacific Partnership (TPP), the WTO and the UK. Moderator Benedict Kingsbury set the stage for an examination of TPP and other agreements that he described as creating a controversial design for organized freedom to operate across borders – not harmonizing regulations, but smoothing discrepancies and facilitating cross-border value chains. Yet these agreements have faced recent challenges with the US exit from TPP, and Brexit.
Christina Davis remarked that TPP broke the mold of East Asian regional trade agreements (RTAs), largely due to US leadership in pushing for new rules on labor, environment, digital trade, state-owned enterprises and competition -- features that persist past the US exit from TPP. For instance, the new administration’s stated goals for renegotiating NAFTA mention adding TPP disciplines; Vietnam is still moving forward on its TPP-related labor policy reforms.
Japanese Prime Minister Abe pushed Japan to join the TPP negotiations to advance domestic agricultural policy reforms. Moreover, geopolitically TPP signals deepening of the Japan-US relationship; TPP excluding China is part of that message. Japan has become the lead advocate for TPP, after the US election. Japan scores foreign policy gains from continuing to support TPP.
Kathleen Claussen of USTR (speaking in a personal capacity) noted the importance of Congress in determining US trade agreements’ template and agenda. To understand agreements’ impact, she suggested focusing on the process before entry into force when parties evaluate what implementation actions are necessary.
Rohini Acharya of the World Trade Organization then discussed how the WTO monitors RTAs. Since 2006, the WTO has been operating an RTA transparency mechanism based on a detailed Secretariat analysis of each RTA’s provisions and how they will be implemented over time, so that Members can understand the RTAs’ impact on their interests. Members are concerned about the implications of RTAs for the multilateral trading system. They have moved beyond concerns about trade diversion, and are interested in behind-the-border measures that can be trade-creating. They are concerned that trade rules are being created outside the WTO, but initiatives to bring these rules into the WTO sometimes find resistance, for instance in the discussions in the WTO’s E-Commerce Work Programme on digital trade rules in RTAs such as TPP.
Are RTAs leading to fragmentation? Less than usually perceived, said Claussen. As governments draft and negotiate RTA provisions, they compare RTAs and borrow text when they find it useful. As RTA texts converge, this may create a global set of norms, which provide a foundation for constitutionalization of principles. Davis remarked that TPP’s provisions could be borrowed in this way and find new life as a gold standard for trade agreements.
Turning to Brexit, Markus Gehring described Brexit as “a historical own goal that will not contribute to easing public unease about deep integration agreements”. The UK government sees exit from the EU as the start of a new set of deep integration agreements, but this is a fallacy, said Gehring.
The UK has launched a two-year negotiation under Article 50 of the EU Treaty on its exit agreement. Gehring predicted that at least one of the EU Member States will reject the exit terms and block the deal, so there will be no agreement on exit or on terms for trading with the EU. The UK will then have to fall back on trading based on its WTO market access schedules.
The House of Lords’ December 2016 Report on Brexit: the options for trade calls for prioritizing bilateral RTAs for post-Brexit trade. Since the UK cannot make any bilateral trade deals with EU Member States, it has turned to the Commonwealth. But how can these agreements replace the EU’s 70-80% of UK trade? Moreover, politicians have not paid attention to the warning in the House of Lords EU Committee report on Brexit and trade in goods:
“The notion that a country can have complete regulatory sovereignty while engaging in comprehensive free trade with partners is based on a misunderstanding of the nature of free trade. Modern FTAs involve extensive regulatory harmonisation in order to eliminate non-tariff barriers, and surveillance and dispute resolution arrangements to monitor and enforce implementation. The liberalisation of trade thus requires states to agree to limit the exercise of their sovereignty. … As a general rule, the deeper the trade relationship, the greater the loss of sovereignty”.
On the regulatory front, the government’s February 2017 White Paper proposes conversion of all EU laws into UK law. But the UK can’t borrow EU institutions without a role for the ECJ: the two go together.
Skepticism will grow, said Gehring. British manufacturers will have to comply with standards that the UK no longer has a say in making. This will lead to more frustration as the EU will not accommodate the UK in its regulatory decisions. Brexit will be a turning point for the UK: as Lord Heseltine has said, it could lead to a collapse of British geopolitical influence in the world. The only way out is if a future parliament decides to withdraw the UK’s Article 50 notice.
As for the EU: President Juncker’s March 1 White Paper presented five options for the future of Europe. A Europe of different speeds seems the most likely outcome, but the collapse of the European project is not likely at all.
Amy Porges practices international trade law in Washington, DC.