Trade fears threaten market integration

Bernard M. Hoekman 
Director, Global Economics research area, Global Governance Programme

27 October 2014

Trade integration has been a driver of rising per capita incomes around the globe. While inequality has been rising within countries, the income divide across countries has fallen significantly, supported by an open global trade regime that allows firms to exploit national comparative advantages. The global trade engine is now sputtering. Trade growth post-2008 has been anaemic compared to the average in recent decades. Efforts to cooperate on new trade rules in the WTO have gone nowhere, reflecting both the “rise of the rest,” especially China other Asian nations, and an outdated agenda that does not address key policy areas for productivity growth in advanced economies—such as digital trade and e-commerce, and reducing the costs of differences in regulatory regimes that have very similar objectives. The EU and the US are pursuing major plurilateral trade initiatives to address such subjects. The US is a central player in talks on a Trans-Pacific Partnership; the EU has just finalised a Comprehensive Economic and Trade Agreement (CETA) with Canada; and the EU and US are negotiating a Transatlantic Trade and Investment Partnership (TTIP).

CETA and TTIP can help underpin some of the structural reforms needed to create greater economic dynamism in the EU. But these initiatives are also a means for the EU and US to show it is possible to cooperate on regulatory policies and reduce costs for firms and consumers while doing a better job of attaining regulatory objectives. Strong resistance by civil society groups in both the EU and US to greater integration of markets will need to be overcome for TTIP to become a reality. The opposition to TTIP in the EU has focused on specific elements, most notably investor-State dispute settlement (ISDS) provisions. But it reflects a broader view in some EU countries that more trade is not beneficial. A recent PEW poll found that only 19% of respondents in 40 countries thought trade was bad for employment. But in Italy, the US and France 50% or more respondents thought trade was bad for jobs. These three countries also had much more negative views about foreign companies buying domestic firms.

A key task for the new Trade Commissioner is to address the trade scepticism that prevails in key EU member states. Another is to do so in a way that does not undermine prospects for liberalisation of state-level public procurement and services markets in the US, where EU firms confront significant barriers. CETA embodies far-reaching liberalisation by Canada of these markets, and is a template of what the EU wants from the US in TTIP.  Given that the EU wants much more from the US than the US wants from the EU, great care will be needed to ensure that EU civil society concerns are addressed in a way that does not strengthen the ability of interest groups in the US to resist market-opening in areas that would create new opportunities for EU firms and workers.