Do Free Trade Agreements Have a Future?

Fabian Wendenburg

Federation of German Industries

Fabian Wendenburg is the Deputy Head of the Foreign Economic Policy Department at the Federation of German Industries (BDI) in Berlin. In this capacity, he works on trade policy and transatlantic economic relations. Previous to joining BDI, he worked as a Chief of Staff to the Senator for Economics in the City of Berlin, as a Public Affairs Manager for the Linde Group, and as a consultant for McKinsey. Fabian Wendenburg holds a degree in International Relations from the School of Advanced International Studies at Johns Hopkins University in Washington.

He is a 2016-2017 participant in AICGS’ project “A German-American Dialogue of the Next Generation: Global Responsibility, Joint Engagement,” sponsored by the Transatlantik-Programm der Bundesrepublik Deutschland aus Mitteln des European Recovery Program (ERP) des Bundesministeriums für Wirtschaft und Energie (BMWi).

After President Trump’s withdrawal from the Transpacific Partnership (TPP) and with the Transatlantic Trade and Investment Partnership (TTIP) negotiations “in the freezer,” the future of free trade agreements is put into question. However, trade agreements remain an important tool not only to create jobs and economic growth, but also to develop, update, and enforce the rules of the global economy. An effective trade policy is not an option but a necessity. The Brexit will soon put this hypothesis to a crucial test. So how can we ensure that we have trade policy that works? Here are some thoughts:

Ensure participation

The TTIP debate has shown that the public demands information and participation in trade negotiations. This means that policymakers must explain not only the content, but also the process of trade agreements. Both transparency and confidentiality are essential to negotiating future trade agreements. Striking the right balance between the two will be key.

Talk about the risks of impediments to trade

Protectionist rhetoric and measures by the White House have alarmed policymakers, businesses, and people around the world. Public approval of trade agreements could be increased if trade proponents talk about the consequences of inaction or of protectionism: Sluggish growth, disruption in value chains, and fewer rules and rule-enforcement in the global economy. A case in point: The TPP would have raised labor and environmental standards in some Asian countries. The failure of TPP will make this less likely.

Implement measures that mitigate negative consequences of trade

Trade has winners and losers, and the benefits of trade are not equally distributed. We therefore need a debate and robust measures to mitigate negative consequences of trade and to facilitate adjustment measures. This could be achieved through training and education programs, through fiscal policy, or by increasing labor mobility. A good starting point is a study recently published by the World Bank, the WTO, and the IMF on this question.

Debate the scope of future trade agreements

Recent trade agreements have become ever more comprehensive and complex. While this trend makes these agreements more powerful in spurring economic growth and shaping global rules, it also makes them more vulnerable to myths, criticism, and confusion. In order to make trade agreements politically viable, we need an honest debate over are the scope of future deals. Trade agreements remain crucial, but need not necessarily be the default mechanism to approach global economic issues.

Ensure the credibility of trade negotiations

The ratification of the EU-Canadian free trade agreement (CETA) has shown that the political process in the EU entails a great deal of uncertainty. The risk that a trade deal will ultimately fail through the veto in one member state undermines the EU Commission’s ability to negotiate good, credible deals. Therefore, we need to strengthen the ability and the acceptance of the EU to negotiate on behalf of the member states. At the same time, member states and stakeholders need to have their say during the negotiations so that a final agreement has the highest approval possible.

The views expressed are those of the author(s) alone. They do not necessarily reflect the views of the American-German Institute.