May 29, 2013 9:23AM

Trade Agreements Can’t Do Everything

Last week, I expressed some skepticism about whether trade negotiations could help convince the EU not to be so cautious about approving genetically modified foods. Along the same lines, I came across the following Bloomberg article:

Wall Street Seeks to Change Dodd‐​Frank Rules Via Trade Deals

U.S. bankers and insurers are trying to use trade deals, which can trump existing legislation, to weaken parts of the Dodd‐​Frank Act designed to prevent a repeat of the 2008 financial crisis.

So the first thing to point out is that it’s not really accurate to say that trade deals “trump existing legislation.” But yes, you could negotiate a trade deal that created an international legal obligation that would have some impact on domestic policy.

Let me put the nuances of the interntional law‐​domestic law relationship aside, though, and say something about the focus of trade agreements. As noted in the GM foods post, I think trade agreements are most useful when they focus on protectionism. So, if the goal with regard to financial regulation is to prevent discrimination against foreign providers of financial services, trade agreements could help with that.

By contrast, if the objective is to remove the burden of financial regulations more generally (and the article is a bit vague on the substance of what’s at issue), I’m not sure trade agreements are the place to go. There seems to be a tendency in recent years to have trade agreements take on any issue that has even a tenuous relationship to trade. In my view, if we go that route, we are unlikely to have any trade agreements at all.

Instead, for domestic regulatory issues, I would rely on the domestic policymaking process, and the arguments of people like my colleague Mark Calabria. Problems with Dodd‐​Frank are not going to be solved in the backroom by trade negotiators. They are only going to be solved by a vigorous public debate over what constitutes sensible policy.