Tariffs Key to Successfully Negotiating Trade Deals

This article appeared in the Philadelphia Inquirer on August 12, 2015.

As the Trans‐​Pacific Partnership (TPP) talks get bogged down in technical issues (such as the length of data protection for biologic medicines), and with another missed deadline last week putting completion of the negotiations in peril, people may wonder if trade liberalization has reached its limit. Are trade deals still possible these days?

In fact, trade liberalization is doing just fine. With the TPP, much of the delay results from the “global governance” approach that has evolved in recent years, under which international agreements bind governments to regulate in a wide range of policy areas. But we needn’t get bogged down in the travails of the TPP. There are other options for trade talks besides broad governance agreements.

As contentiousness and controversy swirl around the TPP, another trade deal is quietly being negotiated at the World Trade Organization: an agreement to eliminate tariffs on a wide range of information‐​technology goods. If the TPP fails, this deal could serve as a model for future trade liberalization.

The traditional global‐​governance route carries with it the burden of extensive rules on how much protection governments must offer for patents, copyright, trademarks, and other forms of intellectual property. There are also enforceable labor rules, based on International Labor Organization standards, that signatories must comply with, and there are requirements to enforce domestic and multilateral environmental laws and agreements.

All these rules were added to trade agreements by one interest group or another. In domestic legislation, whenever governments are acting, people try to add their issue to the agenda, and that has been the case for trade negotiations as well.

Eventually, though, granting an interest group its wishes leads to push‐​back from someone on the other side. Thus, strong intellectual property protection gave rise to criticism from liberal public health groups that support access to affordable medicine. And enforceable labor rights irritated those on the right who worry about sovereignty and think of trade deals as a path to world government. The reality is that adding so many issues to the mix has made trade deals very hard to negotiate.

Luckily, there is an alternative. At the WTO, more than 50 countries are in the midst of negotiating a tariff‐​reduction deal on IT products. Among the items covered are semiconductors, GPS navigation systems, MRI machines, telecommunications satellites, and touch screens. Most tariffs will be eliminated on these products within three years, with reductions beginning in 2016. Most importantly, these tariff reductions will be offered to all WTO members, not just to the other countries making reductions.

Unlike tariff reductions in the TPP, which would create preferential rates among the 12 parties, the WTO IT deal would constitute liberalized trade for all 161 organization members. Now that’s a free‐​trade agreement.

To be fair, trade liberalization of this sort is not always easy. One of the issues holding up the TPP concerns traditional protectionist measures in the agriculture sector. Tariff reductions are politically feasible in the IT sector right now, but many domestic industries lobby hard to avoid competition from foreigners, and that means trade liberalization will always be a challenge.

Nevertheless, progress with the WTO deal shows how much easier trade talks are when you leave out the governance issues. Most TPP critics — including the Sierra Club and the Electronic Frontier Foundation — have voiced no criticism of the WTO deal. Their TPP rhetoric can be quite strong, but they have not even bothered to take a position on the imminent IT deal. Lower tariffs on information‐​technology products are simply not of concern to them.

The lesson to draw from this is that if we could focus trade liberalization efforts on helping consumers through the elimination of import taxes, rather than adding new governance mandates at the request of interest groups, a lot of the opposition to trade agreements would melt away.

At this point, completion of the TPP looks far off. But even if it is finished someday, we should not lose sight of the simpler, more economically beneficial, and less controversial form of trade liberalization that has historically provided the basis for trade deals: lowering tariffs for everyone.