What is "Progressive" Trade Policy?

The TPP Lives (mostly)

Earlier this month, on the sidelines of the APEC Summit in Vietnam, the 11 remaining signatories to the Trans-Pacific Partnership trade pact agreed to move ahead without President Trump's America. Withdrawing from the U.S.-backed TPP was, of course, one of Trump's very first actions upon assuming office this past January. That the TPP lives on signals many things, not the least of which is a decline in the importance of American leadership in the Asia-Pacific Region.

Not Voting Their Interests

It is my belief that America's withdraw from the TPP was a strategic mistake and my hope that sometime after 2020, a new U.S. administration will rejoin the fold.

Nevertheless, the TPP-11 emerged with a curious new mouth-full of a name: The Comprehensive, Progressive, Agreement for Trans-Pacific Partnership (CPTPP).

So, what exactly is "progressive" trade policy, anyway?

What's in a Name?

The name change was evidently made to mollify Canada regarding some previously unexpressed objections to the text (link). Indeed, Canada seems to have engaged in a strange bit of 11th hour gamesmanship for no particular reason other than the name-change. But what's in that name change? Negotiators of the original TPP agreement would certainly balk at Mr. Trudeau's suggestion that it was not "comprehensive" Indeed, at nearly 600pgs of basic text (never mind annexes), the TPP-12 was nearly twice as long as the basic text of the 1994 NAFTA-- easily the biggest, most comprehensive multilateral trade agreement concluded since the WTO. Moreover, most analysts agreed that the TPP-12 contained some major advances in a number of the most controversial areas of contemporary trade policy; notably, labor, investment disputes, and the environment.

Interestingly, the CPTPP signatories announced the suspension of a number of provisions of the TPP-12 text, including some covering express delivery services and intellectual property.

Yet, it's the "progressive" label that intrigues most. While a lot of critics don't see it this way for some reason, trade liberalization is inherently progressive. Indeed, for a good part of human history, the protection of markets by the powerful and privileged at the expense others (foreign or domestic) has been the default. Eliminating barriers to trade has been an unqualified boost to global economic activity, raised the living standards of billions around the globe, undercut the power of monopoly, and unleashed the "creative destruction" of capitalism to re-order the strictures of privilege in many societies.

To be sure, all of this comes with the narrowly focused, and politically potent, adjustment costs predicted by economic theory. Here And our failure to deal with all of that adequately has, in part, paved the way for the Trump wrecking ball. Indeed, the political failure to "purchase" additional social and political license for the "losers" by using some of the broadly based proceeds from the "winners" to compensate them has given great cover to the xenophobic populists that now dominate debates over trade.

Addressing this fundamental problem would be a far more "progressive" approach to trade policy than the semantic changes made to the TPP's title..... But let's explore this further.

The Skeptical Progressive

Birds of a Feather

When Prime Minister Trudeau says Canada's trade policy is "progressive," my spidey-senses tingle. What the Government of Canada actually means by this in practice is rather murky, but the outlines were advanced by Chrystia Freeland, Canada's foreign minister, in a speech given August 14, just before the start of the NAFTA re-negotiations:

... Here, then, are some of Canada’s core objectives.

First, we aim to modernize NAFTA. The agreement is 23 years old. The global, North American, and Canadian economies have been transformed in that time by the technology revolution. NAFTA needs to address this, in a way that ensures we continue to have a vibrant and internationally competitive technology sector and that all sectors of our economy can reap the full benefits of the digital revolution.

Second, NAFTA should be made more progressive. We will be informed here by the ideas in CETA, the most progressive trade deal in history, launched by Conservatives and completed, proudly, by our government.

In particular, we can make NAFTA more progressive first by bringing strong labour safeguards into the core of the agreement; second by integrating enhanced environmental provisions to ensure no NAFTA country weakens environmental protection to attract investment, for example, and that fully supports efforts to address climate change; third by adding a new chapter on gender rights, in keeping with our commitment to gender equality; fourth, in line with our commitment to improving our relationship with Indigenous peoples, by adding an Indigenous chapter; and finally by reforming the Investor-State Dispute Settlement process, to ensure that governments have an unassailable right to regulate in the public interest.

One reason that these progressive elements, particularly on the environment and labour, are so important is that they are how we guarantee that the modernized NAFTA will not only be an exemplary free trade deal, it will also be a fair trade deal. Canadians broadly support free trade. But their enthusiasm wavers when trade agreements put our workers at an unfair disadvantage because of the high standards that we rightly demand. Instead, we must pursue progressive trade agreements that are win-win, helping workers both at home and abroad to enjoy higher wages and better conditions....

Don't worry,.... be happy!

I've underlined the key elements; labour, environment, gender, Indigenous peoples, and ISDS. As we know, the NAFTA negotiations have not gone well. Indeed, the 5th Round of talks in Mexico City just wrapped up with seemingly little progress to report. Several days ago, USTR updated its negotiating objectives for NAFTA 2.0. The Trump administration wants to get rid of dispute settlement altogether, including ISDS (which I've written about elsewhere). Unsurprisingly for the Trump administration, gender and Indigenous peoples didn't make the cut.

Is Trade the Right Forum for These Issues?

These are all important issues, but except for ISDS, I'm not completely sure trade agreements are the right forum for dealing with any of these issues. For those seeking to have these issues raised in prominence, trade agreements are obvious targets for doing so. At bottom, trade agreements are rules-based arrangements designed to foster transparent cooperation on all of the issues covered. Indeed, simply getting new issues attached to trade agreements is a big victory since it indicates their status.

On the other hand, one concern with trying to have trade agreements become vehicles for more and more issues is that we already expect such agreements to do more than they reasonably can. Indeed, one of the biggest problems for the NAFTA has always been that its proponents over-sold what the Agreement could do while critics overstated the negative byproducts.

Adding a whole range of issues (however desirable it might be to address them) to trade expands the scope of agreements that have already become hideously complex and a lightening rod for populist critics. Trade agreements like the NAFTA are actually quite limited in what they do; they liberalize flows of trade, services, investment, and some categories of people. As a comparatively shallow preferences agreement, the NAFTA never contemplated the kind of supranational institutions (pooled sovereignty) that would be needed to deal with the kinds of political and social questions implied by Canada's progressive agenda. None of the proposals put forward for the modernized NAFTA2.0 involves the pooling of sovereignty. Hence, asking NAFTA2.0 to be "progressive" is asking too much of it. 

Labor and Environment

For evidence, look no further than the original NAFTA. In the midst of the 1992 U.S. Presidential campaign, then-candidate Clinton was pressed on the campaign trail to take a position on the nearly complete NAFTA negotiations. In classic Clinton style, he found a way to sit on the fence. He was "for" the NAFTA so long as there were proper protections for labor and the environment.

I've written about this elsewhere, but the punchline is that -- for good or for ill-- President Clinton permanently attached labor and environmental issues to the process of trade liberalization with the creation of the so-called NAFTA Side Agreements. The Commission on Environmental Cooperation (CEC) has become a surprisingly robust organization for the exchange of information about North America's shared ecosystems by scientists, civil society, and interested citizens. It wasn't meant to be such.

Indeed, the CEC was never given any real enforcement power and has instead relied on being able to "shame" member governments into taking action. In many ways, it has become a pleasant, and still relatively unknown, institutional surprise.

The North American Agreement on Labor Cooperation never really got off the ground, in part, because it was never given any institutional teeth. My read of the text of the NAFTA Side Agreements is that the three governments were committed only to paying lip-service to these issues, first, by sticking them in texts outside the NAFTA, and second, by leaving them devoid of institutional teeth. It is noteworthy in this context that nothing like the CEC has ever been part of a U.S. FTA negotiation subsequent to the NAFTA.

In spite of these weaknesses, the Side Agreements permanently planted labor and the environment on the international trade agenda such that there are now provisions on labor and the environment in nearly every global trading agreement. For the most part, however, the language in these agreements is merely designed to ensure states adhere to internationally agreed standards of worker protection (International Labor Organization, for example) and do not manipulate or relax aspects of their domestic labor and environmental regulations for the purposes of gaining advantage in their trading relationships (See text of Chapter 19 of the TPP-12 Agreement).

Interestingly, nothing like the CEC has ever been re-created alongside U.S. FTAs subsequent to the NAFTA.

Smells Like Progressivism, Looks Like Protectionism?

A big reservation I have about the future of labor and the environment in the context of trade is how readily professed concern for these issues can slide into protectionism. Labor and environmental

standards are a major source of political cleavage in the global trading system. Developed country labor and environmental standards are generally well above those maintained in developing states. Developing states argue they are doing their best to raise the bar in these areas, but that raising living standards must take precedence over higher labor and environmental controls. Critics say development and the establishment of high standards can happen simultaneously. Developing countries argue that richer societies can better afford such controls and that it's hypocritical for developed states to push this approach when for many decades their own development evolved on the basis of much lower labor and environmental standards-- today's Pittsburgh is very different in both of these areas than it was in the 1940s.

Moreover, the insistence of high standards for labor and environmental standards as a condition of trade strikes a number of developing states as nothing but veiled protection. It sounds nice and progressive to insist upon and use trade liberalization as a means for ratcheting up standards. But beneath it is less a concern about labor and the environment in developing states than a means of making the products of those countries less competitive in developed states.

Don't Mess with Flipper

Some of the earliest experience with this cleavage came in the late 1980s when the WTO was still the GATT. In 1990, the United States banned imports of tuna caught by Mexican fishers because the methods used to catch the tuna did not include safety measures to prevent dolphins from also being caught. The U.S. measure was subsequently modified to allow tuna imports provided Mexican suppliers could prove no dolphins were harmed. Mexico complained to the GATT arguing that restrictions on imports could only be applied to "products" and that U.S. measures were being applied to the "process" by which tuna were being caught. A similar case was brought against the U.S. by Malaysia, Pakistan, and Thailand in the late 1990s over U.S. restrictions on shrimp harvested without the use of turtle exclusion devices on fishers' nets. At issue again was whether restrictions could be placed on imports under WTO rules on the basis of "process" rather than just "product."

Trade and Climate Change

My concern about the global trading regime becoming a vehicle for dealing with the growing importance of climate change is all about this "product vs. process." I imagine there are voices who would very much like to have the terms of trade agreements reach into various parts of a nation's production chain, deem certain processes unsustainable, or dirty (high CO2 content in production), and use trade sanctions to raise those standards. Yet, what sort of moral high ground would we really be standing on when the effects of new sanctions would fall most heavily on those who can least afford them?

It would be easy to use the lure of U.S. market access, for example, to try and impose rich-country labor and environmental standards on developing countries that wanted to sell their goods to Americans. Yet, I wonder greatly how many rich country labor unionists or environmental advocates really care about what goes on in developing countries apart from the impact it might have on their jobs at home? That's probably too cynical. But I certainly think venturing very far down this road risks deepening the cleavage between rich and poor countries in the global trading regime.

There are already lots of measures available to WTO members to limit trade through safeguard measures, negotiated quotas, for conservation or national security purposes, or health and safety-- all of these measures apply to end "products." I wonder how long we'd credibly be able to claim our policy was "progressive" if we adopted trade rules that effectively threatened countries with trade barriers because of productive "processes" we didn't like?

Moreover, those in glass houses should not be throwing stones. For that, look no further than the asbestos industry. In 2001, France banded the importation of asbestos and products containing it. Canada went to the WTO in an effort to overturn that ban and lost. Canada is also a major fossil fuel exporter and parts of its heavy industry are based upon fossil fuel consumption. Would Canada necessarily be a beneficiary of an evolved set of trade rules that could be used to police "process" issues in the manufacture of dirty goods?

Gender and Indigenous Peoples

This brings me to the final two pillars of Canada's current efforts to pursue "progressive" trade policy. Like labor and the environment, gender and issues involving Indigenous peoples around the world are extremely important. Societies everywhere are better off depending on the degree to which they are able to make advances on each of them. But is the global trade agenda the correct place for this?

In some ways, absolutely! As I noted above, trade liberalization inherently breaks down the power of privileged interests and opens economic opportunity to people for whom it may normally be closed. Trade empowers minorities, women, and the poor.  As noted in a 2015 World Bank publication titled "The Role of Trade in Ending Poverty," trade is responsible for cutting the number of people living in extreme poverty in half since 1990 to just under a billion people.

As part of its pursuit of gender as a focus of "progressive" trade policy, Canada and Chile recently amended their 1995 FTA to include a new chapter on gender. It lays out a number of lofty goals with respect to gender equality and economic empowerment, including a number of ideas for cooperative initiatives.

However, Article N bis-06 is also clear that "A Party shall not avail itself of the dispute resolution mechanism provided for in Chapter N (Institutional Arrangements and Dispute Settlement Procedures) with respect to any matter arising under this Chapter." In other words, like the NAFTA's labor and environmental Side Agreements, the amended Canada-Chile agreement has no institutional teeth. Wouldn't a more genuinely progressive agenda between Chile and Canada entail modernization that went further in eliminating barriers to trade, including those entrenching differential access to international markets for women?

Could the new Gender chapter evolve in the same way as the Commission on Environmental Cooperation and become far more robust than the governments intend? Perhaps, and there are important agenda-setting qualities to having such text formalized in an agreement.

But how far down a road toward making labor rights, the environment, gender, or Aboriginal peoples subject to dispute settlement mechanisms and sanction in the context of trade are we prepared to go? Do we really want the mechanisms of the WTO or of regional agreements like the Canada-Chile FTA to reach behind borders into "processes" of one sort or another to sanction inequities or right past injustices we find upsetting? I think trade can be an important vehicle for raising awareness of all these issues. But I am unsure how deeply we should venture into using trade mechanisms to sanction behavior we think should be more "advanced" when not directly tied to trade?

Should the threat of trade sanctions be used as a way to forcibly improve the production "processes" in developing countries? As Canada's experience with asbestos suggests, rich countries are not without a few skeletons in their closets. Canada is big and pristine looking, but its management of the environment in the harvesting of softwood lumber leave much to be desired. Should trade rules be reconfigured to make failure to enforce part of the "subsidy" provided to lumber companies? What about trade sanctions for gender inequality, the lack of workplace pay-equity laws, or lax enforcement? How would Canada stack up there? And, finally, what about Indigenous peoples? Could trade somehow be used to remedy past wrongs in a number of different countries? Should it be? Could the very same rules Canada puts forward regarding Aboriginal peoples in the context of trade be turned against Canada in ways that compromise reconciliation processes?

I'm inclined to think we ought to just let trade be trade.

In no way do I intend to minimize the importance of these "progressive" issues. Rather, I merely question the utility of adding them to a trade agenda already paralyzed by cleavages between rich and poor countries; it would be nice to first deal with agricultural subsidies. Moreover, the entire global trading regime is teetering under the challenge from populists in both Europe and North America who feel too much sovereignty has already been ceded to unaccountable institutions like the EU or WTO.

I am all for advancing "progressive" policy positions. But trying to attach them to trade policy strikes me as cowardly and empty-- especially without institutional teeth. The cynic in me thinks Trudeau's rhetoric about all of this is largely for domestic consumption. Moreover, before launching moralistic volleys about "progressive" trade policy, the Trudeau Government would do well to think about how those same volleys might be used by others in ways that complicate the ability of Canadians to advance on things like the environment, gender, or Indigenous peoples at a pace of their choosing.