Saturday, July 14, 2012

Negotiating positions and domestic interests

This blogpost from globalisationanddevelopment highlights the dilemma of a negotiating position during multilateral trade negotiations. Though I have never been part of any such negotiations, I found these remarks interesting:
"In fact, a major problem in trade negotiations in the WTO has been the contradiction between the free trade theoretical approach of the organisation, which views trade negotiations as a positive-sum game; and the mercantilist ethos of the country negotiators, who effectively define the negotiations as a zero-sum game.  This, of course, makes a successful outcome difficult, and, in some cases (e.g. agriculture), impossible, at least so far.

The fundamental cause of the mercantilist stance of negotiators lies, of course, in the national political economy of the negotiations.  Governments stand to lose revenue when they reduce tariffs; national industries stand to lose domestic market shares when they face competition from imports.  The training of negotiators compounds the problem."
The author seems to provide this as a solution:

For one thing, the training of negotiators –both from developing and developed countries- and more generally the public discourse of the WTO and the international trade community should strike a balance between emphasising the win-win possibilities of trade and recognising frankly its distributional consequences.

For another, and more importantly, the international community as a whole should address the distributional issue seriously through mechanisms to compensate the countries that would experience welfare loses; this can be done by means of direct transfers as well as policy changes elsewhere that raise the welfare of the affected countries."
Is this easier said than done? All countries at negotiations take "national", "mercantilist" positions. They, I presume, bargain for the best deal for their country and considerations of international competition and benefit to consumers is not on the agenda. They look to benefit domestic producers by protecting them from competition as well as seeking increased market access outside. Therefore, the general free trade theory of benefitting from the comparative advantage the world economy has to offer is not on top of the agenda of trade negotiations. Can this attitude be achieved in trade policy negotiators? Are domestic pressures too strong to allow such an attitudinal change? It would amount to consciously sacrificing domestic producer interests which may not be domestically, politically palatable. Is this also the reason why protectionism in varying forms continuously surface? A well thought out strategy for compensating the losers of globalisation (which is felt locally) would be required if free trade theory is to prevail in negotiating positions.

Cafe Hayek has brought out this dilemma rather beautifully:
"Chief among these myths is the notion that the key to economic prosperity lies not in attending chiefly to the long-run interests of consumers but, rather, in attending to the short-run interests of producers – the false notion that the ultimate point of consumption is to stimulate production rather than the understanding that the ultimate justification for production lies only in the consumption it makes possible.   This myth is made especially pernicious because it is so politically convenient for office-holders and seekers."
Trade negotiators around the world, perhaps, would need to reflect on it. 

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