Rethinking Trade Policy and Consumers
By: David Henig
Subjects: Digital Economy WTO and Globalization
Consumers are supposed to be the major beneficiaries of trade deals, receiving greater choice at lower prices as the result of the removal of barriers to trade. Given this, there is often frustration in trade ministries around the world at the failure of consumer groups to support trade liberalisation. To which consumer groups could easily respond that the kind currently on offer is a combination of an increasingly dated trade model offering diminishing returns, and threats to consumer protections in areas like labelling or product standards. Meanwhile trade agreements say little to the increasing numbers of consumers who are directly importing goods and services. If we want to rebuild support for free trade, away from protectionist concepts like strategic autonomy, this should be an area of focus.
The traditional Free Trade Agreement is based on a model of companies trading internationally, but business to consumer transactions taking place domestically. Thus the focus is on removing direct barriers to trade such as tariffs and customs delays, and in allowing fair competition within a market, by removing unreasonable regulations whether focused on goods or services. In developed countries this has demonstrably led to welfare gains for consumers, particularly in what could be seen as a golden age of trade liberalisation between 1990 and 2010. But those gains are now diminishing, for example if we look at the small gains forecast for a UK trade deal with the US.
When it comes to regulations there is also a fine line between removing unnecessary trade barriers, and threatening consumer protections. This appears in many settings including differing approaches to risk with regard to food products and concerns about product labelling. These are difficult issues, where genuine concerns and protectionism often mix, and those supporting trade deals accuse those with concerns of opposing all free trade. A middle way, accepting that regulations can be both good for consumers and trade facilitating, would be to focus on the principle of non-discrimination. Without this, one can see why consumer groups are lukewarm at best over the regulatory elements of trade deals.
Most of all though this traditional foundation of trade agreements says nothing to consumers who are increasingly trading internationally themselves, perhaps through platforms, but often directly with the vendor. Those who have done so will know that buying goods internationally is a risky process, with little knowledge of when the product may turn up, what the final cost could be, or what to do if there is a problem. Agreements that are concerned with international trade should be addressing these issues. Yet if we look for example at the customs facilitation chapters of trade agreements we see little reference to consumers, for these are written with their focus on businesses.
Similarly we are increasingly buying services globally, online, in the expectation there will be no problems, but with little right of redress if there are. The last few months of covid lockdowns have demonstrated the potential demand for online services delivered internationally from music and culture to fitness. Global e-commerce is already valued in the trillions of dollars per annum, and could surely expand further with benefits to consumers and suppliers with the right supportive measures in place.
Much current trade policy debate centres on what are becoming known as “trade and” issues, for example around climate change, anti-microbial resistance, and small business, the belief being that trade can help with these challenges, and in doing so free trade agreements can become more popular. Consumers aren’t one of these issues, but given we see an ever increasing number of chapters in a trade agreements that feels wrong given they are supposed to be the direct beneficiaries. There is an interesting historic story as to how consumers came to be seen as protectionists, as they were so often used by incumbents as an excuse for not opening up an economy, but that doesn’t excuse the present absence.
There is plenty that can be included in a specific consumer trade agreement chapter that could also help business. Facilitations and protections for direct business to consumer trade should be at the forefront, even if it may be difficult to offer complete guarantees given these are private actors in a government treaty. Consumer protection regulations should also be explicitly allowed subject to the usual restrictions of non-discrimination and no more trade distorting than required. Inevitably data transfers need to be part of this conversation, at least insofar as they support cross border commerce.
Trade has changed and grown phenomenally since 1990. The scale of the change, and the benefits this has brought, is under-appreciated. In recent years this has led to a backlash against trade, such that while popular in theory, in practice protectionism is winning. We have also seen a slowdown in the growth of trade, and uncertainty among advocates of trade in how to respond. Rethinking the role of consumers in trade politics provides an opportunity in both areas, as a source of future trade growth and for finding new supporters of trade. Arguably also trade politics as it should be, with consumers as the ultimate object.