Market Power = Trade Power? Why the Strong Don’t Always Win in Trade Negotiations

9781138106833

Do stronger countries always get what they want in trade negotiations? My new book – Power in North-South Trade Negotiations – suggests not. In it, I ask how African, Caribbean and Pacific (ACP) countries were able to extract a series of concessions from the European Union in negotiations for free trade agreements over the last two decades. In doing so, I explore the underlying reasons why power relationships in trade politics are more complex than they appear at first glance.

The standard view of the operation of power in trade politics dates all the way back to 1945 and Albert O. Hirschman’s classic text National Power and the Structure of Foreign Trade. Hirschman’s simple and intuitively appealing observation was that in a negotiation between a large economy and a smaller one, the interests of the former would win out. This was because a small economy had much more to lose from disruption to its access to a larger market than vice versa. This insight has shaped much of the way that we conventionally think about power in contemporary North-South trade negotiations between large developed economies and small developing ones.

With this in mind, when the EU began negotiating a series of free trade agreements – the Economic Partnership Agreements (EPAs) – with 78 African, Caribbean and Pacific countries back in 2000, it looked like the EU held all the cards. While the EU is the world’s largest market power, the ACP is a group of widely dispersed and mostly tiny markets that are of very little commercial significance to Europe. What is more, many of the ACP countries were heavily dependent on existing preferential access to the EU market, which a number of them stood to lose if they failed to sign new trade deals with the EU.

Looking back at the EPA negotiations nearly twenty years on, a different picture emerges. The EU succeeded in securing only one agreement that matched its original ambition for comprehensive free trade agreements that encompassed the liberalization of trade in goods, services and a host of regulatory issues – the EPA with the Caribbean Forum signed in 2008. Elsewhere – in Africa and the Pacific – the take up of the EPAs was partial and uneven. More limited goods-only EPAs were signed by some regions and countries while others fell back on alternative preference schemes for their exports to the EU.

What were the Limits to the EU’s Market Power?

Although trade negotiations like the EPAs take place outside of the consensus-based negotiating structures of the World Trade Organization (WTO), they are subject to certain multilateral rules. These rules initially served as a justification for the EPAs, allowing the EU to insist that ACP countries must negotiate reciprocal free trade agreements in order to continue to receive preferential access to the EU market. Yet these rules also constrained the form the EPAs could take. In particular they limited the extent to which differential treatment for the poorest ACP countries – to which the EU had made an express commitment – could be built into the agreements. As a result, the EU offered unilateral duty and quota free access to the group of Least Developed Countries outside of the EPA process under a separate scheme called Everything but Arms, thereby removing much of the incentive for these countries to sign an EPA and undermining the EU’s leverage in the process.

Beyond multilateral trade rules, I highlight in my book the ways in which a complex landscape of regional and inter-regional trade institutions, ideas and practices helped to provide the conditions of possibility for the EPAs and configure the ways in which their costs and benefits were understood. The EPA negotiating process was shaped by both the legacies of a longstanding special trade relationship between the EU and the ACP countries and the distinctive regional trade orders that existed in Africa, the Caribbean and Pacific themselves. In particular, I focus in on the disjuncture between the vision for the promotion of regional economic integration that the EU embedded within the EPAs, on the one hand, and practices of regionalism in Africa as they actually existed, on the other. Established African regional projects simply did not provide a suitable basis for constructing the type of regional regulatory orders that the EU had envisioned, nor did African leaders believe that such a regional agenda served the development interests of their countries as EU negotiators claimed.

Finally, the contestation of the EPAs was shaped by arguments over what should be considered appropriate and legitimate action in a trade negotiation between the world’s largest market power and a group of very small and economically vulnerable states. ACP countries and NGOs consistently criticized the EU’s apparent attempts to use the EPAs to force the ACP countries to accept a deep trade liberalisation agenda that had been rejected by developing countries in the WTO. They insisted that the proper place for negotiations on new trade issues was in the more inclusive and formally egalitarian multilateral system. They criticised the apparent hypocrisy of the EU in insisting on WTO-compatibility for the EPAs while simultaneously using the negotiations to bypass negotiating blockages in the multilateral system. These criticisms found some purchase, eventually pressing the EU to soften its position on the necessity of including a range of regulatory issues within the final EPAs.

I argue that the upshot of all this is that the outcomes of preferential trade negotiations between developed and developing countries are a good deal more politically contingent than is conventionally assumed. This contingency is a function not just of the relative material capabilities of the actors involved but of the historically embedded landscape of global, regional and national trade institutions, as well as the ways in which these are navigated by competing actors seeking legitimacy for their negotiating positions and broader agendas for trade governance.

Implications for Global Trade Debates

Beyond the specific case of the EPAs, my findings have implications for wider debates about contemporary global power shifts and the future of the global trade regime. First, they suggest that in order to fully understand the dynamics of the contemporary trade order we should look beyond a handful of large rising powers to consider questions about how conventionally weaker actors from the Global South are engaging with trade governance.

Second, my findings add nuance to debates about the fragmentation of the multilateral trade order at a time of emerging multipolarity and challenges to the legitimacy and effective operation of the WTO. Complexity is nothing new in the global trade regime: multilateralism has long coexisted with distinct regional and interregional trade orders. Nonetheless, I highlight the way in which developing countries have been able to call on norms associated with the multilateral trading system – sovereign equality and universalism – in order to challenge the behaviour of conventionally powerful states, not just in multilateral trade rounds but in regional or bilateral free trade negotiations too. From this point of view, developing countries should be concerned not only about the proliferation of so-called forum-shopping in global trade politics, but also about the decentring of the broader principles associated with multilateralism in the trade regime.

None of this means that we should ignore the material asymmetries that are the focus of conventional analyses of power in trade politics. Clearly, these had a key role to play in the EPAs as they do in other North–South negotiations. Yet the outcome of these agreements – and, I argue, the wider operation of trade power – cannot be fully understood without taking a more nuanced view of how these interactions are shaped by the complex institutional landscape in which they play out, and the strategic ways in which actors seek to construct and contest the legitimacy of their actions in this context.

Research for the book was supported by the ESRC and Leverhulme Trust. 

Peg Murray-Evans is a research associate in the Department of Politics at the University of York. @pegmurrayevans 

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