Negotiating a Free Trade Agreement (FTA) is a complex and highly technical task which usually takes a number of years to bring to fruition. The prospects of success will be greatly enhanced if certain basic “ground rules” are followed. A country must know what it wants from a deal, build domestic support for it, and have a well-resourced team of experienced negotiators to carry it through.
FTAs, like other aspects of trade, are integrally linked to the domestic economies of the parties to the negotiation. Countries that are looking for an FTA to open up their internal markets, reduce regulation, and lower domestic subsidies will be able to negotiate expeditiously. However, if the objective is more defensive, aiming to increase reciprocal market access while maintaining some regulations that protect domestic industries then the negotiations are likely to be more protracted. The trade offs between market access and domestic protection will feature prominently in the forthcoming Brexit negotiations.
No party will get everything it wants from an FTA so the first practical step is to set some key economic and political demands, and then determine what concessions you might be willing to make. This process requires extensive consultations with businesses, consumer groups, NGOs, and other parts of central and local government. Consultations are a resource-intensive and time-consuming process, but they are a critical early step ahead of FTA negotiations.
The next step is to understand the other party’s flexibility and preparedness to “pay” for reciprocal concessions. This means gathering details on the tariffs and other trade barriers of the negotiating partner. A large proportion of this information will be revealed during the pre-negotiation consultation process. That is why the UK should be starting informal FTA discussions with non-EU countries now, as it will make the commencement of formal negotiations much easier after Brexit.
The greatest challenge in this process is to determine how far a country is willing to concede on services. The majority of services are governed by domestic regulation. Each side will therefore need to carry out detailed analysis of opposing regulatory regimes, covering industries like telecommunications, tourism, banking, accounting, insurance, and law. This should ensure that any measures that hinder trade are identified and removed. Adopting a “negative list “approach, under which access is available unless otherwise specified, can help to simplify this process.
Another reason why services tend to be more sensitive in FTA negotiations is because they involve the free movement of people. The WTO’s definition of services trade covers the ‘movement of natural persons’, meaning that professionals from each side should be allowed to provide a service to each other, either as an independent supplier (e.g., consultant), or as an employee of a service supplier. For developing countries, free movement of professionals has been a key demand and sticking point in multi-lateral and bi-lateral negotiations, particularly India, which has a strong services sector.
Agreeing a deal on services is further complicated by regulations emanating from sub-national governments. There is a well-known tendency in federal systems for lower tiers of government to erect trade barriers that favour and protect local producers.
It has already been noted that the UK lacks experienced trade negotiators to carry out all this necessary groundwork. British officials may have a good understanding of the non-tariff barriers that exist in OECD countries and what their key demands will be in a negotiation, but much less is known about developing countries.
However, this capability deficit can be quickly mitigated: some highly-experienced UK trade negotiators currently work in the European Commission; a number of Whitehall officials possess the core skills to become trade negotiators (e.g. officials from the Government Economics Service); and officials from various UK regulatory authorities can be seconded to the negotiating teams, bringing with them their sector-specific expertise.
The final team for a significant FTA negotiation might comprise around 15 to 20 full-time trade negotiators, supported by around a further 20 subject and sectoral experts covering issues such as agriculture, financial services, transport, professional services, customs procedures, anti-dumping, immigration, intellectual property, and dispute settlement.
A clear negotiating mandate with one responsible minister having the authority to coordinate, prioritise, approve negotiating positions, and accept offers made is also critical to success. Trade negotiators cannot easily take back the commitments they have made, simply because the domestic political agenda has changed.
A negotiating team of this size, with research and support staff, should be able to negotiate four or five FTAs simultaneously, provided that the negotiating schedule is managed sensibly. This requires a long-term commitment of staff and resources, because few comprehensive FTAs have been concluded in less than 3 years, and some have taken up to 10 years to complete (e.g. the Australia-China FTA). But the UK may be significantly quicker than this.
The prioritizing of negotiating partners is also important. It will be best to start with a credible trading partner, where relatively few serious barriers already apply. In these cases, there would be realistic prospects of speedy and high-quality outcomes. Like it or not, the “model” established by early FTA’s is likely to become increasingly difficult to deviate from as “successes” accumulate. It is important the bar is set high, if the UK is serious about having genuinely liberalizing trading arrangements post-Brexit.
Finally, a word of caution. FTA’s have rarely been used by business to the extent expected by the governments which negotiate them. Making certain that the transaction costs of utilizing the agreement are low, and that the substance of the FTA really matters to actual traders, is critical to avoid a great deal of wasted effort. When playing catch up with the rest of the world, this is even more so.