Justin Trudeau’s false fixation with ‘progressive’ trade

Quite a few words have been written and spoken in the global media this past week on Canadian Prime Minister Justin Trudeau’s recently concluded, ill-fated, week-long visit to India, including a good many by me. What has been lost in the background noise—not difficult to happen, given the glaring absence of signal—is the noteworthy failure of Canada and India to conclude agreement either on the Comprehensive Economic Partnership Agreement (Cepa) or the Foreign Investment Protection Agreement (Fipa). These have been in the works since 2010, when negotiations began under previous governments in both countries.

One legitimate reason for the delay in bringing these negotiations to fruition is that India hit the reset button on its ongoing bilateral trade and investment negotiations after the government of Prime Minister Narendra Modi came to power in 2014. Yet, that is not, at this juncture, the most fundamental obstacle. The real difficulty is that since coming to power in 2015, Trudeau has proclaimed a pivot in Canada’s trade policy towards what he has dubbed a “comprehensive and progressive” approach.

While clothed in new garb, Trudeau’s approach is, in truth, nothing other than a throwback to what in the 1990s trade economists such as myself analysed as the phenomenon of “fairness” claims in trade, linked to the demand for harmonization of domestic standards, rules, and procedures across national borders. In those days, such claims were made on behalf of labour and environmental policies, in particular. It was argued that free trade would not be “fair”, and perhaps not mutually gainful, if trade occurred between economies with widely varying domestic policies on such issues.

While trade economists, notably Jagdish Bhagwati and some of his students, including me, managed to demolish these arguments quite handily using standard economic logic, the common sense, but faulty, notion that trade between unequals could not be mutually beneficial, or would involve one economy gaining at the expense of the other, was difficult to dislodge.

Fast forward to the present, and Trudeau’s “progressive” agenda. What is new is that he has refreshed the areas of domestic policy placed under the scanner to include not just the old issues of labour and environment, but fashionable new issues of the day, such as women’s rights, the rights of indigenous peoples, and so forth. What is also new, or newish, is the spin: that harmonization of standards on such issues to that of a putatively progressive exemplar nation such as Canada would redound to the benefit of lagging, not so progressive, countries such as India, China, or Vietnam.

The language may be new, but the playbook is old, that of the sophisticated protectionist who aims to tamper with the domestic policies of his trading partners, whether on the ostensible grounds of fairness, progressivity, or otherwise. Trudeau’s most tangible accomplishment to date is that he has managed to change the name of the erstwhile Trans-Pacific Partnership (TPP), from which the US under President Donald Trump exited, to the mouthful Comprehensive And Progressive Agreement for TPP, or CPTPP. Beyond that, no one is buying it, most certainly not Japan and Vietnam, members of the putative new mega trade and investment deal.

What is more, Trudeau’s progressive trade agenda has been rebuffed in China, where it overshadowed his December 2017 visit. Indeed, much like his India visit last week, the China visit failed to produce a trade agreement, and for similar reasons. China, no more than India, appreciates being lectured by Trudeau on human rights, the environment, or the policies he believes that they ought to be pursuing at home.

While one could argue that China, an autocratic, one-party state, has good reason to fear Trudeau’s progressive agenda, the same cannot be said of democratic and constitutional India. Imperfect as Indian institutions may be—and no country’s are perfect, including Canada’s—it is patronizing that India should take dictation from Trudeau on women’s and aboriginal rights.

How would the Canadian government react, or the Canadian public for that matter, if Prime Minister Modi went to Canada and decided to lecture his host country on the sorry plight of the country’s aboriginal peoples?

The reality is that Trudeau’s progressive trade agenda is a big step in the wrong direction, and is likely to be as damaging to the cause of genuinely freer trade as US President Trump’s overtly mercantilist and protectionist, zero-sum, approach to trade agreements. While Trudeau’s intentions may be more benign than Trump’s, they are equally misguided.

Trudeau, like Trump, appears to forget that the premise of trade agreements devoted principally to regulating “at the border” trade tariffs and quantitative restrictions, and domestic tax and subsidy instruments which mimic tariff- or quota-like effects, derives from the fundamental logic of the Westphalian nation state: What happens at the border can be negotiated; what happens inside the border is within the sovereign domain of each nation state and must be respected by all other sovereigns.

Today’s fashionable fixation on “beyond the border” policies is nothing more than a repudiation of this fundamental Westphalian principle.

Vivek Dehejia is a Mint columnist and resident senior fellow at IDFC Institute, Mumbai. Read Vivek’s Mint columns at www.livemint.com/vivekdehejia

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