3.5.4.5 Specific Trade Agreements and Alliances
Countries wanting to increase business flows between them can make specific trade agreements and alliances with shared interests
World-wide trade agreements are negotiated within the World Trade Organisation (WTO) process (3.4.1.3), but this is proceeding at a snail’s pace. The Doha round of trade talks at the WTO in Geneva reached an impasse in 2011 after 10 years of negotiation: An Economist article, The Doha round, noted that “[t]en years of trade talks have sharpened divisions, not smoothed them” – citing political disagreements between America, China and India.
Numerous bilateral and multilateral agreements have been, or are being, negotiated because governments don’t want to wait until the whole world has agreed tariff reductions. They can make trade agreements to reduce tariffs on specific products, for mutual benefit. There are numerous bilateral trade agreements in existence, and there are three large ‘comprehensive trade partnerships’:
● The EU (3.4.1.2) pre-dates the WTO. Its single market allows (mostly) frictionless trade between member countries, and it has also negotiated several bilateral trade agreements with other countries – as described on an EU Commission trade web-page. EU members have made the calculation that the membership costs are justified by the benefits. Some administrative costs are inevitable, to create, maintain and police the agreements – but the EU also offers support for poorer regions, as part of its wider political benefits that are described later (6.6.5.1). The British vote in 2016, to leave the EU in a ‘Brexit’, was driven by several factors unrelated to the value of its membership (6.6.5.8). Britain is now making its own bilateral trade agreements to replace those negotiated by the EU, and it is slowly making other agreements around the world. It also needs a trading agreement with the EU that is better than the minimal deal that it negotiated in 2020.
● America was setting up a Trans-Pacific Partnership (TPP) and a Transatlantic Trade and Investment Partnership (TTIP) with Europe, but Donald Trump changed that strategy as soon as he was elected. As reported by the New York Times: Trump Abandons Trans-Pacific Partnership, Obama’s Signature Trade Deal. That agreement was replaced by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which was formed as a trade agreement between 11 countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The UK joined the CPTPP in July 2023, although it already had bilateral trade agreements with nine of its members.
● The CPTPP excluded China, which responded by setting up the world’s biggest trade agreement: the Regional Comprehensive Economic Partnership (RCEP), which includes China, Japan, South Korea and Australia among others. This went into effect on 1st January 2022 – although its full impact will be gradual according to Reuters:
“The RCEP will create new trade opportunities among Asian countries and accelerate the region’s economic recovery, says Zoe Martinez, a Thomson Reuters global trade leader who is focused on Asia & emerging markets. For example, the agreement will eliminate tariffs on more than 90% of goods over the next 10 to 15 years and introduce rules on investment and intellectual property to promote free trade.
The agreement covers about 30% of the world’s population, the global gross domestic product (GDP), and worldwide trade. It’s larger than the United States-Mexico-Canada Agreement, the European Economic Area, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (with which the RCEP overlaps.)”
The objective in the above examples is to stimulate trade. The big difference between specific trade agreements and alliances with shared interests is that alliances can be formed for many reasons, not only for trade. As described later (6.7.7.4), China, Russia and others formed the Shanghai Cooperation Organisation (SCO) in 2001. Its declared aims were ambitious:
“strengthening mutual trust, friendship and good neighborliness between the member states; encouraging effective cooperation between them in the political, trade, economic, scientific, technical, cultural, educational, energy, transport, environmental and other fields; making joint efforts to maintain and ensure peace, security and stability in the region and establishing new, democratic, just and rational international political and economic order”.
The SCO has grown enormously since 2001, as described on its website: India, Pakistan and Iran are now members; Saudi Arabia and Turkey are listed as ‘dialogue partners’. All these countries can now avoid American economic sanctions by trading with each other, which is especially significant in meeting Russia’s need to sell its oil. The SCO represents more than 40% of global GDP, so membership is economically attractive. Saudi Arabia, for example, faces the economic reality that America is no longer a major buyer of oil and gas, but China and India represent a growing market. The SCO is likely to become an umbrella for many specific trade agreements.
NATO is another alliance that was formed primarily for security reasons, but it too is now having an impact on trade. Joe Biden’s policy of ‘friend-shoring’ advocates buying certain sensitive items only from political allies, to avoid being dependent on Russia and China. This will have the effect of reducing trade and increasing some prices.
This page is intended to form part of Edition 4 of the Patterns of Power series of books. An archived copy of it is held at https://www.patternsofpower.org/edition04/3545a.htm