Preparing for FTA negotiations: Domestic consultations: A business perspective Remarks to APEC Capacity Building Workshop SOM II, Qingdao, 6-7 May 2014 Stephen Jacobi, Executive Director, NZ International Business Forum

It’s a pleasure to be with you today and I’d like to congratulate my colleagues from New Zealand who have worked to put together this timely and important workshop.

The theme of this workshop – preparing for FTA negotiations – assumes a particular relevance for us in the APEC region, not only because of the proliferation of such negotiations at bilateral and plurilateral levels, but also because these negotiations are becoming ever more complex.

Previously negotiations have tended to focus largely on issues such as market access, tariffs and regulation at the border.

Today the demands of business operating increasingly through complex supply and value chains have led to the disaggregation of production and consumption of goods and services.

This in turn has led governments to focus on behind the border issues such as regulatory policies within an economy.

More than ever before trade policy is becoming intrinsically linked with domestic economic policy as the implications of trade agreements reach far deeper into domestic policy settings particularly in terms of policies related to foreign investment, innovation and competition.

As the negotiating agenda has become more sophisticated, trade negotiators have been obliged to consult more fully with public stakeholders, especially business, and to interact more frequently with domestic agencies for advice as they confront a range of policy issues with which they are not accustomed.

In this context the need for a properly informed basis on which to make policy decisions for translation into trade and economic agreements is critical.

Today I’d like to focus on the importance of engagement with business.

In doing so I want to make clear that business is not the only public stakeholder that needs to be included in the consultation framework.

Charges of ‘democratic deficit’ arise very quickly when citizens feel they are excluded from public policy making.

For the purposes of today’s discussion however I propose firstly to recall why consultation with business is so important particularly at this time and then share some different models of business consultation.

Lastly I’ll provide some practical advice for economies who wish to expand their business outreach activities.

I make these comments against the background of my experience as a former government official directly concerned with business consultation – in the early 90s I designed and ran the first ever Business Communication Programme in the New Zealand Ministry of Foreign Affairs and Trade.

Since leaving the public service I have led several business organisations, including the NZ International Business Forum, focused on interacting with the Government on the trade policy agenda. In this context I also serve as an Alternate Member of the APEC Business Advisory Council.

And, to complete the picture, I was fortunate last year to be awarded a Fulbright scholarship and to spend three months in the United States looking at the way the US Administration and its agencies consult with business.

Why consultation with business is important

The idea of public consultation on trade negotiations is not exactly new but not a lot has been written from an academic perspective about these processes.

Governments have generally recognized that the private sector has a particular role to play as the generator of commercial opportunities to which successful trade negotiations may give rise.

The former head of the International Trade Center in Geneva, J Denis Bélisle, expressed this well when he said,

“Businesses have a vital role in shaping their country’s negotiating strategy – whether for commodities, manufactures or services – in a way that helps them to capitalize on opportunities from the resulting agreements. Their support for a freer trading environment alone has a positive impact. On the operational level, their perception of which areas are of critical business importance and their analytical inputs to support negotiating positions are invaluable to their negotiators.” (1)

The starting point for any government’s trade strategy has to be the realization that business is done by business.

While governments may be drawn for a number of reasons including economic, commercial and also political and strategic, to enter trade negotiations, if the desired outcome of these negotiations is for more business to be done, then it is important, as Stephen Covey would say, “to begin with the end in mind”(2)  and involve business right at the outset.

You might find this observation to be blindingly obvious but history is littered with trade agreements, which have served no real commercial purpose.

Indeed if we think about the obvious lack of business support for the WTO negotiating process today it is partly because the agenda now under negotiation is simply not what business finds attractive or likely to lead to a significant increase in trade.

A refrain commonly heard from government officials is that business has failed to go through the doors that have been opened ? there are doubtless many reasons for this but sometimes this is because business has not been properly involved in the negotiating process from the outset.

The other point to mention is that business models are constantly evolving and business and the market are often moving at a faster pace than most negotiations.

The rapid development of supply and value chains in recent years is a case in point.

Ten years ago I doubt many negotiators could have foreseen the pace with products “made in the world” like the smart phone or an airplane could have commanded such a large proportion of international trade.

Similarly while we have been for some time aware of the importance of services, today the issue is the extent to which services are embodied in the delivery of goods.

And again, while we have become accustomed to e-commerce, today there is a high e-commerce component to any product or service, which is purchased regardless of the mode of purchase.

By this I mean that even if we go to the store to buy a product we may also use an online tool to find the store, compare prices, seek product recommendations, register for after sales service and maybe even make the payment.

So commercial realities today are not what they used to be and the trade negotiating agenda needs to keep pace with this change if it is going to remain relevant.

The primary means of ensuring this is to consult regularly and often with business.

Alternative models for business consultation

Unfortunately there is no one model that suffices to ensure effective business consultation.

Not only is the structure of business in each economy different, but so is the legislative framework within which this consultation takes place.

I mentioned earlier that defining who needs to be consulted is usually far from straightforward.

The United States, for example, has got around this problem by defining consultation mechanisms in legislation(3) .

In the United States the responsibility for trade policy making is shared between the Administration and Congress with the Administration having the power to negotiate treaties and the Congress “to regulate commerce with foreign nations” by setting customs duties and tariffs.

Agreement is reached between the two in legislation by which the Congress, under strict conditions, delegates power to the Administration.

As many here will know it is the absence of such authority, in the form of what has become to be known as “fast track”, that is at present proving something of a stumbling block to the conclusion of the Trans Pacific Partnership (TPP) negotiations.

In the Trade Act of 1974, against a background of complaint from some in the business community about their limited role in the Kennedy round of multilateral trade negotiations, Congress added requirements and guidelines “to institutionalize advice from the private sector.” (4)

This has led to the development of a formal advisory system, which is the distinguishing feature of the American trade policy-making process today.

Section 135 of the Trade Act of 1974 as amended, directs the President to seek information from representatives of the private sector with respect to:

– negotiating objectives and bargaining positions before entering into a trade agreement
– the operation of any trade agreement once entered into; and
– other matters arising in connection with the development, implementation and administration of the trade policy of the United States. (5)

Section 135 also directs the President to “establish such sectoral or functional advisory committees as may be appropriate” and provides that USTR organize and administer these committees together with the appropriate Cabinet Secretary. (6)

The formal framework to which these legal dispositions give rise is both elaborate and multilayered:

– the President’s Export Council (PEC) serves as the principal national advisory committee on international trade

– the “top tier” Advisory Committee for Trade Policy and Negotiations (ACTPN) advises the President through USTR on trade negotiations issues

– five “tier two” Policy Advisory Committees in functional areas (agricultural trade, labor, environment, African trade and development and inter-governmental affairs) also provide advice to USTR and other agencies

– sixteen “tier three” sectoral and functional Industry Trade Advisory Committees (ITACs) advise USTR and Commerce jointly

– six “tier three” Agricultural Trade Advisory Committees (ATACs) advise USTR and Agriculture jointly.

All in all close to 600 individuals participate in this system.  Most of them are representatives of business acting in their personal capacity.  All are required to be security-cleared to enable them to receive confidential material relating to the negotiation.

This material includes draft US negotiating positions but not, we understand it, draft negotiating text.

Since 1995 federally registered lobbyists have been prevented from participating in this system, much to the consternation of the US business community.

A further feature of the formal advisory system is the direct link to Congressional processes in the context of Trade Promotion Authority: once the negotiation is concluded, the President must submit to Congress private sector advisory reports which comment on the draft agreement’s effectiveness in terms of sector interests and the reciprocity of the undertakings being entered into. (7)

This direct link into the Congressional consultation and approval process confers a particular significance on the role of formal private sector advisory committees because it ensures that the Administration has an interest in ensuring the maximum consultation with its private sector advisors.

Now this US system, it should be noted, is subject to considerable criticism on the part of non-governmental organizations such as labour unions and environmental groups because of the advantage it is alleged to give to business to influence the course of negotiations.

On the other hand the system has been found to have assisted the conduct of US trade policy by ensuring that US trade policy remains focused on business outcomes.

The US system represents a highly structured framework.

Alongside this formal system exists a more organic approach whereby negotiators develop close contacts with business groups and individual businesses and seek their input, both formal and informal, at different points during the negotiation.

New Zealand tends to favour the latter approach.

New Zealand operates no formal advisory system and has no security-cleared advisors neither from within business or from civil society.

Like their American counterparts New Zealand negotiators consult regularly and often with all stakeholders, calling for written submissions (and generally releasing them to the public after receipt) and engaging in rounds of mostly one-on-one discussions with stakeholder representatives.

The practice of formal hearings to consider representations beyond written submissions as occurs regularly in the United States is unknown in New Zealand.

To develop more detailed negotiating positions New Zealand officials tend to rely on more informal methods of consultation, which in the New Zealand context is facilitated by the smaller scale of the economy.

Relationships between negotiators and representatives from key sectors of the economy are close.

Negotiators also endeavour to maintain a robust dialogue with civil society including labor and environmental groups.

There is however no sharing of New Zealand draft negotiating proposals beyond the central government agencies and no requirement for formal opinions to be submitted to the legislature prior to ratification of a trade agreement.

What works best when consulting with business

I’d like to come now to the heart of the matter and provide some practical advice for establishing effective frameworks for business consultation.

Again I am mindful that there is no “one size fits all”.

Business consultation works best when governments develop a deep understanding of their business sectors – the first task for any government must be to understand the market and develop a series of appropriately targeted outreach strategies.

At the same time business can be expected to respond best when the consultation is predictable and meaningful and where there is a degree of trust in the consultation process.

At its best this is what the highly structured system in the United States succeeds in doing.

The formal, cleared advisor system represents a relationship of the trust and confidence that officials place in the advice of individuals within the system from outside the government.

In return cleared advisors receive privileged confidential information, which can assist them to work with officials to develop detailed negotiating positions.

It is this relationship of trust and confidence, which appears to have served US interests well in the conduct of trade policy.

It may not of course be necessary to resort to such a highly developed structure to achieve the same result.

Trust needs to be earned – partly that’s a reflection of the government’s commitment to reach out, to go the extra mile in terms of not just talking but actually listening to what business has to say, to take on board business view points or explain to business why doing so is not practical or possible.

Predictability is the key factor.  Business needs to know that governments can be expected to consult regularly and in detail.

That means that governments need to be mindful of the need to make consultation a regular part of the policy process and to develop and share appropriate briefing materials.

An overarching statement of government policy and purpose can be particularly helpful.

Towards the end of the Uruguay Round in the early 90s I was involved in the publication of the New Zealand Trade Policy Strategy which was used as a tool to stimulate business thinking about the options open to New Zealand from future trade reform.

The release of the document and its subsequent presentation to audiences around New Zealand proved very helpful to launching New Zealand’s search for bilateral trade negotiating partners, which resulted ultimately in P4 and now TPP.

You will not be surprised to know that the principal author of the Trade Policy Strategy was none other than Tim Groser, now our Trade Minister but then a senior official in the Ministry.

Consultation also benefits from close co-ordination. This assists with predictability, timeliness and relevance.

Governments wishing to expand their outreach activities should consider establishing a specialized team or office for this purpose charged with devising a strategy, building key relationships, co-ordinating outreach efforts and developing appropriate briefing materials.

Ensuring that business consultation is undertaken in a language appropriate to business is important and business advisors can also be helpful in this regard.

Governments may wish to consider appointing a Business Advisory Committee to guide this process.

Such a Committee can replicate aspects of the formal advisory system in the United States.

New Zealand Governments have operated such committees at different times in recent years but today the focus tends to be more on strategic engagement with peak business organizations including the New Zealand International Business Forum and BusinessNZ.

In making these points I need to acknowledge that business is often poorly organized to take up opportunities for engagement with the government.

Trade policy and policy processes are not well understood by business which is usually focused on more immediate commercial objectives.

It follows therefore that governments have a direct interest in ensuring that business develops the necessary policy capacity – by sharing background information in an accessible format, arranging training programmes, seconding personnel to business organisations for short term assignments and supporting business organisations own efforts to engage their colleagues.

Conclusion

This overview of consultation processes has hopefully established the need for an active business consultation strategy on the part of governments entering the complex world of trade negotiations.

There are a range of models and both formal and informal models can co-exist and complement each other.

Predictability and effective consultation mechanisms are key to this exercise as is the investment made by governments in understanding business needs and providing opportunities for regular and informed input.

What works in one economy is unlikely to be easily translated to another.

Today trade negotiators are tasked with the enormous task of untangling the noodles of overlapping and complex negotiations and building new agreements for the 21st century.

At a time when the number, range and complexity of issues under consideration in trade negotiations continue to expand, APEC governments, have a clear interest in finding ways to improve the quality of their outreach to the relevant sectors, both within and outside business.

This will not only provide greater assurance that the right issues are being dealt with but that the negotiation ultimately delivers commercial and economic value and meets the economy’s key interests.

***********************************************************************************************

(1).  J Denis Bélisle, “Helping business play its part in trade negotiations,” International Trade Forum Magazine 3 (2002),http://www.tradeforum.org/ITC-Helping-Business-Play-its-Part-in-Trade-Negotiations (accessed April 30, 2013).

(2). Covey, Stephen The Seven Habits of Highly Effective People” New York: Free Press A Division of Simon and Schuster, Inc., 1989

(3). Jacobi, Stephen. “Secrets and influence in trade negotiations: New Zealand International Review vol 38, 2013, issue 6

(4). Destler, I. M. American trade politics. 4th ed. Washington, DC: Institute for International Economics, 2005: 109-110.

(5). ITAC Operations Manual, I.1

(6). Ibid I.1

(7). Section 135 (e) of the Trade Act of 1974 as amended and Section 2104(e) of the Bipartisan Trade Promotion Authority Act of 2002.