Terms of Engagement

Trading Up

Trading Up

Last week, I wrote about why the giant trade deal known as the Trans-Pacific Partnership (TPP) matters so much to President Barack Obama. Because the TPP constitutes, in effect, the "pivot" of the president’s pivot to Asia, he needs to get it through Congress no matter what. He may not succeed, however, if the pact’s many critics persuade the public — and senior Democrats in particular — that the TPP is, in fact, a bad deal for America. (Republicans typically vote for trade agreements, even those sponsored by Democratic presidents.) This week, therefore, I will explain why the critics are dead wrong.

The TPP, if passed, will phase out tariffs among the 12 signatories on over 11,000 categories of products. The United States stands to gain access to a wide range of markets for its goods and services without having to surrender nearly as much in exchange. American banks, insurance companies, and law firms will be able to operate much more freely than they now do in big markets like Japan as well as in more modest ones like Vietnam and Peru, while U.S. producers of beef, poultry, dairy, sugar, and other commodities will be able to sell their products more cheaply in these and other countries.

In return, the United States will have to reduce import duties on cars from Japan, dairy from New Zealand, and a range of  products from other signatories. But this is a small price to pay, since the United States is already a low-tariff nation. According to a forecast by the Peterson Institute for International Economics, the United States would gain an additional $124 billion per year in exports from the TTP by 2025, and $78 billion in net income.

The pact poses so modest a threat to American jobs that critics haven’t even bothered to repeat Ross Perot’s famous barb about "the great sucking sound" that the North American Free Trade Agreement (NAFTA), signed in 1992, was supposed to produce as employers fled across the border to Mexico. Even the AFL-CIO, the largest federation of trade unions in the United States, has focused its criticism instead on labor and environmental standards. Yet Washington has adopted very progressive standards on both of these issues. Trade agreements used to simply oblige signatories to enforce their own labor rules. But since 2007, the United States has required partners in bilateral trade agreements to accept such fundamental principles as the right to collective bargaining and the abolition of forced and child labor. Signatories must also agree to uphold the terms of environmental pacts on issues like the protection of endangered species and the preservation of fisheries. Those obligations are enforced through a binding dispute resolution mechanism.

Jennifer Haverkamp, the former head of the U.S. trade representative’s environmental office and now an environmental lobbyist, told me that American negotiators are trying to incorporate those principles as well as the dispute resolution mechanism, into the TPP, and that there is "a good chance" they will succeed. You have to wonder whether, say, Vietnam would actually enforce such provisions. Perhaps not, but Vietnamese negotiators have privately said that they hope to use the trade deal as a lever to force domestic reform.

The TPP is not, however, a list of tariff schedules with labor and environmental standards attached. The chief subjects of contemporary trade pacts are economic rules and practices that constitute barriers to trade. Senior Obama administration officials have spoken of the TPP, as well of a proposed trade deal with Europe, as "platforms" for a global economy based on free markets and progressive principles. As Fareed Zakaria pointed out in a recent Time column, the TPP constitutes an alternative paradigm to China’s proposed Regional Comprehensive Economic Partnership, which contains few of these proposed reforms. The TPP is the Obama administration’s bid to shape an Asia more in America’s image than China’s — which is precisely why it’s the pivot of the Asia pivot.

The traditional objection to trade pacts — and the default position of all too many Democrats — is that they do more harm than good to American workers. But the public-interest critique of the TPP focuses much more on harms that the United States will allegedly be perpetrating upon citizens elsewhere (even though the political representatives of those citizens will have signed the deal). The fear it reflects is a fear of the globalization of U.S. principles. For groups like Public Citizen, one of the most vocal opponents of the pact, the TPP’s hidden agenda is advancing "corporate policy goals, rights and privileges." The domestic debate over the TPP is thus very largely a debate over the merits of the American economic model.

A group of congressional Democrats has, for example, criticized provisions of the Asia trade deal that would open government procurement contracts to foreign firms, thus endangering longstanding "Buy American" rules that give preference to domestic companies. But a world in which such contracts are open to foreign firms clearly confers a huge advantage on, for example, U.S. construction and engineering firms, which could be bidding on giant infrastructure projects in emerging markets. The provision, along with another that requires state-owned enterprises to compete on an equal footing with private firms, has proved very hard for countries like Vietnam and Malaysia, where the state plays a dominant role in the economy, to accept.

Some elements of the American model may tilt the balance too far toward big companies at the expense of consumers and ordinary citizens. Among the most sharply debated features of the TPP are intellectual property (IP) provisions which, among other things, would permit companies to patent surgical procedures and new plant and animal species, to extend the life of copyright protection, and to protect drug patents in ways that could inhibit the development of generic drugs in developing countries. One congressional trade analyst says that a marked-up text he has seen shows that negotiators from the other 11 countries have "fiercely contested" almost every element of proposed American IP rules.

Among the truly pernicious aspects of modern trade pacts are "investor-state" rules, which allow companies to sue nations outside the court system of the country in which they are operating. These rules were developed to give companies redress when they were threatened with expropriation by countries with rigged judiciaries. But plaintiffs have managed to so grossly expand the definition of "expropriation" that, for example, Philip Morris is now attempting to sue Australia in front of an international panel of arbitrators over "plain-packaging" regulations on cigarettes, which damage the firms’ expected revenue and profits. (Australia has, of course, a pretty good court system.) The prospect of U.S. firms running roughshod over Peru or Brunei — much less Australia — has unleashed a torrent of criticism from groups like Public Citizen. It has also provoked resistance from trading partners. According to Haverkamp, U.S. negotiators have agreed to build in new safeguards, though it’s not yet clear if such provisions will rein in the abuse of the system.

The immensely protracted negotiations over the TPP are now nearing a conclusion. Jeffrey Schott, a senior fellow at the Peterson Institute, says that Japan’s reluctance to open its agricultural markets now constitutes the major bottleneck; agreement on this issue would "open up possibilities for a range of compromise decisions on other sticking points." Obama is hoping to have at least a handshake deal by the time he travels to Asia in April.

At that point, if not before, the White House is going to have make a much more serious effort to overcome resistance among congressional Democrats than it has to date. In a speech earlier this week, Michael Froman, the U.S. trade representative, stoutly defended what he called "a values-driven trade policy," while also trying to mollify congressional Democrats who have complained that the negotiating process has been cloaked in secrecy.

Sen. Ron Wyden (D-Ore.), the new chairman of the Senate Finance Committee, which has jurisdiction over trade treaties, has said that "if we get this right," the TPP could be "a big win for us." The Obama administration has, fundamentally, gotten it right. Wyden and his colleagues will have to ignore the politics and vote for the treaty.