The Trans-Pacific Partnership Isn’t Going to Happen Anytime Soon
Whatever shortcomings it may have, the Trans-Pacific Partnership (TPP) trade agreement should not have problems with self-esteem. When former Secretary of State James Baker last month listed seven keys to restoring U.S. leadership in the world, the TPP came in at number four. For Japan, the TPP sits atop the list of structural reform measures ...
Whatever shortcomings it may have, the Trans-Pacific Partnership (TPP) trade agreement should not have problems with self-esteem. When former Secretary of State James Baker last month listed seven keys to restoring U.S. leadership in the world, the TPP came in at number four. For Japan, the TPP sits atop the list of structural reform measures for Abenomics' so-called "third arrow." But when will the TPP transform from an idealized vision to an actual, concluded trade agreement?
Whatever shortcomings it may have, the Trans-Pacific Partnership (TPP) trade agreement should not have problems with self-esteem. When former Secretary of State James Baker last month listed seven keys to restoring U.S. leadership in the world, the TPP came in at number four. For Japan, the TPP sits atop the list of structural reform measures for Abenomics’ so-called "third arrow." But when will the TPP transform from an idealized vision to an actual, concluded trade agreement?
Fans have been waiting for quite a while. The United States joined the talks almost six years ago, at the very end of the Bush presidency. There were high hopes in late 2011, when the United States hosted the annual APEC leaders summit in Hawaii. Trade mavens anticipated a breakthrough this spring, first at a Singapore ministerial and then again when President Obama visited Tokyo to talk trade. At each stage, negotiators have emitted frameworks, landing zones, targets and understandings — everything short of an actual trade agreement.
Last month, after a meeting with New Zealand Prime Minister John Key, Obama said: "Our hope is by the time we see each other again in November, when I travel to Asia, we should have something that we have consulted with Congress about, that the public can take a look at, and we can make a forceful argument to go ahead and close the deal." That was not exactly an ironclad promise of a November conclusion, but it was widely interpreted as a potential due date.
Of course, it’s totally unrealistic.
There are a number of factors one might look at to determine when the TPP might conclude. One could delve into the issues: What will the United States accept on intellectual property protection? What will Japan accept on its five sacred agricultural products? What will Malaysia accept on state-owned enterprises? What will Canada accept on dairy products? All worthwhile analyses for another day. Instead, we can look at whether and when the United States might have the necessary legislative prerequisite for an agreement: trade promotion authority (TPA).
First question: Is TPA really a prerequisite? The U.S. Constitution (Article 1, Section 8) gives Congress the power to "regulate Commerce with foreign Nations." But this just means that Congress must ultimately pass the agreement. What is to prevent the administration from negotiating a package, submitting it, and having Congress approve? Nothing, except that an unprotected trade agreement would be like any other administration suggestion to the Hill; it could be tabled, it could be ignored, or it could be amended in critical ways. These prospects trouble U.S trading partners. Prime Minister Abe does not want to commit to opening the Japanese market to U.S. beef, only to discover that promised U.S. reciprocity was amended away on the Senate floor. TPA combines negotiating instructions with a promise from Congress that any agreement that meets those instructions will receive a timely vote without amendments.
Some trade officials have flirted with the idea that TPP could precede TPA. Perhaps if Congress could see how much an actual agreement had to offer, the thinking went, it would be more willing to offer up retroactive negotiating authority. If this idea was ever plausible, it went out the window last week. The Republicans on the House Ways and Means Committee (which oversees trade) wrote a letter to U.S. Trade Representative Michael Froman. It began: "We are strong supporters of the Trans-Pacific Partnership (TPP) negotiations." It proceeded to address the requisite ordering of TPA and TPP: "we will not support TPP if the agreement, even an agreement in principle, is completed before TPA is enacted." Given that vote counters had previously wondered whether Democrats could muster even 50 pro-trade votes in the House, such opposition should be seen as dispositive. Congress is declaring that negotiating instructions should precede negotiations.
This, at least, simplifies the analysis. The question becomes when we might expect TPA. Obama missed an enormous opportunity in the beginning of the year when he failed to embrace the Camp-Baucus-Hatch bipartisan compromise TPA bill. In short order, Senate Majority Leader Harry Reid (D-Nev.) declared that TPA should not come up in the Senate before the midterm elections. This led to a general consensus that nothing would move before November. But what happens then? We can divide our analysis into the two possible outcomes of the November elections: Democrats hold the Senate or Republicans take the Senate.
If Democrats hold the Senate, a key question will be whether the once and future majority leader was sincere in his opposition to TPA. He has not been a trade agreement enthusiast, but positions have been known to soften when elections no longer loom. This is the "all will be well in the lame duck" scenario. There are three problems:
1. Elections will still loom. Only this time they will be the 2016 presidential elections. The pressures in the Democratic Party that push against TPA are unlikely to subside. See AFL-CIO President Richard Trumka’s remarks from March. He derides the "Baucus fast track bill" and NAFTA-style trade agreements. He says, "In TPP and in the talks with the EU we see again the old NAFTA template, but with a new, aggressive corporate twist." He is not explicitly rejecting the TPP; he’s just pushing for a version that would be unrecognizable to our negotiating partners.
2. A Democratic Senate will still likely be paired with a Republican House. The Camp-Baucus-Hatch compromise was exactly that. Sen. Baucus’ replacement as Finance Committee chair, Sen. Ron Wyden (D-Ore.), has been working to accommodate the concerns of Democrats. It is a daunting challenge to do so without losing the votes of Republicans.
3. We’ve seen this before. After the 2008 election campaign, in which then-Sen. Obama and Democrats opposed trade agreements with South Korea, Panama, and Colombia, there was much hope that the agreements would slip through in the lame duck when the politicking had subsided. They ended up passing in 2011.
What if Republicans take the Senate? The odds of a lame duck TPA bill would seem to drop to near zero. Why would Republicans strike a compromise if they are about to control both houses? It is very likely that Republicans would back a TPA bill in early 2015, but what would it look like? Republicans feel as though they got the short end of some prevailing compromises about the substance of trade agreements. A May 10, 2007 deal that addressed Democratic concerns about labor, environmental, and intellectual property issues was expected to offer Republicans quick votes on the four free trade agreements then pending. Instead, Republicans only got a vote on Peru.
Would Republicans be pragmatic and stick with the rough understandings from that time? Or would you see a principled push to rethink the way trade policy ought to address such contentious issues as labor standards, regulation, and permissible subsidies? In a revamp scenario, the Obama administration could find itself with negotiating instructions that look distinctly different from the stances it has taken with its 11 TPP negotiating partners to date. A key legislative hurdle would be cleared, but apparent negotiating progress could be lost.
So when should we expect the TPP? No time soon.
Phil Levy is the chief economist at Flexport and a former senior economist for trade on the Council of Economic Advisers in the George W. Bush administration. Twitter: @philipilevy
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