A Bad Outcome
The Trans-Pacific Partnership [TPP] is dead - for this year, at least. And its long-term prospects do not look particularly encouraging following the failure of this week’s TPP summit to bridge, perhaps insurmountable, difficulties between partners. The free-trade agreement between the United States and 12 of its biggest commercial partners in the Asia-Pacific region would potentially be worth up to $78 billion to the U.S. annually and would reduce tariffs on 40% of U.S. trade. Unfortunately, the stalling of the TPP at this point comes at a crucial political juncture in the U.S., from which it is unclear whether the agreement can recover.
The talks themselves have now been suspended with serious difficulties unresolved, hopeful assurances of trade ministers following the summit notwithstanding. Most notably, the dispute between the U.S. and Japan over American demands for a higher market penetration for its automotive industry and Japan’s demands for exemption of its agricultural products from the agreement has intensified rather than approach resolution. Both countries face significant political opposition to the TPP at home. But all 12 nations are spoiling the broth, wrangling with each other and with the whole over each core component of TPP: market access, intellectual property protection, state-owned enterprise privileges, and environmental and labor protection standards.
Allergies and Lethargies
Compounding these problems are political attitudes to free-trade agreements at home in the U.S. The President requires re-authorization of fast-track authority, an up-or-down vote in Congress on the TPP, and will likely not get it this year (a Congressional-Executive Agreement like Fast-Track Authority requires a majority of both houses to pass), stalling the entire agreement further as the U.S., as the largest party to the agreement, is the lead negotiator. The Democratic caucus largely opposes the deal, with some Republicans chiming in. Considering this is an election year in which Democrats are expected to lose seats and just possibly the Senate, the chances of obtaining a vote at all, let alone a favorable one, are close to zero. And even Democrats supporting the deal are likely to think twice about expending political capital on it in this climate.
Why this antagonism to the TPP? 1) Imports and exports amount to about a fifth of U.S. GDP, reducing relative American appetites for opening access to new markets. 2) There is a customary assumption of a ‘transparency deficit’ in free trade negotiations that could lead to a lack of enforcement power to, for example, prevent companies from moving wherever environmental regulations are weakest - though too much transparency would aggravate negotiating the best deal with TPP partners. 3) The NAFTA “hangover”. It has becomes something of an article of faith in Democratic (and some Republican) circles that NAFTA has been harmful to U.S. interests across a swathe of issues, and, given its scope, that TPP would be a considerable amplification of such harm.
NAFTA, the Bogeyman
In economic terms much of the evidence on NAFTA is to the contrary: the regional market between the U.S., Canada and Mexico of 480 million consumers and now worth $19 trillion has created 14 million U.S. jobs dependent on the agreement, according to the U.S. Chamber of Commerce. It eliminated tariffs, incentivized a range of service sectors, protected investors’ rights and set high standards for the protection of intellectual property. There may be disagreement whether NAFTA has created a net gain or loss in jobs, according to former U.S. Trade Representative Carla Hills, but SME’s in particular benefit from the proximity and openness of NAFTA trading partners, whose exports account for a sizeable portion of job creation in the U.S.
By comparison to the three-country region of NAFTA, TPP would group the U.S., Mexico, Canada, Peru, Chile together with Japan, Singapore, Vietnam, New Zealand, Australia, Brunei and Malaysia, with others, such as South Korea, applying to join, accounting for one third of the world’s trade and roughly 40% of its GDP. While the sheer enormity of the agreement stokes fears about even more intensive outsourcing, lower wages and the destabilization of domestic industries, the key provision of the agreement is to streamline international regulation not possible within existing WTO mechanisms and, for U.S. negotiators, to provide a regulatory coherence and protection for U.S. industries and intellectual property. As with NAFTA, service sectors would be expected to mushroom with the expectation of well-paying jobs for Americans, and the TPP’s elimination of forbidding red tape, such as addressing compliance burdens, would allow SME’s access to lucrative and previously impenetrable export markets and opportunities.
Politics and a Bad Place
Economic arguments appear to be unable to make a difference in this political climate, however. The political animus against free trade will serve as a rallying cry for entrenched ideological interests in an election year, forcing the administration to play down the agreement, while efforts to sell it from the likes of the bipartisan Friends of the Trans-Pacific Partnership Caucus in the House of Representatives will be drowned out by pure political considerations (173 House members have already signed letters opposing granting fast-track authority to the White House). The failure of the negotiations round couldn’t have come at a worse time; it is safe to say that the agreement cannot be made if the U.S. cannot assume the mantle, but any attempt to sell the TPP will sour the mood towards it further by default.
It is to be hoped, then, that the TPP can be revived after a lost year, and that partners can use the time to narrow the gaps between themselves and with their own constituencies. In the U.S., it is time for opponents to recognize that TPP (along with the Transatlantic Trade and Investment Partnership with the European Union) is a response to American interests in today’s world, not the world as it existed before NAFTA. It is also chagrining that reasoned political discourse on an issue as great as this seemingly cannot be held in an election year. Bilateral and regional agreements to which the U.S. is not a party results in preferential access to vital markets for other countries and will be made irrespective of the U.S., or in spite of it - making the U.S. a poorer place. The President recognizes this, and so should his supporters.