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Headwinds as the US Moves Toward Secretive Trade Agreement

The very notion of global trade would suggest openness – and certainly a lack of secrets. But the Trans-Pacific Partnership is a new kind of agreement, one that pushes deep integration and focuses on regulations for corporations as well as lower tariffs, explains economist David Dapice. Twelve nations including the United States, Japan, Australia, Canada, Mexico – but not China – are participating. Other nations could join later. Multinational corporations helped draft the provisions, and except for a few leaks, most details remain secret. Details will be revealed after the agreement is signed. Such secrecy and fears about corporate influence and loss of sovereignty have united progressives and conservatives in the United States who question the value of the trade agreement and whether it might weaken US standards. The Obama administration contends that early US participation could result in fair rules and high standards. Dapice anticipates eventual approval for TPP and concludes, “If the US wants to play a major role in Asia, it needs another component to its ‘pivot’ than just military power.” – YaleGlobal

Headwinds as the US Moves Toward Secretive Trade Agreement

The TPP would deepen trade and corporate regulation for 12 Pacific Rim nations
David Dapice
YaleGlobal, 19 May 2015
Trade secret: President Barack Obama's push to pass the TPP faces opposition from Democrats like Senator Elizabeth Warren (top); anti-TPP demonstrators in Washington, DC

MEDFORD: The US debate between President Barack Obama and Massachusetts Senator Elizabeth Warren over the proposed Trans-Pacific Partnership has spiced up a dense and hard-to-understand issue relating to a mainly secret bill about trade and regulations with trading partners. The debate draws attention to public distrust of government looking after public interest rather than that of corporations.

While the Senate Democrats initially blocked consideration of “fast track” authority – the ability of the Congress to vote the unchanged agreement either up or down – there was a reversal after some compromises on currency manipulation. The bill will not be secret when voted upon, but its provisions are not now widely known, except among corporate interests that helped draft the provisions relevant to them. The public knows what it does mainly due to WikiLeaks, which has published parts of the draft agreement concerning internet policies, pharmaceuticals and the rights of companies to sue governments. A difficult fight for acceptance of fast-track authority in the House of Representatives awaits, since many in the informal Tea Party share suspicions with liberals, like Warren, about the TPP.

The TPP process was launched in 2005 by four nations. The United States joined in 2008, and the group now includes 12 nations, most of whom are major US trading partners: Canada, Mexico, Chile, Japan, Australia and Singapore as well as New Zealand, Peru, Singapore, Brunei and Vietnam are in the negotiations which have gone through 19 rounds and are complex. The TPP does not currently include China, India, South Korea, the Philippines, Thailand or Indonesia, but in principle they could be accepted later subject to negotiation.

The TPP is perhaps better seen as a way to adopt common international regulations for businesses than a trade bill that simply lowers tariffs, though it does that too. It pushes a kind of “deep” integration such as that developed in NAFTA and the EU. Some ceding of national sovereignty is inevitable, though it may be limited and acceptable if the benefits outweigh the costs.  Favoritism to state enterprises or in national procurement is discouraged and intellectual protection is advanced – a key concern of many multinationals.

The TPP may be a way to adopt common international business regulations. Some ceding of national sovereignty is inevitable.

Progressives – Senators Warren and Bernie Sanders of Vermont are good examples – express concern that corporate lobbyists heavily influenced the provisions and the agreement could thus fail to take into account the interests of ordinary people. Provisions kept secret or available on a limited basis to many in Congress are known to many lobbyists. Warren and Sanders question if international arbitration could trump domestic regulation of banks or the environment. Public interest activists worry about extreme anti-counterfeiting provisions that could impair many current internet activities. Public health groups worry that drug prices would rise because of stricter controls on patented drug production and trade.

In short, there are many objections based on the way the bill has been drafted, its current lack of public transparency, and specific provisions that reflect corporate rather than public priorities.

The centrists and conservatives who defend the bill argue that the entire bill will eventually be public and the Congress will know what it is voting on. While true, this does not necessarily allow sufficient time to evaluate the likely impact of complex provisions. They also argue that this is an attempt to have the US and its partners create the rules for companies to operate. If the US does not do this, it’s argued, then China will. Protections of intellectual property, for example, would be much weaker and that would hurt US interests. Finally, they argue that if US companies are to be protected abroad, then similar protections should be extended to foreign companies operating in the US.  

Opponents object to the lack of public transparency and TPP provisions that reflect corporate rather than public priorities.

TPP supporters do not say that US tariffs are already so low that any US concessions in this area would likely not have much impact – they will not mean much for US consumers. On the other hand, many trading partners have more substantial barriers so better market access would be meaningful for US farm interests and some exporters.

Many – not just Democrats – worry about currency manipulation by trading partners. This is not adequately covered in this agreement, so far as one can tell. There is no doubt that South Korea, Taiwan, Japan and China have managed their currencies in the past to boost exports. Japan is doing what the US Federal Reserve and the European Central Bank have also tried – engaging in massive bond buying to get their economy to expand, although Japan may be explicitly targeting a weaker currency in a way the Federal Reserve did not. In 2011 there were fewer than 80 yen per dollar and there are now nearly 120! If a product from Japan costs 1 million yen, the price in dollars has fallen from $12,500 four years ago to $8,400. Such monetary policy has the effect of depreciating the currency, aimed to make exports more competitive.

Given recent trends in inequality, it’s not surprising that net gains of R&D productivity generate scant enthusiasm.

China is the main target of such concern but it is not even party to the agreement. The country had an undervalued currency but through a combination of modest nominal appreciation and aggressive wage increases, the real or inflation-adjusted yuan is now valued about right, at least according to the International Monetary Fund. China’s goal is to make the yuan an international currency so it keeps a stable value despite sluggish exports. In any case, figuring out if a currency is overvalued is difficult since that is a direct result of legitimate domestic monetary policy. Putting this into a trade agreement would be difficult to enforce without causing huge uncertainty.

Sluggish real wage growth in the US is feeding skepticism about the TPP.  US manufacturing employment has not gained much – it had been more than 17 million in 2000 and fallen to 11.5 million in 2010 before weakly rebounding to 12.3 million recently. With non-agricultural employment of 140 million, most jobs are created in services rather than increasingly automated factory work. The main direct impact of TPP will be on how corporations operate, not on workers. On balance, the main impact will not be from lower tariffs but from uniform and generally more powerful corporate control of intellectual property. If a standard set of rules protects intellectual property without creating undue burdens of monopoly, then that should result in a net gain in productivity from research and development. But given recent trends in inequality, it’s not surprising that such abstract and indirect gains generate scant enthusiasm.

If the US wants to play a major role in Asia, it needs another component to its “pivot” than just military power. Ultimately, if US-based rules are fair and not arbitrary, they will garner more support from others than what are currently perceived as “Middle Kingdom” rules favoring China. But such a policy needs to be implemented. It’s hard to see what is left of the much ballyhooed Asian pivot without TPP. That concern about letting China set the rules, along with warm corporate support and lobbying, will probably see the trade agreement move through the Congress. Most other countries are also likely to approve the negotiated provisions, albeit with considerable opposition from parties who would be adversely affected.


David Dapice is the economist of the Vietnam Program at Harvard University's Kennedy School of Government.      

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Comments on this Article

22 May 2015
Is China the real alternative to USA? What about BRICS? I think TPP will only enhance China's power amongst the deprived nations.
-captainjohann , TPP
21 May 2015
I like David Dapice and read all his posts, but in this case, believe TPP must be defeated. Namely, the US workforce was largely sold downriver in 1993 with Bill Clintons NAFTA. If considered as a benchmark, It never played out to all the hoopla it promised, but it did help multi-nationals strongly esp. in moving jobs offshore, like Maytag, and allowing sub-standard drivers from Mexico into the US to compete with US drivers, on Mexican wages. More specifically though is all the secrecy around it. Is the US suddenly a dictatorship where the elite leaders know better than the proletariat and must force feed decisions to them? Why should corporate lobbyists take precedence over the citizenry? Their should be an open forum on this entire TPP deal. Where Wikileaks and other underground media become the favored tool for real insight??? This is not what the US is about, but then again, who knows what the US is about anymore. Currency manipulation is a huge issue that needs more circumspect analysis. What in the world is QE if NOT currency manipulation? Flooding any system with domestic currency is going to drive down its value. Just as diluting Coke or Tea with water will weaken its constituency but increase its volume, excess liquidity in the system is forming vast asset bubbles, in houses and stock markets, but worker wages are not being pumped up at the same time.
The jury is still out on how and if China will set the trade agenda in absence of a TPP. China has so many weird domestic problems, no one knows what direction they will go, but a devaluation is out of the cards... for now... as they crave IMF acceptance of the RMB as a reserve currency. A devaluation or any euphemistic 'QE' would take that off the table. Of course it they ARE rebuffed by a US dominated IMF, they could open the floodgates of QE to make a point. All bets are off. Nothing can be put past China at this time, which is really 'crossing the river by feeling the stones'. China is unpredictable (consider the South China Sea issues of building islands in contested waters). Again, the NAFTA playbook is a predictor of what these agreements are really about: Corporate profits. Unfortunately, most US workers aren't employed with GE, PG, IBM, they work for their contractors or SME's which will be forced to compete directly with .50 cent an hour Vietnamese labor if this agreement is brought forward. Topedo the TPP until it has a chance to be discussed in a public forum and take any talk of a 'fast track authority' off the table!
-Wil Hickey , Torpedo the TPP