Topics: China, Free Trade, Trade agreements, US-China relations, Politics News
President Barack Obama, center, takes part in the Trans-Pacific Partnership meeting at the APEC summit in Yokohama, Sunday, Nov. 14, 2010. Pictured left to right: Prime Minister Naoto Kan of Japan, Vietnamese President Nguyen Minh Triet, Prime Minister Julia Gillard of Australia, Chilean President Sebastian Pinera, Prime Minister Lee Hsien Loong of Singapore, President Obama, Prime Minister John Key of New Zealand, Sultan Hassanal Bolkiah of Brunei, President Alan Garcia of Peru, Malaysian Deputy Prime Minister Muhyiddin Yassin.(AP Photo/Charles Dharapak) (Credit: Charles Dharapak)If you listened to the debate last night between Barack Obama and Mitt Romney on foreign policy, you would have heard a great deal on Israel, Iran and Libya, and a bit on China. The two rivals even touched on education policy, military spending and tax cuts for the wealthy. What you would not have heard was any mention of what could potentially be the most significant foreign and domestic policy initiative of the Obama administration: the Trans-Pacific Partnership. This agreement is a core part of the “Asia pivot” that has occupied the activities of think tanks and policymakers in Washington but remained hidden by the tinsel and confetti of the election. But more than any other policy, the trends the TPP represents could restructure American foreign relations, and potentially the economy itself.
Why isn’t trade a part of the election? After all, in 1992, Ross Perot made the last successful third-party run for the presidency, mostly on the strength of his anti-NAFTA rhetoric. Today, however, on the core question of these trade agreements, the parties basically agree. President Barack Obama has pledged to double U.S. exports as a core policy goal, and the Democratic platform lists the TPP as a “historic high-standard agreement” that will help accomplish this. The GOP platform pledges that “a Republican President will complete negotiations for a Trans-Pacific Partnership to open rapidly developing Asian markets to U.S. products.” Both party leaders argue that exports are one key to creating high-quality American jobs.
Whoever wins, the TPP will be a flashpoint of the next administration’s foreign and domestic policy architecture. It’s worth understanding just what this agreement is, and why it matters.
What is the Trans-Pacific Partnership?
The Trans-Pacific Partnership is the first international commercial agreement pursued by this administration to date from scratch. And, it would be the largest one since the 1995 World Trade Organization. It would link Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, Mexico and Canada into a “free trade” zone similar to that of NAFTA. The subject matter being negotiated extends far beyond traditional trade matters. TPP’s 29 chapters would set binding rules on everything from service-sector regulation, investment, patents and copyrights, government procurement, financial regulation, and labor and environmental standards, as well as trade in industrial goods and agriculture.
Who negotiates this agreement?
The TPP is being negotiated by an agency called the Office of the United States Trade Representative. As with other such agreements, Congress must vote to approve it, most likely under a “Fast Track” provision that prohibits any amendments and limits debate. Trade, though constitutionally a congressional prerogative, is now firmly in the hands of the executive branch. And “trade” negotiations have become a venue for rewriting wide swaths of domestic non-trade policy traditionally determined by Congress and state legislatures.
The current USTR is a former Dallas mayor and former corporate lobbyist named Ron Kirk. Michael Froman, a deputy assistant to the president and deputy national security advisor for international affairs, is also heavily involved. Froman is a disciple of former Treasury Secretary Robert Rubin who followed him to Citigroup, and headed the Obama transition team in 2008. According to journalist Matt Taibbi, Froman apparently led the hiring of Tim Geithner for the Treasury secretary role. The philosophy behind these international agreements thus follow the model laid down during the Clinton administration.
Is this a new direction for American “trade” policy?
Not really. The TPP continues a direction set by Bill Clinton when he passed NAFTA, helped create the World Trade Organization and gave China new permanent access to the U.S. market. This policy can best be characterized as making the world an easier place to do business for multinational corporations. Aside from reducing tariffs, a global policy the U.S. has encouraged since the Roosevelt administration, NAFTA-style agreements have provisions that constrain domestic food safety, environmental and health regulations, shield foreign investment capital from domestic laws, and generally transfer sovereignty from the government to the corporate sector. Consequences of these kinds of trade agreements include offshoring of U.S. manufacturing and service-sector jobs, inexpensive imported products, expanded global reach of U.S. multinationals, and less bargaining leverage for labor. The debate over this direction in trade policy was particularly acute in the early 1990s, and NAFTA serves as an effective symbol of agreements that follow the basic model.
In 1992, NAFTA was highly controversial for a number of reasons; third-party presidential candidate and businessman Ross Perot argued that it would cause a “giant sucking sound” of American jobs heading to Mexico. Today, the U.S. has lost one out of every four manufacturing jobs that existed before NAFTA – over 5 million with 42,000 factories closed. A modest trade surplus with Mexico was replaced with a large, persistent deficit. As documented in “The Selling of Free Trade,” NAFTA’s new investor protections dramatically increased the ability of corporations to outsource entire factories to Mexico, which reduced union bargaining leverage. The era of wage declines and pension cuts did not begin with NAFTA, but the agreement and a wave of similar pacts that replicated its terms were contributors to the decline of bargaining power of the American worker. U.S. real median wages now hover at 1972 levels with levels of income inequality equalling those of the pre-New Deal state. The USTR argues that NAFTA has been a success, pointing to dramatically higher levels of overall trade flows between the U.S., Mexico and Canada and higher macro-economic growth in the U.S. since NAFTA’s implementation.
The most controversial part of NAFTA is the investment provision. It not only removes the risks usually associated with offshoring production to low-wage countries. It also allows foreign corporations investing in the U.S. extra-legal rights to dispute American environmental, labor or consumer protections in foreign tribunals favorable to corporate interests, to demand taxpayer compensation for having to meet the same norms as domestic firms. NAFTA is just one agreement; U.S. trade agreements, including the World Trade Organization, also allow imposition of indefinite trade sanctions if the U.S. does not change its domestic laws to meet the pact’s limits on financial, environmental and other public interest regulation. Recent cases of U.S. law being slammed by the WTO include dolphin-safe tuna labeling requirements, country-of-origin meat labeling and the ban on candy and clove-flavored cigarettes. In addition, states and municipalities must bear the cost of helping to defend their regulations in international tribunals (such as California spending $8 million to successfully defend its right to ban the harmful gasoline additive MTBE or regulate mining on state lands).
What exactly is in the Trans-Pacific Partnership?
It’s hard to know. While negotiations started in 2007, most negotiating documents and draft chapters are classified. Stakeholders — including 600 corporations but also several labor unions including the AFL-CIO — can see the draft text, but the public and Congress cannot. Nevertheless, a few draft chapters have been leaked. Some of the more controversial aspects that have been revealed include making medicine in poor countries much more expensive, banning “Buy American” preferences in our procurement procedures, rules that may force the deregulation of the financial sector, and a new part of the agreement that might force the privatization of state-owned assets. I asked the U.S. trade representative what this meant for a set of American public assets — Amtrak, the Tennessee Valley Authority, the North Dakota state bank, and state-owned power plants.
The spokesperson replied: “The focus of the U.S. proposal is on enterprises that are owned by central governments, are commercial in nature and compete directly with the private sector. However, our proposal recognizes that some SOEs play important social or quasi-governmental functions and includes flexibility for such entities.”
In other words, the USTR isn’t going to say.
I spoke with a few other international trade experts, and they gave me some more detail on what is in it. Lori Wallach, of Public Citizen, says the agreement strengthens investor provisions, allowing a whole set of new disputes to be removed from the U.S. courts and remanded to international tribunals run by corporate trade attorneys.
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