A huge but little-known trade agreement could transform America's foreign relations. What it is and why it matters
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.
Some of these include natural resource concessions from the federal government, contracts to run utilities (public-private partnerships), and procurement contracts relating to infrastructure construction. In order words, if a government entity wanted to prioritize awarding a government contract to a local firm, the TPP would allow foreign firms to challenge this as a TPP violation. And the challenge wouldn’t be in an American court, it would be held in an international tribunal.
There are also concerns that the TPP would undermine access to HIV drugs and other essential medicines in countries that sign the agreement. A spokesperson for Doctors Without Borders even claimed, “Bush was better than Obama on this.” The ACLU claims that the copyright provisions in the TPP are “the biggest threat to free speech you’ve never heard of.” A former White House staffer told me that the USTR is simply working for the copyright industry to get legislative changes through trade agreements it couldn’t get when the Stop Online Piracy Act (SOPA) was stopped through coordinated Internet organizing (including the temporary shutdown of Wikipedia).
Can this agreement expand U.S. exports?
Again, it’s hard to know. America already has free trade agreements with six of the 10 countries in the TPP: Peru, Chile Australia, Singapore, Canada and Mexico. Together, they comprise 90 percent of the combined GDP of the prospective TPP bloc. Of the rest, only Malaysia, at 28 million people, and Vietnam at 87 million, are significant in terms of economic size. New Zealand has just 4.4 million people, and Brunei has only 405,000. So the TPP is not a significant enlargement of America’s actual trading relationships, although it would alter many non-trade domestic policies. As one person who has seen the agreement told me, “I have no idea what they think they are doing, it seems kind of dopey. This is like rearranging the food on your plate.”
In addition, much of the framework for the TPP was inherited from earlier agreements, like NAFTA, the the Central America Free Trade Agreement, and similar agreements with Peru, Chile, South Korea, Colombia and Panama.
But there are three arguments that this is an important agreement. One, unlike earlier trade agreements, the TPP would include a “docking” arrangement whereby other countries can simply join the free trade zone it sets up. This means that, rather than negotiating new agreements with different countries bilaterally, countries might simply join the Trans-Pacific Partnership. As Thea Lee of the AFL-CIO told me, the TPP could be the last trade agreement the U.S. negotiates. From now on, other countries can just join the TPP.
Two, the Obama administration sometimes argues that this agreement is an attempt to counter China’s burgeoning power in the region. New America scholar Barry Lynn has pointed out that China has a dangerous amount of leverage on our economy. China could at any point choose to shut off the flow of light bulbs, iPhones, critical medicines, food preservatives, or any number of pieces of military hardware. Since the opening of the American marketplace to China in the mid-1990s, American multinational corporations have become dependent on and supplicants to the Chinese government. There is an argument that this agreement, by including countries in the Pacific region and not including China, counters this power. According to Lynn, however, this is not true. The TPP will have no serious impact on U.S. supply chain dependence on China. And, China would be free to dock into TPP. In May, USTR Kirk told Reuters that he “would love nothing more” than for China to join.
Three, this agreement is the first agreement negotiated from the ground up by the Obama administration. As such, it sets the marker for trade policy for the foreseeable future. Lee said, “Overall, it’s very disappointing and frustrating. The TPP is the Obama administration’s first trade agreement that they are negotiating from the ground up. The administration had a lot of scope to really reform our trade policy and for the most part they didn’t take that opportunity.”
The AFL-CIO, however, has not taken a position on the agreement, preferring to remain as a stakeholder at the negotiating table.
Is this agreement secret?
Yes and no. The public has no access to the text. Congress has extremely limited access. But there are many people who have seen the agreements, and several chapters have been leaked (by among others Rep. Darrell Issa (who opposes certain provisions of the agreement).
What does it mean that the Trans-Pacific Partnership has bipartisan support?
In 2008, Barack Obama pledged to renegotiate NAFTA. In particular, he said he would revisit the investment chapter of the agreement, and set out a new model of trade agreements for the U.S. He has broken these campaign promises, unequivocally. So now Americans are faced with the leadership of both political parties who are largely supportive of more NAFTA-style trade agreements. Yet, this isn’t new; it has been the case since 1992, when NAFTA was passed with Republican support under a Democratic president. It does add evidence to the idea that the 2012 election is a carefully cultivated political debate in which core economic issues have been carved out.
What are the larger concerns about the TPP?
There are two major concerns about agreements like this. One is that these agreements continue a transition from a democratic system toward one in which the rights of foreign corporations can trump laws passed by legislative bodies. As Lee put it, “Every time you have a new trade agreement you expand the number of companies who can challenge American laws.”
The second concern is far more frightening. America’s dependence on China was not an issue in 1992, when NAFTA was signed. Today, it is. Lee noted, “We’ve put ourselves in a very vulnerable position because of the concentrated source of supply on critical resources, whether it’s China or elsewhere. I don’t agree that the TPP is the answer to this. In my view TPP, if anything, will exacerbate this. In TPP what’s being discussed are fairly weak rules of country of origin. Some of these countries may get substantial inputs from China. The TPP could become a conduit for the U.S. to become more dependent on China.” Barry Lynn spelled this out in a hypothetical disaster scenario, in which American tensions with China cause genuine friction. This isn’t far-fetched, as America is positioning military assets in the region.
“Officials [in China] do not even need to impose some sort of across-the-board trade embargo to achieve their ends. Far more effective would be to put the squeeze on one industrial system or other, or one company or other, day after day, in a systematic fashion, until Washington cried uncle. The Pentagon has sketched out complex plans for how to respond to any use of force by China. Far more useful would be to know how the United States as a nation would respond when, suddenly, grandma can’t get her medicine. Or when, suddenly, the store shelves empty of batteries and lightbulbs. What does the president do when he has General Electric and Wal-Mart both on the phone, demanding the restoration of normal trade? Or when Apple’s stock plummets because the company can’t move any of its iPhones through Chinese ports?
The only real option is to embrace the logic of industrial interdependence, hence to recognize that the only way for the United States to achieve its most vital national aims — indeed, to be taken seriously by China — is no longer to reposition its aircraft carriers, but to force its industrial and trading corporations to reposition the machines on which it depends. The United States does not need to bring all or even any of these systems of production home. But it can no longer continue to live in a world in which many activities remain in one location, under the control of one state, especially a strategic rival.”
The TPP does not mitigate the threat of Chinese leverage over the American supply chain at all. It is, at best, a weak agreement that looks and sounds big, but does very little except further undermine the power of American government to maintain consumer, environmental and labor laws and protect public assets, while denying some medicine to poor people and making it easier for copyright owners to take down websites they don’t like. But as the TPP is being portrayed in elite circles as the answer to the China dilemma, perhaps the biggest danger inherent in the TPP is that the enormous threat implied in China controlling America’s industrial base is being ignored, yet again.