TPA Not Now - The Obama Administration’s Missed Opportunity to Get TPP Right
This blog post is part of a series about the Trans-Pacific Partnership trade agreement.
By Rep. Sander Levin
It has been over 12 years since the last debate over Trade Promotion Authority (TPA) – the last time we considered the role of Congress in trade negotiations. Much has changed since then. The world has changed, trade negotiations have changed, and the role of Congress in trade negotiations has changed.
We all recognize that trade can be beneficial. The issue is not whether Congress could pass an Econ 101 class, as President George W. Bush’s Chair of the Council of Economic Advisers, Gregory Mankiw, recently put it. The issue is whether we are going to face up to the fact that our trading system today is much more complex than the simplistic trade model presented in an Econ 101 class.
But too many want to pretend the question of a trade agreement is a “no-brainer,” as Professor Mankiw suggests. Or that the benefits of trade “flows from the classic theory of trade gains first expounded by David Ricardo in 1817” because as Charles Krauthammer recently wrote, “the Law of Comparative Advantage has held up nicely for 198 years.”
What do David Ricardo and Adam Smith have to say about the inclusion of investor-state dispute settlement (ISDS) in our trade agreements? Nothing, to my knowledge. What do they have to say about providing a 12 year monopoly for the sale of biologic medicines? About the need to ensure that our trading partners meet basic labor and environmental standards? How about the issue of currency manipulation? What does the theory of comparative advantage have to say about those issues? Absolutely nothing – and yet those are the issues at the crux of the TPP negotiations today.
So, how do the old ideas on trade fall short?
First, as Joseph Stiglitz pointed out recently, 19th century economics and the theory of comparative advantage assumed a fixed level of technology (no technological changes) and full employment. Those assumptions don’t fit very well in today’s world.
Second, one of the most critical economic issues facing our country today is growing economic inequality and a stagnant middle class. Many trade economists believe that trade contributes to that inequality. David Rosnick of the Center for Economic and Policy Research expects TPP will have a very small but positive impact on U.S. economic growth (0.13% of GDP by 2025). However, he notes that economists today generally agree that trade contributes to growing economic inequality in the United States, with estimates ranging from 10% to 50% of the total inequality growth.
This underscores that the substance of the trade agreements – the international rules – matter. Our trade agreements must be designed to shape trade, to spread its benefits more broadly.
Third, we need to stop pretending that trade only has benefits and few costs. We need to stop talking exclusively about exports and downplaying the negative impact that some imports have, as the Council of Economic Advisers did in a recent paper. Of course, imports can help to lower prices for manufacturers and consumers. But lower prices don’t do you much good if you have lost your job or seen your wage decline or stagnate.
So, the economics of trade have changed, and the trade negotiations themselves have changed. So, too, has the role of Congress.
In recent years, we have had to take it upon ourselves to rewrite the rules of trade negotiations.
In 2006, when Democrats took the majority in the House, we made it clear to the Bush Administration that we were not going to consider the Peru, Panama, Colombia and Korea Free Trade Agreements as negotiated. Each of them would need to be fixed.
Charlie Rangel and I worked with our House Democratic colleagues to co-author what became known as the “May 10th Agreement” on labor and environmental standards in trade agreements. For the first time, fully enforceable labor and environmental standards would be placed into our trade agreements on equal footing with every other commercial provision. The May 10th Agreement also included important provisions on medicines, investment, and government procurement.
We want to make sure it is built upon, not eroded.
TPP Negotiations Not on the Right Track
Now we are facing the largest multi-lateral trade negotiations since the WTO Uruguay Round. The TPP has the potential to raise standards and open new markets for U.S. businesses, workers and farmers – or to lock in weak standards, uncompetitive practices and a system that does not spread the benefits of trade, affecting the paychecks of American families. Once the U.S. lowers its own tariffs as broadly as contemplated in TPP, we will no longer have the leverage to bring about lasting change in other countries.
In January, I described what I believed to be an effective way to resolve the outstanding issues in the TPP negotiations. I believed that achieving these outcomes could lead to a landmark TPP agreement worthy of major bipartisan support and my support. Unfortunately, in four months, none of these suggestions have been taken on by our negotiators.
TPA Doesn’t Put TPP on the Right Track
And, unfortunately, the Hatch-Wyden-Ryan Trade Promotion Authority bill fails to put TPP on the right track or to help Congress do so. On all of the major issues in the negotiations, the negotiating objectives are obsolete or woefully inadequate. They are basically a wish list. And even worse, at the end of the negotiation, TPA allows the President to certify whether his own negotiators achieved the wish list.
The Hatch-Wyden-Ryan TPA puts Congress in the back seat and greases the skids for an up-or-down vote after the fact. Real congressional power is not at the end of the process, it is right now, when the critical outstanding issues are being negotiated.
We must meaningfully address currency manipulation — the protracted, large-scale, official, one-way intervention in the currency markets to weaken a currency for the purpose of boosting exports and limiting imports. Currency manipulation has cost the United States millions of jobs over the past decade and a half. Many people had trouble finding new jobs, or had to accept new jobs at lower wages.
China manipulated its currency most dramatically in this time period. In earlier episodes, Japan, South Korea and others manipulated their currencies on a protracted, grand scale.
The International Monetary Fund has up-to-date guidelines that define currency manipulation and are intended to prevent it. Unfortunately, the IMF cannot enforce those guidelines because currency manipulators are able to essentially stall action in that forum.
Some prominent people have asserted that US monetary policy would be put at risk if currency disciplines are included in TPP. I responded to that argument in a highly detailed blog post months ago. I have seen no serious rebuttal of the points I made in that post – or to similar and related points made by Simon Johnson, Fred Bergsten, and many other notable economists, ranging from Art Laffer to Paul Krugman. Nevertheless, those who oppose currency disciplines continue to raise this false argument.
Access to Medicines
It is vital that our trade agreements balance strong intellectual property rights and access to affordable, life-saving medicines. Absent a change in course, the final text is likely to provide less access to affordable medicines than provided under the May 10th Agreement.
Oxfam, a coalition of 17 international development organizations, recently said, “TPP would do more to undermine access to affordable medicines than any previous U.S. trade agreement, and the intellectual property provisions in TPP reverse the positive step taken under the May 10th Agreement in 2007…and thus are a step backward for public health.”
Automotive Market Access
For most of the past 15 years, our trade deficit with Japan has been second only to our deficit with China, and over two-thirds of the current deficit is in automotive products. Japan has long had the most closed automotive market of any industrialized country, despite repeated efforts by U.S. negotiators over decades to open it. At a minimum, the United States should not open its market further to Japanese imports, through the phase-out of tariffs, until we have time to see whether Japan has truly opened its market.
The Administration has not stated a specific period of time for when the phase-out in U.S. tariffs for autos, trucks, and auto parts would begin or when they would end. The parties are also still working to address certain non-tariff barriers that Japan utilizes to close their market.
The Hatch-Wyden-Ryan TPA bill broadly states that the United States should “expand competitive market opportunities for exports of goods.” Such a broad negotiating objective provides no guidance regarding how to truly open the Japanese automotive market.
The Hatch-Wyden-Ryan TPA bill provides no guidance whatsoever on any Rule of Origin on any product in the TPP negotiations.
Agricultural Market Access
The Hatch-Wyden-Ryan TPA bill has as its objective “reducing or eliminating” tariffs on agricultural products. Thus, even Japan’s opening offer – to reduce but never eliminate tariffs on nearly 600 products – satisfied this objective, demonstrating this objective is meaningless.
The TPP negotiations are taking a different approach on environment than we did in the May 10th Agreement and in our FTAs with Peru, Panama, Colombia and Korea, where we stated simply that each country was obligated to implement seven multilateral environmental agreements. TPP negotiators are trying to build the same obligations from scratch. Words like “endeavor” and “take steps to” are not going to lead to the revolutionary changes we have been told to expect.
Investment and Investor-State Dispute Settlement
There are now more cases of private investors challenging environmental, health, and other regulations in nations – even nations with strong and independent judicial systems and rules of law. The text of the investment chapter in TPP is basically the same as the model adopted 10 years ago, even though conditions have changed dramatically in the past 10 years, and calls for changes to or elimination of the chapter have intensified. Despite proposals to include new safeguards in the ISDS mechanism, the Administration has not made any attempts to incorporate them.
TPP does not yet ensure compliance by TPP parties that have labor laws and practices that fall far short of international standards contained in the May 10th Agreement even though TPP is expected to include the May 10th Agreement language.
Vietnam presents the greatest challenge we have ever had in ensuring compliance. Workers there are prohibited from joining any union independent of the communist party. On a recent trip to Vietnam, I met a woman who had been thrown in jail for four years for trying to organize workers in an independent union.
Our negotiators also have refused to accept our suggestion that an independent panel be established from the beginning to ensure compliance with the labor obligations and expedite a dispute.
The President said recently that Vietnam “would even have to protect workers’ freedom to form unions – for the first time.” But the TPP that USTR is negotiating seems far from ensuring that those words are real.
Mexico also has a long way to go. And Americans know that Mexico competes in manufacturing. Mexico assembled over three million vehicles in 2013 – more than Canada – and exported over 80 percent of them, most to the United States. The wage rate in Mexico is about 20% of a comparable rate in the United States.
The Administration likes to say that TPP will re-negotiate NAFTA. I’m all for that. But, again, words in the Agreement are not enough. Mexico has to change their laws and practices. For example, they have to get rid of the “protection contracts” that serve to block real representation in the workplace, and they need to fundamentally reform or replace the Conciliation and Arbitration Boards that are responsible for resolving disputes over workplace representation and other labor issues.
Countries that rely heavily on state-controlled and state-funded enterprises are able to give those champions an enormous – and unfair – advantage over private companies that compete against them in the marketplace. The extent to which an SOE provision will help to level the playing field will be determined by the degree to which parties seek very broad, country-specific carve-outs for particular SOEs. As concerning, the definition of SOEs is too narrow, allowing enterprises that are effectively controlled by foreign governments (but where the government owns less than 50% of the shares) to circumvent the obligations.
Other Substantive Issues
There are several other important TPP issues that need to be addressed. Food safety is one of them. And it is unclear how tobacco control measures will be treated in the TPP agreement.
Negotiators need to communicate frequently and effectively with stakeholders to ensure that they are seeking the right provisions in negotiations. In a number of respects, our negotiators were not doing that when the TPP negotiations were in their early – or even not so early – stages. Thanks to constant pressure from Members of Congress over the past several years, we have made some progress in this regard. For example, just a couple of years ago, USTR refused to share the “bracketed” text (laying out the positions of the various parties) with any Member of Congress.
Still, there remain unreasonable and burdensome restrictions on access to the text. For example, Congress created a system of stakeholder advisors many years ago to provide advice to our negotiators and to Congress on the negotiations. But those advisors still can only see U.S. negotiating proposals. They cannot see the proposals of our trading partners.
Moreover, personal office staff with top secret security clearance still cannot view the negotiating text unless their Member is present in the room.
And I am not at all confident that our negotiators are sharing with Members of Congress, or the stakeholder advisors, all of the texts that are exchanged with the other TPP countries. For example, we now know our negotiators have been discussing a labor “consistency plan” with Vietnam for many months, at least. But there still is no text for Members of Congress to review.
So, one has a hard time understanding the rationale for this process. The way it has been handled by the Administration does not make Members and other key parties real participants with a meaningful role, understanding and impacting decisions undertaken in this important negotiation.
Six-Year Term and TTIP
The TPA bill also presents dangers with other agreements. This TPA bill essentially will be in place for six years. It gives the President a great deal of latitude in deciding which agreements to negotiate, with whatever trading partners the President wants, and covering whatever subject the President wants.
With all of these concerns in mind – and, above all, my determination to do everything I can to get TPP in shape to garner broad, bipartisan support in Congress – the Ways and Means Democrats offered a substitute amendment during the markup of the TPA bill. That amendment – the Right Track for TPP Act – includes negotiating instructions – not merely “negotiating objectives” like the TPA bill – on each of the 12 major outstanding issues, some of which I have described earlier. It provides that the President will not get an up-or-down vote unless and until Congress determines that the instructions have been followed. It also includes real mechanisms to ensure that a poorly negotiated TPP agreement will not be placed on a fast track.
Regrettably, our substitute amendment was blocked in Committee.
What the Debate Is and Isn’t About
As is often the case with trade debates, they become about something they are not.
The debate is not about being for TPP, or against TPP. I am for the right TPP and that is why I want Congress to be in a position to press U.S. negotiators to secure a better outcome.
This debate is not about “letting China write the rules.” I wrote the amendments to the bill granting China Permanent Normal Trade Relations to try and ensure that China didn’t write the rules when they entered the WTO. I want to make sure the rules are written effectively to impact the economic behavior of China.
This debate is not about isolationism. Neither I, nor any colleague of mine is arguing that we should “pull up the drawbridge and isolate ourselves.”
This debate is not mainly about national security or the pivot to Asia.
First, trade agreements need to stand on their own merits. Congress created USTR over 50 years ago because it didn’t like how the State Department was allowing foreign policy to influence our trade negotiations. Second, in the world today, I don’t see how a trade agreement can be in our national security interest if it isn’t in our economic interest.
TPP is not yet on the right track. The best course for Congress is to withhold “fast-track” until we know that TPP is on a better course. To press the Administration to work with us and really respond to our concerns by changing the course of negotiations.
At the end of the day, the goal is to achieve a Trans-Pacific Partnership worthy of support.