TPP in the USA

By Steve Kopperud, SLK Strategies

The nearly $2-trillion Trans-Pacific Partnership (TPP), the 12-nation Pacific Rim trade accord, has taken on an identity far beyond simple tariff reductions and harmonization of trading rules. As President Barack Obama said in January during his final State of the Union message to Congress, “We forged a Trans-Pacific Partnership to open markets, and protect workers and the environment, and advance American leadership in Asia. It cuts 18,000 taxes on products made in America, which will then support more good jobs here in America. With TPP, China does not set the rules in that region, we do. You want to show our strength in this new century? Approve this agreement. Give us the tools to enforce it. It’s the right thing to do.”

However, is TPP, with all of its subtle and not-so-subtle economic and geopolitical implications, the “right thing to do”? Is it the miracle treaty supporters contend, or is it something much less? Such modern treaties are no longer straight trade agreements, but impact both international and domestic labor, environment, intellectual property, patent, and other arcane issues of law, as well as foreign policy. In the charged political atmosphere of Washington, DC – in a national election year during which the new president, the full House and a third of the Senate will be judged at the ballot box – will Congress approve TPP?

Broadly, the final TPP trade deal represents 40 percent of the world’s gross domestic product (GDP) and 26 percent of global trade. To date the largest trade deal the United States (US) has ever hammered out, TPP, if approved, would direct about 40 percent of US import/export activity. In economic terms, TPP countries are some of America’s biggest and fastest growing trading partners, representing north of $1.5 trillion in goods and more than $242 billion in services.

TPP began life 10 years ago when Brunei, Chile, New Zealand, and Singapore inked a trade deal to remove tariffs, focus on employment practices, harmonize competition, and deal with intellectual property treatment among the four nations. The United States took over expansion of the trade accord in 2009 when several of the current players expressed interest in achieving the same cooperative agreement.

After five years of intense and often frustrating negotiations, 12 nations have preliminarily approved TPP. In addition to the United States, negotiating nations include Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile, and Peru. Note that China is not a participant. However, the treaty is written to accommodate countries wishing to join the accord at a later date. Thailand, the Philippines, and Indonesia said in January they most likely will join TPP.

The Pacific Rim is a region of the globe where economies and trade with the United States are growing rapidly. It is also a region where China has been the dominant customer for decades. However, Chinese across-the-board import reductions in recent years, along with an evolving Chinese currency, provided the perfect opportunity for Malaysia, Vietnam, Singapore, Brunei, and others to create a more global marketplace to offset fluctuating Chinese demand.

What sits today in front of the heads of state of the 12 TPP nations is a more than 6,000-page document with 29 chapters covering agricultural products, sanitary/phytosanitary standards, telecommunications, financial services, market access, government-owned businesses, tobacco, intellectual property, automobiles, drugs, high-tech products, dispute resolution, and a host of other categories. To legally take effect, the treaty must be signed within two years by nations representing 85 percent of the TPP collective economy. At minimum, six countries must approve the final treaty, and two of those countries must be the United States and Japan if the 85 percent trigger is to be reached.

Thus far, only New Zealand has publicly said it will sign the final treaty; most others are going through legal reviews and legislative debates, but are effectively waiting to see if TPP is approved by the Japanese ambassador to the United States. Kenichiro Sasae told US officials in January that his government will vote to ratify TPP “as soon as possible,” a move to provide momentum to the treaty’s success and an incentive to the United States. A New Zealand official said it best: “Without the US, there is no TPP.”

Without TPP, some argue there is no Obama Asian economic legacy. For the president, while the engine of increased US exports helps accelerate domestic economic recovery, the geopolitical importance of TPP is a policy priority. Not only has Obama been politely but consistently held at arm’s length by major Asian governments, including Japan, Korea, and China, it is finally obvious to the administration that among Pacific Rim players, money talks.

With so many of the current and prospective TPP countries heavily dependent on China as a customer and supplier, Obama sees TPP as a means to wean these countries away from the world’s second largest communist government with the world’s second largest economy. Obama believes TPP gives these nations the wherewithal to strengthen and stabilize their domestic economies, and gain greater economic and political independence, in large part thanks to the capitalistic buying/selling power of the United States.

The long and winding road to formal US approval through the House and Senate began last fall. Trade promotion authority (TPA) stipulated a 60-day window for public input on TPP, and that period began October 5, 2015, when the White House released the agreed-to treaty. That window closed a week before the January 12, 2016, State of the Union address. Just days later, the US International Trade Commission (ITC) held three days of public hearings as part of a mandated economic review of the trade pact.

Agriculture and business interests told ITC of their general support for TPP during the three days of hearings, which looked at the overall impact of the treaty on the US economy, but also examined impacts on specific economic sectors. The ITC review must be completed by May 15.

Implementing TPP “will be a vast improvement over the status quo,” said the witness for the National Cattlemen’s Beef Association. Ranchers-Cattlemen Action Legal Fund, known for its protectionist leanings, disagreed, saying the treaty will hurt the cattle and sheep industries by granting major cattle-producing countries increased access to US markets with profits from the “dumping of cattle, beef, and lamb” going to “meat packers, not independent growers.”

For rendering, TPP is less about tariff reductions than potential impact on non-tariff and technical barriers to selling US product in the region as many deals are caught up in sanitary/phytosanitary sleight of hand. The inclusion of Malaysia and the likely addition of Indonesia, Thailand, and the Philippines, also hold market promise for US-rendered products. At the same time, a rising tide lifts all boats so if US meat and poultry exports to the Pacific Rim increase, then domestic animal and bird production increases, signaling good things for rendering. This translates to an upturn in raw material inputs along with feed ingredient sales as domestic feed sales surge based on higher animal numbers necessary to meet increased export demand.

The American Soybean Association (ASA), one of the most aggressive overseas marketers of a US commodity, liked what it heard from Obama during the State of the Union, saying the “commitment of this administration to trade is something we’ve appreciated at every turn.” In a statement, ASA said, “Soy benefits from TPP…through an increase in direct export of soybeans and soy products to 11 nations which already account for $5.4 billion in annual soy exports. Second and perhaps most importantly, TPP will significantly expand meat exports…which drives demand for soy meal as a livestock feed here in the US.”

Cargill Inc. told ITC that TPP meets the global agribusiness giant’s three principles for a good trade agreement: It includes a balance of Latin American, Asian, and North American economies; it is comprehensive, covering all products and sectors; and it addresses traditional barriers to free trade with new solutions.

Yet, the question must be asked: Is American industry blinded by the notion that any new market, no matter how large, must automatically be a lucrative market? There are surprisingly few studies that quantify the positive economic impact of TPP on various economies. Technology writer Glyn Moody reported on that in 2015, the US Department of Agriculture (USDA) commissioned a study to model TPP. This report concluded that for highly sophisticated economies, including the United States and Australia, there may not be the cash-out expected. The conclusion of the USDA study, Moody writes, was “TPP is projected to have no measureable impacts on real GDP.” Now, the USDA study only looked at removal of traditional tariffs and TPP is so much broader than that, the mother of all new “generational” trade pacts, one that includes not only economic implications, but also policy and legal implications as well.

Moody also reported on a World Bank study that takes into account “all aspects of the proposed deal.”

“The model simulations suggest that by 2030, the TPP will raise member country GDP by 0.4-10 percent, and by 1.1 percent on a GDP-weighted average,” he reported. But if you drill down on the “0.4-10 percent” benefit range, you find the US benefit is 0.4 percent, Australia’s is 0.7 percent, Canada’s is 1.2 percent, Japan’s is 2.7 percent, and the less developed economy of Vietnam is the big winner at a benefit of 10 percent increase in GDP. Concludes Moody: “The fact that two econometric models of TPP’s effects, both from highly respected institutions, predict that TPP will produce vanishingly small economic benefits for key countries, including the US, could explain why there are so few studies. A cynic might suggest that others were started, but generated such inconveniently awful outcomes that they were quietly dropped and never published.”

Moody’s cynicism notwithstanding, and granted the report is an extreme take on a highly complex issue, TPP remains unique in the annals of trade treaties. However, it is not a stretch to say that any agreement removing tariffs, lowering tariffs, harmonizing trading rules, and, to the extent possible, leveling a monster regional economic playing field – along with the legal/environment/labor considerations – is logically a good thing for anyone with anything to sell in the region.

The president had hoped all of this would be behind him by now, that TPP would be securely locked in the box that holds his legacy of achievements. He had told the Office of the US Trade Representative (USTR) to complete its job by mid-2015, the goal being a finalized agreement approved by Congress, signed by the president, and in force, at least for the United States, by the end of December. That obviously did not happen. In order to get TPP across the finish line, the White House needed TPA, which is effectively legal permission from Congress for the White House to negotiate free trade deals meeting the specific requirements of TPA, with Congress giving up the right to amend the finished package when it comes to the House and Senate for formal approval.

Ironically, the biggest political roadblock to Obama’s push for TPA, and his current push for TPP approval, are the complaints and criticisms of congressional Democrats, spurred on by labor unions and environmental groups. And the longer TPP pends in the public arena, Republican critics are crossing the aisle to join in opposing the deal. When the president referenced TPP during the State of the Union, the reception by the assembled members was, as one reporter noted, “lukewarm at best.”

Early on in the battle for TPA, the chief criticism was that the treaty was negotiated “in secret.” That allegation translated to Democrat critics – Representative Rosa DeLauro (D-CT) among the most vocal – venting their frustration with the White House for not consulting with them before the talks began, particularly on US jobs and environmental protections. These same critics were unwilling to give Obama TPA authority – as all presidents have enjoyed since Ronald Reagan – because they did not want to surrender their ability to rewrite the agreement through amendments during floor consideration. It is fair to say the White House prevailed on TPA only because business and agriculture provided the necessary lobbying muscle that gained the measure broad bipartisan support.

“The administration has put big business first; workers, communities, and small businesses last,” said DeLauro, echoing the sentiments of her party’s TPP critics.

House Speaker Paul Ryan (R-WI) and Senate Majority Leader Mitch McConnell (R-KY) are publicly noncommittal, paying lip service to “reading the treaty, learning the details, talking to constituents and their colleagues before forming a position.”

Senator Orrin Hatch (R-UT), chair of the Senate Finance Committee that must shepherd TPP through choppy Senate waters, is less sanguine with the deal, saying, “While the details are still emerging, unfortunately, I am afraid this deal appears to fall woefully short…the U.S. should not settle for a mediocre deal that fails to set high-standard trade rules in the Asia-Pacific region for years to come.”

House Ways and Means Committee Chair Kevin Brady (R-TX) has adopted a go-slow approach to TPP approval as he wrestles with two specific objections to the trade deal. The first is tucked into the intellectual property chapter of TPP and deals with medicines known as biologics. The other is a so-called “carve-out” from health control requirements for processed tobacco products within the investor-state dispute resolution section. Hatch is also concerned about the biologics issue and Brady has told the White House it needs to address both issues before the treaty comes to the House floor.

The election year politics surrounding TPP are also increasingly problematic. Democrats complain TPP will cost US jobs and undermine environmental protections; this is a criticism almost automatically leveled at every trade accord into which the United States has entered. Conservative Republicans, who loathe contributing to the Obama legacy, are openly skeptical of the deal. Democrat presidential hopeful Senator Bernie Sanders (D-VT) does not like TPP for all of his publicly stated “progressive” and anti-one percent reasons. Former Secretary of State Hillary Clinton, who in her last job negotiated parts of TPP and called the deal a “gold standard” while still at the State Department, now says the treaty does not pass muster with her.

Those Republican presidential wannabes still vying for the GOP nomination are all over the map on TPP. Donald Trump calls it a “horrible deal,” and is joined by Senator Rand Paul (R-KY) and New Jersey Governor Chris Christie. Former Florida Governor Jeb Bush, Senator Ted Cruz (R-TX), Senator Marco Rubio (R-FL), Carly Fiorina, Ohio Governor John Kasich, and Dr. Ben Carson all support TPP, some with “reservations.”

Meanwhile, Darci Vetter, USTR special agriculture negotiator, told the American Farm Bureau Federation that exporters as well as farmers and ranchers will take a financial hit if TPP is not approved in a timely manner, meaning this year. She warned that until TPP is approved by Congress, any of the 12 nations who have agreed to the treaty can cut “preferential access” deals with each other.

“On day one when TPP takes effect, we’re back on a level playing field with Australia,” Vetter said of regional beef advantages, explaining similar market fairness will exist for dairy in Vietnam. “Every agricultural product is liberalized in some way” in the treaty, she noted.

In addition to Vetter’s warnings about preferential trade deals being cut between TPP participants while the pact awaits approval in the United States and elsewhere, internal farm program actions by TPP players to mitigate the impact of losing protectionist tariff reductions are emerging. The National Pork Producers Council (NPPC), one of the biggest TPP boosters in Washington, stepped back a bit this winter when the Japanese government informed the National Diet (Japan’s bicameral legislature) it would provide “major” domestic support to meat producers to offset TPP impacts. The majority Liberal Party was presented draft countermeasures on farm supports, expected to move as part of a budget package sometime in spring. The plan would cover up to 90 percent of a pork producer’s losses between production and sale, or 10 percent more than the current domestic support plan. NPPC has formally raised with the White House the Japanese support increase, telling one Washington, DC, political publication, “We’re a little miffed this is happening…It’s more about violating the spirit and the point of TPP, which is about creating free trade.”

USTR Ambassador Michael Froman told The Wilson Center, a nonpartisan Washington think tank, that TPP is a “strategic imperative” for the White House. Froman is spending a lot of time on Capitol Hill answering questions and “addressing concerns,” while working with congressional leadership to find a window of opportunity that is “most conducive” to approving TPP. That window, suggests McConnell, may be after the November election during the December lame duck session in order to spare vulnerable candidates from having to defend an unpopular vote. The timeline for consideration will start to appear in late spring when House and Senate leaders decide on the floor schedules running up to July 4.

Will TPP be approved or will it go down in flames, wasting five years of negotiating? The consensus among trade watchers in Washington, DC, is that it is “likely” to be approved, but that response is followed by all of the “ifs” detailed in this column. However, all of the business lobbying and campaigning by US commodity groups to get TPP approved will mean little if the White House does not rev up its Capitol Hill machine.

Obama continues to cheerlead globally for TPP. He meets with several Southeast Asia leaders in mid-February when the US hosts 10 countries that are members of the Association of Southeast Asian Nations (ASEAN). In May, the president travels to Japan for the annual G-7 summit, and he may visit Vietnam. In September, Obama travels to China for the G-20 meeting and another meeting with ASEAN leaders in Laos.

The process of multinational approval began February 4 as government officials from the 12 participating TPP nations, including the United States, met in Auckland, New Zealand, for an official signing ceremony. Obama must now finalize the TPP package and submit it to Congress this spring for a vote.

Politico reported, when Hatch was asked if he will vote for the pact despite his and his colleagues’ misgivings, that he “warned again that the deal could be rejected by Congress if it’s submitted before the administration properly addresses specific worries from members.”

“I want to see a strong TPP agreement become law,” Hatch said. “But right now, a number of lawmakers have raised a variety of concerns that could be problematic if the agreement is submitted to Congress for approval. If the president wants TPP to be approved, he will need to work with Congress.”

February 2016 RENDER | back