Free Trade and the TPP

In a surprising development, it is congressional Republicans and a few of their business allies that now pose the biggest threat to the Trans-Pacific Partnership (TPP), a trade agreement among 12 countries with 40 percent of the world’s GDP. When, after five years of talks, an agreement was finally announced on October 5, neither a single Republican leader in Congress, nor any broad business federation could be found to support it. Republican support for the TPP is indispensable since most congressional Democrats oppose it and former Secretary of State Hillary Clinton has just come out against it.

Consequently, ratification is both a question of when and if. Without ardent efforts by GOP leaders to move some of their reticent rank-and-file, the TPP cannot be ratified. Legally, Congress cannot even vote until the February primary season at the earliest and, in an election year, ratification will be an uphill climb even under the best circumstances.

Optimists argue that much of the immediate criticism of the deal is temporary, the result of a misperception by some business sectors, such as pharmaceuticals, that the Obama administration sold them out in order to get a quick deal. But the reality, as one Washington-based business source told me, is that, “Reaching agreement was a case of now or never. The other countries were adamant that this had to be the last ministerial meeting.” Japanese sources said the same.

The hope among TPP proponents seems to be that the frustration will blow over, and that the deal’s detractors will recognize that half a loaf is better than none at all. Some of the deal’s discontents, meanwhile, have convinced themselves that they can force a renegotiation, either under Obama or his successor, if the latter is a Republican. They point to the negotiations for the U.S.-Korea Free Trade Agreement, during which the United States went back to the table to make changes three times after the initial signing. But South Korea was just one country. Eleven countries is a different game. “This was absolutely the best deal the United States could get, given the bargaining situation,” said one business source. United States Trade Representative Michael Froman has said that the pact will eliminate 18,000 tariffs that other countries have imposed on U.S. exports and that the United States will eliminate 6,000 of its own import tariffs. That, estimated the Peterson Institute for International Economics, would mean that, in 12 to 15 years, American exports would be 4.4 percent higher than without TPP, imports 3.7 percent higher, and GDP 0.2 percent higher.

Even a couple dozen House Republicans who voted for the Trade Promotion Authority (TPA) that empowers Obama and his successor to conduct these negotiations, have strongly resisted voting for what they call Obamatrade. But anti-Obama emotions are only a small part of the problem. Looming larger is the immense veto power over Congress of assorted well-connected, well-financed special interests, from tobacco to pharmaceuticals to dairy to sugar. In the indispensable balance between the national interest and legitimate special interests, the pendulum has swung too far toward the latter. Too many of those who claim to support “free trade” no longer mean a two-way street in which the United States helps promote its own prosperity by promoting that of its partners. Rather, they seek a system in which others open their markets to favored American business sectors, but the United States does not sufficiently reciprocate.

Consider Senator Orrin Hatch (R-Utah), who, as the chair of the Senate Finance Committee, would be the point person on passing the TPP. As news of the agreement spread, he lamented that, “while the details are still emerging, unfortunately I am afraid this deal appears to fall woefully short.” That language doesn’t leave a lot of wiggle room.

Hatch is upset because the U.S. pharmaceutical industry did not win its demand for adherence to the U.S. standard of 12 years of data exclusivity (the protection of clinical test data) for biologics, a class of drugs made from living cells or organisms. Instead, Froman was compelled to compromise with representatives from several countries who wanted no data exclusivity and with representatives from Australia and other countries who wanted to cap the period at five years in order to make drugs more affordable. The compromise seems to be a minimum of five years of straight data exclusivity plus another three years under some conditions, and reportedly even allowing the United States to maintain 12 years in its own law. Hatch has warned for months that he might be willing to let the entire deal fail over this one issue, and it is unclear whether he is bluffing. American biologics firms insist they need 12 years to recoup their huge investments. However, a 2009 report by the U.S. Fair Trade Commission said that biologics are so hard and expensive to emulate that firms did not need any years of data exclusivity to prevent the kind of generics seen in ordinary drugs.

Even more disappointing to the pro-TPP crowd was what one Washington trade expert called “the surprising neutrality” of Representative Paul Ryan (R-Wis.), chair of the Ways and Means Committee and point man for the TPP in the House. Ryan could not come up a single positive or negative word. “I am reserving judgment,” he commented. “I hope that Ambassador Froman and the White House have produced an agreement that the House can support.”

Since Ryan is regarded as an ardent free trader, one pro-trade player speculated that perhaps Ryan did not want to get too far ahead of his GOP colleagues. But it is worth noting that he hails from the dairy state of Wisconsin, and the dairy lobby has threatened to oppose the deal if it opens the U.S. market “too much,” the exact meaning of which is unclear. Unlike the beef and pork lobbies, which support the TPP because it opens more export markets, the dairy lobby has been focused on limiting imports. A week before the agreement was reached, The National Milk Producers Federation and US Dairy Export Council sent a letter to Congress in which they noted “grave concerns” about a deal that would give New Zealand more access to the U.S. market, but would not adequately open Canada’s market to the United States. Now they are reviewing the deal.

Then there’s tobacco. Froman agreed that tobacco products would be exempted from a trade dispute-resolution mechanism, called ISDS, which would let multinationals sue countries in arbitration panels dominated by lawyers who represent corporations in other cases. The poster child for abuse of this process is a series of suits by Philipp Morris and R.J. Reynolds against several countries that required plain packaging on cigarettes in order to make smoking less enticing. For some countries, removing tobacco from ISDS protection was a vital public health issue. However, Senate Majority Leader Mitch McConnell, who hails from the tobacco state of Kentucky, has suggested several times that exempting tobacco could be a deal-killer for him. House Agriculture Chairman Mike Conaway also objects to the tobacco carve-out, and Senator Thom Tillis (R-N.C.), who had voted for TPA, says he will actively fight against the TPP over this issue. Imagine a deal being touted as a key to twenty-first century growth and national security being lost over plain packaging of cigarettes.

Given the divisions among the business community, not a single one of the leading broad-based business federations could come up a positive statement of support for the TPP. One would have expected fulsome praise from the Trade Benefits America Coalition, a coalition of 275 business associations and important firms, whose whole raison d’être was to promote the TPP. Instead, it issued the lame statement: “We look forward to reviewing the details of today's agreement and continuing to work with Congress and the Administration on the TPP.” The U.S. Chamber of Commerce and the National Association of Manufactures, both members of the coalition, issued similar remarks. Knowledgeable observers expect that these federations will eventually energetically lobby for the TPP, but they cannot do so without first consulting their membership.

What is most concerning is the one-way street attitude of too many of those who call themselves “free traders.” Some in business and Congress contend that the United States is already so open that there is little left to do. That self-consoling illusion causes intense resentment among the country’s trading partners. They point to a host of issues, some of which the United States did not even allow to be discussed in the main TPP talks, for example: the “Buy America” provisions of many state procurement laws (a $1.4 trillion market); the Jones Act, which requires that all goods transported by water between U.S. ports be carried on ships constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and permanent residents; the protectionist “yarn forward” rule in textiles that particularly hurts poor countries such as Vietnam and Mexico; the high import barriers on sugar (where the United States will allow more imports from Australia by cutting those from Mexico) and dairy (the latter particularly upsetting to New Zealand since dairy comprises a third of its exports and it is world’s largest dairy exporter); and tariffs on Japanese trucks (25 percent), cars (2.5 percent), and parts (mostly 6-10 percent) that will not be lifted under the TPP for 30, 25, and up to 15 years, respectively.

U.S. leadership rests on others’ perception of it as a benign hegemon. By undermining such perceptions, one-way street notions of free trade pose a far greater threat to national security than any free trade agreement that China could create.