Thursday, April 24, 2014

TPP’s Future is Uncertain


Obama Travels to Asia, hoping to shore up an ailing trade pact

 Barack Obama’s trip to four Asian nations is aimed in large part to reassure skeptical partners that the announced US pivot to Asia is real. But squabbling among America’s Asian allies apart, the fate of a long-gestating trade pact might prove a serious indicator of the success or failure of US policy.

The trade pact has drawn criticism from various quarters, not to mention suspicion that it’s designed to isolate China. This lends the pact a centrality that was perhaps not intended.

The trade pact at issue, the Trans-Pacific Partnership, grew out of a 2005 initiative, when four small nations – Singapore, New Zealand, Brunei and Chile – initiated a trade agreement aimed to increase their economic integration. TPP has since grown to include a group of 12 nations from the three members of the North Atlantic Free Trade Agreement – Canada, the United States and Mexico – as well as Japan, Australia, Peru, Malaysia and Vietnam. Others have expressed interest in joining negotiations, including Taiwan and South Korea. India, Bangladesh and most other members of the Association of Southeast Asian Nations may join negotiations eventually.

TPP aims to lower barriers to trade, which are already fairly low except for specific goods in agriculture and a few other areas, and provide uniform treatment for foreign investment and regulatory issues. Nothing has been concluded in the larger group, though negotiations – mainly secret, even to the US Congress, except for leaks – suggest that corporate interests in finance, pharmaceuticals and media have lobbied heavily to get an agreement that advances their agendas.

The administration claims that Congress was consulted. Critics of TPP are diverse. Some represent public health groups who fear that generic drug availability will be curtailed, raising costs of life-saving medicines. Others argue that legitimate national regulations on tobacco, large gas-hungry vehicles, financial flows or national culture could be over-ridden, giving industry the right to sue against national governmental rulings.

The critics can be classed in various groups:

Many members of the US Congress complain they know little or nothing of TPP negotiations. Several from both Democratic and Republican parties have opposed fast-track authority for the TPP – allowing debate of modification of provisions rather than an up-or-down vote. The trouble with this approach is that arduous negotiations among member nations would then have to be re-opened, making it all but impossible to reach universal agreement.

Much of the opposition is from the left, fearing damage to labor and the environment regulations, even though provisions have been inserted to allay fears of a “race to the bottom.” There is also opposition from conservatives who fear giving the executive, especially Obama, too much authority.

Many environmental groups such as the Sierra Club, Natural Resource Defense Council and World Wide Fund for Nature contend that combatting climate change with national regulations and protection of land or species could be compromised. WikiLeaks leaked a chapter on the environment, arguing it was essentially a public relations document with no enforcement mechanism.

Academics such as Paul Krugman, Joseph Stiglitz and Noam Chomsky are critics too, though varying in intensity and message. Krugman suggests there is no compelling case for TPP and no political consensus and it would not be a problem if it just faded away. Chomsky argued TPP puts corporate interests ahead of workers, and Stiglitz argues it aims to remove national regulatory control on businesses that “serves the interests of the wealthiest.”

If viewed mainly as another trade and investment agreement, TPP would probably face tough opposition as fewer centrist politicians seem committed to such agreements. Tariffs are already low, and many of the provisions seem to address narrow corporate concerns and sacrifice national autonomy, as least according to many critics. The secrecy surrounding the negotiations feeds this perception.

However, in a post-Ukraine world, there may be another angle to TPP. Some see it as a riposte to China and a way of implementing the Asia “pivot.” In this framework – as some in China have done despite US denials – weakening Obama also weakens the US position in Asia. Such arguments could convince members of US Congress who typically support national-security initiatives to support TPP.

Ellen Frost of the East-West Center wrote last year in the Asia Pacific Bulletin about the strategic implications of TPP and notes that China’s initial reaction to the US joining TPP was hostile – analysts seeing it as a way to exclude or encircle China. Since nothing in the TPP charter would exclude China, the nation could possibly join at some point though the restraints on subsidies and other internal policies would complicate such negotiations.

Some Chinese argue, Frost observes, for lowering TPP standards so that China could more easily join. She rejects this and suggests that joining TPP on its present terms would push the Chinese economy in a direction it must go anyway. Frost does see US policy on TPP as part of the pivot to Asia, though it’s unclear if this is enough to persuade critics to pass on a fast-track basis.

Others in Asia see the TPP as undermining ASEAN. Frost also rejects this argument and observes, correctly, that Indonesia – a key member of ASEAN – is not even on the list of negotiating members and none of the very poor countries such as Laos, Myanmar or Cambodia is even close to joining TPP. It is axiomatic that as any planned trade group increases in size the lesser role that special interests can easily play by excluding competitive products from other sources.

So if the TPP eventually morphed into a very large trade pact that included China and India, it would approach a WTO scale, although presumably exclude Europe. Of course, ongoing negotiations are underway over an Atlantic trade pact, which faces similar opposition. Frost argues that TPP might help Prime Minister Shinzo Abe of Japan push through unpopular reforms. Similar arguments apply to Vietnam, which also finds reform difficult without foreign pressure.

If strategic considerations are of only moderate weight, the question comes back to how important the lower tariffs and investment and intellectual property protections are relative to the concerns about health, environment and national autonomy. In a world in which trade growth has slowed to less than the growth of national income – reversing a half century trend – and increasingly concentrated income distribution has raised fears about the stability of the middle class, TPP will be a difficult proposal to sell. If a country wants labeling for food grown from genetically modified seeds, few would support an agreement that restricted the ability of national legislatures or courts to implement such a law – certainly not in the United States and probably not in many other nations. The secrecy surrounding the negotiations raises suspicions that the lack of transparency is due to corporate pressure rather than simply negotiation prudence.

Given these impediments, the outlook for an agreement and its approval is uncertain. While some good may be lost, it just may be that more people are worried about losing national control. Perhaps there are limits to globalization, and this may be one of those examples where popular support is too slim to achieve agreement. On the other hand, corporate lobbying after the November elections may create a narrow majority in favor. A floundering TPP faces an uncertain future as Obama tries to save his landmark foreign policy initiative – an Asian pivot.

David Dapice is associate professor of economics at Tufts University and the economist of the Vietnam Program at Harvard University's Kennedy School of Government.

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