Friday, September 23, 2016

TPP to tarnish US relations - Large passages lifted verbatim, sometimes en masse, from past US free trade agreements

TPP to tarnish US relations - Large passages lifted verbatim, sometimes en masse, from past US free trade agreements

TPP advocates harbour the hope that ratification could pass during the lame duck session scheduled for between the 8 November presidential election and the 16 December adjournment, but that now faces extremely high obstacles. Senate Majority Leader Mitch McConnell, House Speaker Paul Ryan and others say they will not schedule a vote then. They insist that several provisions of the TPP be, in effect, renegotiated. But many of the chapters already reflect US interests, or at least the priorities of US interest groups with the greatest leverage in Washington.

With the United States having gained more on its priorities than it gave to others on theirs, imagine the resentment among other TPP countries when Capitol Hill insists that they reopen negotiations to give even more, just to satisfy US pharmaceutical and tobacco firms.

Scholars Todd Allee and Andrew Lugg documented that about half the passages in past US FTAs show up in the TPP — more than those of any other country. US dominance is even stronger in the chapters where US policymakers had the greatest interest, such as investment. Nearly half the passages in the 16,000-word investment chapter were lifted in big chunks directly from past US FTAs.

And yet, the United States did not open its market very much in return for the myriad concessions it wrested from others. According to the United States International Trade Commission (USITC), TPP will result in US imports from the world in 2032 being a mere 1 per cent above what they would be without TPP. The increase in imports deriving from TPP will amount to less than 0.2 per cent of GDP.

Part of the reason for these dismal results is that much of the growth in imports from TPP countries will come at the expense of others not in the TPP. It may be nice for Vietnam that it can sell more footwear and apparel to the United States, but if this comes at the expense of Bangladesh’s exports, what is the benefit to the United States? Or to global growth?

Not only does TPP fail to lift US imports very much, it doesn’t do much for US exports either. According to the USITC, by 2032, TPP will boost US exports to the other TPP partners by a piddling 0.2 per cent of GDP.

The most basic reason that TPP won’t increase US trade very much is that, in most of the sizeable TPP countries, tariffs outside of agriculture are already so low that a pact focused on bringing them to zero would not make much of a difference.

But this is only part of the problem. The Obama administration was unwilling or unable to expand imports in areas where it could have done so. This is not because US trade officials don’t really believe in free trade. It’s because they had to fashion an agreement that could get through Congress. Take the case of government procurement.

In 2009 (latest available), only $326 billion in federal and state procurement was open to imports. That was just 20 per cent of total US procurement that year. In 2014, only 4.6 per cent of the United States’ total spending on government procurement (federal, state and local) was spent on imports, compared to 4.7 per cent in Japan, 6.1 per cent in China and 7.5 per cent in the European Union. By contrast, total imports of goods and services by the United States in 2014 amounted to 13 per cent. If imports had the same market share in procurement as in the economy as a whole, US imports would increase by 1 per cent of US GDP — five times as much as the entire TPP would increase it by.

Opening up US procurement further, especially to the states and localities, would have been a virtual invitation to Congress to reject the TPP. The Obama administration learned that lesson in 2009 when, against its will, Congress insisted on putting all sorts of ‘Buy American’ provisions in President Obama’s huge stimulus package.

Rather than face a political firestorm, the Office of the United States Trade Representative (USTR) in 2014 pledged that the TPP would make no changes to US procurement laws at the federal, state or local level or undermine existing requirements. The United States rejected requests from others that it pledge to refrain from any further ‘Buy American’ provisions and it rejected requests to cover state and local governments.

In the TPP talks, according to Jean Heilman Grier — a former senior procurement negotiator with the USTR in both World Trade Organization and TPP talks — Japan and Canada (as they did in GPA), along with Australia, Chile and Peru (as in past FTAs) agreed to liberalise procurement by its prefectures and localities, but only for countries that reciprocated. The United States, along with Malaysia, Mexico, New Zealand and Vietnam, rebuffed the offer of reciprocity.

So much for Washington’s talk of a ‘gold standard’ pact.

One of the greatest sources of US influence has been the widespread perception that it was a ‘benign hegemon’, especially compared to prewar European colonial powers, the Soviet Union or China. Today, US hegemony is seen as less benign, at least on international economic issues.

Richard Katz is editor of the Oriental Economist Report.

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