Terms of Engagement

Trading Up

Why a massive trade deal is the key to the Asia pivot -- and to America's future.

Last week, I wrote about why the giant trade deal known as the Trans-Pacific Partnership (TPP) matters so much to President Barack Obama. Because the TPP constitutes, in effect, the "pivot" of the president's pivot to Asia, he needs to get it through Congress no matter what. He may not succeed, however, if the pact's many critics persuade the public -- and senior Democrats in particular -- that the TPP is, in fact, a bad deal for America. (Republicans typically vote for trade agreements, even those sponsored by Democratic presidents.) This week, therefore, I will explain why the critics are dead wrong.

The TPP, if passed, will phase out tariffs among the 12 signatories on over 11,000 categories of products. The United States stands to gain access to a wide range of markets for its goods and services without having to surrender nearly as much in exchange. American banks, insurance companies, and law firms will be able to operate much more freely than they now do in big markets like Japan as well as in more modest ones like Vietnam and Peru, while U.S. producers of beef, poultry, dairy, sugar, and other commodities will be able to sell their products more cheaply in these and other countries.

In return, the United States will have to reduce import duties on cars from Japan, dairy from New Zealand, and a range of  products from other signatories. But this is a small price to pay, since the United States is already a low-tariff nation. According to a forecast by the Peterson Institute for International Economics, the United States would gain an additional $124 billion per year in exports from the TTP by 2025, and $78 billion in net income.

The pact poses so modest a threat to American jobs that critics haven't even bothered to repeat Ross Perot's famous barb about "the great sucking sound" that the North American Free Trade Agreement (NAFTA), signed in 1992, was supposed to produce as employers fled across the border to Mexico. Even the AFL-CIO, the largest federation of trade unions in the United States, has focused its criticism instead on labor and environmental standards. Yet Washington has adopted very progressive standards on both of these issues. Trade agreements used to simply oblige signatories to enforce their own labor rules. But since 2007, the United States has required partners in bilateral trade agreements to accept such fundamental principles as the right to collective bargaining and the abolition of forced and child labor. Signatories must also agree to uphold the terms of environmental pacts on issues like the protection of endangered species and the preservation of fisheries. Those obligations are enforced through a binding dispute resolution mechanism.

Jennifer Haverkamp, the former head of the U.S. trade representative's environmental office and now an environmental lobbyist, told me that American negotiators are trying to incorporate those principles as well as the dispute resolution mechanism, into the TPP, and that there is "a good chance" they will succeed. You have to wonder whether, say, Vietnam would actually enforce such provisions. Perhaps not, but Vietnamese negotiators have privately said that they hope to use the trade deal as a lever to force domestic reform.

The TPP is not, however, a list of tariff schedules with labor and environmental standards attached. The chief subjects of contemporary trade pacts are economic rules and practices that constitute barriers to trade. Senior Obama administration officials have spoken of the TPP, as well of a proposed trade deal with Europe, as "platforms" for a global economy based on free markets and progressive principles. As Fareed Zakaria pointed out in a recent Time column, the TPP constitutes an alternative paradigm to China's proposed Regional Comprehensive Economic Partnership, which contains few of these proposed reforms. The TPP is the Obama administration's bid to shape an Asia more in America's image than China's -- which is precisely why it's the pivot of the Asia pivot.

The traditional objection to trade pacts -- and the default position of all too many Democrats -- is that they do more harm than good to American workers. But the public-interest critique of the TPP focuses much more on harms that the United States will allegedly be perpetrating upon citizens elsewhere (even though the political representatives of those citizens will have signed the deal). The fear it reflects is a fear of the globalization of U.S. principles. For groups like Public Citizen, one of the most vocal opponents of the pact, the TPP's hidden agenda is advancing "corporate policy goals, rights and privileges." The domestic debate over the TPP is thus very largely a debate over the merits of the American economic model.

A group of congressional Democrats has, for example, criticized provisions of the Asia trade deal that would open government procurement contracts to foreign firms, thus endangering longstanding "Buy American" rules that give preference to domestic companies. But a world in which such contracts are open to foreign firms clearly confers a huge advantage on, for example, U.S. construction and engineering firms, which could be bidding on giant infrastructure projects in emerging markets. The provision, along with another that requires state-owned enterprises to compete on an equal footing with private firms, has proved very hard for countries like Vietnam and Malaysia, where the state plays a dominant role in the economy, to accept.

Some elements of the American model may tilt the balance too far toward big companies at the expense of consumers and ordinary citizens. Among the most sharply debated features of the TPP are intellectual property (IP) provisions which, among other things, would permit companies to patent surgical procedures and new plant and animal species, to extend the life of copyright protection, and to protect drug patents in ways that could inhibit the development of generic drugs in developing countries. One congressional trade analyst says that a marked-up text he has seen shows that negotiators from the other 11 countries have "fiercely contested" almost every element of proposed American IP rules.

Among the truly pernicious aspects of modern trade pacts are "investor-state" rules, which allow companies to sue nations outside the court system of the country in which they are operating. These rules were developed to give companies redress when they were threatened with expropriation by countries with rigged judiciaries. But plaintiffs have managed to so grossly expand the definition of "expropriation" that, for example, Philip Morris is now attempting to sue Australia in front of an international panel of arbitrators over "plain-packaging" regulations on cigarettes, which damage the firms' expected revenue and profits. (Australia has, of course, a pretty good court system.) The prospect of U.S. firms running roughshod over Peru or Brunei -- much less Australia -- has unleashed a torrent of criticism from groups like Public Citizen. It has also provoked resistance from trading partners. According to Haverkamp, U.S. negotiators have agreed to build in new safeguards, though it's not yet clear if such provisions will rein in the abuse of the system.

The immensely protracted negotiations over the TPP are now nearing a conclusion. Jeffrey Schott, a senior fellow at the Peterson Institute, says that Japan's reluctance to open its agricultural markets now constitutes the major bottleneck; agreement on this issue would "open up possibilities for a range of compromise decisions on other sticking points." Obama is hoping to have at least a handshake deal by the time he travels to Asia in April.

At that point, if not before, the White House is going to have make a much more serious effort to overcome resistance among congressional Democrats than it has to date. In a speech earlier this week, Michael Froman, the U.S. trade representative, stoutly defended what he called "a values-driven trade policy," while also trying to mollify congressional Democrats who have complained that the negotiating process has been cloaked in secrecy.

Sen. Ron Wyden (D-Ore.), the new chairman of the Senate Finance Committee, which has jurisdiction over trade treaties, has said that "if we get this right," the TPP could be "a big win for us." The Obama administration has, fundamentally, gotten it right. Wyden and his colleagues will have to ignore the politics and vote for the treaty. 

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Terms of Engagement

Obama's Pacific Wager

The White House is gambling America's global standing on a trade deal with Asia. Don't bet on Congress to get it done.

This week, your columnist is rebalancing to Asia. He has been preoccupied for far too long with countries like Syria, Libya, and Egypt, whose chief product is mayhem. Meanwhile, South Korea and Malaysia and ... all those other countries make inexpensive refrigerators that work perfectly well, and no one gives them the time of day. Ignore them any longer and some of those terrific countries just might get married to China.

That might be a slightly reductive account of the "pivot" to Asia first announced by Secretary of State Hillary Clinton in October 2011 (in -- please take a bow -- Foreign Policy). But over the last several years, even as it is pulled back into the morass of the Middle East, the Obama administration has labored mightily to persuade Asian leaders that it hears their call for help on global trade, regional security, and China's increasingly domineering role. Secretary of State John Kerry is at this very moment in South Korea.

It's hard, in fact, to think of any other recent foreign-policy shift that has been quite so bluntly marketed. President Barack Obama delivered a speech on the subject a month after Clinton's article, while in early 2013 National Security Advisor Tom Donilon gave a heavily publicized address in which he re-christened the policy a "rebalance" in order to avoid hurt feelings in regions feeling pivoted away from (Europe, the Middle East). The speeches were directed less to Americans than to skeptical Asian leaders. "In the Asia-Pacific in the 21st century," as Obama said to the Australian parliament, "the United States of America is all in."

Is it, though? The region certainly seems like an afterthought to Kerry, who has devoted himself heart and soul to sorting out Middle East crises. The proof of the pudding will come with the Trans-Pacific Partnership (TPP), a giant trade pact that promises to open major Asian and South American markets to U.S. commodities as well as financial and other services (and open some American markets to those nations as well). That deal, however, is now in very serious jeopardy of being scuttled, not by Republicans who can't bear to hand the president a win, but by Democrats whose constituents don't like trade deals. If Obama doesn't get the TPP, says Gary Hufbauer, a trade expert at the Peterson Institute for International Economics, "the pivot will look like a bad joke."

The other deliverables on the rebalance are less dramatic and less endangered. The administration promised to reassure coastal nations who fear Chinese territorial claims by shifting naval and aerial assets into the region, deploying an outpost of Marines in Australia and operationalizing the new "Air-Sea Battle" doctrine, which focuses on countering the Chinese military build-up. In his Australia speech, Obama delivered a specific pledge that deep Pentagon budget cuts would not impinge on these plans. On the diplomatic front, Obama is the first president to attend the East Asian summit, a regional forum established in 2005, and has promised to attend annually. It was all too telling that he had to cancel an Asia trip during the government shutdown last fall, though he has scheduled a new trip for April. The administration has also paid much more attention to ASEAN, the principal Asian regional body.

Each of these efforts has demonstrated that the administration's commitment is not merely rhetorical, even if the rhetoric has often seemed to eclipse the substance. The TPP, though, is big. Inherited from the Bush administration as a pact with six or seven countries, it now includes Canada, Mexico, and Japan -- three of America's four biggest trading partners -- as well as Chile, Peru, Australia, New Zealand, Brunei, Vietnam, Singapore, and Malaysia. Those economies account for 40 percent of global GDP. An analysis by the Peterson Institute predicts that the United States would gain $77.5 billion in net annual income from planned reductions in tariffs and regulations.

The TPP does not look like a conventional trade pact. First, it will eliminate tariffs not just in commodities like beef and textiles, but also in services, including banking, insurance, e-commerce, and the like. Second, most of its provisions concern "non-tariff barriers" including rules on copyright and patent infringement, the enforcement of investor rights, Internet security, "Buy American" standards, and access to medicines -- as well as the labor and environmental regulations that have now become standard elements of trade deals. The TPP is not only the biggest proposed trade pact in the world, but the most ambitious. Donilon, to whom I spoke earlier this week, envisions the pact, as well as another planned for Europe, as alternative models to both protectionism and to statist autocracy. "It would have a magnetic effect," he predicts, for non-members, above all for China, which currently views the rebalance as a thinly veiled campaign to curb its power. That seems a trifle aspirational.

The immense reach of the deal, whose terms have remained largely secret, has made negotiations extremely protracted. The last round of discussions in December ended with trade officials still said to be at odds over Japanese car and agricultural markets, as well as such broad issues as foreign access to government contracts. The biggest stumbling block, however, is the United States. The other partners to the deal are parliamentary governments (except for Vietnam, a dictatorship). If the head of state approves the deal, it's done. That is not true, of course, here in the United States.

I don't have space to list all the reasons why labor, environmental groups, Internet activists, and good-government types object to the deal, but it is important to understand that the comprehensiveness of the TPP cuts both ways. All trade deals create losers, as well as people who fear that they will be losers. But a trade deal that seeks to re-write fundamental economic rules is going to magnify opposition from those real and would-be losers, as well as support from beneficiaries. Such a pact, negotiated in secret as trade agreements usually are, will arouse profound suspicion. (See Massachusetts Democrat Sen. Elizabeth Warren's letter on the subject.) In his State of the Union speech in January, Obama asked for what is known as "fast-track authority," through which Congress agrees to limit debate and vote up or down, with no amendments. It's not surprising that legislative leaders have been under pressure to refuse.

That's where we are now. Senate Majority Leader Harry Reid (D-Nev.) has said that he will not bring up such a measure. Rep. Nancy Pelosi (D-Calif.), the House minority leader, says that she will support only a version of fast-track that contains provisions on labor and environmental rules (which Republicans are certain to oppose). In a meeting last week with Reid, Obama reportedly did not even raise the issue, presumably because he knew that it would be a waste of time. According to Hufbauer of the Peterson Institute, none of the other parties to the treaty will make painful concessions unless and until Congress votes for fast-track. So where we are right now is nowhere.

The pivot to Asia represents Obama's affirmative vision for foreign policy -- an "opportunity," as Donilon puts it, rather than "managing a threat." The TPP is the crown jewel of the policy, the Big Thing that Changes the World. Both to establish his own legacy and to position the United States for a post-9/11 world, Obama needs the trade deal. Why, then, has he come up shy? He may have decided to put off the issue until after the midterm elections, when Pelosi and Reid can afford to take an unpopular stand. If so, he will have to demonstrate gifts of persuasion, or ruthlessness, he hasn't often showed in the past.

In my conversation with Donilon, he kept repeating the idea that the trade pact is a "critical strategic leadership initiative" for the United States. I finally realized that this was his message, and, presumably, the president's, to Reid and Pelosi. The world, and not just Asia, has begun to lose faith in Obama's leadership, and in America's. The TPP, if it passes, will be an unarguable demonstration of American leadership, and its indispensable role in the world. If it fails, it will confirm their worst fears. The White House will be asking congressional leaders to put aside their political calculus and, perhaps, their own views in the name of America's global standing. That's a big ask, even after the election. I wouldn't want to handicap the outcome.

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