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TPP: Not Across The Finish Line Yet
 
Irwin M Stelzer
October 10, 2015
      Strange as it may seem, Barack Obama has much in common with the storied matchmaker of Jewish legend. This Polish entrepreneur announced to the poverty-stricken Rabbi of a poverty-stricken Polish town that she had found a match for his even more poverty stricken, unattractive son - no less than the Queen of England. The Rabbi refused to consent to the match on the grounds that the Queen was not Jewish. But the matchmaker persisted, and over time wore the Rabbi down with tales of the advantages of such a match to his flock. "Phew", announced the relieved matchmaker, "That's half the job."

       After years of negotiations, Barack Obama persuaded eleven other Pacific Rim Countries, including Mexico, Canada and Australia, to sign on to trade- and investment-opening Trans-Pacific Partnership (TPP). That's half the job. Now he has to persuade enough congressional members of his own party to join a majority of Republicans in ratifying the deal. That won't be easy, thanks to Hillary Clinton's recent proof of a statement attributed to Harry Truman, "If you want a friend in Washington, get a dog."

       After defeating her for their Democratic Party's 2008 presidential nomination, Barack Obama spared Hillary Clinton years of wandering in the political wilderness by naming her his Secretary of State. In return, Mrs. Clinton last week announced her opposition to the President's painfully negotiated, legacy-building Trans-Pacific Partnership agreement (TPP), which she had once dubbed "the gold standard" of trade agreements. That was then, this is now. Fortunately, an otherwise friendless President has two dogs, neither of which is seeking his party's presidential nomination.

     Clinton's opposition puts what is almost certainly the final nail in a coffin already almost nailed completely shut. Even before she made her latest move to win support of the left wing of her party, persuading enough Democrats to join the majority of Republicans in voting to approve the trade agreement seemed a difficult task for a lame-duck President whose ill-concealed disdain for his party's congressional delegation deprives him of the reservoir of good will on which some of his predecessors could draw. Some congressional Democrats believe that past deals have benefitted large corporations and rich investment bankers at the expense of unskilled workers, middle-income families and the environment. Others hew to the line laid down by their trade union funders. Still others are suspicious of globalization and of markets, and therefore of measures that give open markets greater sway over how the world's resources are allocated. That group includes Bernie Sanders, the socialist running as a Democrat in that party's primaries; trade unions; senators from states home to industries counting themselves among the losers or eager to remain aboard Massachusetts senator Elizabeth Warren's bandwagon as it pulls the party ever-further left.

       All of this despite some potential economic advantages TPP holds for America. As a country that already imposes few and mostly low tariffs, the US (and, I should add, Australia) should benefit from the twelve-nation Pacific-Rim deal that phases out some 18,000 tariffs and trade restrictions. Like all trade deals, TPP creates losers as well as winners.
  • Winners: Farmers who raise cows for milking or eating, or chickens, or who grow soybeans now subject to a 35% tariff, will benefit from phased reductions in tariffs levied on their products in key markets. And sugar growers whose powerful lobby limited the increase in import quotas to an insignificant amount count themselves among the winners, or at least not the losers.
  • Losers: Big Pharma producers of certain medicines. They lost their battle to extend the 12-year period of protection from the competition of generics, accorded them by Obamacare, to other countries, where that protection of their intellectual protection will initially be limited to five years and a bit longer if they cut prices. Some studies suggest that the shorter protection period will make it impossible for the pharmaceutical companies to recoup the cost of research and development, to the ultimate pain of patients here.
  • Winners: Environmentalists who regard this as the greenest of any trade pact ever entered into by the U.S.
  • Losers: Philip Morris and other tobacco industry companies will no longer be allowed to sue governments imposing restrictions on smoking, as Philip Morris is doing in Australia.
  • Unclear: US auto manufacturers secured an additional 25 years of protection against Japanese imports, but Ford nevertheless opposes approval of the treaty because it lacks a clause barring Japan from manipulating its currency, although one surprise addition to the pact is a pledge of greater macroeconomic cooperation, "including on exchange rate issues."
        We won't be able to guess at the net impact on America's rising trade deficit, on the overall American economy, our corporations, workers, consumers and the environment until we see the details of the pact's 30 chapters, which the administration is holding close to its vest, and hear from all of the affected parties. Trading partners often give ground on tariff protection only to substitute even more effective protectionist barriers such as safety inspections and health codes that keep our goods out of their markets. Nor can we be certain that all provisions will be enforced, and if so how. The TPP sets up arbitration panels to settle disputes, which involves a transfer of sovereignty to these international panels from our own courts. That certainly won't trouble our President, but should be counted as a worrisome feature since international panels are generally not optimal fora for the U.S. And TPP contains enforcement provisions of uncertain effectiveness. Which is why Glenn Prickett, an official of the Nature Conservancy, one of the green groups delighted with the treaty's environmental provisions, cautions that much will depend on the effectiveness of monitoring and enforcement of the provisions protecting wildlife and endangered species.

       One thing is certain: Obama is a winner, and China is a loser in what is a regional zero-sum game. Some observers see TPP as less of a tariff-cutting, freer trade deal, than a rule-making arrangement. The Obama pivot to Asia that so far has only succeeded in posting 2,000 U.S. marines to Australia, a bit closer to the islands China is building in the South China sea - not intended to be potential competitors to Macao or Club Med - now includes a hard-won pact that makes America an economic presence on the Pacific Rim, binds its eleven allies to it with hoops of cash and investment, and puts America in a position to set the rules of the economic road in an area accounting for some 40% of the world's output of goods and services (GDP), the great bulk of that accounted for by the U.S. to be sure, and about one-third of world trade.

      That is not to say that this trade deal is an offset to China's increasing belligerence in Asia, or enables us to take a more relaxed attitude towards the communist regime's new missiles that can sink our aircraft carriers. No trade deal could do that. But it does strengthen our hand in the region, give our allies there something other than still another abandonment of friends to see, and indicate that there is more to soft power than the production of academic papers at Harvard. Perhaps even more important, TPP serves as a template for an agreement covering the entire Asia-Pacific region, which accounts for over 60% of world GDP and 50% of international trade. With China on the outside looking in.

     TPP will come before congress for an up-or- down vote - no amendments allowed - next year. That gives Obama time to rally support. Bill Clinton did just that to get NAFTA passed. But he didn't have to cope with his wife's opposition. 


 


 

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