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Monday, May 4, 2015

DEMOCRATS DIVIDED: OBAMA AND THE TRANSPACIFICPARTNERSHIP


In spite of the sensationalist news media’s on going fascination with the chaos in Baltimore and Bruce Jenner’s new bra size, there are events of genuine importance which need more coverage and more detailed examination.  One of these is the negotiation process, both external and domestic of the proposed TransPacificPartnership.  

The external process i.e. the actual negotiated terms of the agreement, are obviously important with respect to the functionality of the finished product.  The domestic negotiating process in the U.S. between the Obama Administration and the Congress is vital to the success of the treaty itself and will cast a large shadow over the 2016 federal elections including not only the presidential race but the House and Senate components.

Essentially, the TPP is multi-national trade agreement between twelve Pacific nations including the Western  Hemisphere nations, United States, Mexico Canada, Chile and Peru.  The other seven participants are Japan, Australia, Brunei, Malaysia, New Zealand, Singapore, and Vietnam.  Taiwan and South Korea are possible additions. These twelve nations currently represent 40 percent of the world economy and one third of global trade.

The broad purpose of the TPP, like all trade agreements, is to lower or eliminate barriers to trade which come in many forms, the most obvious being tariffs (taxes) on imported goods, numerical quotas (limits) on the importation of specific good, and regulatory barriers i.e. licenses, administrative blocks, and domestic laws. 

The Obama Administration which represents the largest economy in the world is thus a key player without which the agreement would, if implemented, become a far less significant multi- regional treaty. However, without U.S. participation the treaty itself would be far less attractive to the other prospective members and might well fail.

Much progress has been made among the parties but because of the importance of U.S. participation, the role of the Congress for U.S. approval must be settled for the negotiations to go forward.   The President has asks Congress for Trade Promotion Authority, informally known as “fast track authority”.  If granted by the Congress, this would allow the Obama Administration to negotiate the terms of the treaty without Congressional participation and then require a simple up or down vote in both the House and the Senate without any amendments or by either, or filibusters in the Senate.
This is vital to the success of the international negotiations since the foreign participants don’t want to see a hard fought final version subjected numerous parochial changes that would inevitably be produced by the 535 members of Congress.
 
Since the votes on granting “fast track approval” essentially reflect the subsequent votes on approval of the agreement itself, the political battle over  this approval is currently being fought as a proxy to the up or down vote on the treaty, should it come. Members of the Republican Party in Congress have generally been In favor of “free trade, although this is a widely used misnomer since all trade is managed to a large degree.  Democrats, as a group, but with important individual exceptions, have historically been mostly opposed to trade liberalization and the TPP is no exception.

Republicans see trade liberalization as a stimulus for economic growth and lower consumer prices.  This is in accord with the long standing general acceptance of the theory of comparative advantage (David Ricardo, 1817) which in its simplest formulation advocates that each nation produce those goods for export in which it has an advantage in terms of costs of production i.e. economic efficiency in terms of the imputation of value.  This can be a reflection of low cost labor, highly trained labor, natural resources, transportation and manufacturing infrastructure, advanced research and technical capabilities and many other factors.  We see this already in the concentration of labor intensive clothing manufacturing in less developed nations especially in Asia, and consumer electronics in China and Taiwan.  Industrial job loss in these sectors has been replaced in the U.S. by emphasis on commercial and military aircraft, computer chips and software, pharmaceuticals and service industries. 
 
All of this falls under the rubric of “globalization” which depending on one’s political ideology is a positive evolution towards efficiency and cost benefits for consumers, or a social scourge involving corporate power and concentrations of wealth.

U.S. Presidents of both parties have supported the pursuit of trade liberalization agreements.  President Clinton successfully passed the North American Free Trade Association (NAFTA) agreement in 1993 and President George W. Bush initiated the TPP in 2008, but the acceptance of the value of such agreements has a long history, going back to the General Agreement on Tariffs and Trade (GATT, 1948) and its successor, the World Trade Organization, (1995) which has 161 members including all of the proposed members of the TPP.

Trade agreements are very complicated and difficult to negotiate.  While the basic issues have been tariffs, quotas and regulations, the prolonged WTO negotiations have struggled with issues such as intellectual property protection i.e. patents and copyrights, government purchases, environmental protection, labor laws,  government subsidies, especially in the agricultural , and the issue of currency manipulation i.e. devaluation of a nation’s currency in order to make its products cheaper and thus more competitive in world markets while making imports more expensive. All of these issues are part of the agenda for the TPP which both enhances its importance but provide fodder for opponents who can allege worst case scenarios with respect to each.

However, in spite of what is almost universal government support for trade regulation and liberalization in the world community, strong opposition has been a fact of life.  In the U.S., opposition has historically come from the far Left and from organized labor.  In the current debate over TPP “fast track authority”,  this movement includes the recently announced presidential candidate, Senator Bernie Sanders (I-VT).  His opposition is no surprise as he is a self-described “democratic socialist” whose is mind locked on the alleged abuses of “corporate power”.  But wider opposition comes from the Congressional Progressive Caucus of seventy members of the House of Representatives, who as its name implies, include the most liberal members of the House. 

There is of course overlap in the opposition of many of the liberal members of Congress and organized labor which supports their candidacies in each election.  While organized labor has greatly diminished in the private sector, it still is a powerful tool in elections, providing millions of dollars, call centers and advertising for chosen candidates.

The major talking points in the debate are these:

Opponents of the agreement claim that the TPP, like all “free trade” agreements create job loss as industries move operations to low wage nations and then export their products back into the U.S. free of tariffs
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Environmental activists like the Sierra Club, the Natural Resources Defense Fun and Public Citizen, believe that trade agreements stimulate industrial production in nations with lax environmental standards which are thus an attraction for American industries anxious to behave irresponsibly to save money. This traditional Leftist anti-corporatist viewpoint is also used to claim that the combination of job loss and corporate growth will increase income inequality.

Then there are the usual unsubstantiated array of claims of impending harm: the importation of “unsafe” food products; increased costs of medicines resulting from patent protection; the “rollback” of Wall Street reforms; and the prohibition of “buy American” policies needed for “green jobs”.  Opponents also claim that all of these negative effects came about as a result of the 1993 NAFTA agreement with Canada and Mexico.

Supporters believe that trade liberalization opens foreign markets to U.S. production and innovation, thus creating jobs and stimulating economic expansion.  The U.S. has significant advantages with its educated work force, research and development capabilities and vast natural resource base and large modernized agricultural sector.

The Peterson Institute for International Economics has estimated that the TPP agreement alone would bring about an increase in U.S. gross domestic product of .4 percent by 2015.  This seemingly small percentage becomes a huge number when it is expressed as a percentage of the current (2015) U.S. GDP of $17.710 trillion.

Supporters also point out that low tariffs already exist as a result of NAFTA and the WTO agreements so the TPP will stimulate little job loss in remaining labor intensive industries but will provide large gains in agricultural exports, high tech products and financial services.  The Wall Street Journal reports that the impact of increased imports will be relatively small because currently over 70 percent of imports to the U.S. are already duty free and the average import tariff is less than 1.5 percent.  The result is of course cheaper prices for an enormous amount of consumer products.
Economic studies of the effects of NAFTA are essentially inconclusive with respect to job loss but the facts are that since 1994 Mexican exports to the U.S. have increased nearly 500 percent and U.S. exports to Mexico have increased nearly 400 percent, representing a benefit to both economies without significant harm.

The politics of the TPP are interesting for several reasons.  First, President Obama has taken a strong stand in support of the agreement.  He is the head of Democratic Party and the fiercest opposition is from the Democratic Left, both in interest groups and in the Congress.  Thus the Democrats in Congress find themselves in a dilemma of divided loyalties and the prospect of left wing activist groups withdrawing their support in future elections.

There is also a certain irony in the political struggle as President Obama finds that his strongest allies in support of both the “fast track procedure” and the TPP agreement itself are the Republicans in Congress. The Republican leadership in both the House and Senate and most of the rank and file in both houses support the agreement.
 
But a further irony has evolved by the fact that a group of conservatives in Congress mostly associated with the Tea Party, are opposed to the TPP and thus have split with the Republican leadership and majority and joined with the far Left of the Democratic Party.  The motivation of these Republican dissidents does not match that of the anti-TPP activists.  The issue for the conservatives is that they mistrust the President with regards to negotiating a sound trade agreement and they believe that granting him “fast track authority” gives him too much power and denies the power of Congress to participate in such an important economic initiative. 

The battle is approaching the full test as recently the two committees in the House and Senate respectively that have jurisdiction over “fast track authority” have passed legislation to grant it which now will go to the floors of both houses for consideration.  The challenge for the Republican leadership is to gain the support of as many moderate Democrats and/or Obama loyalists while at the same time keeping Republican/Tea Party opposition to a minimum.  The prospects are good but not assured as the main opposition interest groups on the Left apply fierce pressure on the Democratic law makers.

An additional aspect of the whole debate is its implications for the 2016 presidential race.  Hillary Clinton is the presumptive Democratic nominee and whether “fast track” is granted or not she will have to explain her support or opposition prior to the final vote on the agreement.  As a member of the Obama Administration for four years as Secretary of State can she try to separate herself from his foreign policy?  Also, one of the main arguments against the TPP is the alleged damage done to workers by the 1993 NAFTA trade agreement which was supported and signed into law by then President Bill Clinton.  Is it realistic that Hillary can be expected to agree with this assessment to appease the far Left of her party?

As is her habit, she has a mixed record on trade liberalization agreements depending on her job position and immediate political goals.
 
In her 2014  book  “Hard Choices”, referring to the TPP she said:
                “It would link markets throughout Asia and the Americas, lowering trade barriers while raising standards on labor, the environment and intellectual property.”
It also would be “. . .a strategic initiative that would strengthen the position of the United States in Asia”

With respect to NAFTA, she said it was “proving its worth.”

However, when running for the Democratic nomination for president in 2007-08 and apparently sensitive to the far Left’s negative opinions of trade agreements, she opposed the trade pacts with Columbia, Panama and South Korea.  But then after losing the nomination to Obama and assuming the role of Secretary of State in 2008 she changed her opinion to conform to that of President Obama and supported the pacts with Columbia and South Korea.

With challenges from the Left in the nomination battle now coming from Senator Bernie Sanders and form Maryland Governor Martin O’Malley, she will be tempted to “evolve” her position once again, at least until she secures the nomination and state her opposition to the TPP, or more likely, try to be both “for it” and “against it” by claiming it is flawed as written but could be changed to be acceptable.  This approach however would be unlikely to satisfy Richard Trumka, the President of the AFL-CIO, labor’s umbrella organization and fierce opponent who has minced no words with respect to Hillary’s inconsistency and labor’s support for her and sitting members of the Democratic Party in the upcoming 2016 election.

                “Candidates can’t hedge their bets any longer and expect workers to rush to the polls in excitement, to run and door knock and phone bank and leaflet, only to have their candidate of choice turn a back towards the policies.”


President Obama has seemingly adopted the TransPacificPartnership as another “legacy” issue for his tenure as President and he is working hard to convince the Democratic opponents in Congress that their fears are unfounded.  His position with both the Democrat Left and the Republican Right are however, complicated by the fact that for tactical reasons the current draft of the agreement which is still being negotiated, has been kept secret (with the inevitable exception of leaks), to avoid political pressure and input in all the participating nations which could delay the successful negotiation by national administrations, potentially killing the project.  Once a final agreement is reached the Congress will have the opportunity to know and debate its contents, or as House Democratic Minority Leader Nancy Pelosi recommends (i.e. ObamaCare), they could just “pass it to find out what’s in it.”