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
.
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.”
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