The Trans-Pacific Partnership and Its Critics

by Erik Lindell

After an intense legislative battle, the U.S. Congress finally granted “fast track” trade authority to President Obama in June. The latter authority, which the White House lobbied vigorously for, will now require Congress to take an “up-or-down” vote on the Trans-Pacific Partnership (TPP) trade agreement the Obama Administration is currently negotiating. In short, Congress has relinquished its power to amend or change the forthcoming agreement and instead will simply vote on whether to accept or reject the trade pact in its entirety.

The TPP involves eleven other countries that accounted for 44 percent of American goods exported in 2013. The U.S. already has free trade agreements (FTAs) with several of the countries involved, including Australia, Canada, and Mexico, but not with other participants, such as Japan.

Domestic opposition to the TPP has been robust, both before the fast track vote and after it. Most of the opposition stems primarily from Progressives, House Democrats, and unions. However, two recent events have weakened the Republican consensus in support of the TPP. One is the currency devaluation in August by the Chinese government, which will provide China with an advantage in international markets by lowering the cost of its exports. Although China is not a party to the TPP negotiations, its actions have galvanized some conservative critics of the TPP who had pressured the Obama Administration, unsuccessfully, to include restrictions on such currency practices in the trade pact.

More importantly, the surprising surge of Donald Trump to the top of the Republican presidential pack may further roil conservative backing for the TPP.  For unlike former Governor Jeb Bush, Senator Marco Rubio, and most of the other candidates, Trump has expressed wide-ranging criticism of the proposed trade agreement. Whether the Trump candidacy will generate opposition to the TPP among some House Republicans remains to be seen.

However, it is the Democrats and trade unions that continue to provide the most concerted opposition to the TPP. Their strategy is to hammer the TPP with the “NAFTA” appellation. “NAFTA style globalization” and “NAFTA on steroids” represent the most common charge against the TPP, as if it was self-evident that the NAFTA trade pact between the U.S., Mexico, and Canada (1994) was a dismal failure that has undermined the American economy.

If you listen to the TPP critics, American FTAs—such as NAFTA—represent a primary cause of U.S. trade problems. Yet Germany and Japan do not participate in a FTA with the U.S. but collectively ran a merchandise trade surplus of $140 billion with the U.S. in 2014. In addition the U.S. deficit with Germany has more than doubled since 2010 and Germany maintains the highest current account balance (trade surplus) to gross domestic product (over 7 percent) of any major economy.

NAFTA is critically important for the U.S. as almost a third of all U.S. manufactured exports head to the Canadian and Mexican markets. The Eurozone, China, the United Kingdom, and Japanese markets combined did not match this figure in 2012. Furthermore, the U.S. merchandise trade deficit with NAFTA last year was not even close to the Germany-Japan deficit, despite the fact that the U.S. imported $120 billion in oil and gas from Mexico and Canada.

The lobby Public Citizen, in turn, holds NAFTA and “related” agreements accountable for the loss of five million manufacturing jobs. Yet manufacturing employment in the U.S. began its decline in 1979, fifteen years before NAFTA, and has continued its gradual descent ever since. Automation and computer processing, which have enhanced productivity in the manufacturing sector, have drastically reduced the number of manufacturing jobs as is recognized by even the most caustic critics of the TPP such as economist Robert Reich.

Rarely do the opponents of FTAs and the TPP acknowledge that manufacturing jobs have declined everywhere, not just in the U.S. Germany, the United Kingdom, and even China have experienced shrinking manufacturing employment over the past twenty years. The expansion of the service sector has further reduced the size of the manufacturing sector as consumer dollars increasingly flow into cell phone and Internet service, health care, and education.

Another line of attack is to suggest that the TPP is “not really about trade” as most of the rules under negotiation have to do with “behind-the-border” issues such as intellectual property (IP), investor dispute settlement procedures, rules of origin, and government procurement. But these non-tariff barriers to trade and investment are the new problematical areas in the 21stcentury as tariff barriers have receded in importance. Their resolution is critical to keeping the engine of international commerce moving along.

Approximately 40 million American jobs are tied to intellectual property intensive-industries alone. For the U.S. to sit on the sidelines while other governments set up the IP rules would be foolish. Also, the TPP will attempt to ensure fair competition between privately owned American firms and large Asian, state-owned enterprises.

Senator Elizabeth Warren has attacked the “investor–state dispute settlement” (ISDS) provisions of the TPP as they will allow foreign investors to challenge the laws and regulations of TPP member states, with arbitration carried out by an international panel of jurists rather than by national court systems. Warren inexplicably refers to these as “rigged, pseudo-courts.”

The toxic consequences, according to Warren, include the weakening of American sovereignty as foreign firms contest American financial, environmental, and labor regulations.

However, these criticisms are wildly embellished. The U.S. has never lost an ISDS arbitration as yet and the United States Trade Representative’s office is insisting upon rigorous TPP standards to avoid frivolous lawsuits. Moreover, national courts are not always the most neutral venue to resolve investment disputes as the government of the country itself may be charged with breaching its trade obligations.

In addition, despite what some critics have suggested, under all U.S. ISDS agreements an ISDS panel can only order compensation for damaged investments; it cannot overturn domestic laws and regulations. The same would apply for the TPP.

United States participation in the TPP is critical to protect American business interests in the exploding Asian markets. It will cut the costs and risks of doing business, enhance the efficiency of global supply chains, and level the playing field for all participants. It will also incorporate World Trade Organization standards into the agreement as well as establish a “best practices” trade template that will pressure outsiders (China) to adhere to down the road.

As preferential trade pacts are proliferating across Asia and much of the globe, the U.S. needs to finalize the TPP as soon as possible. Yet the most recent group meeting of the TPP participants in late July failed to do so as disagreement continued over auto and agricultural trade issues. President Obama now finds himself chasing the clock as he struggles to complete the TPP before he leaves office in 2017 and before election year politics threaten to further unravel support for the agreement.

About the Author

Erik Lindell has a Ph.D. in Political Science (International Relations) from the State University of New York at Albany and has taught at several colleges and universities in New York State. He has published articles, reviews, and op-eds in a number of journals and newspapers, most recently in E-International, International Affairs Forum, and Global Politics. His areas of expertise include International political economy and American foreign policy.

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