Ian Fletcher: The Trans-Pacific Partnership Is a Disaster

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So a deal between the signatory nations has finally been reached for the Trans-Pacific Partnership. (Personally, I've been fighting this for a long time.)

[Reposted from the Huffington Post  |  Ian Fletcher  |  October 5, 2015]

This is firmly on Obama's plate. Given his status as a liberal president, the public's ever-growing disapproval of free-trade agreements, and the fact that he criticized such agreements when George W. Bush made them, he really should have known better. This is not what people voted for him to get.

As I noted four years ago, when this thing was just beginning, the omens were not good. After the failed promises of NAFTA, a job-destroying trade deficit that has grown despite a long series of free-trade agreements, and ever-more-aggressive foreign mercantilism, it was obvious that America needed a new trade strategy.

This agreement includes Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam to start. Eventually, its advocates hope, it will include every nation on the Pacific rim, including Indonesia, the Philippines, Japan, Mexico, Russia, and China.

Yes, you read that right. China. America is on track for a free-trade agreement with its most voracious mercantilist trade rival.

As I've explained before, international trade isn't just harmony, it's largely rivalry, and mercantilism is how the winners play to win. But we naively refuse to play that game. Instead, we have faith in "free" trade, we think free-trade agreements will save us, and we lose.

And if the purely trade aspects weren't bad enough, the TPP is also a profoundly anti-democratic agreement which signs away our right to govern our own economy. Despite being nominally a "trade" agreement, it contains provisions which interfere with areas well beyond the bounds of trade. To wit, it would (credit to Lori Wallach):

• Limit how U.S. federal and state officials could regulate foreign firms operating within U.S. boundaries, with requirements to provide them greater rights than domestic firms.

• Extend the incentives for U.S. firms to offshore investment and jobs to lower-wage countries.

• Establish a two-track legal system that gives foreign firms new rights to skirt U.S. courts and laws, directly sue the U.S. government before foreign tribunals and

• Demand compensation for financial, health, environmental, land use and other laws they claim undermine their TPP privileges.

• Allow foreign firms to demand compensation for the costs of complying with U.S. financial or environmental regulations that apply equally to domestic and foreign firms.

Taken to its logical conclusion, this all ultimately amounts to the idea that the profitability of investments must be the supreme priority of state policy--overriding health, safety, human rights, labor law, fiscal policy, macroeconomic stability, industrial policy, national security, cultural autonomy, the environment, and everything else.

While there is no justification for going to the opposite extreme and allowing governments to ride roughshod over legitimate property rights, these agreements thus rigidly mandate market-based, property-first solutions to questions where societies must strike a reasonable balance between public and private interests.

So what's the alternative? That is, what would a "reasonable" trade agreement, the kind Obama promised us as a candidate, look like? It would probably embody the following principles (credit to the Coalition for a Prosperous America):

1. Balanced Trade: Trade agreements must contribute to a national goal of achieving a manageable balance of trade over time. I.e. no more chronic $500 billion-a-year deficits.

2. National Trade, Economic and Security Strategy: Trade agreements must strive to optimize value added supply chains within the U.S.--from raw material to finished product--pursuant to a national trade and economic strategy that creates jobs, wealth and sustained growth. The agreements must also ensure national security by recapturing production necessary to rebuild America's defense industrial base.

3. Reciprocity: Trade agreements must ensure that foreign country policies and practices as well as their tariff and non-tariff barriers provide fully reciprocal access for U.S. goods and services. The agreements must provide that no new barriers or subsidies outside the scope of the agreement nullify or impair the concessions bargained

4. State Owned Commercial Enterprises: Trade agreements must encourage the transformation of state owned and state controlled commercial enterprises (SOEs) to private sector enterprises. In the interim, trade agreements must ensure that SOEs do not distort the free and fair flow of trade - throughout supply chains - and investment between the countries.

5. Currency: Trade agreements must classify prolonged currency undervaluation as a per se violation of the agreement without the need to show injury or intent.

6. Rules of origin: Trade agreements must include rules of origin to maximize benefits for U.S. based supply chains and minimize free ridership by third parties. Further, all products must be labeled or marked as to country(s) of origin as a condition of entry.

7. Enforcement: Trade agreements must provide effective and timely enforcement mechanisms, including expedited adjudication and provisional remedies. Such provisional remedies must be permitted where the country deems that a clear breach has occurred which causes or threatens injury, and should be subject to review under the agreements' established dispute settlement mechanisms.

8. Border Adjustable Taxes: Trade agreements must neutralize the subsidy and tariff impact of the border adjustment of foreign consumption taxes.

9. Perishable and Cyclical Products: Trade agreements must include special safeguard mechanisms to address import surges in perishable and seasonal agricultural product markets, including livestock markets.

10. Food and Product Safety and Quality: Trade agreements must ensure import compliance with existing U.S. food and product safety and quality standards and must not inhibit changes to or improvements in U.S. standards. The standards must be effectively enforced at U.S. ports.

11. Domestic Procurement: Trade agreements must preserve the ability of federal, state and local governments to favor domestic producers in government, or government funded, procurement.

12. Temporary vs. Permanent Agreements: Trade agreements must be sunsetted, subject to renegotiation and renewal. Renewal must not occur if the balance of benefits cannot be restored.

13. Labor: Trade agreements must include enforceable labor provisions to ensure that lax labor standards and enforcement by contracting countries do not result in hidden subsidies to the detriment of U.S.-based workers and producers.

It may be too late to stop the TPP. But with both Sanders and Trump (though not Clinton or Bush) being serious dissenters against current American trade policy, there is definitely a glimmer of hope.

Reactions

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  • commented 2015-10-08 10:09:50 -0400
    Apparently the way I use dashes as punctuation results here in a continuous line through the entire passage. No, I did not intend those passages to be crossed out.
  • commented 2015-10-08 10:07:42 -0400
    Thank you Ian Fletcher for the incisive critique of the disaster called “US Trade Policy” and for a detailed sketch of what a proper trade treaty might look like.

    I would go even further. There is a problem with the dominant assumption that America’s trade policy should be based on and defined by treaties. All this amounts to an assumption that our trade policy -and the future of our economy and even our republic- are all to be negotiated with other countries by officials appointed by and responsible to the President, rather than shaped by sovereign Acts of Congress asserting the national interest of the American citizens to which Congress should be accountable. The TPP would be just another giant step in America’s move away from being a Constitutional and sovereign republic, becoming instead a passive province in an international order governed by a global elite with no accountability or loyalty to the citizens of our country. This elite are the executives of the multinational banks and corporations who see national sovereignty -and all the “local” laws and regulations made by sovereign nations- as obstacles to the maximum profits to be gained by unimpeded globalization of their operations and sales.

    I do not mean we should not have, or do not need, any treaties on issues of trade. But any treaties should be secondary to, and always supportive of, a trade policy fundamentally based on sovereign Acts of Congress and not subject to international negotiation or international adjudication.

    Constitutional problems aside, the idea that any treaty will reverse our ongoing de-industrialization and huge trade deficits is absurd. When compensation to manufacturing labor in China is 10% of the US level, and when it is even lower in Vietnam, Malaysia and other Asian countries -and yes Mr. Fletcher is correct that President Obama has already suggested that China might join the TPP later- how much “ending currency manipulation” and how much “labor and human rights and environmental standards” would it take to level the competition American workers would still face as corporations move even more production there for sale back in the US market?

    America must return to a sovereign and nationalist trade policy asserted by Congress in the national interest and without international negotiation. Specifically, we need a Balanced Trade policy that limits our imports to the same value as our exports. Such a policy would rebuild our industries, create over 8 million new US jobs, and, because the policy would flow from an Act of Congress, it would also go a long way towards reclaiming our national sovereignty and democracy as described in the Constitution of our republic.

    The Balanced Trade policy would provide the broad outlines of our new trade paradigm: guaranteeing the end of our trade deficits and re-shoring our industries. The Balanced Trade policy would work in harmony with our other customs enforcement laws that should be strengthened and enforced so as to impose countervailing duties and other sanctions against imports dumped below production costs or priced low due to currency manipulation or any other production or trade practices deemed by Congress to be unfair.

    As for international standards: imposing international standards is beyond the Constitutional mandate or practical capability of the US government. Treaties claim to address this but are more likely to be used to lower our standards than raise Asian standards. A much better way is through more sovereign Acts of Congress, ie, strong Customs laws that impose countervailing duties or prohibitions on imports whose production does not meet our standards. Senator Warren has documented in her report Broken Promises that virtually none of the labor, environmental or human rights “standards” in our existing trade treaties have been enforced by our trade partners. But the American government surely has the power and the duty to enforce our own standards through strong Customs laws.

    In fact, a unilateral and sovereign US Customs approach to standards might actually put more pressure on our trade partners to raise their standards than treaties have done. This is because, even after we adopt a Balanced Trade policy that limits our imports to the same value as our exports, the US market would still be the third largest importer in the world (after China and the European Union). Any country or foreign operation that wants to export their goods to the USA would at least take careful notice of our Customs standards. And our own domestic industries and American workers would finally be protected from competing against impossibly low foreign standards.