Is the TPP a Waste of Time and Energy?

I hate to say “I told you so” but, well, “I told you so.”

Back in March 2010, I warned that the Trans-Pacific Partnership (TPP) agreement, a preferential trade agreement between the United States and then seven– and now 11, with the subsequent addition of Canada, Malaysia, Mexico and almost-officially Japan– other Asia-Pacific economies would be a hard slog, and that the signs towards a significant degree of liberalization were not promising. I followed that up with news about what then-United States Trade Representative Ron Kirk told a closed-door meeting with dairy lobbyists, and what it said more broadly about the administration’s commitment to free trade.

Today comes news from the latest round of TPP negotiations in Lima, Peru that industry groups have raised concerns about the way that the United States and Peru are approaching the negotiations: i.e, by negotiating with individual countries bilaterally rather than offering the same market access to all of the TPP members at once, a concept trade wonks call a “plurilateralism.” In addition, the United States is not re-negotiating market access with any of the TPP countries with which it already has an agreement (that’s six of the eleven other members).

Pluralizing the deal would be more fitting for an agreement that the Obama administration touted as being a “21st Century” agreement to reflect new world trade realities, like global supply chains. It would lessen the potential for an unholy mess that businesses find unworkable. A Wal-Mart representative said at the meeting “it’s a little hard to see how you have this very comprehensive agreement if we have bilateral market access negotiations that everybody doesn’t necessarily understand, and how you essentially plurilateralize those with common sets of rules of origin.” (Rules-of Origin are the methods by which customs officials determine the origin of a product, and thus which tariff rate should apply. They can get really messy when supply chains are complex).

So what did the U.S. and Peruvian chief negotiators say when they were called out on the self-defeating bilateral approach? They gave answers which do not pass the laugh test (the following quotes come from the same article linked to above, all emphases my added):

In response to [a] question, Weisel and Peruvian chief negotiator Edgar Vasquez both defended the bilateral approach to negotiating goods market access. Weisel argued that it makes more sense to import zero tariff rates that the U.S. already has with various TPP countries into the new agreement, rather than conducting a new market access negotiation with those countries.

Sure. It absolutely makes sense to keep already-zero tariff rates at zero. But that’s not why the United States is wanting to lock in the terms of the previously negotiated FTAs. After all, it would be relatively easy to just specify zero tariff rates again. The United States is taking a bilateral approach for one reason, and one reason only: they don’t want to risk re-opening negotiations on the decidedly non-zero tariff rates and long phase-in periods for “sensitive products,” i.e. those (like sugar, dairy, autos and clothing) that the United States keeps protected even under the terms of the trade agreements already signed.

In addition, Weisel pointed out that even if all countries took the plurilateral approach and agreed to apply the same tariff level to all other participants, they would still be faced with the conundrum of differing tariff levels because the agreement is not likely to enter into force for all TPP countries at the same time.

Why not? Because, again, the United States doesn’t actually want to open its market to goods from countries which are especially competitive in products the U.S. government wants to keep protected. At least, not for a while. Again, not exactly in keeping with a comprehensive, 21st century agreement for the new trading system.

For his part, Vasquez argued against the plurilateral approach on the grounds that it leads to tariff concessions of the lowest common denominator. For instance, it means the U.S. would extend the same long tariff phaseout on dairy to Malaysia than it does to New Zealand, even though the U.S. is not sensitive to dairy imports from Malaysia. This leads to a less ambitious outcome than the bilateral approach, Vasquez argued.

This is true as far as it goes. What Mr Vasquez is saying is that if the United States was not able to keep out products from the competitive countries alone, then they would want to “plurilateralize” (in a perverse sense) the deal by keeping out those products from all TPP countries. But how much less ambitious is that than this bilateral mess, really? What’s the point in trying to keep out, say, dairy from Brunei, or some other equally unlikely product/origin combination? The difference in terms of the trade effect would be almost zero. Why can’t we aim for a highest common denominator, where the U.S. offers the maximum level of market access (preferably total) to all countries?

The point of trade liberalization is to increase imports precisely from those countries which are the most competitive, and therefore deliver goods and services most cheaply (and/or at a higher quality or variety) than what we can produce ourselves. If the aim of negotiators is to carve out trade that would bring the most economic benefit, then they may as well save themselves a lot of time, hassle and jet-lag– not to mention saving taxpayers’ money–by staying home.