Trade Pact Is about More than Lower Tariffs

On Monday, after an intense few days of negotiations, government officials from the United States and 11 other countries from the Pacific region announced the conclusion of the Trans-Pacific Partnership (TPP), a trade deal involving countries making up almost 40 percent of the world’s gross domestic product. Specific details of the agreement are still lacking at this point (it may be a month before the full text is released), but by any measure, this deal will be one of the largest in history. However, the work is not done yet.

The next step will be an intense political debate here in the U.S. as well as the other TPP countries. In preparation, it is useful to understand what’s in the TPP to sort out the wide-ranging impact it will have. Trade agreements are not just about lower tariffs — they are broad exercises in global governance.

The core feature of trade liberalization is still present, of course. In this regard, the key questions for evaluating the deal are, how much liberalization will occur through the TPP, and how quickly? On various sensitive products, the early reports are underwhelming. We have heard that U.S. tariffs on cars and trucks will be reduced slowly (30 years for trucks); and U.S. restrictions on sugar will fall only slightly. Japan will liberalize agricultural markets only a little, and Canada will do the same on dairy imports. For those who favor trade liberalization, the specific details of “market access” provided for these and other products will matter a lot when assessing the merits of the deal.

The upcoming public debate on the TPP is sure to be contentious. With any luck, it will also be enlightening.

Also important is liberalization of trade in services, a rapidly expanding part of the global economy. The provision of many services has moved online, and international trade is now possible in areas not previously envisioned, such as education and medicine. Ideally, the TPP will liberalize trade in these and other service sectors.

Beyond these traditional trade issues, there is an expanding governance aspect of today’s trade agreements. The Obama administration has touted the TPP as “the most progressive” trade agreement in history. It will apparently push labor protections further than ever before, and also include new environmental protections. Another element that is designed to appeal to liberals is a “carve out” of certain tobacco regulations from rules that apply to foreign investment. For anti-tobacco groups, convincing the Obama administration to take this unprecedented step was a big victory.

These governance items may be short-term victories for groups on the left, but they could cause problems for congressional consideration of the TPP. Republicans in Congress are generally wary of excessive labor and environmental regulation, and members of Congress from tobacco producing states (including Senate majority leader Mitch McConnell) are strongly opposed to singling out tobacco for unfavorable treatment. It remains to be seen whether the Obama administration’s attempts to appeal to progressives will hurt the agreement’s chances to gain support from conservatives.

At the same time, the Obama administration has pushed for extensive intellectual property protection as part of the TPP. This appeals to business groups, but is extremely aggravating to many on the left. In the end, the compromise that was achieved has left some leading Republicans in Congress upset.

Trying to keep all of the different interest groups happy, by constructing a balanced package that gives everyone something they want, is a difficult endeavor. Everything you give to one group has the potential to irritate another group. The growing complexity of trade agreements has made the trade debate, and generating support for trade agreements, much more complex and difficult.

Inevitably, the TPP’s prospects for congressional passage will now be caught up with presidential politics. “Populist” candidates such as Bernie Sanders and Donald Trump will weigh in with criticisms. And as much as she might want to avoid it, Hillary Clinton will have to take a position as well. All of this may make congressional consideration difficult. It is hard to see a window of time in which Congress can sign off on the deal in this political climate.

The upcoming public debate on the TPP is sure to be contentious. With any luck, it will also be enlightening. There have been trade deals signed in recent years, but they have often been small, involving just one country or countries making up a very limited part of the world economy. The TPP is not radically different from these recent agreements, but its scope will draw out critics to a greater degree than previously seen. This provides an opportunity to have a good debate on just what trade agreements should be doing.

Clearly, there should be liberalization in there, or else the whole exercise is pointless. But have we liberalized enough in the TPP? As noted, the extent of liberalization for some sensitive products is unclear at this point, and some traditional trade liberalization issues, such as farm subsidies, have been left out of the agreement entirely.

And on the governance issues, this is a chance to think deeply about the role of international law in shaping domestic policy-making, and whether trade agreements have expanded too much into this area.

It is too early to make predictions about the TPP’s prospects in Congress, and no doubt this process will be a learning experience for everyone involved. Next up after the TPP is a similar agreement being worked out with the Europeans, the Transatlantic Trade and Investment Partnership (TTIP). The TPP and TTIP are jointly referred to as the new “mega-regional” trade agreements. If they do come into force, they will reshape the trading system in ways that will last for decades. For that reason, once the TPP texts are released, members of Congress need to scrutinize them carefully and understand their full impact.

Simon Lester is a trade policy analyst with the Cato Institute.