The Trans-Pacific Partnership Takes Center Stage

The long process featured hyperbole, demagoguery, fallacy, posturing, horse trading, unexpected tactics, strange political alliances, and several reversals of momentum.  But congressional passage of the Trade Promotion Authority bill was only the warm-up act.  The Trans-Pacific Partnership (TPP) is the headliner, and the process of concluding, ratifying, and implementing it promises more drama.

The TPP is a prospective trade agreement between the United States and 11 other nations, which has been under negotiation for 6 years. The Obama administration made the TPP the economic centerpiece of its “pivot to Asia,” encouraged the participation of other countries, and expanded the scope of the negotiations.  Beyond reducing tariffs and other border barriers, the TPP will include rules governing labor and environmental standards, government procurement, intellectual property protection, investment, supply chains, state-owned enterprises, and much more. The scope of the deal is so broad that the final agreement will likely include 29 separate chapters.

For the better part of a year, the word from TPP negotiators has been that a deal was close and that the main obstacle to its completion was the absence of TPA.  Logically, U.S. trade negotiating partners would be unwilling to put their best offers on the table unless the president could guarantee them that the deal was final and would not be picked apart and amended by Congress.  With TPA now secure, that impediment is gone – and the credibility of those “TPP-near-completion” claims is about to be tested. Just last week, Australia’s Trade Minister Andrew Robb said the TPP was “literally one week of negotiation away from completing.” In about 8 days, that will be proven too rosy a promise.

For starters, a 29-chapter trade agreement negotiated between 12 countries over several years, where final offers have yet to be presented, is a venue ripe for discord.  The “end game” of trade negotiations often reveals distance between parties where none had been assumed. It features unexpected demands – Hail Marys and otherwise – that can reverse progress and unravel other commitments. And it is typically the case with trade agreements that the most difficult issues are left until the end.  So there’s that.

Now consider that over the course of the past 6 years, negotiators identified numerous sticking points between parties that struck trade policy observers as difficult to resolve.  In many of those cases, it’s not apparent that resolution has been achieved. 

For example, will the TPP include a “tobacco carve-out” and, if so, what will it entail? A few years ago the United States floated the idea of entirely excluding tobacco products from the agreement.  Then the Obama administration backed away from that position at the urging of tobacco state policymakers – including the Senate Majority Leader – as well as those who argued that excluding products was a slippery slope that would lead to certain junk food exemptions, then alcohol exemptions, and so on. 

So, the administration retreated and proposed that the agreement include language specifying that governments are free to regulate tobacco, as they see fit, for the purpose of protecting public health and safety.  While that effort was dismissed as toothless by anti-tobacco crusaders, it was criticized by trade lawyers because, well, governments’ authorities to regulate for the purpose of protecting public health and safety is already sacrosanct under global trading rules and is clearly articulated in Article XX of the General Agreement on Tariffs and Trade. Including specific language in TPP to affirm that governments can regulate tobacco would call into question the force of GATT Article XX, which already grants that authority.  Meanwhile, at about this point, Malaysia announced its support for the original U.S. proposal, which was the total exemption of tobacco from the TPP.

It is unclear whether and how this issue has been resolved among TPP negotiators.  The most recent position associated with U.S. negotiators – although not the official position, reportedly – is that tobacco-related claims should be excluded from access to the Investor-State Dispute Settlement (ISDS) process.

But will ISDS even be a part of the final deal? At the outset of negotiations, Australia was dead set against including an ISDS provision in the agreement.  The current government seems to have reversed course, but there is a great deal of antipathy toward ISDS in the parliament and among the public in Australia, where Phillip Morris is suing the government under the ISDS provisions of a Hong Kong-Australia bilateral investment treaty for depriving it of the benefits of its intellectual property (use of its logos, etc.) by way of Australia’s plain (cigarette) packaging law.

What about imports of clothing from Vietnam?  Will garments made from textiles produced in non-TPP member countries be accorded the preferential duty rates of the agreement?  Vietnam is a large apparel producer that relies heavily on Chinese fabric.  Restricting duty preferences to clothing made from TPP-originating textiles would increase the cost of inputs and the cost of paperwork and compliance for Vietnamese clothing producers, which could render the “preferential access” too expensive to even bother obtaining.  As is the case with textile provisions in many U.S. trade agreements, the cost of complying with the onerous rules of qualification often doesn’t justify the effort, so the full duty is paid and the “on-paper” benefits of the agreement go unrealized.  Resolution is complicated further by the fact that Mexico – another TPP party – is a large apparel producer and exporter to the United States that sees Vietnam as a major competitor and threat.

How will Malaysia’s government procurement project set-asides for its ethnic Malay population affect the effort to open bidding on government projects to firms in all TPP countries?  And for that matter, how will U.S. negotiators agree to open U.S. government procurement projects to firms in TPP countries without broaching the “Buy American” provisions identified as red lines by many members of Congress?

Numerous other issues seem to remain unresolved.

Will the agreement provide for a single set of tariffs and rules of origin for all countries, or will it amount to a less liberalizing series of bilateral agreements?

Will the United States insist on, and other countries submit to, the U.S. process of certification, which conditions entry-into-force of the agreement on the U.S. president’s certification that the trade partner’s laws are in compliance with the terms of the agreement?

Will Japan, Canada, and the United States open their various agricultural markets to the satisfaction of one another and other agricultural product exporters, such as Australia, New Zealand, and Mexico?

Will improved dairy, beef, and sugar export market access be enough to compel New Zealand and Australia to accommodate U.S. pharmaceutical access and intellectual property protection demands? And will those U.S. intellectual property demands accommodate terms of compliance that aren’t too onerous for developing countries and that don’t impede access to medicines?

It’s good that U.S. negotiators can return to the table with Trade Promotion Authority in hand because now the TPP “end game” can begin.  But there is a lot of heavy lifting ahead.  The issues above and many others will have to be resolved before TPP can conclude.  And once it does conclude, the real scrutiny of its provisions will begin. 

Most provisions will be trade liberalizing.  Some will be protectionist.  Where the congressional battle lines are drawn on the implementing legislation of TPP remains to be seen.  But the whole process is likely to unfold in the midst of primary election season, ensuring TPP (and trade policy, in general) is a boisterous 2016 campaign issue.