After a bruising political battle, Congress has passed Trade Promotion Authority legislation, which sets out a framework for President Obama to negotiate trade agreements and have Congress vote yes or no on them, without any amendments. First up in the queue will almost certainly be the Trans Pacific Partnership (TPP), a 12 nation trade pact that has been under negotiation for the past few years, and is almost complete. The TPP is often talked about as a “high standard,” 21st century trade agreement that could reshape the international economic architecture. In reality, however, the TPP may remain of secondary importance, as just one of many bilateral and regional trade agreements that are subsumed under the broader framework established by the World Trade Organization (WTO). A review of some of the key rules — and gaps in these rules — of the WTO and TPP makes clear why the WTO is likely to maintain its preeminent role in trade governance.
First, while we have not yet seen the full text of the TPP, if past trade agreements and TPP negotiating leaks are any guide, there will be no TPP rules on trade remedies and subsidies. Trade remedies refers to anti-dumping duties, countervailing duties and safeguards, three mechanisms which can be used to impose additional tariffs, beyond the standard ones, on imports. For the first two categories, additional tariffs are sometimes said to be imposed in response to “unfair” trade, but most economists agree that these tariffs are nothing more than protectionism. As for subsidies, they come in many shapes and sizes. Some are more clearly linked to trade, through export contingency or local content requirements; others simply give an advantage to domestic producers over their foreign counterparts.
Unfortunately, the TPP will do nothing about these core types of protectionism. Instead, for constraints on these kinds of government actions, we must turn to the WTO, which has detailed agreements on anti-dumping, on subsidies and countervailing duties and on safeguards, imposing discipline in areas where there has been a great deal of protectionism over the years.
In reality, however, the TPP may remain of secondary importance, as just one of many bilateral and regional trade agreements that are subsumed under the broader framework established by the World Trade Organization (WTO).
Related to this point, WTO obligations of this kind are enforceable through a sophisticated dispute settlement system, with a highly respected appeals process. Since its inception in 1995, governments have filed 496 complaints against each other at the WTO, resulting in around 200 panel reports and over 100 Appellate Body reports. By contrast, the dispute settlement provisions of the hundreds of recent bilateral and regional trade agreements are rarely invoked. There have been only a few cases decided, and thus the real impact of these agreements is sometimes unclear. Perhaps they are more about political deal-making than an effort to rein in protectionism through international rules.
And while the TPP and other bilateral and regional trade agreements go beyond the WTO in some ways, the particular ways they do so are something of a mixed bag. In terms of lower tariffs and opening up services/procurement markets to foreign competition, there could be some value in the TPP. However, any benefits are inherently limited because they only go to a handful of countries, not all 161 WTO members. In addition, many TPP parties already have FTAs with each other, so there may not be all that much new liberalization.
In terms of additional obligations, the TPP is developing rules on state-owned enterprises that would be the first of their kind. These could be useful, but it is likely that countries will exempt many of their existing state-owned enterprises, thus limiting any benefit.
The TPP has the potential to push further in particular areas of trade sensitivity, such as supply management for dairy products in Canada and sugar market access in the United States. The TPP will be much more valuable if it can take on these long-standing trade barriers. It remains to be seen whether this will happen.
Beyond trade liberalization, the TPP will also pursue global governance issues, such as intellectual property, investment protection, labor protections, and the environment. Originally designed to bring more supporters to trade negotiations (e.g., letting Hollywood use trade agreements to protect its copyrights abroad), these provisions now generate just as much opposition. Liberal NGOs are incensed about the “corporate-friendly” intellectual property and investment provisions; and free market advocates are skeptical of the Obama administration’s touting of “progressive” aspects of the TPP. The controversy from these issues may make Congressional approval more difficult than some anticipate.
Thus, the benefits of some of the “WTO plus” provisions in the TPP — intellectual property, investment, labor, and the environment — are debatable. And the TPP’s “WTO minus” provisions — the absence of trade remedies and subsidies, and weak dispute settlement — have a negative impact. Generally speaking, if a TPP party’s government has a concern about another TPP country’s protectionist measures, it probably has to go to the WTO with its complaint. Thus, the WTO remains the indispensable international organization for keeping trade friction from turning into full-blown trade wars.
The TPP’s future is less certain. Perhaps it can be expanded to cover a few more countries, or even the whole Asia-Pacific area. But even if that happens, its gaps and weaknesses may leave it playing second fiddle to the WTO’s overarching and comprehensive rules-based trading system. As noted, the TPP’s impact may depend on how far it can push liberalization of sensitive products and services. A TPP that achieves only limited new liberalization may drift into obscurity.
Of course, the main flaw with the WTO is its inability to negotiate new liberalization in recent years. But as with everything in trade negotiations, success here depends on the willingness of governments to liberalize. Pursuing trade agreements which include only limited liberalization is a sign that the problem with trade negotiations is that governments are not taking trade liberalization seriously. Ultimately, whether they liberalize at the WTO or through some other agreement is not the most important thing. The question is whether they are willing to do it at all these days.