Home The Washington Diplomat August 2015 Pacific Trade Deal Chugs Along, Inspiring Hope, Hostility, Questions

Pacific Trade Deal Chugs Along, Inspiring Hope, Hostility, Questions

Pacific Trade Deal Chugs Along, Inspiring Hope, Hostility, Questions

It was the moment House Democrats dreaded.

On June 24, the Senate passed Trade Promotion Authority (TPA), a bill that would give President Obama power to negotiate international trade deals and fast track them through Congress without the possibility of filibuster or amendment. In spite of strategic efforts by Democrats in the House to block passage of the bill earlier in the month, the Senate successfully voted to end filibuster after a worker aid provision was severed from the bill.

Photo: “Stop Fast Track rally in D.C.” by AFGE /
CC BY 2.0 via Wikimedia Commons
Members of the American Federation of Government Employees participate in #StopFastTrack rallies in the D.C. area during April 2015. Opposition to fast-track trade authority heated up over the summer as Congress debated whether to grant President Obama the ability to submit trade deals to lawmakers for an up-or-down vote, which is considered a vital prerequisite to passing large trade agreements such as the Trans-Pacific Partnership (TPP).

Democrats traditionally back so-called Trade Adjustment Assistance for American workers displaced by international trade, but they dropped their support in a bid to derail TPA. The move backfired when Republicans split the two pieces of legislation and passed TPA on its own. (Shortly afterward, Democrats relented and passed an extension of worker aid separately.) Despite the political maneuvering, the trade bill marks a rare legislative victory for Obama in a Republican-controlled Congress.

The passage of TPA — and the strange ideological bedfellows it created — clears the way for Obama to turn the controversial Trans-Pacific Partnership (TPP) into a reality. The most extensive free trade deal the United States has seen since the North American Free Trade Agreement (NAFTA) in 1994, the TPP would eliminate barriers to investment and trade in goods and services between the U.S. and 11 other countries in the Pacific Rim, including major trading partners such as Australia, Canada, Japan and Mexico. The deal, a cornerstone of the president’s outreach to Asia, also aims to facilitate cross-border trade in financial services, strengthen intellectual property laws and provide an international system for investor disputes.

While fast-track trade authority doesn’t guarantee passage of TPP, it is considered a prerequisite because other countries would be unlikely to stake out risky positions in a trade pact knowing that Congress could tinker with the final result. The recent TPA bill, which lasts for six years, could also pave the way for the eventual passage of a separate major trade accord with the European Union.

The Trans-Pacific Partnership, conceived in 2002, originally involved only four countries but has since expanded to include other potential signatories such as Chile, Vietnam and New Zealand, with the U.S. officially joining negotiations in 2008.

The president and pro-business Republicans welcome the sweeping pact with open arms, saying it would give the United States an important economic foothold in the fastest-growing region in the world. The benefits would be mutual, the White House contends, noting that the TPP would put in place stronger, legally enforceable labor and environmental standards that would help millions of people — protections that were not included in previous agreements like NAFTA.

The TPP, which notably doesn’t include China, could also serve as a counterweight to Beijing’s growing ambitions in the region. Obama has warned that without the TPP, China will press ahead with its own rival free trade agreement. A White House fact sheet points out that, “If it’s not America, it’s going to be competitors like China.”

But many in the president’s own party have railed against the prospect of another far-reaching free trade accord that they say was hashed out in secret and will pad the pockets of large corporations at the expense of American workers, the middle class and consumers in developing countries. Liberals, environmentalists and labor groups have found an unlikely ally in populist conservatives, who also oppose the deal on the grounds that it gives the president too much power, erodes national sovereignty on issues such as immigration and doesn’t address disputes such as currency manipulation.

As opposition to the TPP ticked up following passage of fast-track trade authority, politicians and economists alike have been left wondering what the impending accord may spell out for the future.

Globalization Gone Wrong?

On the surface, the Trans-Pacific Partnership is a promising deal, encompassing 40 percent of the world’s economy. The administration notes that 95 percent of the world’s consumers live outside the United States and that one out of every five American jobs is supported by trade. Proponents also say the deal would give American companies greater access to consumers throughout the Asia-Pacific region, which tends to have more market barriers than the U.S. does.

Data compiled by the Brookings Institution projects that on the conservative side, the agreement will bring in about $5 billion in economic benefits to the United States in 2015 and $14 billion by 2025. The administration estimates the deal could increase U.S. exports by $123 billion and boost real incomes by $77 billion a year, though those figures have been disputed.

Supporters argue that the TPP will likely benefit small- and medium-size American businesses in particular, because the elimination of import tariffs would make it easier for smaller businesses that can’t afford to open overseas subsidiaries to relocate abroad where the costs of labor are much lower. According to the U.S. Trade Representative Office, these small- and medium-size enterprises alone exported $247 billion to the Asia-Pacific region in 2011.

However, critics say that legislators need to consider more than just the overall size of the economic pie when weighing the potential costs and benefits of the agreement. “The first thing that one learns in the first week of trade class is that trade has effects both on the size of economies, but also on the income distribution,” Columbia University development economist Jeffrey Sachs stated in a speech at a Capitol Hill forum last September. “There can be winners and losers. The redistribution is mostly from the poor or middle class to the rich, rather than the other way around.”

Economist Joseph Stiglitz, in a New York Times op-ed, echoed Sachs’s concerns, claiming that the TPP threatens to “put most Americans on the wrong side of globalization.” Commentators are particularly miffed at the lack of transparency surrounding the negotiations, which have largely taken place behind closed doors. “When negotiations are secret,” said Stiglitz, “there is no way that the democratic process can exert the checks and balances required to put limits on the negative effects of these agreements.”

But because of the sheer complexity involved, most trade deals are hammered out behind closed doors before being opened up to public scrutiny (the public will get 60 days to review the TPP once it is unveiled).

But opponents say the opaque negotiations have largely benefited big business and their lobbyists. They point out that today’s tariffs are already very low thanks to previous free trade agreements, and that the real effect of the TPP will be to help large multinational corporations skirt non-tariff regulations designed to protect consumers, workers and the environment.

One way the TPP could do this is through the contentious InvestorState Dispute Settlement (ISDS) clause, which would allow companies challenging government regulation to bypass national courts and argue their case in front of an international panel of arbitrators, a panel that would include corporate lawyers and other potentially biased private interests. “Agreeing to ISDS would tilt the playing field in the United States further in favor of big multinational corporations,” said Sen. Elizabeth Warren (D-Mass.), an outspoken opponent of the proposed clause. “Worse, it would undermine U.S. sovereignty.”

Obama has called Warren’s assertions “absolutely wrong” and “pure speculation,” pointing out that ISDS cannot require countries to change any law or regulation and is designed to protect American investors abroad.

a4.tpp.worker.teaser.storyAlthough ISDS has yet to affect American laws, the practice has already been used to weaken regulations that conflict with free trade agreements in several developing countries. A French company recently sued the Egyptian government over raising the minimum wage, while Swiss tobacco giant Philip Morris used the same tactic to challenge antismoking regulations in Uruguay.

The clause could also potentially allow big pharmaceutical companies to challenge domestic drug patent laws, which could ultimately raise drug prices and render vital medicines unaffordable for the world’s poorest consumers.

Consequences for American Workers

The most troubling aspect of the proposed trade deal for the American public, however, is undoubtedly its potential impact on U.S. jobs, particularly in the nation’s declining manufacturing sector.

Free trade, of course, is a double-edged sword, producing winners and losers. Decades of international trade have undeniably helped American consumers, lowering the price of goods and boosting household incomes. Certain industries, such as the financial services sector, have fared particularly well. The administration also notes that U.S. exports supported 11.7 million jobs in 2014, and that those jobs tend to pay better wages than non-export related jobs. And despite the 2008 economic crash, America’s unemployment rate has dropped to 5.6 percent.

But elimination of already low import tariffs under the TPP would likely expedite the outsourcing of blue-collar jobs to foreign countries where unskilled labor is much cheaper. This could potentially displace thousands of American workers and cause manufacturing wages to plummet. Two decades of manufacturing job losses that have taken place alongside NAFTA and China’s entry into the World Trade Organization in 2001 have taught working-class Americans to expect the worst when it comes to free trade.

“Galesburg, Illinois, is a poster child for why free trade deals are a problem for most working- and middle-class Americans,” wrote TPP opponent Peter Cole in reference to the relocation of a Maytag refrigerator plant from Galesburg to Mexico after the passage of NAFTA. “The effects of Maytag’s departure were immediate and glaring. Unemployment increased drastically. Ten years on, the poverty level has increased to 19 percent, and Galesburg has seen about 15 percent of its population leave since 2000.”

Other critics of the TPP, however, argue that job loss in America’s import-competing sectors is inevitable in today’s globalized economy, regardless of the existence of free trade deals, and that the real problem is the lack of worker retraining initiatives. “Obama had a rare opportunity to force major congressional action on worker training, by tying it to the Pacific trade pact, which Republicans broadly support,” wrote Dana Milbank of the Washington Post. “He had leverage — and he failed to use it.”

This oversight may be reflective of a deeper trend in the American economy and educational system. A report by the Council on Foreign Relations points out that the United States lags far behind other industrialized nations when it comes to spending on worker training, allocating only 0.1 percent of total GDP to training and assistance as compared to 0.8 percent in Germany and 2.3 percent in Denmark.

A big reason for this discrepancy is that vocational education is simply not built into the American public school system the way it is in many European countries. So while a country like Germany may pride itself on its highly successful apprenticeship model, the high costs of such a program and the general lack of public funding and support for vocational education in the U.S. prevent its educational system from following in Germany’s footsteps.

Some help is coming, however. On June 25, the House overwhelmingly approved the worker aid provision of the Trade Promotion Authority that Democrats had originally shot down in an attempt to stall the fast-track bill. The provision will renew and expand the federal Trade Adjustment Assistance Act, which was first introduced in 1962 to protect workers laid off by expanded trade; many Republicans view it as a form of welfare.

Credit: Official White House Photo by Pete Souza
President Barack Obama attends the Trans-Pacific Partnership (TPP) meeting at the ASEAN Summit in Phnom Penh, Cambodia, on Nov. 20, 2012. Taking part in the meeting are, clockwise from the president, the heads of state of Brunei, Malaysia, New Zealand, Singapore, Vietnam and Australia.

The newly passed legislation reauthorizes funds for worker retraining, including apprenticeships, on-the-job training and educational degrees. It also increases financial assistance for job search and relocation costs, and adjusts certain eligibility limits so as to allow for wider participation in the program.

In particular, the bill extends the maximum time permitted to complete training while receiving financial assistance from 65 to 78 weeks; increases the maximum job search and relocation allowance from $1,250 to $1,500; and stretches the maximum annual income that a newly re-employed worker is permitted to make to receive wage subsidies from $50,000 to $55,000.

In a Council on Foreign Relations memo, former U.S. Trade Representative Robert Zoellick and CFR adjunct senior fellow Matthew Slaughter called on Congress to do more to focus specifically on the long-term unemployed and subject existing job training programs to better oversight to ensure their effectiveness.

There have also been calls in the U.S. to adopt Europe’s vaunted system of apprenticeships. The same day that the House passed its worker aid bill, a National Press Club conference discussed the possibility of the U.S. emulating the Swiss model of vocational training as an alternative to college preparatory studies in American high schools (also see related story).

While the renewed Trade Adjustment Assistance Act may bring immediate relief to some displaced blue-collar workers, incorporating vocational training into the American public education system may be a more permanent fix.

“Though the number of manufacturing jobs has declined in the U.S., those that remain often demand a higher level of skill,” Beijing-based journalist Michael Schuman wrote in Quartz, pointing out that the U.S. has lost out on offshoring to China, which doesn’t even have a free trade agreement with Washington.

Low wages abroad, he says, not trade pacts, are the real culprit. And there is simply no way for an American worker who earns five times his Chinese counterpart to compete on cost, even if protectionist walls go up. “Rejecting the TPP won’t save the American worker; better programs to upgrade American skills will.”

Looking Forward

For every statistic and anecdote illustrating American job losses to free trade, there are just as many showing the positive impact of a rules-based system of open markets. But there are also those in the middle who argue that the economic benefits of the TPP will be marginal, at best, and that the importance of the deal has been inflated by politicians. The effects of globalization, which are difficult to quantify, are more critical to understand.

But questions about long-term issues such as the lack of democratic input in trade negotiations and the adequacy of existing safety nets for those who find themselves on the losing side of trade liberalization may get put on the backburner.

A TPP ministerial meeting held at the end of July failed to produce an agreement despite speculation that a breakthrough had been imminent. The parties simply said that they had made “significant progress” and vowed to reconvene. Major gaps on automotive and agricultural trade have reportedly been narrowed, but longstanding disagreements remain unresolved and there is no guarantee a final deal can be ironed out by the end of the summer.

Even assuming a deal could be ratified by the 12 participants, Congress still has to approve it — and the fall calendar for lawmakers is short. That means any congressional review of the TPP would likely drag into 2016, colliding with an American election year, when lawmakers will be especially reticent to vote on a controversial trade pact. That, in turn, could put TPP tug of war on the backburner, yet again — until a new U.S. president takes office and the fight starts all over again.

About the Author

Karin Sun is a freelance writer in New Jersey.