The Trans-Pacific Trade Pact Amounts To a High-Wire Act
Heading into the fifth year of intense negotiations (with twenty-odd formal sessions and countless informal side confabs), the Trans-Pacific Partnership (TPP) agreement will almost certainly succeed--or fail--over the next six months. President Obama has set the November APEC leaders' meeting as his personal deadline for the broad outlines of a deal encompassing and overcoming the major challenges in this purported "21st century" trade pact. The 12-member TPP nations have previously blown past similar deadlines in 2012 and 2013; but this time the political calendar and negotiating ennui dictate that a continuing stalemate at year's end will deal a crippling blow to a successful outcome.
With regard to the negotiating dynamic, failure to achieve major substantive breakthroughs by early 2015 will evoke the dreaded "Doha syndrome" image. The WTO's multilateral Doha Round of trade negotiations has dragged on for twelve years; and as this essay is being written, a desperate search for compromise on a small fraction of negotiating issues may well fail. Whatever the outcome of this tail end effort, the WTO experience will be grist for the mill of TPP skeptics who will cite Doha as the rueful model for "biting off more than you can chew" in trade negotiations with predictable results.
Turning to the political calendar and a shifting political balance of forces, as is often the case, the United States remains the central factor. First, though it is less an iron rule than sometimes portrayed, it is true that the 2016 presidential campaign will increasing intrude upon all policy issues, and particularly upon the divisive trade agenda, as we move farther into 2015. This reality dictates a push for at least broad agreement on key TPP compromises by January or February.
Assuming solid advances in the TPP negotiating framework, what are the political pathways-and political snares-to US ratification of the agreement? First, the political basics. The Democratic party remains deeply divided on trade policy in general and on the TPP specifically. President Obama, one the other hand, has elevated the TPP as a signal goal for his second term; and while signs of lame-duck erosion abound, having a Democratic president solidly behind a trade negotiation still will make at least a marginal difference.
What about the Congress and the Republicans? Here the House of Representatives is key. Despite mischievous allegations by Democratic-leaning commentators and sometimes lazy reporting, House Republicans can still deliver at least three-quarters of the Republican majority in favor of the TPP (assuming a reasonably successful negotiating outcome as outlined next). Much has been made of potential Tea Party defections. While their animus toward President Obama is palpable (to say the least), on the 2011 votes on the Panama, Colombia, and Korea FTAs, they favored the agreements by a percentage greater than traditional Republican representatives). Private discussion with Republican members and key staff underlines their belief that despite outside pressure they can hold the line with their Tea Party colleagues. As for the Senate, once again it is likely that the basics will prevail: a sizable majority of Republicans will combine with a minority of Democrats to produce a TPP majority.
Beyond these basics, the near-term political calendar is dicey. First, there is the problem of so-called Trade Promotion Authority (TPA), the authority granted by Congress to expedite an up-or-down vote on trade agreements within a certain time. A bipartisan TPA bill was crafted in January by members of the House Ways and Means Committee and the Senate Finance Committee in January. But major political complications stymied this effort almost immediately: Finance Chairman Sen. Max Baucus (D-Mont.) was appointed ambassador to China and was replaced by Sen. Ron Wyden (D-Wash) who had not signed on to the bill. And more negatively, Senate Majority Leader Harry Reid (D-Nev.) defied the administration and announced his opposition to the TPA-at least his opposition to a vote before the midterm election in November. Last week, Republicans on the Ways and Means Committee notified the administration that they would demand a vote on a TPA bill before TPP negotiations were completed.
Looking to the future, there are a number of possible scenarios that could play out. Given Reid's obduracy, Congress would have the first opportunity to pass a TPA bill in the lame duck session just after the midterm election. This would assume a deal between the Senate majority leader and the president-plus agreement between Senate Finance Chairman Wyden and the House Republican leadership on a compromise TPA bill. If, however, the Republicans take the Senate, then it is likely that they will put off writing and passing a TPA bill until they assume control of the legislative process in a new Congress in January (though there would be slim possibility that Democrats would cave in such an instance and agree to pass the original bipartisan bill that Republicans had originally supported).
All of this is premised on the assumption that the substantive negotiations produce an acceptable set of compromises by year's end. What are the dynamics of such a result? First, the TPP has been touted as a "21 century agreement," meaning that it will stake out new territory in liberalizing "behind-border" barriers to trade-in service sectors, state-owned enterprises, health and safety measures, meaningful regulatory reform and convergence, intellectual property, and investment arbitration, among others. But alongside these new issues loom old fights on 20th century issues relating to industrial and agricultural tariffs and subsidies in sectors such as textiles, clothing shoes, sugar, cotton, rice, and grains.
Japan is demanding special treatment (i.e. protection) for five "sacred" items-rice, wheat and barley, dairy and sugar; and it is locked in a line-by-line battle with the United States to thwart liberalization in these sectors. At this writing, it looks as if Japan will concede something in each sector-particularly pork, beef and dairy-but will not be forced to go to zero tariffs in all five areas. Both sides have promised key announcements in October at the latest.
An acceptable compromise on the old, 20th century issues is tied directly to other negotiations on inside-the-border issues. For instance, Vietnam has told the US that it is not prepared to make concessions in the investment area without concessions on textile and shoes. Australia's trade minister openly stated that Australia's opposition to an independent investor arbitration body and some US demands on IP might ease if a better deal emerged on lamb and beef products. Other TPP countries have signaled openness to similar tradeoffs.
It is going to take both luck and skill to bring off this high-wire act over the next six months. But much is riding on a successful outcome for the US: the TPP has become the single most important symbol of future US leadership in Asia. Failure will have not only economic but also debilitating diplomatic and security consequences. Within the United States, two imperatives are key: hands-on presidential leadership (admittedly not a normal Obama strength), and responsible initiatives from congressional Republicans, who have provided the bedrock majorities for FTAs for the past two decades.