The race to secure President Obama’s trade legacy is to enter a crucial phase this week, with a bill that would allow him to “fast-track” the passage of free trade agreements to be introduced to the Senate.
The Trade Promotion Authority (TPA) bill would essentially allow Obama to submit the Trans-Pacific Partnership agreement – a huge FTA under negotiation with 11 other nations, including Japan – to Congress for a straight “up or down” vote, without the ability to make any amendments to the agreement.
As Senators return from holiday, the bill is set to be introduced on a bi-partisan basis, proposed by Senate Finance Committee chairman Orrin Hatch, a Republican, and Ranking Minority member Ron Wyden, a Democrat.
The passing of the bill would allow the US government to rush through the passage of the TPP before the electoral primaries start later this year. While the move would also open the door for the completion of the Transatlantic Trade and Investment Partnership (TTIP – the FTA the US is negotiating with the EU), this deal is much further away from conclusion.
The Obama administration has prioritised sealing the TPP, an agreement which covers 40% of global GDP, 30% of world trade and which includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam.
If the bills does not pass, it is likely to have a severe impact both on the trade legacy of the incumbent government, but also on the US’ standing on the international trade stage, with one analyst warning that failure to pass the TPP would “leave US trade policy in tatters”.
The TPA – also referred to as the fast-track negotiating authority for trade agreements – is a tenet of US law that expired for new agreements in July 2007 and which stopped being effective for those under negotiations in 2011.
It allows the president to negotiate the details of a free-trade agreement, using a list of negotiating objectives that have been agreed on by Congress. Once it has been agreed and signed with US trading partners, Congress can vote for or against it but it cannot amend it or filibuster.
Most are confident that should TPA pass, TPP will follow. Opponents are more likely to oppose the president’s ability to pass the vote, than a finished document itself, which would have huge implications for the US’ foreign policy and economy.
[TPP and TTIP’s] failure would leave US trade policy in tatters, Edward Alden, Council on Foreign Relations.
“These agreements are crucial to the future of US trade policy. With the failure of the Doha Round – largely due to intransigence from the big developing countries like India, China and Brazil – TPP and TTIP are now the only plausible vehicles for the US to move forward with trade liberalisation on a large scale. Their failure would leave US trade policy in tatters,” Edward Alden, senior fellow at the Council on Foreign Relations tells GTR.
Most analysts are confident that the TPA will pass through the Senate, where it has fairly strong bi-partisan support, however it is likely to face a much tougher time in Congress, to which the bill will subsequently pass.
Many congressional Democrats are sceptical as to how beneficial the past 20 years of free trade have been for ordinary Americans, with jobs moving overseas and multinational corporations reaping the main benefit. Many of these objections are not exclusively related to the TPP or TTIP, but to the legacy of agreements stemming from Nafta.
Furthermore, doubts exist in the US and other participating nations about the investor-state dispute settlement (ISDS) clause –the trade instrument that grants a foreign investor the right to initiate dispute settlement proceedings against a foreign government, in a private tribunal. It is commonly included in free trade agreements, but opponents say it could leave local level policymakers vulnerable to legal action from overseas investors, should local laws interfere with their ability to turn a profit.
“There are some specific concerns about the deal, most articulately expressed by representative Sandy Levin, the ranking Democrat on Ways and Means [the chief tax-writing committee in Congress]. He wants provisions in the agreement to curb currency manipulation, to narrow the scope of the ISDS provisions, and to further strengthen the labour provisions. There are also concerns over the IP chapter, that it could further strengthen the hand of the patented drug companies and raise drug prices,” Alden says.
Republicans in Congress could also attempt to block the TPA as a way of decimating Obama’s trade policy and undermining the Democrats’ electoral campaign in 2016.
It’s almost as if there are only two parties involved: Japan and the US. This shouldn’t be the case, Jayant Menon, Asian Development Bank
Some have questioned the projected benefits of the TPP. Earlier this year, lead economist at the Asian Development told GTR: “It’s almost as if there are only two parties involved: Japan and the US. This shouldn’t be the case. There’s another 10 countries and reading through the statements, it gives the impression that a lot of the breakthroughs and concessions in agriculture and so on are bilateral concessions between the US and Japan. It’s not at all clear that this will be available to other members. It’s looking like a bilateral deal between the US and Japan and a series of less attractive side deals for everyone else. Why bother coming together?”
However, most in the trade space agree that without TPP, the US’ influence on global trade would be diluted. Miriam Sapiro, now a principal at Summit Strategies and non-resident Senior Fellow at the Brookings Institution, told this publication: “A failure to pass TPA would be a setback for US trade policy overall. Other countries will negotiate among themselves to reduce tariff and non-tariff barriers, and write the rules of the road, while US exporters and workers will have to watch from the side-lines.”
With the repeated failure of the Doha Round of WTO negotiations to reach material conclusion, these sorts of multilateral-lite agreements have become the crux of international trade policy. Canada and Mexico – both involved in TPP discussions – already have FTAs with the EU, while the likes of China and Australia have been assiduously progressing their own agendas in the free trade arena.
“The big concern is that without TPP and TTIP, the United States will face relative disadvantages in selling into big markets. The fear is that the US will become a relatively less attractive place for export-oriented investment,” Alden says.
TPA is likely to be thrashed out over the coming six weeks – a period that is going to define the trade element of the presidency of Barack Obama.
Written for GTR.