What Sort Of TPP Deal?

The US senate has given trade promotion authority to the President. What next? Will the TPP agreement be acceptable, and to whom? 

Unfortunately trade negotiations are riddled with acronyms. I have listed the ones used here at the end of the article.

The US Senate has finally passed the Trade Promotion Authority (TPA). This is necessary because the US constitution places responsibility for trade matters (such as Free Trade Agreements; FTAs) with the legislative branch of its government. However it does not have the capacity to negotiate international deals. Instead the deals are made by the executive branch (headed by the President) and approved by Congress. The danger is that Congress could amend the deal after it was settled. No sane trade partner would agree to a ‘final’ deal in which they had made concessions, only to have it changed by the US Congress. The effect of the TPA is that the US Congress binds itself not amend the trade deal when it is presented to it. It either accepts it or rejects it as a whole.

That the Senate has agreed to give the President this authority is not the end of the matter. The House (the lower parliamentary chamber of Congress) has to give it too. It is generally thought that a TPA from the House will be even more difficult to obtain.

But even if they both give the TPA there can be no certainty that Congress will accept the final deal. Practically that means that while the US executive is negotiating with its trading partners it is also negotiating with members of Congress and the pressure groups that influence them in an attempt to ensure that the final deal will be acceptable to the legislative branch of government. Thus far no FTA has been rejected. (A similar domestic process goes on in all democracies.)

The TPA applies to both the Trans Pacific Partnership (TPP) of 12 countries (including New Zealand) as well as the US and the Transatlantic Trade and Investment Partnership (TTIP) between the US and the European Union which is also currently under negotiation. (Note that the EU has  also to get a strong consensus from its 28 member states.) Here I focus on the TPP.

There are three groups of reasons for the US interest in the TPP. One, is it is seen as an integral part of the US Pacific strategy which aims to contain the Chinese economy. This cannot be said too aggressively, so exactly what it means is unclear. My view is that although Japan joined the other 11 members in the TPP late, the US cannot resist a deal with Japan. That does not mean it will be a bad deal for New Zealand because any access the US gets into the Japanese market should apply to the other 10 members too, and while rice liberalisation is not high among our priorities, there should be some (limited?) gains for dairy and meat. What it does mean, though, is the deal is going to be biased towards US and Japanese preoccupations, and that things important to us (and to the other 9) are likely to be downgraded.

The second group of reasons for the TPP is to remove the artificial barriers to trade in goods and services. A common US economist comment is that tariffs are now so low that these hardly matter. Generally true, but not quite. The restrictions on agricultural goods remain high. It would be of immense benefit to New Zealand to have them substantially lowered, although I am not too optimistic.

Even if the low tariffs come down there will be some jobs lost. Pressure from groups who will suffer as a result seems to have been a major factor in the reluctance of some US Senators to agree to a TPA. No doubt the US Government will be doing its best to minimise that impact but it can’t avoid it altogether. (For instance, the Japanese are keen to get better access for their cars to the US market – presumably at the cost of US car worker jobs. In return they will give better food access – at the cost of Japanese farm jobs.)

The third group of reasons might be classified as the needs of the globalised economy. As the world economy becomes more integrated there is a need for supra-national arrangements. Greens want better international coordination of environmental policies, affluent workers want common international standards for working conditions. But the big ones in these negotiations are Investor State Dispute Settlement (ISDS) procedures and Intellectual Property (IP) standards.

I have no difficulty with the need for such supra-national arrangements, although space precludes my detailing the arguments. However it is not at all obvious that the best way to obtain them is via free trade agreements among groups of countries. The US became frustrated with multilateral attempts to address the issues and turned to FTAs to progress them. But imagine a world in which there are different ISDS and IP regimes in the TPP and TTIP agreements, not to mention a multitude of others. It would hardly be a global arrangement.

There is considerable unease in the US about including ISDS and IP provisions in the FTAs, although I did not get the impression they were prominent when the TPA bill was passed. They may become more important when Congress has to agree to the final deal. The concern about the possible deal results in some strange bedfellows. Both the US right and left are uneasy about the sovereignty implications of the ISDS; one cry is that it will give foreign (i.e. non-US) corporations rights which domestic (i.e US) corporations will not have. An IP regime which might be good for the pharmaceutical industry (if not for patients) may be detrimental to innovation in the IT industry.

It is all a bit messy especially if you are New Zealand. Sure, we punch above our weight (every country says that) but it is a small punch compared to those in the Japanese-US negotiations. Fonterra and our meat companies, among other exporters, will be very keen for any improvement in access that can be obtained, but New Zealand as a whole may have to trade improvements in access for less than perfect ISDS and IP regimes.

Not far from the TPP are the TTIP negotiations which may turn up different outcomes. My expectation is that the EU with its members sensitive to sovereignty issues will probably end up with a saner ISDS regime than the TPPA will by itself. I am less sure about their IP deal – there are some big European pharmaceutical companies.

Perhaps the best New Zealand can hope for is that there will be sufficient unease in the US Congress for the ISDS and IP chapters to be parked until the TTIP settles its regimes. Perhaps this is a thin hope; perhaps the best thing you can do is make sure your friends and relatives in the US approach their Congress representatives with your concerns and theirs.


EU: European Union

FTA: Free Trade Agreement

ISDS: Investor State Dispute (Resolution) Systems

IP: Intellectual Property (includes copyright and patents)

TPA: Trade Promotion Authority

TPP: Trans Pacific Partnership of 12 members including NZ.

TPPA: TPP Agreement (used by some to distinguish the final agreement from the negotiation)

TTIP: Transatlantic Trade and Investment Partnership (between EU and US)

US: United States of America