JOANNA SHELTON: One trade pact that should fade away

2014-05-04T11:03:00Z 2014-05-05T20:40:58Z JOANNA SHELTON: One trade pact that should fade away
May 04, 2014 11:03 am

President Barack Obama concluded his four-nation Asia tour last week without a key “deliverable” the White House hoped to achieve – agreement with Japan on Trans-Pacific Partnership commitments. Two of the countries Obama visited – Japan and Malaysia – are party to the TPP negotiations; and a third – Korea – wants to join. (The Philippines was the fourth country on his tour.) While failure to achieve a breakthrough with Japan during the Obama-Abe summit doesn’t spell the death of the TPP, it does illustrate the difficulties negotiators face in overcoming entrenched opposition in all partner countries, including the United States.

The TPP is the most ambitious regional initiative in America’s long history of trade and investment liberalization. It seeks to bind 12 countries in Asia and the Americas into one large trading arena with (mostly) common rules and far-reaching commitments in a wide range of substantive areas. More than 20 chapters address traditional trade barriers (tariffs and quotas), customs rules, investment, competition policy, regulations, financial markets, intellectual property (patents, copyrights, and trademarks), environment, labor, and other matters.

The administration calls TPP “a 21st-century agreement…that will enhance trade and investment among the TPP partner countries, promote innovation, economic growth and development, and support the creation and retention of jobs.”

These goals are highly laudable. So why am I concerned?

I’ve spent a career promoting open markets and the benefits they can bring to economies and individuals in countries embracing the increased choice and competition they entail. The postwar experience of American-led reduction of (initially very high) barriers to trade and investment has shown that trade, economic growth, and rising incomes often go hand-in-hand. War-torn Europe and Japan rebuilt their economies largely through reliance on international trade and investment, ultimately creating self-sustaining economies based more on domestic demand.

So-called “Asian Tigers” in the 1980s – Singapore, Hong Kong, Korea, and Taiwan – led the way in jump-starting relatively poor economies by promoting education, innovation, foreign investment, and export-led growth. China is the latest example of a country relying heavily on trade and foreign investment to spur rapid growth and rising incomes.

China is the elephant in the room when it comes to the TPP. Although not overtly designed to exclude China or marginalize the country within the Asia-Pacific region, the TPP clearly responds to partner countries’ concerns over China’s increased military and economic assertiveness. The Obama administration bills the TPP as the cornerstone of its economic policy in the region, which is why failure to strike agreement with Japan is such a blow to its ambitions.

Deadlines for concluding TPP negotiations have come and gone twice in the past two years; and the target for concluding this year appears increasingly questionable. Each country – including the United States – is seeking to protect its politically sensitive industries, while demanding increased access to its partners’ markets. This scenario is no different from previous trade negotiations. In most such cases, compromises are reached, offering a “win-win” outcome for each partner and ensuring sufficient political support to gain domestic approval.

But the TPP faces unprecedented challenges, in part due to its unprecedented scope and the incredible complexity of its provisions. US proposals for protecting copyrights and patents – some of which, in my view, border on being anticompetitive – are highly controversial with most TPP partners, as is our insistence on giving foreign investors special mechanisms for disputing government laws and regulations. US demands that state-owned enterprises in Malaysia, Vietnam, and other countries operate like market-driven counterparts in the United States are falling flat. Other provisions that would reduce barriers to US financial firms and the flow of capital face opposition in some TPP countries.

At some point, negotiations can become so heavily laden with special-interest wish lists that they collapse from their own weight. I believe the TPP is close to that tipping point. I also am troubled by the added layers of rules and requirements the TPP would impose on an already complex array of customs and tariff laws among twelve TPP partners, thus reducing its economic benefits.

Finally, I am skeptical of the TPP’s promised benefits for the United States. While Montana’s farmers and ranchers could benefit from improved export opportunities (an important gain), I see little in the TPP that – by itself – would induce multinational firms to locate substantially more production and jobs here in the United States, as the administration claims. (Other, unrelated, factors are drawing investment and jobs home from Asia and other countries.)

Despite its geopolitical importance, the best outcome in my view would be for the TPP to slowly fade away. Surely we can do better.

Joanna Shelton was deputy secretary general of the Organization for Economic Cooperation and Development in Paris and held senior positions in the executive branch and Congress in Washington, D.C. She has taught at the University of Montana. Her column appears the first Sunday of each month. Shelton writes from Moiese.

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