Guest post by William Krist
On Tuesday, July 28, trade ministers from 12 countries will begin a four- to seven-day meeting in Hawaii to try to wrap up negotiations on the Trans-Pacific Partnership (TPP). If successful, the TPP would create a free trade area between the U.S., Japan, Canada, Mexico, Australia, New Zealand, Brunei Darussalam, Singapore, Malaysia, Vietnam, Chile, and Peru. In addition to eliminating tariffs on trade among the 12 nations, the agreement will cover a host of issues including removing barriers to trade in services, opening up investment, and setting rules for a number of areas such as intellectual property protection and state-owned enterprises.
While the negotiations undoubtedly won’t be fully completed at this meeting, most observers expect substantial progress. After more than six years of negotiations, most issues have been resolved. Now there are only a few instances where trade ministers will have to make the final difficult decisions on trade-offs. Successfully concluding these negotiations is a top priority for President Obama, who sees this as an important part of his legacy.
The agreement will need to be approved by Congress. To lay the ground for this, President Obama signed a bill on June 29 that requires Congress to vote up or down on the trade agreement, without the possibility of amendment, promptly after the President submits it to Congress. Even with these expedited procedures, however, the agreement will be controversial. Congress will be reluctant to take this issue up close to the 2016 elections, when all Congressmen and a third of the Senators are up for election. Accordingly, the negotiators will pull out all stops to wrap up the negotiations before the end of this year.
Our trade partners will all have to make difficult decisions. Malaysia and Vietnam will have to agree to substantially improve labor standards, Japan will have to improve access to its politically sensitive rice and automobile markets, and Canada will have to open its dairy market. And our trade partners will be demanding better access to the U.S. textile and apparel, sugar, and dairy markets, among other concessions.
U.S. negotiators often tout our recent agreements with Korea, Colombia, and Peru as “the gold standard” of trade agreements. Unfortunately, this isn’t really correct. These agreements, and all our current agreements, have some important flaws and omissions. The TPP, however, presents our negotiators with the opportunity to go for the gold, to make the TPP a real gold standard for twenty-first century trade agreements. Three areas in particular need to be dealt with in the right way.
First is the provision that allows a foreign investor to take a government to binding arbitration if it believes there has been an expropriation of its investment. Multinational firms in the U.S. and around the globe have pushed for this provisions in almost all trade agreements because many countries, including some participating in the TPP, do not have a robust domestic legal system that would allow redress in the event of an expropriation. However, these provisions, known as “Investor-State Dispute Settlement,” have been too loose, and some companies have used them to subvert the ability of governments to take reasonable measures to protect health, safety, and the environment. Australia is particularly upset with a suit brought by Philip Morris to gain substantial compensation for alleged expropriation because Australia passed a law requiring cigarettes to be packaged in a plain wrapper.
Negotiators can fix the ISDS provisions to prevent future abuse by providing for an appellate body to review decisions by arbitrators and by including language to make it crystal clear that governments can take measures to protect public health and safety. While the U.S. has reportedly been resisting these changes, a number of our partners in the TPP have been pushing for them. Accepting such changes would lessen opposition to the negotiations from a number of non-government organizations in the U.S.
Secondly, rules reportedly under consideration on intellectual property protection could also jeopardize any claim for the TPP agreement to be a “gold standard.” The U.S. is reportedly pushing for protection of intellectual property for pharmaceuticals that go substantially beyond World Trade Organization rules and current practice. Protecting intellectual property through patents and trademarks is important to encourage innovation. Too long a term of protection, however, doesn’t encourage additional innovation and greatly increases consumer costs.
Some House Democrats who supported the recent trade negotiation legislation are writing the President to urge him not to agree to rules that would increase the cost of medicine for our developing country TPP partners. More fundamentally, however, the President needs to ensure that the rules correctly balance the need to incentivize innovation and the development of new drugs with the cost to U.S. consumers and our health programs, including Medicare.
The third element is an omission in current trade rules. Our trade agreements and the rules in both the World Trade Organization and the International Monetary Fund do not effectively address one of the most egregious of all trade distortions: currency manipulation. Countries such as China and Japan have sometimes deliberately undervalued their currency to gain a competitive trade advantage, since an undervalued currency acts as a subsidy for exports and a tariff on imports. TPP rules should prohibit this practice.
Making the TPP a real gold standard is critical. All of the participants in the TPP hope that in the future other countries such as China and Korea will join the agreement. Accordingly, this is the time for the negotiators to get the rules right. This is the time to go for the gold.
William Krist is a senior policy scholar at the Woodrow Wilson International Center for Scholars and the author of Globalization and America’s Trade Agreements. During his career he was an Assistant U.S. Trade Representative, a legislative assistant for both a congressman and a senator, and an advocate for the high-tech industry.