Talking Trade blog
Who writes the rules for trade?
Published 04 May 2016
President Obama had an op-ed published in yesterday’s Washington Post with a headline that read, “The TPP would let America, not China, lead the way on global trade.” This article contains three deeply problematic arguments.
Few people are likely to be more enthusiastic supporters of the Trans-Pacific Partnership (TPP) trade agreement than I am. The TPP stands as a critically important avenue for unleashing domestic reforms to unlock new sources of economic growth and competitiveness across the region.
The deal is not perfect, of course, but on balance, it represents an important achievement that should be promoted, approved and implemented as quickly as possible.
To that end, I am delighted to see leaders use whatever arguments might push the ball forward towards ratification. But three lines of thought contained in the President’s piece are quite troubling.
First, 12 member countries wrote the TPP agreement—Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam. The United States, by virtue of its overwhelming economic size and strength within this grouping, had an outsized influence in the negotiations, but it should not forget that the other 11 members also played key roles.
Many of these partners stepped up to the plate and agreed to take on significantly harder, deeper and more substantial domestic reforms than anything the Americans have agreed to do in the TPP. The most challenging elements of the agreement for many TPP members came about because the United States insisted on including these provisions.
A negotiation, after all, is a compromise and no country ever gets everything that it wants in an agreement. The US got most of what it asked for, but not all.
The TPP agreement cannot take effect until the other members agree to continue to participate and to implement the agreement fully. Unnecessarily antagonizing partners will make it harder for TPP members to convince their own domestic constituents that these reforms are worth doing.
Even if the US wants to argue that it played the critical leadership role in the TPP, it is always worth remembering that members of Congress have repeatedly complained about a lack of sufficient enthusiasm by past trade agreement partners at the implementation phase (see, for example, Korea, Columbia, and Panama). It is important to keep TPP members motivated across the longer term.
Second, and perhaps more important, bringing China into the equation as the “bad guy” is going to do substantial long-term harm. This is damaging to the United States, to China, to the TPP and to the global economy.
The long-term objective is to connect China and the United States together in a trade agreement that meets the high standards that Obama discusses in his article. Such an outcome will never be met if China is painted from the outset as somehow “outside” the bounds of such behavior.
This is a particular shame, since there have been many signals in the past few years that many Chinese have begun to realize that TPP membership may be in China’s own interest in the medium term. China’s economic growth is also faltering. For China to push through domestic reforms, it too may need to hook to an external agreement like the TPP.
For global trade, it certainly does no good at all for the United States and China to build competing trade blocks. In an increasingly interconnected world of value or supply chains, this makes even less sense.
Finally, the President’s characterization of what he seems to term China’s rival trade deal, the Regional Comprehensive Economic Partnership (RCEP), is inaccurate on many levels.
As I have noted before, one of RCEP’s biggest problems, quite frankly, is that it is not lead by anyone in particular. The trade ministers from the 16 countries in Asia have said that the agreement must be done this year and have given broad outlines of what it must contain, but no specific country is driving the agenda. ASEAN is officially in charge and having 10 countries lead is difficult.
RCEP will not, as the President notes, address state-owned enterprises. It will likely not cover worker rights or the environment.
He also says it will not cover the internet nor will it respect intellectual property rights. I think this is wrong. We do not yet know where RCEP will end up, but I can say that officials in the agreement are wrestling hard with these issues. Of course, if there were more information and more coverage of what is happening in RCEP, we all might know better.
So what arguments could President Obama use instead? To promote passage of the TPP within the United States and avoid the three mistakes above a future article should say, “The TPP lets America show leadership on trade.”
The article could highlight the critical role that trade plays in providing jobs, growth and economic opportunities. Since the piece is intended for an American audience, the statistics should, of course, highlight the connected nature of these jobs for American workers to markets in TPP countries.
The article should discuss how important it is to keep these markets open in an economic downturn and how Asian economic growth remains a bright spot. It could highlight the important provisions of the TPP and show how and why these elements matter to Americans.
The TPP is intended to be a building block to further, bigger trade agreements. It is meant to bring in more countries in the future. By adding additional members to the TPP, the prospects for more jobs and economic growth in the United States will be brighter.
In addition, some of the parts of the TPP might become elements of larger, global trade arrangements in the future. They could be part of a future Free Trade Area of the Asia Pacific (FTAAP) within APEC or be transferred to the World Trade Organization (WTO) with more than 160 members.
It would be forward-looking and visionary. Not defensive, reactionary and setting up long-term problems that need not be stoked.
That would show American leadership on trade.
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