Needed: an open debate about free-trade agreement

By Simon Johnson/Washington


The debate in the US about trade has taken an unfortunate turn. Instead of discussing the detailed issues on their merits, President Barack Obama’s administration has chosen to emphasise the need for fast-track procedures (also known as trade promotion authority, or TPA) to negotiate any trade agreement. The administration may win that fight, but there could be real damage as a result.
The current battle is over the precise content of the Trans-Pacific Partnership (TPP), a complex 12-country free-trade agreement. Unfortunately, the TPP’s provisions remain secret – meaning that it cannot be seen or discussed by members of the public. (Members of Congress may read the technical text, under restricted conditions, but are not allowed to describe its contents in detail.) Anyone who raises legitimate concerns about any aspect of the TPP deal is immediately branded “protectionist”. The line from the White House is: TPP will lower barriers to US exports, and thus increase jobs and wages. Everything else, in this view, is a distraction.
In fact, TPP will do little for exports – and for an obvious reason. The US already has standard tariff-lowering agreements with almost all of the participating countries.
Almost all tariffs on trade among Canada, Mexico and the US are long gone – that was the effect of the North American Free Trade Agreement. Under the Australia and Singapore free-trade agreements as well, almost all tariffs on US goods sold in those countries have been eliminated. Goods from the US have entered Chile without tariffs since January 1; and most tariffs imposed by Peru have already been phased out.
The TPP will amount to a free-trade agreement with Brunei Darussalam (with a population of less than 500,000) and New Zealand (less than 5mn). Encouraging exports to these countries is surely desirable, but the economic impact on the US is unlikely to be more than a rounding error.
That leaves three larger countries where the issues are more complex: Japan (about 125mn people), Malaysia (around 30mn people), and Vietnam (90mn people).
Japan resists reducing import tariffs on hundreds of agricultural goods, including meat from the US. In addition, non-tariff barriers have long impeded, for example, the export of American-made cars to the Japanese market. It remains unclear to what extent TPP will really open the Japanese market for auto-related products.
And Japan has had a history of currency intervention, holding down the yen’s exchange rate to boost exports and discourage imports – with major negative consequences for the US, among others. Japan does not engage in such currency manipulation currently, and TPP represents a good opportunity to ask the Japanese for a commitment to abandon the practice. Unfortunately, the Obama administration has declined to go down this path – currency manipulation is off the table as far as it is concerned.
As for Malaysia, important issues regarding forced labour in the export sector have emerged – and there should be full compliance with labour standards before the TPP deal is signed. There are some grounds for optimism here, but promises to implement changes in labor standards after a trade agreement takes effect are seldom fulfilled.
In Vietnam, moving large subsidies provided to state-owned enterprises onto a measurable, market basis would be a sensible goal. Workers’ rights are also a significant issue. Indications are that the TPP negotiations are making little progress – though, again, key details and potential agreements remain highly confidential.
In addition to trade, TPP includes important provisions related to investment, the most prominent of which concern intellectual property rights, such as patents. Although Obama says that the TPP is the most progressive trade agreement in history, Sander Levin, the ranking Democrat on the House Ways and Means Committee – and someone will full access to the text – disagrees.
He says that access to low-cost medicine in poor countries, for example, will be restricted. Médecins Sans Frontières, the Nobel Peace Prize-winning humanitarian organisation, agrees. (These and related issues were raised at a recent event on Capitol Hill in which I took part.) And TPP will also confer special status on foreign investors, allowing them to sue for financial judgments against host-country regulations. Why we would want to provide such differential protection to non-domestic companies is a mystery. Creating a quasi-legal process outside the regular court system, just for foreigners, can go wrong in many ways.
As Levin recently argued in a detailed and persuasive speech, the US should be having a full and open debate about these dimensions of the TPP deal. It needs thoughtful, pubic deliberation about the provisions that are included, as they can have important consequences for the US and its trading partners.
Unfortunately, the Obama administration prefers to avoid public debate on substantive issues, instead merely insisting on using the fast-track TPA procedures for whatever TPP is agreed.
That is a mistake. If the administration gets a trade agreement and it goes bad – on workers’ rights, access to medicines, state subsidies, or anything else – how does that help trade, America’s foreign partners, or the US economy? - Project Syndicate

♦ Simon Johnson is a professor at MIT’s Sloan School of Management and the co-author of White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.