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KENNETH ZAPP: The president, Congress and the trade partnership

President Barack Obama wants the United States to accept terms of a proposed trade agreement with 11 other Pacific nations that its supporters call a “regional regulatory and investment treaty” that will “enhance trade and investment among TTP partner countries.”

In 2005, four countries — Brunei, Chile, New Zealand and Singapore – formed a trade agreement that later became the format for the proposed TPP. Since then seven other countries (Australia, Peru, Vietnam, Malaysia, Mexico, Canada and Japan) and the U.S. have negotiated new terms that would create the larger TPP.

Taiwan and South Korea are considering expanding the group to 14.

Everyone who survived basic economics in college cannot forget the concept of comparative advantage and how trade between two countries (theoretically) enhances the standards of living of both trading partners. Why then is there so much vigorous opposition in Congress to the new trading system?

First, the textbook theories that sounded so grand seem unequipped to deal with the complexities of our modern global economy. For instance, they did not anticipate developing countries where workers can live on less than a dollar an hour wage producing manufactured goods for sale to us.

The theories also ignore central issues such as environmental standards, social standards and labor rights that vary dramatically between developed and developing nations.

Second, recent evidence from major trade agreements violate the rosy theoretical outcomes. President Obama touted a new trade agreement with South Korea and predicted U.S. exports would expand by $10 billion each year. Sadly, our imports from South Korea did grow $11 billion, but our exports grew only $1 billion annually.

Furthermore, countries can change the terms of trade by adjusting their exchange rate. During the debate over NAFTA (North American Free Trade Agreement), its advocates predicted huge gains for American exports to Mexico. Contrarian Ross Perot countered with the hissing sound of American jobs disappearing.

After Mexico devalued its peso, the data supported Perot. In 1994, we had a positive trade balance of goods ($1.3 billion) with our southern neighbor. In 1995, following the devaluation, we had a negative balance of $15.8 billion.

This deficit grew each year to its peak of $74.8 billion in 2007. Last year’s deficit with Mexico was $53.8 billion. Does the sum of these deficits, $866 billion, sound like hissing?

Frustration over the TPP is heightened by the fact that its details have been kept secret. Complex negotiations among multiple international partners are normally shielded from domestic political wrangling until participants reach their final agreement; so this secrecy need not be viewed as a conspiracy.

Some information, however, has been leaked by Wikileaks. From their disclosures we can discern both strategic intent and potential threats to American sovereignty.

Two strategies seem apparent. First, participants seem motivated to work collectively to thwart the growing economic power of the unnamed elephant in the neighborhood: China. The fastest growing economy in the world gives the most populous country international influence that’s not trusted by her neighbors. Joint economic action may be the only means the signatories have to counter China’s potential hegemony.

Second, the clearest American winner would be agriculture. This is well understood by anyone who has paid $5 for an apple in Japan. Asian governments have maintained support from their (small) farmers by protecting them from global competition and the more efficient producers in North America. Opening Asian markets to our agricultural exports would stimulate rural economies throughout our country.

Other possible consequences of the TPP are less sanguine:

• Countries may be obligated to conform their domestic laws and regulations to TPP rules, even limiting how local governments spend their revenues.

• New TPP tribunals, independent of national influence, would allow corporations to challenge local laws or social policies that they claim interfere with their competitive actions.

• Investors could also sue local governments over policies that impede their development plans in the new TPP tribunals.

• The cost of pharmaceuticals could increase if the TPP rules make the development of new generic drugs more difficult.

To gain Senate approval for TPP, Obama has requested that the Senate first pass the Trade Promotion Authority (TPA). This would produce a fast track for consideration of the TPP. No amendments to the treaty would be allowed; the only vote would be up or down on the entire agreement. Fast-track processes have been employed by presidents from both parties to facilitate passage of previous trade agreements.

On May 14, the Senate passed TPA, which Democrats first blocked. Democrats agreed after they won three concessions:

• American negotiations over TPP would pursue a human rights objective. If not done, the Senate could undo the fast track agreement and consider amendments.

• If TPP is finally adopted, additional funds would be allocated to the Trade Adjustment Assistance program.

• Separate votes approved penalties for countries that manipulated their currencies for trade advantage and more favorable terms for trade with African countries.

Final Senate action on TPP is expected by late spring or early summer, but the vote in the House is even more difficult to predict.

When he campaigned for president in 2008, Mr. Obama gained considerable support by claiming he would bring Americans together. Inadvertently, he has united liberal democrats, unions, environmentalists with Tea Party Republicans and conservative pundits such as Lou Dobbs in their opposition to TPP.

On the other side, he has support of all groups led by large corporations, some of whose leaders have called him a radical socialist.

 

Kenneth Zapp, is a professor emeritus at Metropolitan State University and is a mentor for SCORE Savannah. Contact him at kenneth.zapp@metrostate.edu.

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