Now that congressional leaders have introduced a bipartisan bill for trade promotion authority, attention has shifted to the challenge of passage. The vote will have to occur in the next few months if the Trans-Pacific Partnership (TPP) is to stand a chance of approval before the U.S. presidential race gets into full swing. Success will depend on how the Obama Administration and supporters address a number of claims that make good sound bites but overlook key facts.
Trade promotion authority, known as TPA or fast-track for short, enables the president to send an agreement to Congress for a vote, without amendment, if the consultation procedures and negotiating objectives laid down by Congress have been followed. Its origins date back decades, and it has been used successfully to pass many major trade agreements. But TPA was last enacted in 2002, and it lapsed in 2007. Without passage of new authority soon, conclusion of the Trans-Pacific Partnership would be in jeopardy. This ambitious agreement embraces several of America’s largest trading partners as well as fast-growing economies in Asia, which together represent 40 percent of global GDP and one-third of global trade. It is nearly completed after several years of negotiation, and will reflect the highest standards of any trade agreement. But the other 11 partners are understandably reluctant to put their best offers on the table until they know that President Obama and Congress are in accord. Prime Minister Abe’s visit to Washington at the end of April adds pressure to the hearings this week to demonstrate progress and give Japan a reason to wrap up its part of the larger deal. Advancing TPA would also inject needed momentum into U.S.-EU negotiations on a Transatlantic Trade and Investment Partnership, which resumed this week in New York.
The United States launched trade talks with Pacific Rim and European countries because of a strong economic rationale, but in recent months both negotiations have taken on a critical strategic dimension. In Europe, Russia’s seizure of Crimea and aggression against Ukraine has dramatically changed the landscape, turning Ukraine into a deadly chess game with few rules. In Asia, tensions continue to simmer over conflicting territorial claims in the South China Sea, and there are now increasing concerns about the Japanese-Korean dynamic. It is not a coincidence that the relationship between two of the world’s most unpredictable, bellicose leaders—Kim Jong-un and Vladimir Putin—is warming. As problems multiply and magnify in Europe, Asia, the Middle East and elsewhere, the reasons for creating a stronger economic relationship with America’s most important partners become even more persuasive.
The stakes as well as the hurdles for getting trade promotion authority from Congress are high. Critics of trade agreements have been well organized and mobilized. Too often myths and distortions about trade agreements masquerade as fact. Setting the record straight on several key issues will help frame an informed debate.
First, increased trade helps create more jobs, including jobs that pay more than those that are not linked to exports or imports. Since 95 percent of the world’s consumers live outside the United States, it is not surprising that export-led growth has helped fuel America’s economic recovery. Today, trade supports nearly 38 million jobs, or one out of every five U.S. jobs. These positions pay on average 18 percent more than other jobs. Opponents cite the North American Free Trade Agreement (NAFTA) as an example of job loss and argue that passing TPA will lead to fewer jobs, at lower wages. But the Peterson Institute has found that in the seven years after NAFTA passed, nearly 7 million jobs were added to the U.S. economy, as unemployment dropped from 6.9 to 4 percent. The growing income inequality and depressed wages the United States faces today are not due to NAFTA. Furthermore, while imports may rise as well as exports as trade increases, that is not unexpected given the global nature of production today.
Second, the United States has one of the most open economies in the world to goods, services and investment. It even eliminates tariffs on thousands of goods from the poorest countries, assuming Congress reauthorizes the Generalized System of Preferences and the African Growth and Opportunity Act programs. Foreign exporters face far fewer barriers than U.S. companies and workers trying to access overseas markets. The only way to remedy this imbalance is through a trade agreement.
Third, trade agreements benefit the 98 percent of U.S. exporters that are small- and medium-sized enterprises. Without agreements in place, these companies rarely have the bandwidth to penetrate regulatory red tape, or challenge a foreign government’s discriminatory treatment of its investments, or resist surrendering intellectual property.
Fourth, while a trade agreement cannot improve the labor or environmental conditions in a partner country overnight, it would require signatories to abide by important protections or face serious consequences. Unlike older agreements, such as NAFTA, these obligations are legally enforceable in the same manner as the obligations granting market access.
Finally, TPA is Congress’ opportunity to make clear to the Obama Administration—and future administrations—the high standards it expects to see in any trade agreement, such as enforceable labor and environmental provisions. Congress is neither giving up its leverage, nor offering a blank check to the executive branch. Congress will make the final decision only after thousands of hours of consultation and collaboration between members and the administration, as well as public input prior to signature and congressional assessment afterwards.
Notwithstanding the significant benefits of a stronger, coordinated trade policy, fewer than a dozen Democrats have come forward to support TPA. This is not surprising, as moderate Democrats find themselves in a difficult position. They are caught between labor and other groups that have frozen political contributions while TPA is being debated, and business groups that tend to support Republican candidates. Either the White House will have to work with the unions to find more flexibility or, more likely, business groups will need to indicate they are going to be watching votes, not party affiliations, in the next election cycle. This may sway a few conservative Republicans, who are otherwise averse to supporting the administration. To attract more support from both parties, continuing concerns about currency manipulation will need to be addressed. One thing is clear: the tally will be close, with undeclared members of Congress waiting to see if they can avoid having to cast an affirmative vote until the last moment.
There is little “free” about trade without an agreement, and there is no realistic chance of a trade agreement being concluded without TPA. The good news is there is a growing realization that a failure to pass TPA in the next few months would be a serious setback for U.S. trade policy and make it impossible to conclude and approve TPP before 2016. The bad news is that Congress is in session just 16 legislative days between now and the Memorial Day recess, and has only another 16 legislative days until the July 4 recess. This compressed calendar might be enough to deal just with TPA, but Congress is also facing other important issues, from appropriation bills to renewal of the Patriot Act to the fate of the Export-Import Bank.
Without passage of TPA, American companies and workers will have to watch from the sidelines as other countries forge ahead and cut their own deals. With TPA renewed, the United States will be able to continue to play a leadership role on global trade issues while cementing essential economic alliances and strengthening the U.S. economy.
Homi Kharas delivered the keynote address at IFPRI’s annual staff retreat on September 12, 2018. He explored the evolving development agenda and its implications for policy research.