The United States is closing in on its first major free trade deal in years. Controversy and speculation have followed the proposed Trans-Pacific Partnership (TPP) for months, but soon both lawmakers and voters will have a chance to see the treaty for the first time. Negotiators struck a final pact on Monday after more than five years of work.
Many questions still remain about the substance of the deal, the likely fight over it in Congress, and its impact on the world if adopted. Here are five we can answer:
What happens now?
The text of the deal must be public for at least 60 days before Congress renders a verdict, and it cannot begin to debate the deal formally until the text has been out for at least 30 days. Lawmakers forced these transparency concessions as part of the legislation granting Obama Trade Promotion Authority, commonly referred to as fast-track.
President Obama struggled to win support for fast-track, which has been a staple of trade negotiations since the 1970s, as the left flank of the Democratic caucus blanched. Many liberals have long opposed the deal on the grounds that free trade agreements historically harm U.S. workers and fail to deliver the exports boost promised by supporters. Members across the ideological spectrum have criticized the TPP’s system of international tribunals to resolve disputes, worrying that the tribunals could circumvent the constitutional court system and allow multinational corporations to override U.S. policies that harm their profits. And internet freedom groups warn the treaty will allow corporations and totalitarian governments alike to restrict free speech online in subtle, irreversible ways.
The White House eventually put together a coalition to support fast-track, but there’s nothing to guarantee that group comes together again around the substance of the deal. Key members may already be defecting based on reports about changes in the final draft deal that have reportedly irked large corporate interests that help drive political support for the deal.
Sen. Orrin Hatch (R-UT) shepherded the fast-track compromise through the Senate, but said Monday the final deal “falls woefully short.” The final draft apparently says that pharmaceutical companies won’t have their patents protected for as long as they would like — something Hatch had insisted upon in the spring.
It’s going to drive down wages for working Americans.
Similarly, a treaty change to prevent tobacco companies from challenging warning labels and other public health laws in the tribunal system is likely to lose some votes from tobacco states. Obama might struggle to find more Democratic votes if he loses people like Hatch, given the ongoing opposition of progressives in Congress and the broader consternation over reported treaty provisions on the auto industry and international labor standards.
It’s bound to be a messy process despite the fast-track restrictions on what Congress can do to the deal. That’s how it’s supposed to be, Economic Policy Institute (EPI) economist Rob Scott said in an interview.
“The Constitution grants Congress the right to regulate international commerce,” Scott said. “So while presidents may require negotiating authority to cut a deal, I think in our system of government they also have to be responsive to the express interests of the Congress and the priorities established by Congress.”
If the deal isn’t responsive enough to those interests, Congress can reject it. But it can’t edit the deal, approve it, and send it back to the White House to renegotiate its preferred changes with TPP partners.
What would the TPP do to the U.S. economy?
The most optimistic forecast is that the TPP would boost GDP growth by 0.4 percentage points over the coming decade.
“That’s a tiny impact, and I think it took some pretty heroic assumptions to get there,” Scott said. And even if that projection of overall economic growth from the conservative Peterson Institute proves accurate, Scott said, the deal will worsen the inequalities hiding within the topline GDP figures.
“It’s going to drive down wages for working Americans,” Scott said. He expects that most of the new imports to the U.S. from the deal will be in goods that require a lot of labor to produce, while the trickle of new exports will predominantly be capital-intensive goods like aircraft. “If we lose jobs in labor-intensive industries and gain a few jobs in capital-intensive industries, even if you somehow could wave a magic wand and have full employment, it’s still going to be driving down wages. People are going to be pushed into lower-wage non-manufacturing industries.”
One analysis of the deal suggests it will depress wages for about six out of every seven workers, and boost them only for those already at the top of the income spectrum.
At least our new trade partners will have to adopt higher American standards on labor law and environmental protections, right?
The White House argues that the deal is America’s best chance to export labor and environmental protections to the developing economies in question. But the mechanisms in the deal for doing so are not as strong as they might have been.
If countries like Vietnam and Brunei continue to allow abusive workplace practices to be rampant, they would lose out on some of the benefits of the TPP. But the treaty reportedly gives them a full five years before any formal evaluation of their progress on labor rights, Scott said, and failing to hit targets doesn’t trigger punitive tariffs or rescind membership — it just withholds treaty provisions that were scheduled to kick in later anyhow.
“Most of the benefits occur simply by joining the deal. It encourages foreign investment, which is what these countries really want, and it’ll encourage exports,” he said. “If [improving standards abroad] were really a priority, we would require countries to make improvements before they actually got the benefits of membership.”
As a further example of the TPP’s failure to take higher workplace standards abroad seriously, Scott points to Mexico. “They have these protectionist unions that are run for the companies. They negotiate contracts before there’s even a factory in place and workers never know the union exists. There’s a lot of pressure to try to reform that system, and apparently nothing was done to address it in the core of the TPP,” Scott said. Rep. Sander Levin (D-MI) has also criticized the failure to toughen up on Mexico, without saying how he intends to vote.
If the best-case scenario is still such a mediocre deal for the economy, why is the White House pushing so hard for this?
In a word: China. The sales pitch from Obama centers on the notion that expanding trade relations with Asian economies in China’s immediate orbit will help to balance out the communist superpower’s influence both economically and politically.
Will the agreement actually put checks on Chinese influence?
It seems unlikely, according to longtime international trade analyst Clyde Prestowitz, because China’s influence over developing nations’ economies not just in Asia but around the globe is already so massive. Most TPP countries already have free-trade deals with China, or are party to negotiations to strike them. The new ties forged by the deal are less about trying to wall China in, and more about trying to catch up from a long ways behind.
The TPP adds relatively little new business to the U.S. trade portfolio. Most of the countries signing onto the TPP already have trade agreements with both the U.S. and China. Of the 750 million human beings who’d be subject to the TPP, 500 million live in North and South America. Half the remaining 250 million are in Japan, a nation already closely tied to the U.S. in both trade and military terms. The TPP adds about 125 million potential customers to the sum of people subject to a direct trade pact with the U.S., and nearly all of them in Vietnam. “This is just not a consortium of players that is going to have any impact on China,” Prestowitz writes in The American Prospect, especially since Beijing is also building financial and political relationships with countries like Zimbabwe, Ecuador and Iraq that are far beyond the reach of the treaty.
“China is an enormous force in the economies of all the Asian countries that are going to be our partners in the TPP,” the EPI’s Scott said. “There’s nothing in this agreement that’s going to in any way change that relationship.”