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What Obama’s trade agenda means for the rest of the world

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Negotiations for a massive trade deal involving countries accounting for nearly half of the world’s economic activity are expected to wrap up in Maui at the end of this month, where trade ministers from 12 Pacific Rim countries will seek to conclude talks that have stretched over the better part of the decade. Looking back, it’s easy to view negotiations of the Trans Pacific Partnership as an Obama legacy issue, and it is. But that is looking at it too narrowly; the trade deal is something important for us individually and for America’s role in the world. That is why a majority in Congress, heavily of the other Party, gave this President a negotiating mandate in the form of “trade promotion authority” – so that he could conclude these trade talks.

It is worth looking at what the whole of TPP is about, because while individual pieces of the agreement deserve attention, the whole is more important than the sum of its parts. No magnifying glass is needed to examine the broad strokes.

First, the agreement has a strong geopolitical dimension. The President told Congress that he needed a mandate for the negotiations because TPP is about providing an offset to state capitalism, by which Obama meant, the Beijing economic model. He said pointedly that either China would write the trade rules for Asia or we would. TPP does this by introducing market forces, rather than government intervention, into broader reaches of trade among these Pacific area countries that account for 40% of the world’s economic activity. While TPP provides a counterpoint to Chinese policies, it is not designed to exclude any country. Others, including notionally China, are welcome to join, if they can measure up at some point to the freer trade rules dictated by the agreement.

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As important, getting TPP done has the potential of restoring positive momentum to the world trading system. The World Trade Organization (WTO) was given the assignment of taking on this task in what was to be an ambitious agenda adopted in the wake of the 9/11 terrorist attacks. In the ensuing 14 years, it has yielded a very small fraction of its intended results, and even those are provisional, as the one agreement that came out of the effort – providing for “trade facilitation” (smoothing the entry of goods across borders) – is still in the process of being ratified. With the WTO negotiations moribund, the TPP can to be the foundation of an alternative, but compatible, path forward. Once TPP is concluded, it will be the basis for the United States to press on to a difficult but important next step, the negotiation of a Trans Atlantic Trade and Investment Partnership Agreement with the European Union. Accomplishing both transoceanic deals will provide the framework for most of world commerce. Once these two agreements are completed, China, India, Russia, South Africa, and others, who are reluctant to allow market forces to determine competitive outcomes, will be faced with a choice of joining in, or being left behind. They will no longer be able to stand in the way of progress.

That is the big picture. But none of that will be the immediate business for trade officials meeting in a few days in Maui. The remaining trade “concessions” sought are specific to individual constituencies. For example, New Zealand’s negotiators have made no secret of the fact that they will be judged at home in large part by what the United States is willing to do to allow in imports of more dairy products. Existing protection always has its core of domestic beneficiaries, and the case of dairy is no exception.

But the picture is more complex. California’s dairy producers will to some extent be looking to markets in Asia, particularly in Japan where Prime Minister Shinzo Abe has begun to seek to reform agricultural cooperatives, while Vermont’s dairy farmers will be interested in what Canada’s Prime Minister Stephen Harper is willing to do in the way of liberalizing trade in their products. Australia, for its part, will be looking to see what Japan will do for its beef and the U.S. for its sugar exports. At the same time, Mexico will have a different interest with respect to U.S. sugar imports, as it already has a privileged position in the U.S. sugar market under NAFTA.

Every participant has its list of what it is seeking in the way of new trade opportunities as well as a very clear idea of its sensitivities to increased imports at home. It is all well and good that consumers in general benefit from trade liberalization, but this provides little guidance for negotiators. They have to have a good idea of what the balance will be of concessions granted and those received. Working for the general welfare is a by-product, not a guide to the deals that need to be struck.

Most of the two dozen chapters of the agreement deal not with commodities but with creating new rules for trade, and with exceptions created from those rules. Difficult as it may be to judge what the impact may be of opening up a given market for goods and services, it is even harder to measure the impact of creating new rules. As a result, there remain a number of open, highly contentious, issues regarding the application of the new rules that TPP will provide.

For example, it may seem straightforward to permit foreign investors access to arbitration (under “investor state dispute settlement” provisions) when a host government enacts measures that amount to expropriation of its property, but this idea, imbedded in hundreds of international agreements already, has generated with a large amount of strenuous and emotional opposition from “civil society” groups. Will huge foreign multinationals be able to frustrate the enforcement of national environmental laws, or the protection of health and safety? The answer: not at all likely.

Another issue that causes concern is whether governments will still be able to use state-owned companies to deliver necessary public services? Yes, of course they will, but when government-owned entities enter into commercial competition with private companies, they will be subject to new disciplines and a higher degree of transparency. This is new ground for coverage by international agreements and governments have had to spend several years analyzing where they wanted exemptions from the new disciplines. The last, hardest cases for these carve-outs remain to be resolved.

The fact that the impact of each of the new rules is difficult to measure does not prevent them from being highly sensitive politically. The opposite has been the case. A prime example of this is the length of time that a company inventing a biological drug can have the exclusive use of the massive amount of data that it has generated to develop and test its breakthrough products. This is known as “the period of data exclusivity.” One side of the argument is about how much intellectual property protection is necessary to promote innovation — without which there are fewer incentives to create new miracle drugs. Weighed against this is the argument in favor of early and wide availability of a new drug in copies from multiple sources, that is, from companies not bearing the cost of creating similar test data themselves. The period of data exclusivity in the United States, the most innovative producer of biological drugs, is twelve years. Others give lesser periods, down to five years in some countries that also are clearly not leaders in production of these drugs. This is yet another issue for ministers to resolve.

TPP is different from prior negotiations in the range of the kinds of economies of the participating countries. Vietnam has moved substantially away from state-ownership as part of its domestic reform program so new rules in that area are less likely to be a sticking point in the trade talks. What it does with respect to adoption and implementation of core labor standards is a more sensitive issue and whatever is agreed to will be evaluated closely by many in the United States. Similarly, Malaysia presents sensitive issues. Deeply ingrained is its practice of giving advantages to native Malays, a practice seen by foreign companies as creating discriminatory barriers to their investments and trade. In addition, Congress has emphasized that Malaysia’s participation in TPP is to be conditioned on the sufficiency of its actions taken against human trafficking.

Never have a dozen countries engaged in as intricate a negotiation aimed at greater liberalization of trade and investment. Each trade minister might be viewed as playing a game of three dimensional chess, complex enough, but there is actually a fourth dimension – time. Two of the major players are headed toward elections – in October of this year for Canada’s Prime Minister Harper and 2016 for the U.S. presidency. Elections are not a good time to sell trade deals at home. Willingness to do a deal also may have a short shelf life — Japan’s Prime Minster Abe has been able at present to pursue an economic domestic reform agenda. Openings for agricultural liberalization cannot be taken for granted. For reasons such as these, a deal delayed may be a deal lost.

Alan Wm. Wolff is chairman of the National Foreign Trade Council and a senior counsel with Dentons US LLP.

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