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Global Trends by Martin Khor

Monday 21 April 2014

Obama’s visit and the TPPA

The United States President’s visit to Malaysia is an opportunity to review TPPA issues, including a Congress proposal to punish countries that are “currency manipulators”

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The President of the United States will soon be visiting Malaysia.  Among the issues on his agenda will be the current status of the Trans-Pacific Partnership Agreement (TPPA).

It will be an opportunity to clarify with the President himself what are the chances the TPPA will be approved by Congress, once a deal is reached.

In particular is a concern that the Congress will only pass the TPPA if it has a clause disciplining countries that are “currency manipulators.”

This concern is especially serious since a recent influential report that many Congress members rely on cites Malaysia as one of the two TPPA countries that qualify to be termed as “currency manipulators.”

As Barrack Obama will be coming from Tokyo, he will presumably share the latest news on the US-Japan negotiations which have been a major blockage to the TPPA’s progress.

Japan does not want to fully open up five “sacred” farm products (rice, wheat, sugar, beef and pork and dairy products) under the TPPA, but could reach a private deal allowing the US to sell more to Japan, by enabling a certain volume of American products to enter at zero or lower tariffs.

Whether such a bilateral deal (reported last week in a Japanese newspaper) will be at the expense of other TPPA members should of course be analysed and be part of the negotiations.

If the US and Japan reach agreement, the TPPA talks are expected to be “unblocked” and countries will be under pressure to quickly reach an overall deal on all issues.

Obama can then be expected to nudge Malaysia to go forward.  But Malaysia has found that there are several problems hindering a quick deal.

Last week, Minister for International Trade and Industry Datuk Sri Mustapa Mohamed gave a briefing to civil society groups and reportedly told them that Malaysia is standing firm in its positions on tobacco control, intellectual property and medicines, disciplines on state-owned enterprises and government procurement, investor-state dispute, Bumiputera rights and that the TPPA should not affect the Constitution nor federal-state relations.    

There is another important matter. What if the US agrees to a final TPPA deal.  Can it stand by such a deal, since it is Congress that has jurisdiction over trade policy?

Obama is trying to get “fast track authority” from Congress, but many members of the House and Senate do not want to give that to him.  This means the Congress can decide to alter parts of the TPPA, and what was agreed to after years of painful negotiation will then unravel.

Why then should the other countries table their “bottom line” in the TPPA when what is agreed to can be opened up again by Congress?   Senior officials in some countries have said they won’t agree to sign TPPA unless the US President obtains fast-track authority.

Powerful Congress members have also proposed that as part of the TPPA, the US be allowed to punish countries that manipulate their currency to give themselves a trade advantage.

Claiming to be backed by a clear majority, they are insisting that the TPP contain disciplines against currency manipulators, including that tariffs can be raised against the offending countries’ products.

The bulletin Inside US Trade has reported that Republican Senator Lindsey Graham and Democrat House Member Sander Levin warned they will vote against the TPPA when it comes to Congress unless it contains enforceable provisions to combat currency manipulation by foreign governments.

Graham said that 230 House members and 60 senators had conveyed a similar position in separate letters to the administration sent in June and September 2013, and that the administration cannot afford to ignore these members if it wants to get TPP approved.

A major problem with this Congress proposal is how “currency manipulators” are defined.   Many developing countries consider the US itself to be a manipulator because the trillions of dollars it has placed in the banking system through its easy-money policy has depressed the value of the dollar to remain at low levels and raised the country’s export competitiveness.

But that’s not how the Americans define manipulation.  Fred Bergsten of the Peterson Institute, a main intellectual force behind the Congress move, proposes three tests to determine a currency manipulator:  the country possess excessive official foreign currency assets (more than six months of import value);  it has acquired significant additional amounts of official foreign assets, implying substantial intervention, over a recent period of six months;  and it has a substantial current account surplus.

Based on these criteria, Bergsten concludes, in a Financial Times article, that:  “Only two countries now involved in the trade pact negotiations – Malaysia and Singapore – have been recent manipulators.”

He proposes that those who fail these tests should face stiff penalties:  they should lose the wider market access obtained via the TPPA; countervailing duties should be permitted against their exports subsidised by deliberate undervaluation; and “sweeping import surcharges” could also be authorised.

On top of this, the trade pact should also authorise “countervailing currency intervention”, through which it could offset the manipulators’ purchases of its currency by buying equal amounts of theirs.

Bergsten’s ideas are extreme, but they have been cited by Congressman Levin when he made his proposal. 

Attempts to link currency manipulation to trade agreements have been made before, but failed so far.  But since a majority in the US Congress now want currency manipulation in the TPPA, otherwise they will reject the TPPA, this issue has to be faced squarely.

Can the TPPA countries agree to having a currency manipulation chapter in the agreement?  If so, the TPPA will contain a very dangerous element and it will also set a dangerous precedent for other future agreements.

It seems very unlikely that the TPPA members (including the US) will agree to having such dangerous disciplines.  If this is so, then it’s unlikely the Congress will pass the TPPA.

Then, is it worthwhile carrying on with negotiations that take up so much time and resources, when there  is little chance for the US (the most important country in the TPPA) to have the TPPA pass through the Congress?

In any case, it is worthwhile for Malaysia to pay close attention to this issue, and bring it up with Obama, since it is one of the two countries fingered by Bergsten as being “currency manipulators.”

Bergsten’s astounding charge that Malaysia is a currency manipulator should also be answered. 

 


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