TPP under serious threat

The Trans-Pacific Partnership agreement has become a political football in the US presidential election campaign, and with the public mood being against free trade pacts, this deal faces the real possibility of being discarded.

by Martin Khor

It was signed in February by the 12 countries that spent five years negotiating it, and was widely expected to come into force within two years, after each country ratifies it. But now there are growing doubts as to whether the controversial Trans-Pacific Partnership (TPP) agreement will actually see the light of day.

Ironically, it is the United States, which had led the negotiation process, that may in the end be its undoing.

The TPP has become one of the hottest issues in the US presidential election process. Opposing the agreement is at the centre of Donald Trump’s campaign.

Bernie Sanders championed the anti-TPP cause, saying: “We shouldn’t renegotiate the TPP. We should kill this unfettered FTA [free trade agreement] which would cost us nearly half a million jobs.”

Hillary Clinton also came out against the TPP, a turnaround from her position when she was US Secretary of State. To counter suspicions that she would again switch positions if she becomes President, Clinton stated: “I am against the TPP, and that means before and after the elections.”

They may all be responding to a popular feeling that trade agreements have caused the loss of millions of  manufacturing jobs, stagnation in wages and the unfair distribution of benefits in US society.

Besides the presidential candidates, two other players will decide the TPP’s fate: President Barack Obama and the US Congress.

Obama has been the main advocate for the TPP, passionately arguing that it will bring economic benefits, raise environmental and labour standards, and place the US ahead of China in Asian geopolitics.    

So far, he has not succeeded. Obama must get the agreement ratified by Congress before his term ends, in the lame-duck Congress session after the election on 8 November and before mid-January 2017.

It is unclear whether there is enough support to even table a lame-duck TPP bill and, if tabled, whether it will pass. Last year, a related “fast-track” trade authority bill was passed with only slim majorities. Now, with the concrete TPP before them, and the swing in mood, some members of Congress who voted for fast track have indicated they won’t vote for the TPP.

Most Democrats have indicated they are against the TPP. They include Clinton’s running mate for Vice President, Senator Tim Kaine, who had voted for fast track, House Minority Leader Nancy Pelosi and House Ways & Means Committee member Sandy Levin, who has said: “It is now increasingly clear that the TPP agreement will not receive a vote in Congress this year, including in any lame duck session, and if it did, it would fail.”

Republican leaders in Congress have also voiced their opposition. Senate Majority Leader Mitch McConnell said that the presidential campaign had produced a political climate that made it virtually impossible to pass the TPP in the lame-duck session. House Speaker Paul Ryan, who had helped write the fast-track bill, said he sees no reason to bring the TPP to the floor for a vote in the lame-duck session because “we don’t have the votes.” Meanwhile, six House Republicans sent a letter to Obama in early August urging him not to try to move the TPP in the lame-duck session.

Options

Though the picture thus looks grim for Obama, he should not be underestimated. He said when the elections are over, he will be able to convince Congress to vote for the TPP. He added that many people had thought he would be unable to get fast track through Congress but he was able to prevail.

To win over Congress, Obama will have to respond to those on the right and left who are upset on specific issues such as the term of monopoly for biologic drugs or the inclusion of  investor-state dispute settlement in  the TPP. 

To pacify them, Obama will have to convince them that what they want will anyway be attained even if these are not legally part of the TPP. He can try to achieve this through bilateral side-agreements on specific issues, or insist that some countries take on extra obligations beyond what is required by the TPP as a condition for obtaining a US certification that they have fulfilled their TPP obligations.

Obama could theoretically also renegotiate specific clauses of the TPP in order to appease Congress. But this option will be unacceptable to the other TPP countries. 

In June, Malaysia rejected any notion of renegotiating the agreement. The question of renegotiation does not arise even if there are such indications by US presidential candidates, said Rebecca Fatima Sta Maria, then the Secretary-General of the Malaysian Ministry of International Trade and Industry. “If the US does not ratify the TPP, then it will not be implemented,” she said. The other TPP members would have to resort to a ”different form of cooperation.”

Singapore Prime Minister Lee Hsien Loong, on a recent visit to Washington, dismissed any possibility of reopening parts of the TPP as some Congress members are seeking. “Nobody wants to reopen negotiations,” he said. “We have no prospect of doing better and every chance of having it fall apart.”

In January, Canadian Trade Minister Chrystia Freeland said a renegotiation of the TPP is not possible.

Japan also rejected renegotiation, which it defined as including changing existing side-agreements or adding new ones. This is not going to happen, said Japan’s Deputy Chief of Missions Atsuyuki Oike.

What happens, then, if the US Congress does not adopt the TPP during the lame-duck period? 

The 12 countries that signed the agreement in February are given two years to ratify it. For the TPP to come into force, enough countries to account for 85% of the combined gross national product (GNP) of the 12 countries must ratify it. As the US accounts for over 15% of the combined GNP, a prolonged non-ratification by it would effectively kill the TPP.

Theoretically, if the TPP is not ratified this year, a new US President can try to get Congress to adopt it in the next year. But the chances of this happening are very slim.

That’s why the TPP must be passed during the lame-duck session. Or it may have to be discarded, probably for good.  

That would be a dramatic marker of the changing winds in public opinion on the benefits of free trade agreements, at least in the US, the land that pioneered the modern comprehensive FTA.         

Martin Khor is Executive Director of the South Centre, an intergovernmental think-tank of developing countries, and former Director of the Third World Network. This article was first published in The Star (Malaysia) (15 August 2016).

Third World Economics, Issue No. 623, 16-31 August 2016, pp12-13