Elliot J. Feldman conducted a webinar for The Knowledge Group on January 8, 2016 on the Trans-Pacific Partnership. Set out below is the essential text of Dr. Feldman's presentation for segment 1 of that webinar, slightly modified to recognize that the webinar was in early January. Dr. Feldman's presentation for Segment 2 will be provided in a subsequent post on this blog.
Original planning for this webinar called for an earlier date for presentation. We proposed a date that would get us past at least some speculation. Before January, terms had not been finalized; countries had not yet signed. Canada was unhappy with the deal the United States apparently had entered with Japan over rules of origin for automobiles and automobile parts, and with a federal election looming on October 19, it seemed certain only that Canada would not conclude the deal before the election, whose outcome might change the Canadian disposition altogether. There were plenty of other outstanding issues in other countries.
By early January, we knew at least that one major element of the speculation was passed. The primary terms of the deal had been settled among the twelve countries, even if they were not yet public. Even then, however, a lot of speculation remained. The deal was inscribed in more than 6000 pages. No one could honestly claim to have read all of it. Nor was the deal, in fact, done. The United States was negotiating with its stakeholders with promises of possible side letters. Other governments were doing the same.
Intense negotiations were taking place with stakeholders (and have been continuing) because, notwithstanding the signatures of heads of governments, ratification still must take place everywhere. This challenge is famously acute in the United States. Whereas most democracies have parliamentary systems that marry the executive and legislative branches, the United States divorces them. When the head of a parliamentary government signs an international agreement, particularly one that may require implementing legislation, he knows he has a majority of the legislature to endorse his signature and pass or amend laws as may be required to give the agreement full effect. Not so in the United States. And even in parliamentary systems there are elections that can change the majority, as happened on October 19 in Canada. Leaders who sign international agreements are not necessarily around to see the agreements ratified. Their successors are not always ready to ratify them.
A discussion of the TPP in early January necessarily was missing a great deal. No one could have been certain of all the terms, and no one but the negotiators themselves was likely to have mastered all of the chapters. To a distressing degree, that condition still applies at the end of February, nearly two months later. The Obama Administration has been promising the finish line for years, and remains understandably in a hurry to finalize, sign, and ratify. Not a single key member of Congress, however, had yet indicated satisfaction with the deal as written (which is, as far as they know, because so much of it remains unread, unstudied, and not yet fully understood). The Obama Administration wanted the deal done quickly because it understands that little gets done in Congress in a major election year, and little has gotten done in recent Congresses past, even without elections, on any subject. I predicted with certainty, nonetheless, that TPP would not win congressional approval before the presidential caucuses and primaries got underway, as safe and now confirmed prophecy.
Notwithstanding that much of the January discussion necessarily was speculative, I framed the discussion around three questions:
- What is the TPP?
- What remains to be done?
- Should it be done, that is, is the TPP in fact a good thing?
My discussion was mostly macroscopic, going well beyond international trade into the terrain of geopolitics. The Obama Administration declared the TPP in 2013 the cornerstone of its pivot to Asia. The pivot was primarily strategic, and so the cornerstone must be understood as strategic as well.
What Is The TPP?
The original partners discussing what has become the TPP were Brunei, Singapore, New Zealand, and Chile. Their talks began in 2005. They wanted to approximate a free trade zone between South America and Asia. I don't have their populations in 2005, but estimated in 2015 they totaled around 28 million people, carved into four markets. They did not represent anything strategically or economically significant for the United States, which already had free trade agreements with Chile and Singapore and had excluded New Zealand from its free trade negotiations with Australia for several reasons, one of which was that the United States assigned priority to Australia and did not regard New Zealand as an essential free trade partner. There was no particular interest in the United States in 2005 for a special trade arrangement with the half-million people in Brunei.
In 2008, Australia, Vietnam and Peru joined the talks. Australia and Peru represent, combined, only another 53 million people, and the United States already had bilateral free trade agreements with each of them, too. Chile alone represented more than half the original group's total population. The countries already with free trade agreements with the United States constituted nearly 80 percent of the total population of the prospective partners. To the extent that free trade agreements are economic (and, predominantly, they are political and strategic, not economic), for the United States they are about market-opening for American goods. There was no plausible reason for the United States to commit resources to a multilateral agreement whose only new markets would be Brunei and New Zealand.
The major and significant change in the negotiating dynamic was the addition in 2008 of Vietnam, with a population alone (at more than 94 million) barely less than all the others combined. Vietnam was a promising major market for the United States, rich in resources. But Vietnam is a Communist, non-market economy governing politically and economically a developing country. The inclusion of a developing country in a regional agreement that intended to remove protectionism and raise environmental and labor standards renewed the controversy that had surrounded the addition of Mexico to the Canada-United States Free Trade Agreement two decades earlier, forming NAFTA.
Vietnam's inclusion at once stimulated interest in enterprising Americans, but also was an "high standard, twenty-first century agreement," a model for future trade agreements around the world. Still, the inclusion of Vietnam was also a clue about a growing view of China in the United States, as Vietnam and China were historically implacable foes with deep mutual suspicions.
Malaysia enlisted in 2010, adding another 30 million people, again from a developing country. The transformational event occurred when the Obama Administration, having criticized NAFTA during the 2008 presidential campaign, reimagined the TPP as a successor to NAFTA and enrolled seriously in the TPP talks, first without its North American partners. It took two more years for Canada and Mexico to join, in 2012. Canada was questioned because of its commitment to supply management – government marketing and pricing of dairy products – and consequently its entry into the talks had been blocked.
Now, and only now, did TPP need to be taken seriously, and not by everyone. For American business there was still little that was new. Canada and Mexico already were in a free trade agreement with the United States, along with most of the other prospective partners, and while opening the Vietnamese market appeared attractive, it also appeared to be excessively challenging for its potential value. The average monthly salary of an urban worker in Vietnam, in 2015, is $146. It would be unreasonable to expect Vietnamese to be buying a lot of expensive American goods any time soon.
The weight of the emerging deal, by population and hence by prospective customers for exports, had shifted, but mostly back to North America.
At this point, the Obama Administration had backed into these talks that, for the United States, had been initiated by USTR Susan Schwab and the George W. Bush Administration. The United States was answering the call principally of small Asian states whose agenda was largely to draw more American engagement to offset their worries about China. Having announced that he considered relations between China and the United States as the most important bilateral relationship of the twenty-first century, Obama could not reasonably declare that he was enlisting in a containment of China. So, the contradictions began.
The first contradiction was the suggestion that the TPP's architecture was to add partners organically (it already had grown from four to eleven in the negotiations), making it open and welcoming of China if and when China might like to join and would be willing and able to make the necessary adjustments. The visions of Brunei and Singapore and Vietnam were not to join a pact with China. Nor did the emphasis on a "high standard twenty-first century agreement" that might exceed China's grasp make sense with the inclusion of Vietnam. The presumption underwriting the official explanation for China's exclusion came more than a decade after China had joined the WTO – which was six years earlier, it should be noted, than Vietnam. Vietnam somehow was expected to meet these new standards, while the Administration claimed that China could not. Hence, the second and sustaining contradiction – that Vietnam was to be in, China out, because somehow Vietnam could meet the high market standards that China could not satisfy. Both Vietnam and China were considered non-market economies, but China's WTO Accession Protocol promised market economy recognition in 2016; there was no such commitment, nor even an expectation, for Vietnam. Nor was there little doubt that, despite the critics focused on China's state-owned enterprises, China was much further along in a transition to a market economy than Vietnam. Economically, and as a matter of international trade, there was no way to reconcile Vietnam's inclusion in the TPP, decorated with the suggestion that China was not ready. Vietnam's inclusion emphasized, above all, the politics and strategic interests, not the economics, of the TPP.
The serious American entry into the talks, with Mexico and Canada, shifted the Asia-Pacific balances dramatically toward North America, but did little to attract American economic interests. Nor was there much interest in Congress where opposition to virtually all Obama initiatives had become the only objective of the Republican majorities, especially after the 2010 midterm elections. But then the situation shifted again.
In December 2012, a month after Obama's reelection, Shinzo Abe was elected for a second time to become Prime Minister of Japan. He had left office in 2007. Abe had two primary objectives: a Japanese economic recovery through what was called "Abenomics," and a restoration of Japan's military capacities, what he argued would be a restoration for Japan to be a "normal" country. For the economic solution he focused on the promise of the TPP; for restoration as a "normal" country with independent military capability, he focused on revising Japan's Constitution. For both objectives he knew he would need American support.
The Obama Administration was withdrawing from Afghanistan and Iraq, but not from world affairs. The "pivot" to Asia began as an increased commitment to engagement with China, but engagement with China was not the primary objective of the Asian partners with whom the United States had enlisted in the TPP negotiations. They had begun in fear of China. For Japan, particularly for Prime Minister Abe, China was an ideal excuse for advancing his own military agenda. He needed only to nurture an American disquiet about China's military development, especially in Congress.
Abe insisted upon a renewal of the Alliance with the United States. He staked out China as a common enemy, provoked confrontation over what Naval Intelligence officer Lyle Goldstein calls "rocks and reefs," and persuaded the United States that a Japanese regional military capability could serve again what the United States had in mind since the earliest days of the Cold War – a bulwark against Communism in Asia. In exchange, as had been the case for sixty years, the United States would help Japan economically.
Seven months after his return to power, Abe led Japan into the TPP talks in July 2013. Almost simultaneously, the U.S. tone toward China changed. No longer were there any suggestions that the TPP was to be a trade agreement China one day would join. Instead, the Obama Administration started a campaign for Trade Promotion Authority – authority to negotiate the TPP deal with the assurance that Congress would have to accept or reject it but could not modify it – by arguing that either China or the United States was going to make the rules for global trade in the twenty-first century and it had better be the United States. China was cast simultaneously as a military threat to the region – even though American defense expenditures continued to be five times greater than China's and the U.S. intelligence services did not foresee any projection of Chinese power beyond its region (unlike North Korea, where the United States needed China's help but was alienating the Chinese defense establishment) – and as an economic threat for the world.
The history of negotiations suggests the evolution of strategic interests, beginning with smaller countries until Vietnam joined. The key turning points came with the full commitment of the NAFTA countries and, subsequently, the first major new market for their interests, Japan. As trade negotiations go, these went very quickly, accelerated in significant part by the failure of the Doha Round of the WTO, which had begun in November 2001 and dragged on with long interruptions for more than a decade. Blame for failure was commonly assigned to India and China, neither of whom was a party to the TPP. The Doha Round had been conceptualized as the first world trade talks devoted to developing countries. Developing countries seemed preoccupied with food security. The more developed countries wanted more free trade in agriculture. Meanwhile, the new trade agenda – including financial services and intellectual property – became preoccupations for more developed countries and were hardly considered in the Doha discussions.
By April 2015, Japan had become indispensable to the TPP. If there were no deal with Japan, there would be no reasonable expectation for congressional support for a new deal with the other countries. Of the three leading Asian economies – China, Japan, and South Korea – only Japan had joined the TPP talks. China was excluded, and South Korea, which gave serious consideration to joining, preferred its newly-won privileges in a bilateral free trade agreement with the United States and stayed out.
It is apparent that Obama thought he had a quid pro quo with Abe. Obama would vigorously proclaim the American commitment to the military alliance; he would criticize provocative Chinese steps around the rocks and reefs. He would even pass American ships by China, and he would support Abe's campaign to rewrite the Japanese Constitution, notwithstanding that polls showed a majority of Japanese preferring the post-World War II pacifism that had served Japan very well.
In exchange for the security promises Abe craved, Obama expected Abe to open his market to the United States and the world, particularly in agriculture and automobiles. Japanese automobile manufacturers shut out North American vehicles. The Japanese, Abe said, simply did not like American cars. Japan said that rice, wheat, barley, beef, pork, dairy, sugar and starches were all "sensitive" and trade protections could not be lifted. Powerful Washington lobbies such as the U.S. Chamber of Commerce indicated an interest in the TPP above all if there were a deal with Japan. In April, on the sidelines of the multilateral negotiations, the lead American negotiator began a bilateral negotiation with Japan. The United States had long sought to open Japan's market. The multilateral TPP was the most promising development for an opening to Japan.
Abe visited Washington. The Administration suggested that it would be a decisive moment to bring the TPP close to completion. Obama pledged American military and security support for Japan. Abe pledged – nothing. The only reference in a joint press conference to automobiles was Obama's aspirational reference to one day seeing more American cars on the streets of Tokyo. The word "agriculture" was not spoken at all. And when it came to pass, the United States entered a side deal with Japan on automobiles that infuriated the Canadians and Mexicans, diluting the content requirements in the Rules of Origin for North American cars from 62.5% to somewhere between 30 and 55%, depending on the parts. The Japanese market was not opening to North American cars, but the North American market was to become, in the TPP, more accessible to cars from Japan.
As Japan became indispensable to the TPP, antagonism toward China became manifest in the Administration's campaign, first for TPA, and then for the TPP itself. Japan made agricultural concessions, but not enough to win enthusiastic support for the TPP from any American agricultural interests, and opposition from some. The dairy industry not only found the Japanese market still largely closed once TPP texts emerged; it found itself profoundly dissatisfied with the Canadian position on supply management – the Canadian system whereby governments buy and sell milk, cheese, eggs and poultry, keeping prices for consumers high and imports out. The Canadians, for their part burned on automobiles, on October 19 dismissed the Prime Minister and party that negotiated the TPP (no direct causal relationship is meant to be suggested here in the electoral outcomes), and the new Liberal Government said it would have to examine the deal in its entirety. The new International Trade Minister pointedly said the deal was not the responsibility of her government and she was making no promises whether Canada would support it.
The TPP is the most significant piece of international unfinished business for the Obama Administration as it enters its eighth and final year. Its 2015 accomplishments were both unexpected and spectacular by any fair measure – a deal with Iran that appears to provide reliable assurance that Iran will not develop a nuclear weapon capability for at least another decade; a restoration of diplomatic relations with Cuba evolving quickly toward a full normalization; an unprecedented global agreement to arrest climate change, following the achievement at the end of 2014 — the unprecedented agreement between the world's two leading carbon polluters, the United States and China. All this as, despite numerous setbacks, the United States removed almost all of its military personnel from harm's way in Iraq and Afghanistan. There remained room for criticism – an uncertain trumpet answering the calls of ever-more complex crises throughout the Middle East; a reluctant answer to Russian challenges, in Syria but, even more, in Crimea and Ukraine. But, in all, Obama had to be extremely satisfied with his international achievements.
All of these achievements involved executive actions that evaded the control of Congress. There are no binding commitments for the United States in the climate agreements, and so no opportunity for Congress to go back on Obama's word. Obama maneuvered Congress into an option only to accept or reject the Iranian nuclear deal, but with a tight deadline. Even as many voices in Congress complained about many aspects of the deal, Obama was able to convince them that the other partners to the agreement – including Russia and China — were not about to renegotiate, and the European Union and the Russians already were lifting sanctions and making deals in Iran. Congress was left, effectively with no options.
Congress still controls the embargo on Cuba, but Obama has been proving that Congress does not control much else. Wherever he has been able to act without congressional approval, he has done so. Hence, Obama has exercised his powers as Commander-in-Chief to control the international agenda. These powers, however, do not extend over trade. The TPP requires changes in U.S. law. Implementation requires an Act of Congress. It is, therefore, substantively different from any of the other achievements in Obama's foreign policy.
Many Members of Congress complained that the nuclear deal with Iran was not good enough and Obama should go back to the table and negotiate again. Eventually, Congress was obliged to recognize that renegotiation was not an option. Many Members of Congress, including all of the leadership on both sides of the aisle, are demanding renegotiation of the TPP, complaining that different chapters either concede too much or achieve, in opening foreign markets, too little. They stand, however, as little chance of a renegotiation of the trade agreement as they had demanding renegotiation of the nuclear deal. One difference may be that side letters, effectively amending the deal, may be possible, which might yet solve the problems the Administration faces. I will say more about side letters in the second segment. The main difference, however, is that the nuclear deal could go into effect without congressional action. The TPP cannot. Congress has a veto, and as of today I would predict it will use it – first by failing to act before Obama leaves office, and then by following the preferences of the new President: of the fifteen remaining presidential candidates seeking to succeed Barack Obama, two Republicans have endorsed the TPP (Kasich and Bush), and two others have indicated that they might support it but are not entirely committed (Rubio and Carson). All three Democrats have rejected it.
Some observers think this calculus could change. President Obama is fond of noting how differently things look from the Oval Office than they may have looked on the campaign trail. John F. Kennedy famously quipped in a press conference shortly after his Inauguration that his biggest surprise had been discovering that things were a lot worse than he had thought. Presidents do not necessarily adhere to the positions they advanced as candidates. After all, NAFTA is still with us. Nonetheless, none of the twelve candidates who have repudiated the TPP, whether because they oppose the deal or oppose Obama, is likely to change between now and January 20, 2016.
President Obama inherited from George W. Bush three bilateral free trade agreements that Congress had resisted. As a new government from a different political party, Obama was able to persuade those trade partners that there could be no deals without renegotiations. All three were adjusted and, as of today, constitute Obama's international trade legacy – predominantly the completion of the Bush agenda. Without TPP, there will be, effectively, no Obama legacy that he could claim as his own in international trade.
More important, however, than a legacy in international trade is the place the TPP takes in the Administration's broader global strategy. Here, the legacy turns more on what the deal might mean in the containment of China. That implication I will address in my second segment, which will be published in a subsequent posting on this blog.
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