Open Markets, Closed Doors: The Impending Impact of the Trans-Pacific Partnership

By Hunter Bosson

After nearly a decade in the works, the largest trade deal in history is on track for ratification. Initiated by the Bush administration in 2008, the Trans-Pacific Partnership (TPP) has evolved, largely in secret, into a vast treaty President Obama seeks to make into his crowning achievement.

In addition to lowering trade barriers, the treaty would normalize regulatory statute between member states and serve as an immensely important geopolitical move to combat China’s building of Pacific riches and muscle. Obama’s concerns that “China is trying to write the rules for trade in the 21st century” carry near Cold War-era weight, adding to the speed and ferociousness with which the lame-duck President has pushed the trade agreement. Now that Congress has fast-tracked the TPP, support and opposition have skyrocketed. Its magnitude and reach has earned it comparisons to NAFTA and led to high expectations for global political change; but these comparisons and expectations are souring. The Trans-Pacific Partnership will not be perfect; it will have winners and losers, as well as plenty of legal trouble. But the economic and business benefits of the TPP outweigh the costs.

The Trans-Pacific Partnership began as a humble trade agreement between Chile, New Zealand, Singapore, and Brunei called the Pacific 4 (P4) Agreement in 2006. The Bush Administration signaled its intention to negotiate a free trade agreement with the P4 countries in 2008, and since then the negotiating ranks have swelled to twelve nations: Australia, Peru, Vietnam, Japan, Mexico, Canada, Malaysia as well as the United States and the original four countries. The twelve countries’ have 40% of the world’s GDP and 26% of its trade, making it the world’s largest trade agreement.

This is not to say that the TPP is solely a business pursuit. The United States has been replaced by China as the top trading partner of Japan, Taiwan, South Korea, and Brazil, and as its economic influence subsides so too does its policy and security clout. Key to Obama’s “pivot to the East” is American Pacific preeminence, which Obama clearly hopes the TPP will secure. Although the TPP is more than an instrument of American hegemony, its clandestine genesis makes separating the trade from the geopolitics difficult.

Despite the TPP’s incredible importance, negotiations have been overwhelmingly secretive. While key businesses have been given partial access to edits of the agreement, most of the public’s knowledge has come through leaks, notably WikiLeaks drafts released in November 2013 and October 2014. The United States’ trade representative Ron Kirk justified the secrecy on “practical” grounds, maintaining negotiators’ need to “preserve negotiating strength and to encourage our partners to be willing to put issues on the table.” However, as the agreement nears Congressional approval the TPP’s contents are becoming clearer.

The Trans-Pacific Partnership’s first priority is reducing tariffs and other trade barriers. The United States has been lobbying particularly strongly for reductions in agricultural tariffs, such as a Japanese tariff on pork and beef, while offering cuts in American tariffs on automobiles. The United States has proposed significantly fewer tariff cuts than others negotiating countries, but this is largely the result of the United States already having so few trade barriers relative to other countries. The substantial political and trade components, however, are the TPP’s legal implications.

Like all far-reaching agreements, the TPP offers the opportunity for sweeping reforms, but inevitably commits to little substantial change. Some key laws, such as those governing intellectual property, will be strengthened in member nations, particularly countries with weaker property rights such as Vietnam. The many rules and conditions would build upon the World Trade Organization’s (WTO) legal protections and improve litigious flexibility. Pharmaceutical and media companies stand to make the greatest gains from these changes. Big Pharma in particular has won some favorable language, with a provision to extend the process of “Evergreening” to other countries. Evergreening is a patent loophole which allows pharmaceutical companies to renew patents on drugs if they find new uses for them. While profitable for the firms with patents, such rules inhibit mass production of cheaper medicines, causing global health concerns.

Early hopes for greater consistency in regulatory policy concerning the environment, labor, and state-owned enterprises have been humbled as talks have gone on. Particularly worrisome has been the TPP’s environmental impact; if free trade spurs trade and economic activity, without proper policy solutions global resource consumption will grow unsustainably. Unfortunately, leaked drafts suggest few such solutions. Many environmental laws, such as those preventing illegal logging, are not compulsory for joining the TPP. Such proposals often lack basic mechanisms for enforcement. Similar to many international agreements, the TPP suffers from passiveness. These flaws are not necessarily fatal; there are provisions for amendments to the agreement and the addition of new members, which gives hope that the TPP might someday grow to become a Free Trade Area for the Asia Pacific. However, the legal teeth that the TPP provide have stirred a great deal of controversy.

The strongest critique of the TPP comes from its inclusion of an Investor-State Dispute Settlement (ISDS), whereby investors can sue foreign governments in international courts for policy changes that hurt profits. In theory, ISDS is a good idea; one need only look at Russia to realize arbitrary foreign government intervention could deter the very investment that a free trade agreement is meant to promote. But opponents worry it will entangle governments in litigation with powerful multinational corporations. Elizabeth Warren even went so far as to say that ISDS would “undermine U.S. sovereignty.” Needless to say, Warren, Bernie Sanders, and a whole slew of legislators wary of globalization have criticized what could easily turn into a tool for dismantling important environmental and labor regulations. ISDS cases are already on the rise, with 56 in 2013 alone, giving cause for concern that we could see an explosion of litigation. Such cases are often settled out of court, but the cost to governments is dangerous. However, despite the doom and gloom, the TPP still has a fair number of supporters.

Tellingly, the greatest supporters of the Trans-Pacific Partnership are rural. The USDA has gone to tremendous lengths to show how lowered trade barriers will improve agricultural production, and they have a point: many parts of the world cannot compete with America’s capital-intensive farming. But this has not prevented Democrats from mutinying en mass. Obama has even resorted to a series of local radio interviews to win support for the agreement with the population most likely to benefit from the TPP. However, after all the rhetoric and radio, the perception and success of the TPP is tied to the aftermath of other historic free trade agreements.

The TPP draws many parallels with NAFTA; they both have winners and losers, and they both have components that are less than free. That free trade agreements should be riddled with exceptions is almost a given; in addition to the rules and regulations already mentioned, the TPP will looks set to leave currency manipulators alone, and state-owned enterprises will never be banned. Of course, the United States benefits from concessions as well: the agricultural industry that benefited tremendously from NAFTA is still subsidized. Also like NAFTA, American manufacturing is the most vulnerable to an agreement. Although the United States’ manufacturing sector is rebounding and low-skill manufacturing has already been largely outsourced, the TPP’s developing countries are accruing the infrastructure and human capital to compete with American high-skill industry. General economic gains favor other countries as well. According to the Brookings Institution, the United States will also benefit less because it already has fewer trade barriers than most countries in negotiations. The countries relaxing tariffs the most tend to see the most economic gains. Nonetheless, comparisons to NAFTA yield the inevitable conclusion that the TPP would lead to more trade; trade between Mexico and the U.S. increased by 506% between 1993 and 2012. The real question is whether we should expect more from a free trade deal.

The Trans-Pacific Partnership is not the agreement that many hoped for, but for a treaty negotiated between twelve vastly different countries, it is about as close as one could expect. Promoting free trade is still a contentious issue but much less so than 21 years ago when NAFTA was ratified. Today the concerns are greater than jobs and investment (both of which seem ready to increase with removed trade barriers), and they have their roots in concerns of the power of governments to care for their citizens. ISDS poses a serious issue, but the beauty of a living document like the TPP is that it does not have to be a grave problem forever. For all the treaty’s flaws, the urgency with which the U.S. is pursuing the TPP is well-founded; we know we cannot afford to watch the rise of Asian trade and Chinese influence from the sidelines. It is time for the nations of the Pacific to open their arms and their markets. Or at least, all except China.