TPP: The Chance for the US to Reset the World Economy

Gideon Gross, JHU:

Last Monday, an agreement was reached on the Trans Pacific Partnership (TPP), a multilateral trade deal between 12 countries from four different continents bordering the Pacific Ocean. TPP is the most extensive trade agreement in world history to date, including over 40% of global GDP. It has been dubbed “a trade agreement for the 21st century” for expanding trade agreements to include standardization of labor rights, environmental regulations, in addition to a reduction of 98% of all import tariffs within its free trade agreement (FTA) zone. It’s the culmination of negotiations that began with the Bush administration and has been cited, along with the Iran Nuclear deal as one of the most important foreign policy accomplishment during Obama’s second term.

It remains to be seen whether Congress will pass TPP, but the odds are stacked against those who oppose it. A simple majority in both the House of Representatives and Senate is needed for its passage due to a procedural matter that was passed over the summer called Trade Promotion Authority. Given that Republicans tend to support free trade and have control of both houses, the TPP looks to be a unique instance in which President Obama can achieve a desired policy initiative with help from Republicans.

With all its provisions, what gets lost in the debate over TPP is the unique opportunity it presents to the US. TPP allows the United States to once again take a leading role in the global economy. It results in the US creating a set of standards and regulations that helps both US workers and companies without regressing into protectionist and isolationist policies. It allows future international agreements to be based on US law and requires countries in the FTA to adapt their economies to the standards set forth by the TPP. The role of the TPP is already evident in another trade agreement being negotiated between the US and EU known as the Trans-Atlantic Trade and Investment Partnership (TTIP). The two deals will ensure that the US is able to establish similar standards of doing business in both Europe and the Pacific Rim.

If the US does not pursue these trade deals, it creates a void in the international community that another country, such as China, can take advantage of in the near future. The TPP ensures that the US is required to engage itself in the international arena, thus preventing an isolation of the US from the global economy. It’s been stated on numerous occasions that the goal of the TPP is for an expansion from its original 12 countries to any nation in the region that desires to be involved in the FTA. TPP allows for the US to get countries across the region to conform to international standards of doing business. The pressure now will be put on those countries to standardize their economies to international norms.

While the international relations advantages of TPP are apparent, its primary purpose is to satisfy domestic economic concerns. The rules that the TPP will put in place will simultaneously benefit both US workers and businesses. Companies in the US will now be able to compete with foreign firms in similar regulatory environments. Additionally, regulations will be put in place in all TPP countries for state owned enterprises, with the purpose of eliminating anti-competitive dumping practices that hurt private firms both in the US and abroad. For workers, boosted labor standards will give companies economic incentives to maintain employees in the US. In conjunction with US companies being incentivized to not outsource jobs, foreign economies will be more integrated with the US economy, which will require them to hire workers in the US to satisfy global supply chains. Environmental regulations will also become standardized in TPP, resulting both in a competitive boost for US businesses by making foreign companies adhere to stricter environmental regulations.

Despite its advantages for workers, labor unions have remained opposed to the TPP. They state that they support free trade but only if the trade deals protect Americans workers. Led by organizations such as the AFL-CIO and Public Citizen, unions have portrayed the TPP as an attempt by large multinational corporations to exploit workers and become rent seekers to boost profits. The problem with their argument is that these organizations do not oppose the TPP; they are against free trade. According to these labor activists, the decline of unions can been attributed to globalization and free trade. While it’s an easy scapegoat for Unions to blame trade for their decline in the United States, the root of this trend is actually from a shift in the US economy from a manufacturing-based economy to a service sector-based economy. Service sector employees do not have as much of an incentive to unionize in comparison to manufacturing workers for reasons outside of global economic trends. This shift has been a consequence of globalization, but the decline of labor unions stems from this shift in the US labor force, not from globalization itself.

While the conditions and rules set forth in the TPP are impressive and unprecedented, what is unique about it are its enforcement mechanisms that ensure that countries abide to TPP rules. A provision in the TPP known as Investor State Dispute Settlement (ISDS) has been at the center of controversy during the negotiations. ISDS is the establishment of an independent arbitration panel to provide compensation to companies that have lost profits due to government policies that violate free trade agreements. ISDS cannot force countries to change regulations if they are found by independent arbitration to have violated an FTA. It only requires that compensation be provided to companies. Critics of the TPP have used ISDS has an example of how the US will not be able to enforce its own regulations to protect consumers and workers. However, ISDS will have none of these consequences, and statements to the contrary are either a misunderstanding of the procedures of ISDS or outright fabrications by critics. Additionally, ISDS is most often used in cases of illegal government procurement. ISDS allows US companies the confidence of doing business in new markets without the fear of their businesses being seized illegally by foreign governments

In addition to these facets, most of the countries involved with TPP are not poor nations with anemic regulatory environments.  Of the twelve countries in the TPP FTA, six are labeled advanced economies by the IMF: Australia, Canada, Japan, New Zealand, Singapore and the US. Additionally, three of the other countries involved with TPP already have free trade agreements with the US: Chile, Mexico and Peru. The two other countries are Malaysia, which is the third largest economy in South East Asia, and Brunei, which is an oil exporting country and has the second largest GDP per Capita in South East Asia. The only developing economy in the TPP FATA is Vietnam, a country that has for years shown interest in opening its up economy to trade and integrating itself into the global marketplace.

With the Trans Pacific Partnership scheduled for vote next year and TTIP negotiations ongoing, a new period of international economic cooperation may be on the horizon. For the past 40 years, the US has been the leader in the world as an economic giant that has led countries across the world to integrate their economies. The byproducts of this have been an eradication of poverty and a world in which foreign policy is based in economic welfare as much as security. With congress voting on TPP, the decision isn’t necessarily whether the US should pursue a specific set of economic policies, but rather a question of whether the US wants to maintain its role as a global leader and an economic power.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s