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In the Nation's Interest

The TPP: It’s Not Easy Pleasing Everyone When Promoting Freer Trade

A deal on the Trans-Pacific Partnership (TPP) was reached on Monday between the U.S. and 11 other Pacific Rim nations.  If ultimately approved by Congress next year, it will be the largest free-trade agreement in a generation and a victory for President Obama and his economic policy agenda.  Yet, as the Washington Post’s David Nakamura reports:

[W]ithin hours the administration had turned from the negotiating table to selling the agreement on Capitol Hill, a reflection of the harsh political climate the controversial pact is expected to face in Congress…almost immediately there were signs of the tough fight ahead…Lawmakers from both parties criticized the pact as falling short in crucial areas, raising the prospect that the White House could lose the support of allies who had backed the president’s trade push earlier this year.

Nakamura cites Hill staffers who claim that with all the political turmoil and transition going on in Congress and the White House from now into next year, it is unlikely Congress votes on the agreement before mid-April (“at the earliest”), far later than the 90-day required waiting period which would allow January consideration.  After all the negotiating that’s been done on TPP to resolve “bitter fights” and get everyone to finally shake hands, you’d think there would be more love going around.  But two things explain the lack of a total “Kumbaya” moment: (i) any arrangement that is deemed to be a “net economic win” for each and all of the countries involved will still involve particular winners and losers within each country; and (ii) it’s still politics as usual, too, and we are headed into an election year.  The losers will complain on specific substance (the particular economic effects on their particular part of the economy), and the politicians will complain…well, just to complain about the other party, even if they might largely agree on substance.

Who are the “winners” vs. the “losers” on the TPP agreement in current form?  Both the Wall Street Journal (WSJ) and the New York Times (NYT) do some helpful sorting out.  The WSJ story emphasizes the inter-industry wins and losses in the infographic at the bottom of this post.  The infographic’s quantitative estimates come from an analysis by Petri, Plummer, and Zhai published earlier this year by the Peterson Institute for International Economics.  The WSJ notes that in the final TPP deal the elimination of U.S.-imposed tariffs on imported cars is postponed for 25 years (in an obvious nod to the Detroit auto industry), which differs from the assumptions used in the original Petri et al. study—so that the expected increase in U.S. car imports by 2025 would not be as large as shown.  Yet Ford Motor Company (identified as a “loser”) is still unhappy with the agreement’s lack of an explicit crackdown/prohibition on currency manipulation, a practice they say allows other countries to devalue their currencies to gain an unfair competitive advantage over American auto manufacturers.  According to the NYT story, the Treasury Department announced on Monday that this latter concern is likely to be addressed in a sidebar to TPP, via a “possible arrangement for senior finance ministry and central bank officials to meet periodically” to “strengthen macroeconomic cooperation, including on exchange rate issues.”

The WSJ also dubs the pharmaceutical industry a “loser” in the deal, because they had pushed for a 12-year patent protection “waiting period” before biotech drugs could be subject to competition from lower-priced versions (which is the current length of time granted in the Affordable Care Act).  The NYT quotes John Castellani, president of the Pharmaceutical Research and Manufacturers of America (“PhRMA”) and a member of CED, arguing that 12 years was “not a random number, but the result of a long debate in Congress, which determined that this period of time captured the appropriate balance that stimulated research but gave access to biosimilars in a timely manner.”  Castellani was “disappointed” that the deal settled on five or even “five plus” years; as explained in various news accounts and by Peterson Institute economist Caroline Freund, the waiting period, when accounting for other applicable government measures, will be effectively five to eight years.  The negotiation over this period was influenced by both the Australian government (who pushed for alignment with their own current five-year waiting period) and consumer and international health advocacy groups (who pushed for even shorter periods to promote greater access to affordable, life-saving medicines).  Each side (appropriately and expectedly) complained in the end of the “meeting halfway” compromise position.  Here, a “loser” got something, but not all, it wanted—which is not everyone’s definition of the term.

Other “TPP loser” industries have won some points in the process of negotiating the deal, even if they didn’t get “slam dunks” on the specific provisions they may have been pushing hardest on.  And the fact that broader associations such as the National Association of Manufacturers have applauded the TPP agreement demonstrates that the wins to the winners are expected to outweigh the losses to the losers.  From NAM’s press release:

While we are still reviewing the full terms of the TPP, manufacturers are appreciative of the tireless work of U.S. Trade Representative Michael Froman and the entire U.S. negotiating team. From the beginning, manufacturers have been loud and clear on the TPP: A strong agreement must embrace priorities that will grow manufacturing in the United States. Those priorities include concrete new market access, the protection of intellectual property, provisions to enable e-commerce and a level playing field, fair treatment and strong property and investment protection standards, all of which must be enforceable for all industries. We look forward to examining all of the details of this agreement to assess whether it will significantly enhance manufacturers’ ability to grow and compete on a level playing field.

This explains why the “TPP winner” list references specific sectors of the economy—agriculture, manufacturing, and technology—yet describes economic gains of a broader nature that would be achieved through the TPP agreement, from lower barriers to entry and a more level playing field in other countries’ markets (lower tariffs and taxes).

The Peterson Institute’s Lee Branstetter and Gary Hufbauer explain there are still “three substantive arguments” about the TPP agreement that will be debated over the coming months:

1. TPP’s economic payoff to the United States (and Japan): whether these more advanced nations will gain given that their tariffs on imports of goods are already low—to which Branstetter and Hufbauer respond “yes” given that stronger intellectual property protection abroad would enhance U.S. and Japanese gains from the “trade of ideas”;
2. “Investor-State Dispute Settlement”: whether provisions “designed to thwart unjust expropriation and unfair treatment, and bypass corrupt, incompetent or biased national courts” amount to a “corporate giveaway”—to which they say “no” because U.S. corporations lose these cases at least as often as they win; and
3. Intellectual property rights for pharmaceuticals: whether the patent protection waiting periods will “enrich pharmaceutical firms while denying life-saving drugs to poor people”—to which they conclude “no”, making the significant point that most drugs available for the treatment of disease around the world are already off patent and that in the U.S. generics account for more than 84 percent of prescriptions.

Of course, these are just the “substantive arguments” we will hear about the TPP agreement as it moves on to the next stage of consideration by Congress.  There it will get tangled up with the messy condition called “politics as usual.”  We will see how it survives.