Defeated Again: Understanding The American Congress Votes on Trade

When the U.S. Senate first rejected the bills on Trade Promotion Authority (TPA), I wrote that it may have marked the day the Americans quit leading on trade.  Although the Senate subsequently managed to squeak through the necessary authorizations, the votes from the House of Representatives today suggests I was right.  Getting the United States to show leadership on trade is somewhere between a tough and an impossible task.

To recap where we are: although the United States has been negotiating multiple trade agreements for years, the U.S. Trade Representative (USTR or basically the trade minister) does not formally have trade authority as delegated from Congress.  Under what used to be called fast track and is now known as Trade Promotion Authority (TPA), Congress lets the White House lead on trade.  Congress sets up the parameters for negotiations and expedited procedures for final approvals. 

USTR went ahead with talks in the Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Promotion (TTIP) “as if” the provisions of TPA were in effect.  The White House had opted not to try for renewal sooner (the last version expired in 2007) because they were not convinced that Congress would view the request favorably in the absence of information about what sorts of agreements were under negotiation.  Therefore, the executive branch decided to negotiate first and seek permission at a later date, when it would be more clear to the legislative branch what sorts of benefits and costs might be on offer.

With the TPP waiting for TPA to close the agreement, it was no longer possible to pretend that authorization was in place.  The other TPP member countries have refused to discuss the most sensitive aspects of the negotiation in the absence of clear authority from Congress to pass the final deal without amendment.

Hence the push to get TPA, starting with the Senate.  The original bill was defeated, only to be resurrected days later. 

The Senate votes set up the challenge for the House now.  If the House version of TPA does not exactly match the Senate’s bill, members from both sides would have to sit down and reconcile the inconsistencies.  The final, combined, bill would have to be voted on again by both bodies.

Given the difficulties in getting TPA, no one wants a situation where members of Congress are forced to vote twice.  Hence, the House version had to match the Senate version exactly.

Which leads us, depressingly, to today’s House votes.  The Senate bill had done two things—it renewed authorization of Trade Adjustment Assistance (TAA) and granted TPA.  (An earlier post discussed TAA in more detail.)

The House was reluctant to vote on a similar combined bill.  Thus, they split the bill into two halves—first a vote on TAA and then a vote on TPA. 

The TAA bill went down to defeat.  Even Democratic members of the House that are in favor of the idea of assistance for displaced workers voted against TAA renewal.  This bill, many argued, was insufficient for one reason or another.  Republicans that are not fans of TAA at all had to step up and try to push it over the finish line.  But it was not enough as 86 Republican and 40 Democrat yes votes lost to 303 no votes.

Once TAA was defeated, it also spelled the end to TPA.  This is because the House and Senate versions of the bill have to match.  The Senate authorized both TAA and TPA.  Therefore, the House must also have matching legislation in place. 

In a grim attempt to snatch victory from the jaws of defeat, House members then proceeded to vote—narrowly—in favor of TPA (219-212).  This looked, to people not familiar with the intricacies of Congress, like a success.

But it is not.  Hence, for the second time in weeks, Congress refused to show leadership on trade. 

What comes next is unclear.  It is possible that the House will figure out a solution to what is again being called a “procedural snafu.”  Maybe sufficient members on both sides of the aisle will reconsider their votes on TAA.  Perhaps the Senate will revote on TPA without TAA or with a different version of TAA that might be acceptable to the House. 

Even if this can be fixed, it means that the TPP may not close as planned.  Chief negotiators were expecting to meet on June 22.  This—at best—now looks optimistic.  The deadlines have always been perilously short. 

Once the immediate crisis is resolved one way or another, it is certainly worth thinking hard about why Congress has twice voted against trade.  (And against the President in spite of a full-court press the likes of which Washington has rarely seen in recent memory.) 

I am on my way to Washington DC and will write another blog post once I’ve had the chance to discuss issues with trade and business experts from the ground.  Perhaps only inside-the-Beltway naval gazers can make sense of what has been happening.  Because much of Asia (at least) has been watching in amazement as American legislators reject what most in this region see as common sense.  Cutting off your nose to spite your face does not seem a sensible policy.

***Talking Trade is a blog post written by Deborah Elms, Executive Director, Asian Trade Centre, Singapore***

Battle #2: Getting Trade Promotion Authority (TPA) Through the House

In the ongoing saga of American efforts to show leadership on trade, the battle has moved to the House of Representatives.  The House now needs to give its approval for Trade Promotion Authority (TPA). 

As previous posts have noted, TPA is necessary to conclude any major trade agreement.  TPA delegates authority to the White House to negotiate trade deals on behalf of Congress and subject to ongoing consultations.  At the end, Congress will either pass or reject a trade agreement negotiated under its terms without amendments and with no procedural maneuvering to stop or delay the vote like filibusters or allowing the bill to die in committees. 

TPA is needed most urgently for the Trans-Pacific Partnership (TPP) that is stuck on hold waiting for the Americans to sort out their domestic issues.  It will also be used for ongoing trade talks with the Europeans and with different groups in global trade under the general auspices of the World Trade Organization (WTO). 

TPA narrowly passed the Senate (62-37) on May 22.  [Note that the Senate needed 60 votes in favor to avoid a filibuster that could have blocked consideration of the bill at all.]  The Senate is considered to be the “easier” body for trade agreements, because each Senator represents an entire state with generally more diversified interests. 

Dealing with the House of Representatives

The House is more problematic.  Instead of two members per state like the Senate, representation in the House is based on population.  This means the House is much larger (435 members) and most officials represent narrower slices of the overall electorate.  While seven House members represent entire states (Alaska, Delaware, Montana, North Dakota, South Dakota, Vermont and Wyoming), California is split into 53 different districts.  Population of districts varies quite a bit—from Montana with nearly a million voters to Rhode Island’s 1st district with about half as many.

In general, the House tends to be more partisan on both sides with more Republicans that lean further right and more Democrats that lean further left than the Senate.  An electoral system that often pushes Senate candidates towards the center does not do the same in narrower House districts. 

In the Senate, TPA largely passed with Republican support and a small number of Democrats.  The House, by contrast, has a set of Republican members that have already said they will not support TPA (either because they dislike TPA or because they do not want to hand any victory to this president).  The number of House Democrats that have come out in support of TPA is quite small. 

The next week will involve furious lobbying by both sides with some extremely unlikely bedfellows developing.

The bill also faces some stiff procedural complications.  If the House does not vote on the same bill that was approved by the Senate, the final versions of both bills have to go to a conference committee.  Afterwards, members of both the Senate and the House will need to vote on the final, combined bill one more time.  Given the fraught nature of trade deals, no one is particularly keen to vote twice on a trade bill at this time.

Contentious Issues

Many of the same issues are being raised in the House that nearly derailed TPA in the Senate, including issues over currency and concerns over a possible rise in drug prices post-TPP.  The last concern seems particularly strange coming from the United States.  After the TPP is implemented, it is very likely that the United States will have to make no changes at all (or quite modest increases) in the length of protection provided to pharmaceutical products. 

In spite of strenuous negotiations, the Americans are unlikely to succeed in getting the other 11 member states to reach the farthest timelines under discussion.  Hence, the differences inside the United States around patent length and the timeline needed for generic medicines to appear in the market is likely to be modest.  The impact on domestic drug pricing is likely to be minimal and could, potentially, be positive as manufacturers have access to new markets overseas.  [Concerns over new, longer protections could be more pressing for other members who currently have shorter timelines for intellectual property protections.]

Just like the battle in the Senate, in the House opponents are bringing in additional issues and trying to tie them to the passage of TPA legislation.  Two key issues are extension of Trade Adjustment Assistance (TAA) for displaced workers and the renewal of the Ex-Im Bank.

Trade-Adjustment Assistance (TAA)

In any trade agreement, there are likely to be winners and losers.  TAA is intended to help retrain workers that experience job losses directly tied to trade.  Unfortunately, it is difficult to sort out whether a worker lost a job due to a trade deal or to globalization more broadly or to shifting technology or to some completely unrelated factor.  Only the first type of job loss is eligible for worker training assistance under TAA funding.

In the new economy characterized by global value chains and shifting patterns of production and consumption worldwide, individuals are likely to hold many different jobs over the course of a career.  These jobs may or may not even be in the same sector.  As a result, to stay competitive, workers are likely to need a lifetime of training and retraining options.  Training can provide people with new skills necessary for success in the future. 

This type of training is likely to be necessary with or without any new trade agreements.  After all, even if the United States never signs another trade deal, workers will still be faced with competition from overseas and still need upgraded skills to work with different types of technology.  Jobs of the future are likely to be quite different from many today and no person—white or blue collar, well educated or not—is likely to succeed without a lifetime of increasing investment in new skills and knowledge.

Thus a battle over the appropriate levels of support for working training is one worth having, although it need not be tied to a trade agreement.   Connecting the two unnecessarily burdens the latter while not giving sufficient scope to the former.

Ex-Im Bank Renewal

The other area of interest in both the House and the Senate is also tangentially connected to a trade agreement.  The fight has shifted to discussions of conditions needed for renewal of the Export-Import Bank.  The Bank has to be reauthorized every five years and the deadline is approaching at the end of June.

The purpose of the Bank is to provide money to firms that want to export more by either giving trade financing (especially to smaller firms) or providing a government loan guarantee (key for larger firms).   It also provides insurance for overseas firms that want to buy American products.  Commercial banks are often more expensive or loath to take on what they view as excessive risks (particularly in emerging or frontier markets). 

The U.S. taxpayer is on the hook only when the loan recipient defaults.  The record of Ex-Im since the 1930s shows that its loans contain very low risk and, in fact, the program overall puts money back into the U.S. government coffers. 

A focus on shutting down the Export-Import Bank looks extremely strange viewed from Asia.  The total U.S. funding for Ex-Im amounts to roughly $20 billion or 0.6 percent of the total U.S. budget.  What is so odd is that the scale of this assistance is, frankly, close to microscopic.  Governments in this region grasp the need for exports.  Without fetishizing exports at the expense of imports, it is clear that exports create jobs at home.  Exports have contributed strongly to the economic miracles in Asia that have lead to rapidly rising incomes and living standards across the region.

To continue to foster this kind of growth, Asian governments promote exports considerably more than America.  In fact, it could be fairly easily argued that American companies are at a strong competitive disadvantage given the lack of trade financing and loan guarantees available relative to their competitors.  Even the relatively small scale program in Ex-Im is meaningful for participating firms.

Just to take one example, Singapore has three different agencies tasked with building up and encouraging economic growth and development by getting smaller firms to scale up, helping firms find a niche in overseas markets and encouraging inward investment by some of the largest and most competitive global firms.  The government gives grants, loans and tax credits to companies large and small, foreign and domestic. 

Canada, Japan and China all have substantially larger entities that do many of the same things.  Each dwarfs the size of the American programs.  In fact, every country in the OECD (a collection of rich countries) has at least one export credit agency. 

Like the fight over TAA, it might be worthwhile to engage in a sustained discussion about supporting industry—the ideal level of support, the effectiveness of programs, the best methods for doing so, etc.  But the TPA ought not be torpedoed over Ex-Im Bank reauthorization.

***Talking Trade is a blog post written by Deborah Elms, Executive Director, Asian Trade Centre, Singapore***

When Business Sits at the Table in APEC

Boracay, Philippines—One complaint frequently expressed by business is that governments keep making trade policy decisions without sufficient input from companies.  Government officials often remark that businesses are not providing sufficient feedback into the policy process.

Asia Pacific Economic Cooperation (APEC) is supposed to help sort out these issues by deliberately providing seats at the table for both business and government.  APEC does this in multiple ways.  Two prominent examples are the use of the APEC Business Advisory Council (ABAC) and providing opportunities for companies to participate in the myriad meetings and sideline events attached to different APEC officials meetings.

ABAC meets four times per year in shifting locations around the world and provides its’ own recommendations to the leaders of the 21 APEC member economies at the end of each year.  APEC officials gather in the host country for three rounds of senior officials meetings, plus the final jamboree of leaders and trade ministers towards the end of the year. 

I have now attended several different meetings of these sorts and I can clearly see the difficulties that both sides have in communicating with one another.  I believe I have gone to enough events and spoken to sufficient numbers of people about their own experiences to draw some preliminary conclusions about the process, but not so many that I have become an insider.  

APEC is an extraordinarily complex animal.  There is not, as far as I know, an organizational chart that maps out the various working groups, committees, consultative mechanisms, and projects that are underway at any given time.  If there were such a chart, it would be so jammed up with lines and boxes that it may not make sense. 

The institution comes with its own jargon.  This is a terribly complex mix of trade terms, language drawn from business, and a set of acronyms that would make any military proud.  It can be so complicated that even long-time participants in the system cannot recall the meaning of all the abbreviations without looking them up.

Of course, lots of different organizations use specific jargon.  Yet the closest equivalent body I can think of—the World Trade Organization (WTO)—doesn’t seem to have quite the same level of jargon plus acronyms plus often detailed technical content under discussion.  I sometimes found the WTO to be impenetrable, until I sat in on these APEC meetings.  Now I feel particular fondness for conversations in Geneva at the WTO.

If I am struggling with managing the information and APEC-speak, I can only guess at the challenges that face the business leader that pitches up an APEC meeting.  With no one to put things into context and what appears to be an inability to translate some of the worst acronyms into normal language, I suspect that many extremely capable business leaders are mostly lost.  Everything is in English, which does not help.  Even most of the slides that were presented at the events I attended were not helpful—too small to read, whipping by at too fast a speed to comprehend, and without hard copies (or downloadable files) always available. 

The next set of barriers to communication could be put down to meeting formats.  Business leaders expect (or at least hope to achieve) clear and crisp meetings with specific action items identified.  This format does not exactly appear compatible with APEC (or maybe government meetings in general?).  In any case, the objectives of meetings are not always clear.  The deliverables may not be spelled out.  Or, they might be obvious to someone who has attended multiple meetings and understands the unspoken subtext of the meeting.  But I could certainly imagine frustration by some businesses about the loss of a whole day or more in a meandering, apparently pointless set of meetings.

One mechanism for including business has been to invite business leaders to serve as speakers.  This approach also has drawbacks.  Absent clear instructions about what is supposed to be accomplished by the speaker, many firms show up and basically give a short infomercial about their company.  (Before I upset anyone, I should note that this complaint was made frequently about presenters at meetings I did not attend.) 

If feedback is needed on policy documents, the materials have to be circulated sufficiently far in advance.  Then some guidance should be given to help businesses understand the context for the materials as well as specific areas of focus.  An open ended, “Please give us your feedback” is probably not going to solicit helpful remarks.  Asking for reactions to technical briefings from the business community on the spot are also not likely to yield much in the way of truly useful comment.  Firms can provide ample input, but need time and structure to do so effectively.

Public-private partnership models of all sorts seem to be currently in vogue.  However, businesses seem extremely unclear about what sorts of inputs they are expected to provide to these projects and meetings.  Without meaningful solicitation of ideas and a format or structure that aligns with their company interests, firms will simply stop attending.

Attendance problems are compounded when APEC meetings are held in locations that are not easy to reach.  For SOMII (the second Senior Officials Meeting of the year), the Philippine hosts selected Boracay as the venue.  Boracay is a challenge to reach.  Most participants flew into Manila and then changed planes.  The island of Boracay is serviced by two different airports.  One is 2 hours away from the ferry terminal by car.  The other airport is closer, but in both cases, participants had to be loaded onto boats for the short crossing to the island.   From there, participants were sorted into vans.  While Boracay has lots of hotels, none are big enough to host the number of delegates needed.  Participants have been spread across the whole of the island in a variety of venues.  All need to be shuttled between hotels all day long.

Thus a business leader that wanted to attend one meeting would have to give up at least 3 days to do so.  For that kind of commitment, business expects to at least get some clear outcome and see progress being made.  This is, as even many APEC groupies admit, not always obvious.

Smaller companies are unable to attend at all.  Between the time commitment and the costs of getting to places like Boracay, small firms simply give the whole process a miss.   The only way to encourage small and medium sized (SME) firms to participate is to hold carefully structured meetings (with no jargon or APEC-speak allowed) in locations like capital cities where SMEs congregate. 

Getting businesses to sit at the table may not be so difficult.  Firms understand the potential power of APEC to shape the economic environment in a key part of the world.  They want to be engaged.  They are often eager to attend.  The real challenge is getting business leaders to attend more than once.  For meaningful engagement between government and business, APEC has to keep people coming and provide them with all with clear, helpful and constructive roles to play. 

*** Two other points worth noting here related to trade:

The Senate last week voted to start the debate about Trade Promotion Authority (TPA).  This was not, as some people thought, the same thing as approving TPA.  The fight in DC has been over which amendments to the TPA bill will be allowed before the final vote.  Of critical importance is limiting the number of amendments, since the Senate bill was written to match similar legislation in the House of Representatives.  If there are differences between the two bills, these have to be reconciled. 

Again, if the fight were merely about TPA, timing would not matter so much.  But negotiators are sitting in Guam right now trying to iron out the remaining differences in the Trans-Pacific Partnership (TPP) negotiations.  Trade ministers are planning to leave Boracay and join them next week.  Absent TPA, it may prove to be a long, tiring trip for little purpose since most are not willing to put final offers on the table unless and until the Americans are ready.

Second, I am going to add a shameless plug for our work in the Asian Trade Centre.  We have been asked to help demonstrate that businesses and other stakeholders have an interest in greater participation in the parallel trade negotiations in Asia, the Regional Comprehensive Economic Partnership (RCEP).  We are still coordinating our plans, but if there are stakeholders out there that are interested in at seat at the table (or standing in the room) in RCEP, it would be great if you could contact me (elms@asiantradecentre.org).  Thanks!

***Talking Trade is a blog post written by Deborah Elms, Executive Director, Asian Trade Centre, Singapore***

The TPA Vote: The Day America Stopped Leading on Trade?

The U.S. Senate’s apparent inability to proceed with Trade Promotion Authority (TPA) may represent the day when the Americans conceded leadership on global trade. 

The vote that blocked consideration of TPA highlights to the rest of the world that the Americans cannot be counted on to get things done any more. The Trade Promotion Authority (TPA) bill is not just about the Trans-Pacific Partnership (TPP). 

TPA is meant to cover a set of extremely important, next generation, trade deals with: the 11 other parties in the TPP; up to 19 members in an expanded TPP by 2020; the Europeans in TTIP; more than two dozen countries in services (TiSA); a hugely important grouping of members in the information technology space (ITA2); with China and others over opening up government procurement markets in a clear and transparent manner (GPA2); more than 160 countries in implementing new rules to move goods faster and cheaper across borders (the WTO Bali deal on trade facilitation); and anything else that might begin negotiations in the next 5 years.

The Senate had an opportunity to outline their primary objectives and allow the Executive Branch to see what is the best possible deal that could be gained.  Afterwards, Congress will vote on each individual agreement after consultations along the way.

These ought to have been key objectives for every member of both parties.  Yet some members in the Senate have allowed misinformation to guide their thinking.  Most damaging has been a set of arguments about currency manipulation, disguised as a discussion about "enforcement" or "enforceable provisions."  The agreements currently on the table--all of them, but especially the TPP--already have extremely strong enforcement provisions built in.  These help to ensure that participating members in each deal follow the rules.

Currency manipulation is not about enforcement of a trade deal.  It is simply a bad idea.  It is not workable and will not address the supposed problem.  Even worse, the collateral damage might end up ensnaring the United States by preventing actions that the Americans may want to take in the future.  

But insisting on including this set of rules alongside the TPA debate just illustrates the nature of the debate in Washington.  It is not about creating helpful rules to guide trade in the next five years.  It is about following narrow, domestic partisan interests and using flawed arguments. 

In the end, it also shows the rest of the world that the United States cannot be viewed as a trusted partner because--no matter how much you bend to accommodate the Americans in a negotiation--they will always add one more bitter pill and insist that you swallow it.  Even then, passage of the final deal is never assured.  

The TPA legislative vote has been cast by the White House as a “procedural issue.”  It is true that the specific problem in voting was whether or not the TPA bill could be considered on its own, or in conjunction with three other bills.  One is presumably not controversial—to renew ongoing trade programs with Africa.  One is to provide worker training for workers harmed by trade (Trade Adjustment Assistance or TAA).  Finally, the worst idea on the table, of having something with currency manipulation as a key objective in (all?) trade agreements.

While Washington has gotten stuck in partisan battles over TPA, the timing for TPP has only gotten worse.  This agreement does not just include the United States.  Delays over TPA have held up the conclusion of the TPP.  If the Americans end up unable to pass the implementing legislation on the TPP until after the next election in 2017, other members may also face similar domestic challenges between now and then that permanently stop the TPP.

By 2017, who knows what will have changed in the other TPP members?  Canada votes in an apparently close election in October.  The Japanese Prime Minister has staked a great deal on the TPP and his tenure length is unknown.  Chile just reshuffled the cabinet.  The domestic scene in Malaysia is also uncertain.  The Australian Prime Minister has already been forced to survive one vote on his leadership.

This "procedural" issue in the United States Senate over TPA could end up like the proverbial butterfly flapping its wings.  The consequences of this delay could, indeed, reverberate for a long time to come.

***

Let me reprint part of an earlier post to explain again why currency manipulation should never have been an objective and certainly does not deserve to shut the Americans out of a responsible leadership role in trade:

Any sort of currency manipulation clause is unlikely to solve the problem it is ostensibly trying to address.  Worse, in order to ensure that American interests are not undermined, the provisions have to be carefully crafted such that they might never be triggered.  The final point of damage—even if there are virtually no circumstances under which such clauses might be used, America’s trade partners in the TPP might simply refuse to conclude negotiations at all.

So what is the problem so many backers of such legislation are trying to address?  In brief, governments can give a competitive advantage to their export industries if their currency is lower in value than their export partners.  The difference in currency values effectively makes imported goods cheaper in the foreign market, encouraging consumers and producers to buy more, relatively cheaper, foreign goods than relatively more expensive domestic items. 

How would a government go about making this happen?  If a government intervenes in currency markets, it can drive down demand for its own currency (or drive up demand for foreign currencies) by buying and selling currency.  

Another way to accomplish the same thing is to print more money domestically.  If there is more money in circulation now, the value of any given note is lower.  However, governments engaged in such behavior often argue that such policies are not aimed specifically at artificially depressing the value of the currency for the purpose of generating an unfair trade advantage. Therefore, such behavior is not considered currency manipulation, at least as members of Congress appear to want to define it. 

The purchase of assets by the government can also change the value of currencies, even if the objective is to stimulate the domestic economy.

Singapore loosened monetary policy recently in response to weaker oil prices and low domestic demand.  The government argued it was using one of the primary items in its tool kit to address low inflation, since it does not use interest rates as a tool. 

Thus, governments may have lots of legitimate reasons for adjusting currencies without the specific intention of getting a leg up for exports.

It may be important to note that not every country is able to manipulate currencies.  If the country is small, especially with limited demand, the value of the currency is more likely set by market forces.  A country with limited resources cannot intervene very much to buy or sell currencies.  And, finally, the United States has a unique position in the global economy.  Since the U.S. dollar functions as a reserve currency, it allows the United States to have different options than anyone else in the markets (for the moment, at least, but that is another story).   Let me also note that because of this position, the United States does not have to intervene in currency markets like anyone else.

Efforts to stop countries from “unfairly manipulating” their currency will not work. 

There are many reasons why not, but start with the fact that most countries in a position to manipulate currencies also have complex economies.  These economies rely on both exports and imports.  For many firms, exports can only be produced with imported content.  By depressing the value of the currency to make exports cheaper, imports become more expensive.  As a result, firms may not actually be competitive in the export market since the price of imported content of the final goods might be more than offset by whatever the discount on the export side might be.

Equally key, for the most complex products, the value of the benefit from a depressed currency is likely to be small.  Consider an i-Pod, for instance.  Imagine that China were, in fact, manipulating their currency to a massive extent—say 50% off the presumed “normal” value of the yuan.   In this hypothetical context, it might appear that Chinese intervention is dramatically affecting the price of the device in the American market.  But, in fact, the total amount of Chinese content in an i-Pod could be as little as $4 of the $150 sales price.  Thus, the extent of the “unfair” advantage of Chinese currency might make a whole $2 difference to the final buyer.

Recall that this example gives figures for a truly exceptional rate of currency intervention at 50%.  The actual extent of manipulation is likely to be considerably smaller.  This means that the total price difference could be literally pennies.

While other products may not show such dramatic figures, the point is that—in most complex, higher value items—the content is likely to be provided by multiple countries.  As a result, even crazy high manipulation is unlikely to affect the final price very much. 

The Big 3 auto companies are driving the issue of currency manipulation in Washington.  But a car in the modern, globalized economy is very much like an i-Pod.  Even if you could determine that a China or a Japan was intervening to depress currency prices by a lot, the total difference in the price of a finished car is still likely to be much more modest than people realize.

To make this pressure by the Big 3 auto companies more surprising, many of the cars sold in the United States today are actually manufactured in whole or part in the United States (or NAFTA countries).  Thus, the value of potential manipulation on the total cost of a car is small. 

Practically speaking, a currency manipulation clause has additional challenges.  How can the specific amount of currency tweaking be measured?  Currencies change regularly in the open market, so a trade agreement has to take this into account somehow.  Even in the alleged cases of Japanese or Chinese manipulation, few could agree on the extent of intervention—was it 10 or 45% or something in between?

What is the appropriate response to such intervention?  Even if a trade agreement could specify the triggers for determining manipulation, then what?  Many of the proposed “solutions” appear to run afoul of other laws and regulations.

The United States, clearly, does not want to become ensnared in its own rules either.  Depending on how defined, basic American policy in the independent Federal Reserve could be challenged by foreign governments.  Problems like this make whatever provisions that might end up in trade agreements so tightly restrictive that they can never be applied or it might mean that the United States breaches the rules and argues for non-intervention in its own affairs. 

Finally, none of the specific partners currently negotiating the TPP are keen to see rules on currency manipulation included.  This agreement has been under discussion for more than five years.  To add a controversial (to put it mildly) item so late in the game is to risk imploding the whole deal.

Some may argue that TPP partners have already accepted proposals and provisions that they do not like.  What is different about currency manipulation from other American ideas?  At some point, however, pushing too hard may make others snap.  This is likely to be that point.  Adding a very unpopular and unworkable idea like currency manipulation clauses into the TPP mix at this late day is a truly dreadful idea that should be discarded immediately.

***Talking Trade is a blog written by Deborah Elms, Executive Director, Asian Trade Centre, Singapore***

Getting TPA for TPP

Note:  This Taking Trade post is a reprint of my article now appearing in a special issue on the Trans-Pacific Partnership, part of the Social Science Japan newsletter produced by the Institute of Social Science at the University of Tokyo.  

As the Trans-Pacific Partnership (TPP) negotiations with the 12 international trading partners nears conclusion after five long years of hard bargaining, the battle for the future of the agreement inside the United States is heating up.  There are two key elements of the fight: Congressional approval of Trade Promotion Authority (TPA) and passage of the implementing legislation necessary to bring it into force in the United States.  In both areas, interest group pressures are likely to be substantial, making ratification of the TPP uncertain.

In the U.S., Congress has the authority to regulate commerce, which includes setting tariffs.  But getting 535 members of Congress to negotiate trade agreements is not practical, so historically the executive branch has handled these tasks.  In the 1970s, this arrangement was formalized.  Congress explicitly gave the role of negotiating trade agreements to the White House subject to a number of specific provisions.

Under what used to be called “fast track” and is now labeled “Trade Promotion Authority” (TPA), Congress is to be notified of the intention to launch negotiations.[1]  Congress is given 90 days to respond.  The United States Trade Representative (USTR) office is also tasked with gathering information about the future direction and important elements for the talks during this time period from a range of key stakeholders including business groups.  After the initial comment period is concluded, USTR is required to keep Congress informed as negotiations continue.  Finally, Congress has promised to vote the entire trade agreement up or down without amendment at the end by a simple majority vote in both chambers.[2]  The timeline is shown in Table 1.

Ideally prior to the start of new negotiations, USTR would receive TPA from Congress, with the broad parameters and objectives set for any trade agreements to be negotiated during the time covered by the approval.  However, this was not done for the TPP as the latest version of TPA expired in 2007.

The outgoing George W. Bush administration announced its intention to join what became the TPP in September 2008.  The Obama White House decided not to press Congress for renewal of TPA in 2009, but rather started negotiations in March 2010 by following the provisions of TPA “as if” it were active. 

Over all the years of TPP negotiations, the White House never seriously pursued the votes in Congress to support renewal of TPA.[3]  But now, as talks enter the closing phase, TPA is necessary to finish the agreement.  Without TPA, Congress can amend the agreement from the opening sentence to the closing word.  It could also allow the agreement to die in committee or tangle ratification in an endless filibuster.  In short, without the provisions of TPA in place prior to the closure of the agreement, the TPP will likely fail to be ratified by Congress.[4]

The first problem for 2015, then, is to secure passage of TPA.  The last time the bill was authorized, in 2002, the votes were very close: approval by 215 to 212 in the House of Representatives and by a margin of 64 to 34 in the Senate.[5]  All indications are that a TPA vote may be equally close this time.

Even the passage of TPA, however, does not mean smooth sailing for a TPP deal.  In authorizing TPA, many members of Congress want to place strict conditions on elements of a final deal that must be present before they will grant approval.  Most controversial is an ongoing discussion of including legally binding rules to prevent trade agreement members from manipulating their currencies.[6] 

Until now, currency issues like manipulation or currency controls have been kept out of the TPP.  There is no appetite within the other TPP member countries to include such rules and certainly there is no interest in adding in an extremely controversial set of provisions at this late date in negotiations.  Hence, a decision by Congress to insist on such currency rules in TPA approval in 2015 will be deeply problematic for the TPP.

Ideally, TPA will be granted—as it has always been—for a range of trade agreements and not simply given for the TPP.  The United States is simultaneously engaged in multiple negotiations over trade: with the European Union in the Trans-Atlantic Trade and Investment Partnership (TTIP); with nearly two dozen countries on the sidelines of the World Trade Organization (WTO) in the Trade in Services Agreement (TiSA); with 80 countries at the WTO in updating the Information Technology Agreement (ITA); and with more than 160 countries in the WTO in the Doha Development Agenda (DDA).   All will need a version of TPA, at least before any agreement can be implemented and enter into force for the United States.

Once TPA has been granted, the fight over trade inside the U.S. will not be over.  Instead, different groups are likely to engage in potentially bitter arguments over the provisions of the TPP as Congress grapples with whether or not to approve this specific trade deal. 

Even for less controversial agreements, passage of the final legislation for free trade agreements (FTAs) has been far from assured.  Congress approved the three most recent FTAs, with Colombia, Panama and South Korea, on October 12, 2011.[7]  The votes were largely along partisan lines with many Democrats in Congress voting against President Obama.[8] 

The TPP is a much more complicated and challenging agreement.  Many provisions will require changes in domestic rules and regulations.  Sectors that have not been affected by previous trade agreements may face new issues in the TPP.  For example, the agreement drops tariffs to 0 on 90% of goods trade on entry into force, which may impose new competitive challenges on some industries from the very beginning.

Sectors, firms and industries that believe they will be negatively affected, especially by the removal of previous protections of one sort or another, can be expected to lobby furiously to block the implementation of the TPP in the United States.  They will likely find a receptive audience, especially from some members of Congress.

Trade agreements have always been problematic for Democrats given their historical ties to the labor and union movements.  Additional challenges come from the environmental wing of the party, as opening trade is assumed to undermine environmental protections.  Although changing, the party has not been as closely tied to the business community. 

An additional complication in securing support from Democrats for the TPP will be the legacy of the North American Free Trade Agreement (NAFTA).  The battle over NAFTA was long and bitter.  In the end, President Bill Clinton defied his party to push for the conclusion of the deal to tie the United States more closely with Canada and Mexico.[9] 

The debate around NAFTA was highly charged with supporters overselling the benefits and opponents making wild claims (Ross Perot, a US Presidential candidate, famously called NAFTA a “giant sucking sound” of American jobs heading to Mexico in one of the debates.[10]) 

In the 20 years since NAFTA was approved, the evidence on the benefits to the American economy has been largely mixed.  In this relatively uncertain environment, opponents have been quick to seize on examples of companies that moved operations into Mexico.  Some will likely argue that a similar loss of jobs will take place under TPP.[11]

Against a backdrop of—at best—lukewarm Democratic support, the TPP will require Republicans to line up in support of the agreement.  In the past, Republicans largely voted in favor of trade agreements.  Now, however, the Republican party is also split.  Many members of the party are firmly opposed to any type of foreign entanglements, especially those in the Tea Party wing.  Others are simply loath to give President Obama a victory in anything at all.  Hence, unified support by Republicans for the TPP cannot be taken as a given. 

In this environment, the votes needed to bring the TPP into force in the United States may very well be closer than ever.  The President and his team will need to mount an aggressive campaign to ensure that the 12 nation deal does not collapse at the finish line in Washington DC. 

[1] For the best review of the history and evolution of fast track, see I.M. Destler, 2005, American Trade Politics, 4th edition, (Washington DC:  International Institute for Economics).  For a recent discussion of issues, see William Cooper, January 13, 2014, “Trade Promotion Authority and the Role of Congress in Trade Policy,” Congressional Research Service 7-5700.  Access at: http://fas.org/sgp/crs/misc/RL33743.pdf.

[2] Technically, TPA is a Congressional-Executive Agreement, which is why it needs approval of both houses of Congress (unlike Executive Actions, which do not need Congressional approval at all or treaties that require 2/3 of the Senate). 

[3] President Obama did ask for TPA on January 30, 2013, but did not push very hard to receive it. 

[4] Technically, Congress does not ratify trade agreements.  But to bring them into force, Congress must pass implementing legislation to bring existing laws into compliance with the newly negotiated international obligations.  TPA provisions also streamline the procedures for doing so and prevent the deal from getting stuck while under review.

[5] A 1998 vote went down to failure with a vote of 180-243 in the House.

[6] For example, see “Brown, Levin Working on Currency Legislation Reminiscent of Earlier Bills,” Inside US Trade, January 16, 2015, Vol. 33 No. 2. 

[7] House votes for the three were: 262 to 167 for Colombia; 300 to 129; and 278 to 151 respectively while the Senate voted 66 to 33; 77 to 22; and 83 to 15 for the Korean agreement.

[8] For a nice interactive summary of the votes, see Binyamin Applebaum and Jennifer Steinhauer, “Congress Ends a 5 Year Standoff on Trade Deals in Rare Accord,” New York Times, October 12, 2011, accessed at: http://www.nytimes.com/2011/10/13/business/trade-bills-near-final-chapter.html?pagewanted=all. 

[9] In the final vote, Democrats split.  The House voted 234 to 200 and the Senate was 61 to 38.  The Democrats were almost evenly divided in both chambers.  (The vote over the next deal, the Central American Free Trade Agreement or CAFTA, was even closer.  If even one House member had changed a “yes” vote to “no,” the agreement would have failed in 2005 by 216-216.)

[10] See his remarks in the 1992 Debate at: https://www.youtube.com/watch?v=Rkgx1C_S6ls

[11] See, for example, remarks by Democrat Congresswoman DeLauro, “DeLauro Breaks with Obama, Big CT Firms on Pacific Trade Deal,” Hartford Courant, January 12, 2015; comments by Elizabeth Warren, “Senator Warren’s Remarks at  AFL-CIO National Summit on Raising Wages,” January 7, 2015 (accessed at: http://www.warren.senate.gov/?p=press_release&id=696); or Julie Hirschfeld Davis, “Democrats Step Up Efforts to Block Obama’s Trade Agenda,” New York Times, January 8, 2015.