TTHEHE OORIENTALRIENTAL EECONOMISTCONOMIST REPORT VOLUME 83, NO.10 PUBLISHED BY JAPAN WATCHERS LLC October 2015 ‘One-way-street’ definition of free trade TPP: Ball is in GOP court n a surprising development, it is Congressional Republicans and a That distrust adds a highly-charged emotion to the GOP resistance. few of their business allies who now pose the biggest threat to the The hope among TPP proponents, including many in the busi- I Trans-Pacific Partnership (TPP), a trade agreement among 12 ness world, is that the frustration and resentment will blow over, and countries with 40% of the world’s GDP. When, after five years of that the deal’s detractors will recognize that half a loaf is better than talks, an agreement was finally announced on October 5, neither a none at all. Some of the disgruntled business sectors, and their GOP single Republican leader in Congress, nor any broad business feder- allies, have convinced themselves that they can force a renegotiation, ation could be found to support it. With a few exceptions, the either under Obama, or his successor, if the latter is a Republican. Democrats were always a lost cause for proponents of TPP. They point to the Korea-US Free Trade Agreement, where the US However, the Republican majority in both Houses led most went back three times for changes after the initial signing. But Korea observers to think they would try to ratify it. was just one country. Eleven countries will not tolerate such antics. So, now the ball is in their court and ratification is not just a The Washington business source considered the notion of renegotia- question of “when,” but also “if.” “Without the ardent efforts of GOP tion a complete fantasy. What incentive would other countries have leaders to move some of their reticent rank-and- to make even more concessions to the US? “This file, the TPP cannot be ratified,” said a Washington was absolutely the best deal the US could get given player who has been lobbying Capitol Hill the bargaining situation,” said our business source. Republicans for years. Froman says that the pact will eliminate 18,000 Legally, Congress cannot even vote until tariffs and quotas other countries have imposed on February at the very earliest and, in an election year, ratification will US exports and the United States will eliminate 6,000 of its own. be very difficult even with the support of GOP leaders. Without it, Those trade changes, estimated the Peterson Institute for 2017 may be the earliest chance. Either way, Republicans are indis- International Economics (PIIE), mean that, 12-15 years from now, pensable since most Congressional Democrats oppose TPP, Hillary American exports would be 4.4% higher than otherwise, imports Clinton has just come out against it, and candidates like Donald would be 3.7% higher and GDP a negligible 0.2% higher. Trump denounce it. If Clinton were to win in November and/or the A Wall Street Journal editorial concluded: “The question is GOP lose the Senate, then TPP would be dead. Derek Scissors, a whether this TPP is the best the U.S. can do.” We’ve got our own trade expert at the conservative American Enterprise Institute, called problems with TPP (www.foreignaffairs.com/articles/asia/2015-05- waiting for 2017 “a very bad bet.” 12/trade-trials), but now it’s either this TPP or no TPP at all. The real TPP comes into force when ratified by at least six nations with question is whether the benefits of this TPP outweigh its flaws, and at least 85% of TPP-wide GDP, which effectively means the US, whether rejection now would lead to better pact later. Japan, and four others. All politics is special interests Hope that negativity is just temporary As many as a couple dozen Republicans who voted for the Trade Optimists argue that much of the immediate reaction is temporary, Promotion Authority (TPA) that empowers Obama and his successor the result of a misplaced view by some business sectors, like phar- to conduct negotiations now strongly resist voting for what they dis- maceuticals, that the Obama administration “sold us out” in order to miss as “Obamatrade.” The level of distrust is so high that a few get a quick deal that could be ratified during his term, which meant among this group contend that Obama is somehow going to use TPP early in 2016. But in reality, as a clued-in Washington-based busi- to impose gun control on the US. ness source pointed out, “Reaching agreement was a case of now or With the vote so close—TPA would have failed if just six mem- never. The other countries were adamant that this had to be the last bers of the House had changed sides—it doesn’t take much to tip the ministerial meeting.” Japanese sources told us the same. balance. In an election year, what Republican House member wants Nonetheless, according to several sources, many in the GOP a primary opponent accusing him of supporting Obama’s policies? feel that US Trade Representative (USTR) Michael Froman made The resignation of House Speaker John Boehner—resulting from the deal, not because it was “now or never,” but in order to make sure accusations of insufficient combativeness toward Obama—does not Obama got credit for the achievement. These GOPers feel the US bode well for TPP. could have gotten a better deal if only Obama had taken more time. Anti-Obama emotions are only a small part of the problem. The 2 more important background context is the Committee would be the point man on TPP ture Chairman Mike Conaway had been long-term erosion of the post-WWII free passage. He lamented, “While the details are pressing negotiators last week to protect trade consensus on both sides of the political still emerging, unfortunately I am afraid this dairy and sugar producers. aisle. Even more pivotal at this particular deal appears to fall woefully short.” That Unlike the beef and pork lobbies that moment is the immense veto power over harsh language doesn’t leave a lot of wiggle are supporting TPP because it opens more Congress of assorted well-connected and room. export markets, the dairy lobby has been well-heeled special interests, from tobacco Hatch is upset because the US pharma- more focused on limiting imports. A week to pharmaceuticals to dairy to sugar. If Tip ceutical industry did not get its demand that before the agreement was reached, The O’Neil famously said, “All politics is local,” all TPP countries agree to the US standard of National Milk Producers Federation and US now he’d have to say, “All politics is special 12 years of “data exclusivity” for biologics, Dairy Export Council sent a letter to [interests].” In the indispensable balance a class of drugs based on living organic tis- Congress, saying that they had “grave con- between the national interest and legitimate sue rather than chemicals. Instead, in order cerns” about a possible deal that would give special interests, the pendulum has swung to conclude the deal, Froman had to compro- New Zealand more access to the US market too far toward the latter on both sides of the mise with Australia and others who wanted but not adequately open Canada’s market. aisle. no more than five years, in order to make “We are deeply concerned that the…USTR While the majority of Congressional drug prices affordable. Some countries have intends to reach an agreement that the US Democrats are openly critical of free trade, zero years. According to the Wall Street dairy industry may not be able to support.” too many of those in both parties calling Journal, the eventual compromise was that, After the deal was concluded, both organiza- themselves “free traders” use the term to “Countries can offer either eight years or five tions said that they will “carefully review the mean, not a two-way street in which the US years with a ‘plus up’ of three extra years if agreement's dairy provisions in the coming helps promote the prosperity of itself by pro- drug makers make certain price and access days.” moting that of its partners, but a one-way commitments. The US will be allowed to street in which others open their markets to maintain 12 years of protection.” It’s unclear Tobacco favored US business sectors, while the US to us how much of a change, if any, that will The USTR agreed that tobacco products does not sufficiently reciprocate. Lack of mean for US biologics producers. In any would be exempted from a dispute-resolu- reciprocity by Washington was a chronic case, Hatch had warned for months that fail- tion mechanism, called ISDS, that lets multi- complaint among many of the other 11 TPP ure to have everyone go to 12 years could be nationals sue countries before arbitration countries. (In some cases, even though the a deal-killer. Will he really let the entire deal panels dominated by lawyers who represent charge had some validity, the countries fail over this one issue? corporations in other cases. The poster child involved used it as a pretext to continue their While “big pharma” claims that twelve for abuse of this process was a series of suits own protectionism.) years of protection are necessary to promote by Philip Morris and R.J. Reynolds against innovation, a 2009 report by the US Fair countries for insisting on plain packaging in Biologics Trade Commission found that biologics are order to make cigarettes less enticing.