Behind the Trans-Pacific Partnership Talks
By Dr. Dan Steinbock
a factor of 15 over the past decade, while spending has decreased in Europe (-1%) and North America (-6%).While America continues to lead in the international competitiveness rankings, thelatter look into the future by staring at the rear-view mirrorand China is likely tosurpass Europe in R&D spending by the late 2010s and the U.S. by the early 2020s. Since new innovation advantages are less likely to support U.S. competitiveness and twin deficits continue to prevail at home, the White House has been pushing its free-trade agreements aggressively abroad.But the proposed pacts are less about free trade and more about geopoliticalalliances.Instead of “free trade,” preferential regional pactsOriginally, the Trans-Pacific Partnership (TPP) was a more inclusive free trade agreement (2005) among Brunei, Chile, New Zealand and Singapore. Since 2010, Washington has led to talks for a significantly expanded FTA, which is to be a “high-standard, broad-based regional pact.” It excludes China.Reminiscent of the proposed Free Trade Agreement of the Americas (FTAA), whichin the early 1990s failed to open South America to free trade and effectively split the region, the TPP, in its current form, has the potential to split Asia into two rivalblocs. That, in turn, could undermine the promising economic integration in theregion.With Brussels, President Obama initiated the talks on the Transatlantic Trade and Investment Partnership (TTIP) in early 2013. In contrast to the proposed TPP, theU.S.-EU talks have lingered longer than anticipated.For all practical purposes, both deals are less about “free trade” than about“preferential regional trade”, as the free trade economist Jagdish Bhagwati hasargued, or simply about geopolitical alliances rationalized in the name of trade, aspolitical realists believe.Nevertheless, in each case, the White House has achieved some success in the pastfew weeks.Last week, members of the European Parliament gave thumbs up to the EU-U.S.trade talks backing away from the expected confrontation with the Commission overthe controversial issue of investor/state protection rights (ISDS) – although 97percent of the public opinions requested opposed the inclusion of the ISDS in thefinal deal.In order to complete the TPP talks in Asia, the White House requires the fast-trackTrade Promotion Authority (TPA), which ensures President Obama the authority tonegotiate trade agreements that Congress can accept or decline but not amend ordelay. Right before the Memorial Day, after months of nerve-wracking political games, President Obama got his TPA after the Senate passed the trade bill.While it had bipartisan support, the successful outcome can be attributed mainly tothe Majority Leader Mitch McConnell and the Republicans. The 62-to-37 vote wasnot the kind of awesome demonstration effect that Obama needed to ensure anoverwhelming victory in the House.Like the majority of the Republicans, the Speaker of the House John Boehner supports the TPP agreement. However, only days before the critical vote, barely 10 percent of the House Democrats had come out in favor of the TPA.Overall, the deal is splitting and alienating Democrats. Most believe the TPPsupports big business rather than public interest, including such presidentialcandidates as the progressive former Governor of Maryland Martin O’Malley; Senator Elizabeth Warren popular for her stress of Americans’ financial protection;and the self-described democratic socialist, Vermont Senator Bernie Sanders.Of the current frontrunners, former Secretary of State Hillary Clinton has tried toshun the issue, which she and other Democratic centrists regard as a form of political plague. However, her nemesis, former Governor of Florida Jeb Bush, does supportfree trade but more inclusive approach toward China.The age of disquietIf the U.S. administration fails to complete the trade talks in the Asia Pacific,President Obama’s legacy would be at risk, while the 2016 presidential race would delay or defer new talks. However, even if the deal can be completed, it would not
reverse the relative erosion of U.S. competitiveness and innovation; nor would itmitigate America’s twin deficits and unsustainable leverage.In its current form, any TPP deal could prove a short-term victory, but a medium-term burden. Asia Pacific is big enough for both the United States and China.Consequently, any exclusive trade pact in the region would constrain rather than facilitate trade and investment in the region. What Asia Pacific needs is a broad-based, but inclusive free trade deal.In turn, the only way to secure high living standards in the United States is adequateproductivity and growth, which rest on world-class, cutting-edge innovation.In the absence of structural reforms, stagnation in America is sustained byhistorically low policy rates, unsustainable leverage, and half a decade of debt purchases.In the absence of major policy changes, America is moving toward the age ofdisquiet. That’s not good for the United States but nor is it good for China – and itcertainly does not support U.S.-Chinese economic relations.Dr. Dan Steinbock is Research Director of International Business at India Chinaand America Institute (U.S.A.) and Visiting Fellow at Shanghai Institutes forInternational Studies (China) and the EU Center (Singapore). For more see: http://www.differencegroup.net
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Dr. Dan Steinbock is research director of Int'l Business at India, China & America Institute (ICA), fellow at Shanghai Institutes for Int'l Studies . The expert on G-7, BRICs economies, and U.S.-Chinese ties taught at business schools of Columbia University and NYU, and at Helsinki School of Economics. He has appeared world's major TVs and written columns for leading newspapers.
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