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Feb. 20, 2014

Administration Desperate to Announce Deal at TPP Ministerial, But What Is a Real Deal Versus Kabuki Aimed at Reviving Obama’s Fast Track Push and Framing His Asia Visit?

Public Citizen Publishes Checklist of Outstanding TPP Issues That Require Resolution for a Deal to Be Made

WASHINGTON, D.C. – Familiarity with kabuki theatre may be useful in interpreting the outcomes of the  high-level Trans-Pacific Partnership (TPP) meeting that starts Feb. 22 in Singapore as U.S. officials push for an announcement of a “deal” with the hope of reviving the administration’s quest for Fast Track trade authority and setting the stage for President Barack Obama’s April 2014 Asia trip, Public Citizen said today.

“There is a sense that whether or not any real deal is finalized, there may be an announcement of one, if only to portray the talks as not unraveling despite growing opposition to the TPP in some of the countries involved,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “An announcement also could be a ploy to try to pressure Congress on trade authority and maximize President Obama’s leverage when he visits Japan.”

A bilateral U.S-Japan ministerial meeting last weekend failed to break a deadlock on sensitive agricultural and auto market access issues. Other TPP nations are loath to consider tradeoffs relating to U.S. demands on medicine patents, copyright, state-owned enterprises, financial regulation and other issues on which they face considerable domestic political liability without knowing what market access gains they may achieve in return. A TPP ministerial slated for January was postponed because of the market access deadlock.

“People who follow the TPP closely are baffled about why this meeting is happening,” said Wallach. “Either it is an attempt to improve the optics surrounding the beleaguered talks by announcing some deal, whether or not one is done, or they are afraid that already having postponed this ministers’ meeting once, canceling it would signal that the talks were unraveling.”

Deal vs. kabuki checklist: To actually have a TPP deal, these issues must be resolved:

  • Disciplines Against Currency Manipulation

A TPP without binding currency provisions could be dead on arrival in Congress. The other TPP nations know this but still oppose such terms. While 230 members of the U.S. House of Representatives and 60 U.S. senators have written to Obama demanding currency manipulation disciplines in the TPP, U.S. negotiators haven’t initiated negotiations on this, much less secured terms. Among others, U.S. Sen. Lindsey Graham (R-S.C.), a prominent supporter of past pacts, announced he would oppose the TPP if it does not include enforceable currency disciplines.

  • Enforceable Labor and Environmental Standards

As a January text leak revealed, all other TPP nations oppose many TPP Environment Chapter terms that the United States demands. This includes obligations that, if nations fail to enforce certain environmental agreements that they have signed, they will face TPP enforcement and trade sanctions. Other U.S. bottom lines that face unified opposition are a ban on trade in illegally harvested timber and endangered species, with violations subject to trade sanctions, and enforceable disciplines on fisheries subsidies. Among the TPP countries are those that have led unwavering opposition to disciplines on fishery subsidies, including in the context of the World Trade Organization. More broadly, the other countries have to date rejected the U.S. demand that both the environment and labor chapters be enforceable and subject to the same dispute resolution system as other TPP chapters. These are terms that Congress forced President George W. Bush to include in his pacts. If the Obama administration rolls back the labor and environmental terms included in Bush-signed agreements, it will lose almost all Democratic congressional support for the TPP. In addition, if the labor standards were enforceable, it remains unresolved how the TPP could include Vietnam, one of four countries cited by the Department of Labor for using both child and forced labor in apparel production.

  • State-Owned Enterprises

After years of deadlock during which countries could not even agree on a text from which to negotiate, substantive talks are now under way. However, to complete a deal, either the United States will have to roll back its demands, which would be extremely unpopular in Congress, or a bloc of TPP countries with numerous state-owned enterprises could have to make major concessions.  

  • Intellectual Property Chapter Patent and “Transparency” Text on Medicine Pricing Rules

Most other TPP countries continue to oppose U.S. proposals to expand the scope of patentability, including terms that would promote evergreening, subject surgical procedures to monopoly patents and extend data exclusivity terms that would deliver on Big Pharma’s demands for monopoly powers that raise medicine prices. The powerful American pharmaceutical industry has declared that it will oppose the TPP if the pact reverses extreme provisions in past U.S. Free Trade Agreements (FTAs). A sizeable bloc in Congress has stated that it will oppose the TPP if such terms are included. Another contested issue is the U.S. proposal for a cynically dubbed “Annex on Transparency and Procedural Fairness for Healthcare Technologies” that would allow drug firms to challenge medicine formulary reimbursement and pricing decisions. The target ostensibly was the national health care systems in New Zealand, Australia and other TPP nations that use formulary lists to reduce health care costs. Grassroots and legislator opposition to the U.S. proposal is virulent, making concessions on this issue politically perilous. Big Pharma insists that these terms must extend beyond those contained in the U.S.-Australia FTA. Meanwhile, an increasing number of U.S. state officials and Democratic congressional supporters of the Affordable Care Act also oppose those terms, which could undermine enhanced use of formularies to reduce U.S. health care costs.

  • Copyright Extensions

Hollywood- and recording industry-inspired proposals that would greatly extend copyright durations, limit innovation, restrict access to educational materials and force Internet providers to act as “copyright police” by cutting off people’s Internet access (think of the SOPA/PIPA debacle) have triggered public outrage in numerous TPP countries, leading to a negotiation stalemate. The United States has continued to demand that the TPP be used to require countries to adopt domestic copyright terms beyond international norms and aggressive copyright and enforcement provisions that would limit the public domain and Internet freedoms. A bloc of countries remains solidly opposed to various elements of these demands. There also is entrenched disagreement about whether copyright should be able to keep works of art and literature out of the public domain for 70 years after death of the author. No resolution is in sight.

  • Financial Regulation and Capital Controls

With the International Monetary Fund endorsing the use of capital controls to avoid floods of speculative capital that cause financial crises, it’s no surprise that there is united opposition among other TPP countries to a U.S. demand that the TPP include a ban on the use of various commonsense, macro-prudential measures, including capital controls and financial transactions taxes. While the United States has objected to an exception allowing the use of such measures, other TPP nations have stated they will not agree to a TPP that prohibits the use of such measures.

  • Investor-State Dispute Settlement (ISDS)

Australia has maintained an exception to being submitted to ISDS, which elevates individual corporations to equal status with sovereign nations and allows them to enforce a public treaty by “suing” national governments for compensation before international tribunals comprised of private-sector attorneys over claims that government actions undermine their expected future profits. The National Conference of State Legislatures, the body representing the 50 U.S. state legislative bodies, has adopted a policy of opposing any trade agreement with investor-state enforcement. The United States is demanding all countries submit to this system. Even those TPP nations that have agreed to investor-state enforcement oppose the U.S. demand that government natural resource concessions, private-public-partnership utility management contracts and procurement contracts be subject to such extra-judicial processes. The other countries also oppose a U.S. demand that the investor-state terms apply “pre-establishment” – creating a right to investment, including acquisition of land. The United States has consistently opposed an exception supported by most other TPP nations that would safeguard domestic environmental, health and other policies from the TPP tribunals.

  • Mechanism for the TPP to Go into Effect

Agreement on the legal mechanisms required for implementing the TPP has proven extremely elusive. A standard provision in the implementing legislation of past U.S. trade agreements requires that, after the U.S. Congress ratifies the pact, the president withhold formal written notification of that approval from partner countries until the president certifies that the partner countries have altered their own laws and policies to comply with the trade deal. That is to say, even after both the United States and its trade partners have ratified an agreement, it takes effect only after the United States unilaterally certifies that its partners have changed domestic laws according to U.S. demands. TPP nations argue the certification process gives the U.S. government and corporations enormous leverage to force them to conform to American interpretation of trade agreement terms – some of which are often deliberately vague, opaque and contentious. This process also often delays implementation of agreements.

Sensitive Market Access Issues

  • Agriculture: Japan’s parliament has listed five “sacred” commodities that must be excluded from TPP tariff-zeroing: rice, beef/pork, wheat, sugar and dairy. The United States, Australia and other TPP nations have rejected these exclusions. Australia wants U.S. access for its sugar exports, a demand that the United States rejected in its bilateral FTA with Australia. The United States has declared it will not negotiate new market access with countries with which it already has FTAs – in no small part to avoid the wrath of the politically powerful U.S. sugar industry, which has strong support among Democrats and Republicans in Congress. New Zealand’s main TPP demand is increased access to American and Canadian markets for its massive dairy export industry. But with dairy farmers in many U.S. congressional districts, a large bloc of Democrats and Republicans strongly oppose this demand. Yet, despite its refusal to negotiate market access with its current FTA partners, the United States has demanded access for dairy products in Canadian markets – a condition it couldn’t secure in the 1993 North American Free Trade Agreement (NAFTA) and that Canada has also rejected for the TPP.
  • Autos: The U.S. Congress insists that Japan be subject to a special bilateral agreement providing certain additional concessions relating to auto trade, insurance and access for U.S. beef. While the Abe administration agreed to this demand, the bilateral pact – a U.S. condition for Japan being included in a final TPP deal – has not been finalized, with negotiations on auto trade issues especially mired.
  • Government Procurement: The United States wants national government contracts above a set threshold be made available to firms from all TPP countries on equal terms. But many Democratic and GOP members of Congress oppose any waiver of Buy American preferences, which would be required to implement this rule. The U.S. demand has also raised broad opposition in Malaysia, where its bumiputera policy” – which guarantees a portion of government procurement contracts go to ethnic Malays – is key to preventing a recurrence of violent attacks against the country’s ethnic Chinese population, which dominates its business sector. Other TPP nations want the United States to guarantee that their firms will get the same access to the 50 U.S. states’ procurement activities as they would provide to U.S. firms, which U.S. negotiators have refused.
  • Apparel and Shoes: Vietnam has insisted on duty-free access for its clothing made with inputs from China and other non-TPP nations, and the elimination of U.S. tariffs on footwear. The “rule of origin” Vietnam requests would reverse a long-standing “yarn forward” rule included in past U.S. pacts to support U.S. jobs. If honored, Vietnam’s demand would increase the uncertainty that Congress would approve the TPP.

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