America's Collapsing Trade Initiatives
by Robert Kuttner
Chinese president Xi Jinping will be in Washington this week on an
official state visit. President Obama had hoped to impress Xi with an
all but sealed trade deal with major Pacific nations called the
Trans-Pacific Partnership (TPP) to demonstrate that America is still a
force to be reckoned with in China's backyard.
But Obama's trade policy is in tatters. The grand design, created by
Obama's old friend and former Wall Street deal-maker, trade chief Mike
Froman, comes in two parts -- a grand bargain with Pacific nations
aimed at building a U.S.-led trading bloc to contain the influence of
China, and an Atlantic agreement to cement economic relations with the
Both are on the verge of collapse from their own contradictory goals
and incoherent logic.
This past June, the President, using every ounce of political capital,
managed to get Congress to vote him negotiating authority (by the
barest of margins) for these deals. Under the so-called fast-track
procedure, there is a quick up-or-down vote on a trade agreement that
can't be amended.
The assumption was that the Administration could deliver a deal backed
by major trading partners. But our partners are not playing.
A final round of negotiations in Maui in late July for the Pacific
deal, featuring trade ministers from the 12 participating countries
(Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New
Zealand, Peru, Singapore, the United States and Vietnam), ended in
deadlock and revealed multiple schisms. The ministers will try again
in late September, at a session in Atlanta, but they are no closer to
Australia, New Zealand and other nations reject special interest
provisions designed to help giant pharmaceutical companies resist the
use of generics. Several countries object to U.S. efforts to lengthen
patent and copyright protection at the expense of the public domain.
Japan is resisting US pressure to import more rice. New Zealand wants
more dairy exports. The Australian government is outraged that the
deal would treat tough regulation of tobacco as an illegitimate
restriction of profits. And a great deal more.
The U.S. negotiators, increasingly, are prepared to give away the
store, to get a deal. The most pathetic and revealing capitulation
involves rules of origin for automobiles and auto parts.
The core geo-economic idea of the TPP, let's remember, was to slow the
influence of China in the region. A key U.S. goal was to make sure
that American companies would be part of the supply chains of Asian
companies that are increasingly producing in China.
However the provision on autos, accepted by the U.S. in a last ditch
effort to win over the Japanese, suggests that the game is already
Japanese automakers are in the process of massively shifting
production to China. Under the provision demanded by the Japanese and
accepted by the Americans, as much as 86 percent of a vehicle could be
sourced in China and the vehicle still labeled "Made in Japan" (or
Presumably, American automakers are outraged by this sellout. But no,
GM likes it fine -- because GM also wants to increasingly produce in
China. So much for containing China. Ford doesn't like the deal
because Ford is still committed to manufacturing in North America. The
governments of Canada and Mexico, rivals for Chinese production, hate
Here's the point: With so many governments already in bed with
Beijing, the TPP, even if enacted, will not slow China's economic
dominance. But there are so many provisions opposed by so many
countries that the deal is unlikely to be sealed at all. And even if
the deal should be negotiated, Congress could well balk at the
screwball special interest provisions that add up to strategic mush.
Another indicator of the lack of Washington's strategic seriousness:
there is no chapter on currency manipulation -- one of the profound
sources of the US trade deficit with Asia. But that would be another
deal-breaker for Japan, a recidivist currency-manipulator.
Time is not on the Administration's side, given that Republicans are
less and less likely to give Obama a big win as the next election
approaches. And as Obama becomes more of a lame duck, Democrats, who
don't like the deal, are less likely to support him out of partisan
loyalty. Congress gets 90 days to review it, and unless there is a
miracle in the next round of talks at Atlanta, opponents of the deal
will be saved by the clock.
There is also an election next month in Canada, and the prime
minister, Stephen Harper, currently running third in the polls, is
unlikely to back a deal that doesn't serve Canada's interest. His
probable successor, either a Liberal or a social democrat from the
surging New Democrat Party, is even less likely to approve.
What about the parallel Atlantic deal -- the so called Trans-Atlantic
Trade and Investment Partnership, known as TTIP?
That agreement is also likely to fall of its own weight. A key
provision allows corporations to challenge health, safety,
environmental and consumer regulations as incursions on profits. This
so called investor-state provision invites an end-run around national
governments and the European Union to private arbitration tribunals
that would be non-transparent, laden with conflicts of interest, and
tilted towards business.
Not surprisingly, the provision is highly unpopular in Europe. Last
week, the five leading political blocs in the European Parliament --
from conservatives to socialists -- agreed on a compromise that would
revise the investor-state provision by creating an international court
rather than private arbitration panels to judge corporate complaints
of unfair regulation. The compromise would also strengthen labor
Far from promoting the TTIP deal, the report showed just how toxic the
Trade unions and environmental groups blasted the proposal as mere
window dressing. "The European Commission's proposal for an
'International Court System' is tarred with the same old corporate
friendly brush, Friends of the Earth Europe said in a statement.
"Despite a new name and some reforms on the functioning of the system,
it reaffirms the granting of VIP rights for corporate investors
without giving them any obligations that would protect citizens and
But corporate groups, cherishing the private arbitration panels, were
even more outraged. The U.S. Chamber of Commerce's top European
official, Marjorie Chorlins, termed the proposal "deeply flawed." Much
of the momentum for the deal will collapse without an agreement on the
It is a bit premature to write the obituaries for these deals. Never
underestimate the power of corporate elites. But one has to ask, what
was Obama thinking? The U.S. faces serious economic challenges from an
economy that is still stagnant for regular people. And we face complex
national security challenges from China. These trade deals address
neither challenge, much less the even more daunting economic woes in
At the White House state dinner in his honor this Friday, Xi Jinping
will be smiling -- and with good reason.
Robert Kuttner is co-editor of The American Prospect and professor at
Brandeis University's Heller School. His latest book is Debtors'
Prison: The Politics of Austerity Versus Possibility.