U.S. and 11 Pacific Rim countries agree to controversial trade pact
By Don Lee
The Baltimore Sun|
Oct 05, 2015 at 9:46 PM
WASHINGTON — The United States and 11 other Pacific Rim countries have agreed to wide-ranging trade pact that would eliminate duties on countless goods and establish uniform rules on intellectual property, labor rights and the environment.
The seven-year effort by the U.S., concluded Monday, was aimed at embedding an American-led vision of an economic and political order in Asia. If approved by Congress, the accord would be the biggest regional trade pact ever reached and one that the U.S. hopes will be a model for future agreements.
The Trans-Pacific Partnership, or TPP, trade deal is expected to help a few U.S. industries while hurting a handful of others. In general, the deal will benefit larger companies in several industries such as pharmaceuticals, entertainment and other services where the U.S. is a global leader. Businesses such as mom-and-pop car-part dealers and apparel makers will probably face more competition from foreign-made goods.
The agreement will open new markets for Maryland with five Asia-Pacific countries including Brunei, Japan, New Zealand, Malaysia and Vietnam, according to the Trade Benefits America Coalition, a business group that backs the pact.
The state also will be able to boost existing trade with TPP countries, the group said. About 30 percent of Maryland's exports in 2013 — $3.5 billion worth of goods — went to Australia, Canada, Chile, Mexico, Peru and Singapore, while trade with those six TPP nations supported more than 302,000 jobs in the state, according to the coalition.
Maryland exported a total of $12.2 billion worth of merchandise last year, with Canada as its largest market, according to the International Trade Administration.
The trade pact will benefit U.S. companies, especially as automation and robotics in manufacturing continues to bring down labor costs, giving the U.S. a competitive advantage in manufacturing, said Ravi Aron, associate professor at the Johns Hopkins Carey Business School who specializes in technology strategy and globalization. It will protect against arbitrary tariffs on U.S. products and help keep markets open, he said.
"Our knowledge-intensive industries will benefit," he said. "Our pharmaceutical companies that have valuable intellectual property will benefit."
Aron disputed that the pact will lead to further outsourcing of jobs as some fear. That's because nations such as China and Bangladesh — which are not members of the partnership — will continue to be more attractive than the partnership nations for offshore manufacturing because of low wages and existing infrastructure, he said. India, meanwhile, will continue to be an attractive offshore nation for the services sector, he said.
"The idea that the TPP will accelerate the offshoring of U.S. jobs is a vast inaccuracy," he said. For manufacturers looking for cheap power, raw materials and a network of suppliers, "China is a vastly more attractive destination than Vietnam."
But Dennis McCornac, visiting professor of economics at Loyola University's Sellinger School of Business, sees the agreement as a bad deal for the U.S. and potentially for Maryland.
The pact might make it easier for U.S. firms to do business overseas, including technology companies such as software developers. And the nations in the trade pact are not necessarily big buyers of U.S. products, he said.
"It's sold as gaining jobs and [could] end up losing jobs," said McCornac, who specializes in Asian economics.
"Japan is not a growing economy. The idea that Japan is going to turn around and buy U.S. automobiles — they haven't been doing that for 20 years and are not going to do that. The Malaysian economy is one of the worse performing economies in Asia. It's not like all of a sudden it would turn around and buy all these U.S.-made products. My feeling is it's not going to be this great win for U.S. companies."
A spokesman for the port of Baltimore said it's too soon to assess the impact on the port.
Despite the rhetoric on both sides about the potential harm and benefits, the deal isn't likely to affect most American workers, and studies suggest that it would add only modestly to U.S. economic growth and have little overall effect on jobs. The accord is as much about geopolitical competition as it is about economic globalization.
President Barack Obama has made no bones about the fact that the Trans-Pacific Partnership is largely motivated by the need to prevent China, the world's second-biggest economy, from leading the way in the fast-growing Asia-Pacific region — a point he stated again Monday.
"When more than 95 percent of our potential customers live outside our borders, we can't let countries like China write the rules of the global economy," Obama said. "We should write those rules, opening new markets to American products while setting high standards for protecting workers and preserving our environment."
To that end, Monday's breakthrough — the culmination of years of stalled progress and political wrangling — represents a significant victory for Obama in his pursuit of a legacy-making platform to expand America's influence in the Asia-Pacific region.
The Trans-Pacific Partnership nations include the U.S., Japan, Canada, Australia, Mexico, Malaysia, Singapore, Chile, Peru, New Zealand, Vietnam and Brunei.
Conspicuously absent is China, which has the biggest economy in Asia and is trying to organize a rival trade pact in the region.
"We are in effect organizing our friends in a way which should reinforce their disinclination to ally more with China," said Robert J. Shapiro, chairman of the consultancy Sonecon and a former economic adviser to President Bill Clinton.
The pact sets the stage for what is almost certain to be a huge political battle, intensified by the 2016 presidential campaign, that pits the White House, some Republicans and supporters of free trade against organized labor, civic groups and many lawmakers from Obama's own party, who fear the deal will hurt workers and the environment.
Congress, which now must either accept or reject the final agreement, won't vote on it for at least a few months. The deal received a surprisingly skeptical reception from Capitol Hill on Monday, including from some Republicans who previously supported the pact. That suggests the president will face a tougher time than expected in winning approval.
The deal will have limited economic impact, in part, because the U.S. already has free-trade pacts with seven of the dozen Trans-Pacific Partnership nations, including Canada, Mexico, Australia, Singapore and Peru. So the biggest trade effect will be with Japan, Malaysia and Vietnam — but even there, the effects will be incremental and may play out differently than assumed.
U.S. textile makers, for example, were thought to be among the most vulnerable to an expansion of trade with Vietnam, but the domestic textile industry association had one of the more positive reactions to the Pacific agreement Monday.
It's not that there won't be more foreign competition for U.S. firms, but Augustine Tantillo, president of the National Council of Textile Organizations, said the Pacific deal would allow for a slow phase-out of import tariffs for the most sensitive products and, importantly, set out clear rules that would encourage yarn sourcing within the dozen Pacific trading partners.
"What we didn't want was an outside party like China to be able to shift their yarn to Vietnam to be finished" into goods and exported to the U.S. tariff-free, said Tantillo. He added that the high quality of American yarns may lead to greater sales from Trans-Pacific Partner countries.
The inclusion of Vietnam, in particular, drew fire from labor and some congressional Democrats who said its cheap wages and poor worker protections will provide a competitive disadvantage for the U.S.
Rep. Sandy Levin, a Michigan Democrat, said the agreement represented "substantial progress" in enhancing worker rights in Vietnam as well as Malaysia. But other lawmakers remained skeptical, even as Vietnamese and Malaysian officials pledged Monday at a news conference to follow the standards in the accord.
One of the Pacific accord's potentially biggest benefits will be in the further market opening of Japan, the world's third largest economy. Its markets, especially for autos and agricultural goods, have long been heavily protected and considered almost impenetrable by American companies.
The Trans-Pacific Partnership won't fling those markets wide open, but farmers in California and elsewhere, for example, should be able to export a little more rice and dairy products to Japan. Meanwhile, as with textiles, tariffs on Japanese imports of cars and trucks will be phased out over many years.
Health groups lauded a provision in the agreement that would prevent tobacco companies from using the trade pact to file lawsuits, challenging for example a country's cigarette packaging laws, and have these cases decided by a special tribunal. But that so-called carve-out for tobacco firms was one reason Sen. Mitch McConnell, the Republican Senate Majority leader from Kentucky, a tobacco state, said Monday that "serious concerns have been raised on a number of key issues."
The accord is also expected to give a boost to Hollywood and other entertainment firms, which had sought to push the U.S. term of 70 years of protection for copyrighted films, music and other works -- despite criticisms from groups that advocated shorter terms and a freer flow of information.
While other major business groups applauded the agreement, albeit cautiously, Ford Motor Co. was one that spoke out in opposition to the deal. Ford, along with unions and many Democratic lawmakers, remains unhappy that the deal failed to address the problem of countries unfairly using currency exchange rates to boost trade.
A provision on enforceable currency rules was not seriously considered in the negotiations, but in an effort to appease lawmakers and other critics, U.S. officials were working on a side agreement that would bring all the members of the Trans-Pacific Partnership to agree to adopt high standards on currency practices, although it wouldn't be part of the package or anything envisioned as enforceable.
During the past year of negotiations, one of the thorniest of the issues was over patent lengths for certain complex drugs known as biologics. U.S. trade officials had pressed for eight years of intellectual property protection for these drugs before the release of data could lead to generic substitutes. Most of the Trans-Pacific Partnership countries have drug exclusivity for five years or fewer, and countries led by Australia were loathe to go along with longer periods that could strain state-subsidized health programs.
Trade officials in Atlanta, where final talks were held, indicated that the sides had reached a compromise that established at least a five-year period of exclusivity, leaving wiggle room for the U.S. to seek protections for longer duration.
Pharmaceutical firms in the U.S. had lobbied hard, arguing that longer patents were needed to preserve innovation given the cost of developing biotech drugs. Consumer and doctor groups, along with protesters, were in Atlanta pushing for shorter terms that they said were critical for patients to have timely access to affordable medicines.
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Resolution on drug patents apparently enabled trade ministers to move ahead on another big sticking point. The U.S. agreed to allow more imports of sensitive dairy goods, a top priority for New Zealand, after Canada and Japan made concessions to open up dairy markets more in their countries.
"Based on the little information we have heard so far, it appears that the dairy agreement provisions are better than the unbalanced dairy market access picture that had emerged in recent weeks," said Jaime Castaneda, senior vice president of the National Milk Producers Federation. California is the largest milk-producing state in the U.S.
Negotiators also struggled over how much foreign content would be acceptable in cars and car parts before they could be traded tariff-free among the Trans-Pacific Partnership countries. They agreed to a new, lower threshold of 45% foreign content on cars and even less on car parts, compared with 62.5% in the North American Free Trade Agreement between the U.S., Canada and Mexico. The change was sharply criticized by organized labor as a giveaway to countries that are not part of the Pacific deal, as such nations would be able to take advantage of the reduced requirement on local content.
"When you water down rules of origin and add nine countries, it's like a double whammy," said Thea Lee, the deputy chief of staff at the AFL-CIO. "It really incentivizes a lot of outsourcing. ... It's a huge surprise, and it's outrageous."
Organized labor is expected to lead a vigorous campaign to persuade and pressure lawmakers to vote against the accord.