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How the Trans-Pacific Partnership Affects Jobs, Trade, and Regulation

by Andrew Gripp, published

The Trans-Pacific Partnership (TPP) has been described as “the biggest free trade deal you’ve never heard of.” The arrangement would liberalize trade by bringing down protective tariffs and “harmonizing” regulations and standards in order to facilitate the exchange of goods and services across 12 countries along the Pacific rim.

While the agreement is being negotiated, experts and politicians are debating the potential effects of the TPP on the United States.

Liberal economist Paul Krugman scoffed at the deal earlier this year, pointing out that tariffs among a majority of the countries are already quite low. Indeed, once “most favored nation” (MFN) status is extended to include Malaysia, New Zealand, Vietnam, and Brunei, U.S. exporters will hardly enjoy expanded access to markets: these four countries have a combined purchasing power equivalent to that of Pennsylvania.

Nevertheless, other conservative economists note that some existing MFN tariff rates are quite high and should be reduced. For instance, Japan imposes a 38 percent tariff on beef imported from the U.S., while the U.S. protects American car manufacturers by slapping a 25 percent tariff on Japanese-made SUVs.

In fact, it is primarily negotiations between the Americans and Japanese that have held up the completion of the free trade agreement. The dozen participating countries aim to complete the negotiations by July.

Economists also observe that there is room for liberalization of the services industry and in government procurement contracting. One economist anticipates that America’s GDP could grow 0.4 percent if America signs on to the agreement that would give it privileged access to an expanding Pacific economy.

Other economists -- not to mention American labor unions – are skeptical of the effects of the TPP because economic liberalization forces American workers to compete against cheaper labor overseas, which leads to offshoring.

According to estimates by the Economic Policy Institute, the U.S. lost 700,000 jobs after the passage of NAFTA in 1994, another 2.7 million jobs as a result of the growing trade deficit with China, and an additional 40,000 jobs following the recently enacted bilateral free trade agreement with South Korea.

It is still uncertain how America will ratify the agreement once it is completed. Under the guidance of former Sen. Max Baucus (D-Mont.), who previously chaired the Senate Finance Committee, the deal was scheduled for “fast-track” approval, by which it would be put to a strict yea-or-nay vote without the opportunity to filibuster or propose amendments.

The current chair of the committee, Sen. Ron Wyden (D-Ore.), who also chairs the Senate subcommittee on trade, spoke out against the lack of transparency in 2012 and complained about his initial struggle to see the U.S.’s proposals and his ban on discussing them.

Now, Wyden is expressing his free-trade bona fides and advocating a “smart track” approach that absorbs the concerns of fellow Democrats – and some Republicans.

Nancy Pelosi (D-Calif.) and Harry Reid (D-Nev.), for instance, want the U.S. to address issues like currency manipulation, human rights, and protections and regulations for the environment, labor, public safety, and finance.

Critics of the TPP fear that this agreement would not only increase the strain on American workers, but that it would also accelerate “a race to the bottom” -- in the words of globalization critic Joseph Stiglitz – when it comes to regulatory standards.

Participation in free trade agreements invariably produces strife over regulations: one country can argue that a regulation is necessary for protecting its citizens, while another might regard that same regulation as a trade barrier in disguise. When these conflicts arise, they are arbitrated in international tribunals, such as with the World Trade Organization (WTO) or the World Bank. 

For instance, in 2009, Mexico formally challenged the legality of a requirement that tuna sold in the U.S. must be “dolphin safe.” Mexican fishermen search for tuna primarily in the eastern Pacific, where tuna and dolphins -- for some unknown reason -- swim in close proximity. Their use of large seine nets ensnare and kill thousands of dolphins, which prompted the U.S. to enact this labeling standard.

However, Mexico believed it led to trade discrimination in favor of American-fished tuna, which are caught in the central and western Pacific. The WTO panel ruled in Mexico's favor.

The TPP could encourage even more extra-national arbitration at the expense of national sovereignty. The TPP uses an “investor-state” regime that allows corporations to challenge and seek compensation for regulations in partnering countries that hurt their profits or diminish returns on investment.

For instance, the multinational corporation Philip Morris, which owns the Parliament, Skoal, and Marlboro cigarette brands, is currently challenging a comprehensive anti-smoking campaign in Uruguay under a similar free trade regime between Switzerland and Uruguay.

Democrats fear that such “harmonization” could undo significant post-crash financial reforms. The WTO’s Financial Services Agreement led to the 1999 repeal of the Glass-Steagall rule that had segregated commercial and investment banking, and it also bans putting limits on a bank’s size, which would preserve the “too big to fail” status quo.

Republicans like Walter Jones (N.C.-3) worry about the influx of seafood such as catfish from Vietnam, which is not only subsidized but also contains fungicides and other contaminants that do not satisfy current U.S. food safety standards.

If the TPP is approved, trading partners could challenge these sorts of standards as discriminatory trade barriers and possibly lead to their weakening or even disappearance. According to Public Citizen, a consumer advocacy group, there is only one instance out of 40 of a country successfully defending a protection under Article XX of WTO's trade rules.

Only five of the TPP's 29 chapters relate directly to free trade. The remaining chapters, which have been withheld from the public (though there have been early leaks), address other topics, including intellectual property rights such as copyrighting standards, pharmaceutical patents, and online piracy.

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