TRADE TALKS

The Washington trade policy community is buzzing over the two largest international trade negotiations since the effective collapse of the Doha multilateral trade round. The buzz may be even louder in foreign capitals. The Obama Administration, in mid-July, was still promising to complete the Trans Pacific Partnership (“TPP”) negotiations by year-end, while starting up the Trans-Atlantic Trade and Investment Partnership (“TTIP”) negotiations with similar speedy objectives. For both deals there is engagement and enthusiasm. Inside U.S. Trade, the trade community’s weekly Bible, devoted over thirty pages, all but one article in a recent edition, to these negotiations.

Conspicuously, China is not part of these negotiations. To the contrary, TPP negotiations began as the inspiration of smaller Asian countries (beginning with Singapore, New Zealand, and Brunei) and Chile, all worried about China. They induced the United States in 2008 to join their negotiations, with the net around China then beginning to expand to Australia, Peru, Vietnam and eventually Japan, Canada, Mexico and probably South Korea. Seven more countries in the last twelve months (including Taiwan) have asked to join.

The Doha Round cratered over agriculture, especially Chinese and Indian complaints about American and European subsidies. It was to have been the “development round” of world trade talks. One critical feature of the congressional debate about the U.S. Farm Bill in 2013 was that it did not involve serious reductions in subsidies, and as long as the United States will not reduce its agricultural subsidies, neither will the European Union (EU”). Without reductions in both, there can be no global trade negotiations.

The TPP was to be, by contrast, a “high standard” regional agreement with an emphasis on twenty-first century concerns such as intellectual property and financial services. It was fashioned, therefore, almost expressly to China’s exclusion.

The TPP acquired the look and feel of containment, especially when discussion over Japan’s entry encouraged reinforcement of Japan as a U.S. ally in the region and a bulwark against China. Acceleration of the talks coincided with President Obama’s “pivot” to Asia and intensifying American complaints about Chinese cyber-spying, trade actions against critical Chinese green technologies, and adversarial reviews of Chinese direct investments into the United States. Rhetorically, the TPP door was open to eventual Chinese membership, but politically it was locking shut in a cordoning fence.

For a while, China articulated a concern that the TPP was exclusionary and part of a growing American hostility, but as the number of participants grew and the subject matter became more complex, China appeared to worry more about its own slowing economic growth and its more regional talks with South Korea and Japan. China might also have noticed that, as more interests were implicated by more complicated negotiations, the probability of conclusion receded.

As the TPP appeared to advance, absorbing enough countries to represent some 40 percent of world trade (the United States and Japan, Canada and Mexico, being the crucial participants), anxiety grew in Europe. The American “pivot” initially appeared strategic and military; the TPP made it appear economic as well. Canada and the EU already were negotiating a free trade agreement, but the EU had longed for a revitalization of trans-Atlantic relations with the United States, especially as persistent Eurozone troubles threatened economic recovery and the EU itself. Balancing the American pivot and harnessing the American economic recovery for European benefit became critical, while the Obama Administration seemed to see talks with Europe as potential proof that the pivot toward Asia was not “at the expense of” Europe, and could be another vehicle for “high standards” that would appeal to the business community. As the United States entered what it insisted would be the final year of TPP negotiations, it launched on the other side of the globe TTIP with the EU. For the United States, restoration as the world’s lone superpower was manifest in playing the indispensable partner looking both east and west.

Late entries of Canada, Mexico, and Japan could complicate TPP ratification, but generally the negotiating countries can deliver on an agreement their leaders may sign. That proposition, however, is much less true for the EU. France already has signaled discomfort (especially over the National Security Agency’s PRISM project) and it is unlikely that the outside negotiation alone can supply the glue required to hold the Eurozone together. Still, assuming agreements can be reached and all foreign partners can deliver, there is an elephant roaming in these negotiating rooms.

THE ELEPHANT

The Congress of the United States will have to approve any trade deal, whether through a majority in both Houses (an “agreement”) or through two-thirds of the United States Senate (a “treaty”). And both Houses will have to write and pass implementing legislation wherever the agreements (or treaties) require changes in U.S. law.

The American presidential system is unlike political systems in almost every other country. Prime Ministers preside over the majority party of legislative bodies. They derive their authority from leading the majority party. When they commit their countries internationally, they almost always can guarantee the approval of their legislatures. American Presidents, however, have no such authority. It is not unusual for them to lead political parties that are in the minority in Congress, in one or both Houses. After they negotiate and sign an international agreement with foreign leaders, they have to negotiate with domestic legislative leaders who can oblige them to change the deal, going back on their word with the Prime Ministers and Presidents of foreign countries.

Remarkably, one of the momentous events of the twentieth century seems forgotten now by world leaders. President Woodrow Wilson, following protracted and difficult negotiations, settled the “war to end all wars” with a League of Nations. The United States Senate, in part miffed by its exclusion from Wilson’s delegation in Paris negotiating the Treaty of Versailles, rejected it. When the peace began to disintegrate, the United States was not a member of the League of Nations meant to preserve it.

The President and Congress, mutually recognizing that the United States was unable to negotiate trade agreements in good faith because negotiating partners could not rely on the President’s signature, created “fast track authority” in 1974. The President promised to engage Congress throughout trade negotiations; Congress pledged a vote, up or down without amendment, on trade agreements and treaties. (President George W. Bush renamed “fast track” “trade promotion authority” (“TPA”).) Fast track, or TPA, promised nothing as to implementing legislation, but trading partners were assured that the text of the agreement itself would not be changed by Congress after the President had signed it.

The more Presidents wanted legacies associated with trade liberalization and international agreements, the more contentious approval of TPA became. Members of Congress quickly recognized that when Presidents want something badly enough, they are prepared to negotiate and to give up things in exchange. Instead of an expression of American foreign policy and government solidarity, TPA approval became an occasion for domestic negotiation and horse-trading, and the more the President might want it, the more Members of Congress reckoned they could get from him. Ultimately, Members of Congress saw they could withhold TPA altogether as a means for denying a President signature accomplishments in foreign affairs.

When Congress declined to renew fast track authority for President Clinton, part of the punitive environment enveloped in his second term impeachment, the trade community wondered what Charlene Barshefsky would do as the new Trade Representative. Cleverly, she focused on amendments to established multilateral agreements (most significantly, China’s accession to the World Trade Organization), and on narrow bilateral proposals (such as adding Chile to NAFTA, which failed). Large-scale new agreements effectively were beyond her grasp.

President Bush wanted TPA badly and pursued it vigorously in the first months of his Administration. He got it on a 215-212 vote on a House bill detailing negotiating requirements. In his second term, amidst growing criticism of a foreign policy that had the United States tied down in two expanding land wars (Afghanistan and Iraq), Congress declined to renew TPA and his international trade efforts withered without it.

President Obama did not assign international trade the priority President Bush had accorded it upon election. His first picks to be the United States Trade Representative declined, one notably telling him he did not think the President was likely to accord international trade sufficient importance in his Administration. One priority after another – health care; fiscal responsibility; budget deficits; Iraq; gay rights; Pakistan; Afghanistan; hunting down Osama Bin Laden; immigration – overwhelmed a trade agenda, and he has now gone longer without TPA than any President since the idea was first implemented in 1974. Yet, unlike past Presidents when they did not have such authority, President Obama has plunged into large-scale, multilateral trade negotiations. He seems to be betting that he does not need TPA after all, and that his trading partners will believe him to have more power to complete, sign, and implement than trading partners have believed about Presidents in the past.

Most trade “experts” have been conspicuously silent about the charging elephant. Others who have spoken (few) appear split. Stuart Eizenstat, a senior official in the Carter and Clinton Administrations and former Ambassador to the EU, told a hearing of the House Committee on Ways and Means in May that fast track was “absolutely essential” for TTIP: “Negotiations with the EU can be launched, but they cannot be concluded. The EU is not going to accept our final deal if they know it can be second-guessed by Congress.”

Theodore Posner, former senior staffer on the Senate Finance Committee, wrote in July that a debate in Congress over TPA “probably will saddle our negotiators with certain unwieldy negotiating objectives crafted in an attempt to broker compromises between competing constituencies.” He concludes that TPA legislation probably should not be introduced before negotiations for both the TPP and TTIP are concluded. Writing for a professional newsletter, Law 360, he does not mention that two-thirds of the Democratic caucus in the last House of Representatives wrote the President objecting to their exclusion from the negotiations (the warning echo of Senator Henry Cabot Lodge), or that thirty-six Democratic freshmen sent an alarming letter of similar content to Democratic House leadership in June. Posner emphasizes congressional caprice, not congressional prerogatives, and he assumes, contrary to Eizenstat, that U.S. trade partners will complete negotiations without assurances that the President can deliver on his signature.

House Ways and Means Ranking Member Sander Levin (D-MI) told a Peterson Institute for International Economics audience on July 23 that work on TPA legislation had not yet engaged members and at the staff level was still “rudimentary.” He declined any prediction as to whether there would be legislation in 2013 and avoided mention of the involvement of the Obama Administration. But, he emphasized that TPA legislation would have to strengthen the role of Congress in developing trade agreements, which he said was necessary to build bipartisan support for the outcomes.

Republicans have indicated support for TPA, but Tea Party Members of Congress quietly have indicated their reluctance to grant the President more powers. In the past, Presidents might have counted on Republican votes for negotiating free trade. Today, at best the Republican Party probably would split.

New USTR Michael Froman, at a July 18 Ways and Means Committee hearing, effectively reported that leadership on TPA would not be coming from the White House: the Administration was, he said, “ready to engage and to help in that process as requested.” Two weeks later, he told the U.S. Chamber of Commerce – the leading champion of TPA – that “we stand ready to provide technical assistance and are doing so as required.” On July 30, the President himself declared his interest in TPA, but said he would pursue his interest by providing support to Congress.

A substantial number of Members of Congress from the President’s own party are complaining that they must define the objectives of trade agreements, have access to all information throughout the negotiating process, and be fully informed. They are complaining, with specific reference to the TPP, that they have not had access to information, have not participated in framing negotiating objectives, and have not been kept well informed.

As congressmen complain that negotiations have been “secretive” and they have been excluded, Ambassador Froman told the Chamber of Commerce that, "It’s an incredibly complex negotiation," an observation that could hardly comfort legislators being asked to surrender authority to the judgments and choices of the President.

The White House, meanwhile, has been trying to accelerate completion of TPP negotiations, without Congress. Inside U.S.Trade quoted a “business source” at the most recent negotiating round in Malaysia saying, “There’s a lot of pressure to close everything that can be closed,” and referred to other private sources saying that “this pressure is more palpable than it has been in any negotiating rounds this year.” It may be merely coincidental, but as Congress has complained of being excluded, the Administration seems eager to complete the deal faster.

There are additional considerations. USTR has complained publicly that it does not have enough negotiators to cover TPP and TTIP negotiations simultaneously (they are negotiating 29 different chapters in the TPP alone). Closing chapters will oblige late entrants to the negotiations (such as Canada, Mexico, and Japan) to accept terms negotiated by others or be excluded. There may be broader economic considerations, that completion of a sweeping and landmark trade agreement could jump-start economies that have been improving from the Great Recession, but slowly.

Despite all the possible explanations, it is apparent that the Obama Administration is not going to seek TPA aggressively before completing the TPP negotiations. It is also apparent that this Congress, and any Congress, would be reluctant to endorse a negotiated package without having participated intensively in its development and strategic intent.

And then it is essential to consider this Congress in particular, a Congress that could not agree for more than a month on a formula to control interest rates on student loans nor on any formula to preserve food stamps for the poor. Even if Congress were not crippled by partisanship and ideological division, and not directed by party leaders with little apparent control of their caucuses (a problem especially acute in the Republican Party), it would still be a Congress whose opposition party is determined to deprive the Democratic President of any major accomplishments. With a Republican Party study warning of the party's demise without comprehensive immigration reform, House Republicans have blocked it. Republicans still, four years after passage, seek repeal of the Affordable Care Act, long after their efforts failed in the courts. The introduced legislation for this purpose for the fortieth time at the end of July. A plan of certain Senate Republican luminaries is to defund the Affordable Care Act during autumn budget talks, reminding the President that even legislation he thinks he has passed remains vulnerable to the opposition.

Successful completion of either trade negotiation would deliver to the President a signature accomplishment. With a Senate whose Minority Leader said his sole objective was the defeat of this President and a House of Representatives that routinely rejects legislation approved in the Senate, it is difficult to imagine why anyone would expect Congress to deliver President Obama a signature achievement in international trade. Perhaps, understanding the odds, the President is unprepared to invest much capital in Congress for such doubtful support.

Democratic Presidents often have more success with international trade deals than Republicans, if only because Democrats are presumed to be protectionist and Democratic support is particularly difficult to muster for free trade. When a Democratic President presents a free trade agreement (or legislation for trade liberalization), he can expect bipartisan support because his own caucus, typically reluctant about free trade, will not abandon him. For this reason, if no other, President Obama may expect approval of his negotiations after the fact. Such a calculation, however, with the present (and likely next) Congress would reflect exaggerated optimism.

CONCLUSION

The merits of the TPP and TTIP may be undeniable. They could improve trade and enhance the world economy. They could create jobs. There is logic in the enthusiasm negotiations for them have inspired.

There are also concerns about the merits. China may have stopped its private complaint about the TPP because, realistically, it may have nothing to fear from it, but China cannot have missed the message. It is a message that will not make China-U.S. relations easier, or stimulate mutual confidence and trust.

There are also legitimate concerns about specific contents, particularly because the many constituencies that must be satisfied have not yet seen and understood what the United States is negotiating. The Administration gives the impression that it does not want constituencies to be fully informed. Otherwise, there would not be a congressional chorus about deprivation of adequate information.

Even were all in order – the merits impeccable and constituencies pacified if not satisfied – it remains that Congress is to be presented deals after their completion. No Congress likely would stand for it, but this Congress, determined to deprive the President of any and all achievement, is likely to grant neither an up-or-down vote (were the President ever to ask), and even less likely to accept the agreements as negotiated.

When President Obama inherited from the Bush Administration three bilateral trade agreements requiring Congressional support, he spent years renegotiating terms before presenting them to Congress, even though they had been negotiated by a President when he possessed fast track authority. President Obama has no such authority, is not likely to receive it, and is not likely to confront a Congress eager to anoint him a successful champion of free trade.   

Mexico’s Ambassador to the United States told a Washington audience in July that he had spoken with fifty Members of Congress since January about Mexico and North America in the context of world trade. He seemed to think this number significant. Senior European officials, when asked about the congressional veto over TTIP, have referred to discussions with USTR. There are no signs of a concerted effort to rally congressional support. Instead, they seem to assume what the Administration apparently assumes, that when the time is right Congress will endorse a sweeping new trade agreement. Regrettably, neither history nor institutional prerogatives lend any credibility to what seems to be little more than wishful thinking.

The TPP and TTIP have aroused extraordinary interest in international trade and policy and have provided employment for a widening trade community inside and outside government. Such engagement and enthusiasm, however, does not mean these agreements will go to completion and, if somehow they do, there remains even less probability that the elephant in the room will not step on them.