American Votes on Trade

The U.S. Presidential election gets underway in earnest in less than a week with the first votes in the Iowa caucuses on February 1.  Unlike many past electoral battles, both the Republican and Democratic primaries feature serious contests between multiple candidates. 

A bumper crop of candidates are jockeying to be the last person standing in their party and to reach the general election on November 8.   

In addition to electing a new president to replace outgoing Barack Obama, Americans will be voting on all 435 members of the House of Representatives for new two year terms and one third of the Senate (34 of 100 seats). 

An American election can have all sorts of consequences, of course, but of particular interest to readers of Talking Trade may be the implications of a contested election on a crowded 2016/2017 trade agenda. 

In trade, Congress has a number of important issues to consider.  Most critically, the Trans-Pacific Partnership (TPP) continues to move ahead.  The official legal texts were just released and will be signed on February 4 in New Zealand. 

Next up, the ITC has to issue a report on the expected consequences of the TPP.  This report is due in May and will likely be used (or misused) as fodder for both sides.  At any time after this report is finished, the President could ask Congress to begin the ratification procedures. 

Of similar economic importance to the TPP, the Trans-Atlantic Trade and Investment Partnership (TTIP) negotiations with the European Union is supposed to wrap up this year. 

Also in the pipeline, the Trade in Services (TiSA) officials just pledged to conclude negotiations in 2016.  While it is unlikely that this services talk will be ready to present to Congress this year, it nevertheless represents the kind of deal that a new Congress and President may have to address in early 2017.

These three agreements alone present a complex set of challenges for current and potential Presidential and Congressional candidates. 

To make getting trade deals done more difficult, the current crop of candidates from both parties running for the highest office have views of trade that range from lukewarm to decidedly unhelpful. 

What is very unusual, in this upside down electoral cycle, is which candidates and parties are most strongly anti-trade.  In the past, Democrats were less enthusiastic about trade agreements, fearing the effects on workers, jobs and the environment. 

In large part to head off their potential objections, American negotiators included chapters on labor and environment in the TPP over often-strong opposition from other TPP member governments.

Candidate Hillary Clinton has not been enthusiastic about the TPP, despite having promoted the benefits to the United States from the agreement when she served as Obama’s Secretary of State.  Her position, once in office, could shift.  Her Democratic challenger, Bernie Sanders, is strongly in opposition to the TPP citing traditional concerns about labor and environment. 

What is new for 2016 is that Republicans are also not wildly excited about trade this cycle.  In the past, the party was generally willing to vote for trade deals.  For example, while contentious, voting just seven months ago produced support for the Trade Promotion Authority (TPA) to allow the conclusion of the TPP negotiations (and other trade deals). 

The vote count was 60-37 in the Senate, with the support of 13 Democrats and the opposition of 5 Republicans (including 2 running for President).  In the House, the vote count was 218-208 (28 Democrats voting yes while 50 Republicans opposed). 

Since then, positions have hardened.  Even supporters of the TPA vote and the TPP in the past, including Republican Speaker of the House Paul Ryan, have suggested potential problems voting in favor the TPP if it comes before Congress now. 

In part, this is because Republican candidates for President appear to have gotten strong public support for an anti-trade message.  The current front-runner, Donald Trump, has consistently argued against greater trade, at one point threatening to slap Chinese imports with 45% tariffs, for instance. 

Ted Cruz, who voted for TPA in the Senate, is now a vocal opponent.  He has suggested that he remains in favor of free trade, but not “corrupt” back-room deals that harm immigration. 

This puts the trade agenda—and TPP approval—into an interesting spot.  In the past, many Democrats who likely supported trade policies did not need to go out in front of voters having cast controversial votes in favor of trade because they could count on Republican colleagues to push trade over the line. 

Many Republicans, and most of what are now called “establishment Republicans,” have supported a trade agenda for years or decades.  Much of the ongoing trade agenda in the United States, such as lowering trade barriers overseas to American exports, pushing for standards regulations that are consistent with American regulations, expanding access for American services providers and investments, fit squarely in the traditional agenda of the Republican party. 

These objectives have lead to substantial benefits for many in the party, particularly for the traditional donor base. 

However, this election cycle has seen increasing tensions in the Republican party.  A rise of protectionism appears to have led many candidates to push back against free-trade and free-market ideas.  Perceptions matter and many potential voters on the campaign trail seem convinced that global trade has caused them to suffer significant economic harm with limited benefits.

Marco Rubio and Jeb Bush did defend free trade in the Republican debate held earlier this month and have supported the TPP.  But neither candidate is currently polling very well. 

For candidates running for the House or the Senate, the message seems clear—many primary voters seem to be responding better to messages about closing off America from foreigners than to traditional language about the benefits of greater engagement with the outside world.

This puts TPP approval, especially, into a very peculiar place.  Many are arguing that the agreement is most likely to be approved in the lame duck session (after the general election is finished on November 8 but before the new President and Congress are seated in January 2017).

However, if protectionist enthusiasm continues to build, it could be increasingly difficult to mobilize a winning coalition around getting the TPP ratified. 

Interesting times indeed.  Time to pay greater attention than ever, perhaps, to early electoral states like Super Tuesday on March 1 when a dozen states vote or March 15 when some key swing states select their preferred primary candidates to see which types of arguments actually carry the day in the voting booth.  Do Americans that are urging protectionism or freer markets show up to vote?  Are politicians swayed by perceptions too?

***Talking Trade is a blog post written by Dr. Deborah Elms, Executive Director, Asian Trade Centre, Singapore***

Traveling with One “L” or Two? A Review of TPP Timelines

A former trade negotiator once told me that he spent over an hour of his time on Earth arguing over whether or not the word “traveling” should be spelled with one “L” (American style) or two (British style).  Such linguistic disputes are common in the final phases of trade agreements, as the legal texts get nailed down and then translated.

For the Trans-Pacific Partnership (TPP), the legal teams are holed up in Japan, confirming all the final details of the agreement.  In both legal and trade terms, language is extremely important.  There is a vast difference between a sentence that reads, “Members shall…” and “Members shall endeavor…”  The former requires the action by members while the latter merely urges action. 

Getting a dozen legal teams to comb out the final details on such a comprehensive agreement that runs to hundreds of pages is taking a long time.  Fortunately, the official language of the TPP is English.  This means that, although the final document will also be translated into Spanish and French, the legally applicable text is the English version only.  This dramatically cuts down on the time required between the completion of negotiations and possible release of final texts. 

While we all wait for the texts and associated schedules to be circulated (hopefully within another week or two), it seems a good time to review the timelines ahead for the TPP. 

In general, there are two critical sets of timelines that matter for the agreement.  The first deadlines are a whole set of complicated dates related to approval of the TPP inside the United States.  The second deadlines are those related to entry into force for the entire TPP agreement. 

To make matters more complicated, the US domestic procedures contain multiple timelines.  To try to summarize (and simplify slightly) the situation:

1.     President Obama, following Trade Promotion Authority (TPA) guidelines, has to notify Congress of his intention to sign the texts.  This triggers a 90 day procedure under which the texts must be formally released to the public for at least 60 days.  At the end of 90 days, the President is allowed to sign the agreement.

2.     The formal signature of the agreement by the President must be accompanied (within 60 days) with a list of legislative changes necessary for Congress to consider in order to bring domestic laws into compliance with TPP rules (wherever needed). 

3.     At some point, the President will need to deliver to Congress the official text of the agreement, a draft implementing bill, and a statement about how the agreement matches requirements of Congress under TPA.

4.     Once Congress receives the bill from the President, it must send the bill directly to relevant committees for expedited review.  There are specific time deadlines that apply again once the bill has been submitted.

5.     After limited floor debate, both houses of Congress must vote on the bill.  No amendments are allowed, so members must vote either yes or no.

Hence, one important issue inside Washington is figuring out when is the most auspicious moment to trigger some of the deadlines.  Most critical, of course, is the best opportunity for the final debates and reviews inside of Congress prior to final votes.

While many will feel particular urgency to get US approval for the TPP agreement, the implementation of TPP commitments across all 12 members remains some distance off.  New Zealand’s government has been releasing a series of helpful fact sheets.  One, on implementation and legal commitments, highlights the three options included in the TPP agreement for handling the entry into force deadlines.

The basic problem is that, while negotiations on the TPP agreement with the 12 members concluded on October 5, member states need to have domestic approval to move forward with implementation.  An agreement with a dozen participants may run into difficulties at the domestic level in getting approvals at the same time. 

Hence, the TPP has three possible methods for achieving entry into force.  The first and easiest method is to have all 12 countries finish domestic procedures within 2 years of signing the agreement.   Within 60 days of the last approval, the agreement automatically enters into force. 

Under option 1, entry into force could be much sooner than 2 years since it is triggered by the speed of domestic procedures alone.  Most TPP members have parliamentary systems, where the government usually has higher confidence that domestic legislators will follow government policy.  It is conceivable that many TPP members could put the matter before parliaments immediately after signature and be ready to move forward in a matter of weeks.

Except, as noted, the United States.  To add to the difficulties, as anyone following the United States knows, America is in the middle of a drawn-out electoral cycle in a bitterly contested, hyper-partisan environment.  It is not at all clear whether the TPP will get the 51% of votes needed in both houses of Congress or when this approval might be most likely.

This concern has given rise to the next option for TPP approval.  Under option 2, if all 12 parties have been unable to commit to the agreement at the domestic level inside of 2 years, the agreement can still come into force if at least 6 members are ready. 

However, this comes with a catch—because TPP officials have been worried that either the United States or Japan would not get the agreement through their legislators and bureaucracies for approval, option 2 also requires that both countries must be among the six (or more) countries ready to move ahead to implementation.   Hence, option 2 really means that, provided the United States and Japan can join up with at least 4 other good-sized members by the end of a two-year period, the agreement can proceed.

But what if either Japan or the United States are not finished with domestic procedures within 2 years?  Then Option 3 kicks in, under which the agreement can come into force within 60 days of the last one signing the agreement (along with the other major party and at least 4 more members). 

The TPP agreement, therefore, does give more weight to the Japanese and American approvals than the remainder.  This is a reflection of economic realities, where the payoffs are greatest if, and only if, the biggest markets are included.  Unless all 12 members are included at the outset, then members that collectively contribute at least 85% of the market size need to be ready to implement the TPP.  Any country that is not involved at the date of entry into force (other than the U.S. and Japan) can enter the agreement at any later time.

This complex set of entry into force conditions makes it difficult to predict with accuracy exactly how soon the TPP will take effect.  If all 12 parties moved at light speed, the soonest possible date could be fall 2016.  It is a pretty safe bet, however, that this will not happen so smoothly or so soon.  Instead, businesses might realistically be planning and pushing for TPP implementation in 2017.

***Talking Trade is a blog post written by Dr. Deborah Elms, Executive Director, Asian Trade Centre, Singapore***

Doing the Right Thing When All Else Has Been Tried: Congress Tries TPA Once More

WASHINGTON, DC: This week in Washington, more people than I can count have repeated a quotation attributed to Winston Churchill, “America will do the right thing only when it has tried everything else first.”  We are testing this theory right now on the trade front, as Congress grapples with how to undo the various “procedural snafus” that have bedeviled the votes on Trade Promotion Authority (TPA) and Trade Adjustment Assistance (TAA).

Yesterday, I wrote two different blog posts and had to toss them out and start over again this morning as events have been moving swiftly on the ground here in Washington. 

After the shock defeat of TPA/TAA in the House of Representatives on Friday, many of the folks in the city that care about trade spent the early part of this week trying to figure out a possible solution. 

Congressional leaders have opted for a risky strategy.  The House just passed a “clean” TPA resolution by 218-208.  This bill splits apart TPA from TAA. 

The hope now is that the Senate will re-vote next week on the new House-approved version of TPA.  Assuming the two bills match, TPA can quickly be passed along to the President for signature.

But this is a risky strategy because it requires Democrats in both parts of Congress to vote for TPA without TAA.  They must count on promises that Trade Adjustment will be up for another vote prior to its expiry in September.  Given the low levels of trust in Washington these days and the growing polarization of both parties, this is an interesting gamble. 

The goal is to complete the entire process prior to the July 4th recess in Congress.

Most likely, the chief negotiators for the TPP have shifted existing plans to meet until just after July 4.  They are likely to need two weeks to complete negotiations.  The ministers are likely to be penciled in for mid-July in the hope that they can sign the completed agreement by then (after some furious late nights of bargaining). 

If this near-death experience has had any upside, it may be that it has concentrated minds.  Partner countries and American negotiators will have to think carefully about any further delays in getting the agreement finished.  I believe that officials will be more ready to wrap this deal up than ever before.

Once the agreement is finished, under TPA rules, officials will have 30 days to finish legal scrubbing and any other associated technical details.  Fortunately, English is the official language of the TPP, which will reduce the amount of time needed for translations and the legal work on each translated version.

The document will then be published for 60 days before the President and other leaders can sign the agreement.  Hence, if all the deadlines line up, it is just barely possible to imagine the TPP finished and signed off in or around the next APEC Leader’s Meeting in Manila in mid-November. 

Given the issues around getting trade agreements through Congress, officials across government will be feverishly working to get any necessary implementing legislation worked out during the TPA review window period.  This ought to allow a Congressional vote on the TPP—just barely—by the end of this year.  

Hence, the TPP can still be completed in 2015.  (But note that entry into force will still be some distance away, likely in 2017, as countries will require some time to bring domestic rules and regulations into compliance with TPP rules.)

But what if the agreement is not done this year?  I have heard two opposite and distinct arguments about 2017.

First, lots of people here have suggested that approval of TPP should just be postponed until after the next president is in office in January 2017.

I believe this is deeply problematic. For starters, the lineup of participating countries in the TPP could be radically different by January 2017.  Canada faces a tough election in October.  The Prime Minister of Australia has already narrowly survived one no confidence vote from his Parliament.  The Prime Minister of Malaysia is struggling to maintain his office in the wake of a growing scandal over government funds as well as a softening economy. 

The Prime Minister of Japan has staked his entire reputation and government policy around radical shifts in the economic space.  If TPP does not succeed, he might well not survive either.   It is highly unlikely that any successor will be inclined to take the politically difficult steps needed to bring TPP into force in Japan.

The list could go on—Brunei might implement sharia law in a way that is deeply problematic.  Malaysia could find additional mass graves.  Between now and 19 months from now, all manner of issues could easily derail any agreement and any TPP government.

The assumption by many here seems to be that whoever wins office in Washington at the end of next year will be more enthusiastic about trade and the TPP and will be more able or willing to cajole, arm twist, charm, threaten opponents or reward supporters than the current occupant of the White House.  And that the next Congress will be equally keen to take on a big, fraught policy decision right after being seated in the Capitol building.  Even if the rest of the world somehow stood still, the picture in Washington is unlikely to be so rosy.

Deciding now to wait until 2017 to get the TPP approved is a poor idea.  Wishful thinking is not going to solve the problems of getting a high stakes trade agreement past 535 members of Congress and into the hands of the President for signature.

But this does conflict with a second argument I have heard in Washington regarding timing.  If the agreement cannot be ratified by late 2015 or very early in 2016 given the presidential election dynamics, the world will not end if domestic approval inside the U.S. slips slightly. 

We have precedent for this as the free trade agreements with Columbia, Panama and South Korea all sat for years waiting to be approved in Washington.  All three countries even had to go back to the negotiating table. 

It should not be a surprise that I am not at all in favor of this idea.  Most of the TPP member countries have put a great deal on the line domestically to get this far.  After more than 5 years of negotiations, any further delay can be quite problematic.  Businesses are already waiting for implementation and have started making investments and shifting production to account for TPP rules. 

The best strategy—by far—is to approve TPA by the end of next week.  TPA really ought to have been relatively uncontroversial, although past votes on the topic have also been fraught with challenges.  In any case, once TPA is finished, officials can quickly wrap up the TPP and prepare for the final battle over this agreement.  Hopefully, voting on TPP will be less nail-biting than the votes over TPA.

***Talking Trade is a blog written by Deborah Elms, Executive Director, Asian Trade Centre, Singapore***