TPP and ‘dead rats’

The New Zealand Trade Minister Tim Groser said, last weekend, that everyone was swallowing “dead rats” to get the Trans-Pacific Partnership done. As details come out, the economic rationale for the deal fades. Negotiators seem to have reached a deal just to reach a deal.

The U.S. trade negotiators should be focusing on building America’s industrial and agricultural supply chains to increase both domestic and international market share. We should want to increase net exports, to remedy our trade deficit. There is nothing inherently wrong about globalization that results from technology and transportation.  

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Oddly, the U.S. trade policy focus is upon growing global supply chains rather than the market share of domestic suppliers. That’s a big reason U.S. manufacturing and agricultural production is in decline, relative to other trading and producing nations. Can you imagine governments of China and Japan placing their policy thumb on the scale in favor of global suppliers instead of their domestic producers?

Given all the “dead rats,” it is not clear that the U.S. Trade Representative achieved enough to convince enough industries to support the deal and to convince enough Republican lawmakers to give Obama a win during his remaining time in office.

America’s meatpacker lobby organizations - such as the National Cattleman’s Beef Association and the National Pork Producers Council - demanded full elimination of Japanese duties on pork and beef. The TPP result fell far short.

While the average weighted tariff in Japan is about 2.5 percent overall, idiosyncratic tariffs on beef are indeed high at 38.5 percent. This will be reduced over the course of 15 years to 9 percent. Disconcertingly, the tariff reductions will be reversed if US exporters actually sell a lot of beef to Japan.

As to pork, while Japan will eliminate its 4.3 percent tariff over 10 years, it is really a farce. The country will preserve a variable tariff which prevents U.S. pork from being sold below domestic Japan prices. In other words, U.S. pork exports can never undercut domestic prices.  

Japan is also increasing its VAT to 10 percent ext April, from 5 percent in 2010. All U.S. exports to Japan will pay this added 5 percent tax at the border.

We now know that meat tariff reductions negotiated in the Korea trade agreement, implemented in 2012, did not increase U.S. meat exports. The Japan result will be similar.

As to dairy and sugar, our trade negotiators conceded terms incentivizing more access to the U.S. market by New Zealand and others. Thus, any growth in our domestic market will benefit producers elsewhere, not necessarily Americas farmers.

Congressional demands for an effective system to control currency devaluation were largely ignored. There is a mere fig leaf of a promised future side agreement enabling countries to “discuss” currency devaluation, but no remedy is on the table. Japan’s currency devaluation of more than 55 percent is a tariff and subsidy equivalent that overwhelms any TPP concessions. 

State-owned and controlled enterprises in Vietnam, Singapore, and Japan which operate in the commercial realm, competing against U.S. exporters, do not appear to have any substantial limitations placed upon them. The subsidized state enterprise issue has been central to China’s growth in our market.  But under the TPP, the unlimited subsidies and resulting competitive advantage will continue.

President Obama needs the support of U.S. industries to push this agreement through Congress.  The opposition does not fall neatly upon partisan lines. Several industry sectors have expressed disappointment.  The agricultural sector is divided. Senate Finance Committee Chairman Orrin HatchOrrin HatchOvernight Finance: Lawmakers float criminal charges for Wells Fargo chief | Scrutiny on Trump's Cuba dealings | Ryan warns of recession if no tax reform Overnight Healthcare: Watchdog says ObamaCare program made illegal payments GOP senators press Treasury to withdraw estate tax proposal MORE (R-Utah) is disappointed with the result on data protection for biologics in the pharmaceutical industry.

Whether the TPP will pass depends largely upon three core dynamics that could produce more “no” votes than July’s narrow Fast Track trade authority passage and sink the TPP in Congress. First, will there be enough industries that support the deal to successfully push their congressmen to vote “yes”? Second, did Obama’s negotiators meet enough statutory Fast Track negotiating objectives to plausibly claim that he was not ignoring Congress? Third, will Republicans want to give Obama a big win during the presidential campaign in the twilight of his administration?

We will not know the answer until the summer of 2016, at the earliest, due to the statutory timelines contained in the Fast Track trade authority bill passed last July.

Stumo is the CEO of the Coalition for a Prosperous America, a nonpartisan, nonprofit organization representing the interests of America manufacturing, agriculture and workers.