Will China’s Gambit to Undermine the Trans-Pacific Partnership Succeed?

While eyes in the US have remained focused on the budget cliffhanger in Washington, in Bali, two sets of meetings were taking place. The first was the latest set of Trans-Pacific Partnership negotiations. The US, led by John Kerry (Obama was supposed to make an appearance but the budget drama kept him away) met with representatives of the 12 nations it is pressing to agree to this deliberately mis-branded “trade deal”. The reason the label is misleading is that trade is already substantially liberalized; the real point of the TPP and its cousin, the pending EU-US trade agreement, is to weaken the power of nations to regulate, which will allow multinationals to lead a race to the bottom on product and environmental safety. As we wrote earlier this year:


By way of background, the Administration is taking the unusual step of trying to negotiate two major trade deals in the same timeframe. Apparently Obama wants to make sure his corporate masters get as many goodies as possible before he leaves office. The Trans-Pacific Partnership and the US-European Union “Free Trade” Agreement are both inaccurately depicted as being helpful to ordinary Americans by virtue of liberalizing trade. Instead, the have perilous little to do with trade. They are both intended to make the world more lucrative for major corporations by weakening regulations and by strengthening intellectual property laws. The TPP has an additional wrinkle of being an “everybody but China” deal, intended to strengthen ties among nations who will then be presumed allies of America in its efforts to contain China…


Baker describes in scathing terms why these types of deals are bad policy:


        …these deals are about securing regulatory gains for major corporate interests. In some cases, such as increased patent and copyright protection, these deals are 180 degrees at odds with free trade. They are about increasing protectionist barriers..


These deals will also lead to more upward redistribution of income. The more money that people in the developing world pay to Pfizer for drugs and Microsoft for software, the less money they will pay for the products that we export, as opposed to “intellectual property rights”….


This is yet another case where the government is working for a tiny elite against the interests of the bulk of the population.


If that isn’t bad enough, there’s another side of these planned pacts that is often simply ignored. These “trade” deals are Trojan horses to erode or eliminate national regulations. Baker anticipates that these deals will include sections that would limit government regulation (including at the state and local level) on fracking and could revive much of the internet surveillance that reared its ugly head in the failed SOPA [notice this was written in the innocent pre-Snowden era].


And this sort of erosion of the right to regulate will most assuredly extend to financial services. Dodd Frank? The Brown-Vitter bill that some see as a great new hope for tougher financial regulation? They are already unworkable under existing trade agreements.


Back to the current post. The second meeting in Bali this week was for Asia-Pacific Economic Cooperation (APEC). And the two intersected in intriguing ways. Remember, the terms of the TPP are shrouded in secrecy that is utterly inconsistent with the notion of democratic rule. Draft chapters have not been released. In the US, the US Trade Representative has given briefings on the general terms of the pact’s chapters, but as anyone who has worked on contracts or legislation, reading the detailed terms is critical to understanding an agreement, and those are being kept firmly secret. Consider this stunner from the Japan Times in August (emphasis ours)


In a related development Friday, government officials briefed LDP lawmakers on the current status of the negotiations.


The Diet members were told that Japan has joined in time for negotiations on market access and other fields the country is keen to discuss.


They were also informed that the talks involve a strict nondisclosure agreement prohibiting members from releasing information for four years after the conclusion of a deal.


Not only has the US been pushing remarkably hard on the secrecy front, it’s being remarkably aggressive on timing. It got a commitment from the prospective signatories in Bali for the pact to be finalized by year end, when a State Department briefing immediately afterward met with skeptical questions (if you have time, you really should read the session in full. The obstinacy and disingenuousness of the State Department mouthpiece is way too obvious). For instance:


    QUESTION: The penultimate (inaudible). Okay. Sorry.


I know that the statement says that you guys all believe you’re on track to finish by the end of the year, but that is completely in contradiction to what the Malaysian minister said publicly and on television several times and in his press conference. So what I’m trying to understand is: Were certain assurances given to people like Malaysia and to – over Bumiputera and to Japan over agriculture? To certain parties were assurances given that something is going to be possible so that they can get on track at the end of the year? Or is there a possibility that there could be some deal at the end of the year that’s a platform, and that other countries within the 12 could join once their issues are resolved?


    SENIOR ADMINISTRATION OFFICIAL: Well, I haven’t seen the specific comments of the Malaysian prime minister.


    QUESTION: No, not prime minister, the trade minister –


    SENIOR ADMINISTRATION OFFICIAL: Oh, the trade minister –


    QUESTION: Yeah, I can send them to you.


    SENIOR ADMINISTRATION OFFICIAL: — that you’re referring to, there was a –


    QUESTION: They said it’s not possible.


    SENIOR ADMINISTRATION OFFICIAL: Well, there was a very good discussion among leaders both about where we are in the negotiations, the progress that’s been made, and the remaining issues that need to be addressed. And it is clear that there are a number of complex issues that need to be addressed.


Forbes is also skeptical that the deal can get done so quickly:


Given the vastly different economic systems, structures, and development stages of the 12 TPP negotiating countries the sweeping scope and “21st century” (read: U.S. model) approach of TPP would be expected to require highly disruptive changes in many of the countries. And so it is proving. During the past months, U.S. negotiators have been jostling with counterparts from Malaysia and Vietnam over intellectual property protection and government procurement. For Vietnam where, as in China, state-owned enterprises are dominant, TPP “level playing field” rules are unacceptable. TPP’s terms of reference for extended drug patent protection—clearly an advanced country interest—is problematic for poorer, developing countries. Likewise for TPP’s proposed standards for environmental and labor protection.


In fairness, the Forbes article points out that one set of issues that was seen as a major stumbling block for Japan, that of five types of agricultural products it wanted held out of the deal, may not be such a problem after all because the Japanese Prime Minister Abe, who talked up the deal this week, looks to be able to play the sellout of domestic farmers so as to disadvantage an LDP rival.


However, the US has been ruffling the potential signatories. For instance:


The last full TPP negotiating session in Brunei witnessed USTR Froman violating protocol and good manners by muscling into the chairmanship (which by rights was the host country’s) so as to command everyone to dash to the Obama administration’s yearend finish line. That action, and virtually everything else done with the TPP by the USTR (and Obama himself), evidence an arrogant and bullying style that we see all too often in the Obama administration.


And the State Department Q&A also indicated that Indonesia, which was also hosting the APEC leaders’ meeting, had the US trying to upstage that session.


Now bruised official egos are likely not enough in and of themselves to derail a trade deal. But the Asian nations are also playing a careful balancing act between the current hegemon, the US, and its presumed successor, at least in the region, if not globally, China. Now remember, the whole point of the TPP is that it is an “everybody but China” deal. So what did China do at the APEC summit when Obama was detained in Washington? Step up its efforts to undermine the TPP. From Agence France-Presse:


The United States stepped up efforts to reinforce its economic might in the Asia-Pacific at a regional leaders’ summit in Indonesia on Tuesday, amid warnings from an increasingly bold China….


But China and even some developing nations included in the TPP have expressed concern that it will set down trade rules primarily benefiting the richest countries and most powerful firms.


“China will commit itself to building a trans-Pacific regional cooperation framework that benefits all parties,” Chinese President Xi Jinping said in a speech following Kerry at the Apec business forum….


“The Trans-Pacific Partnership, featuring confidential talks and the highest free trade standard beyond mere lower tariffs, is widely considered a new step for the US to dominate the economy in the Asia-Pacific region,” the China Daily newspaper said in a front-page report on Xi’s speech.


Indonesia also signalled its irritation at the huge focus on TPP at the Apec summit, shunting the planned meeting on Tuesday afternoon of the 12 nations involved to a hotel outside the official venue…


Meanwhile, China and Indonesia are involved in plans for a rival free trade pact involving 16 countries around the region and being spearheaded by the Association of Southeast Asian Nations.


Negotiations for that pact are expected to be discussed at an East Asia Summit in Brunei this week.


It’s not clear that China’s efforts to throw sand in the TPP gears will work. But the year end timetable looks like a bizarre Administration fantasy (why push for an empty commitment to a deadline that clearly can’t be met?). And the parallel ASEAN trade talks could give countries that wanted to drag their feet on the TPP an excuse to do so (note that one country being reluctant is likely to be insufficient to derail the deal, but two or three could change the equation. Reporters in the State Department briefing were making comparisons to the failed Doha round). 

A final factor that could work against the TPP is a continuation of a destabilizing budget battle. As we’ll discuss in our accompanying post today, there was progress of sorts Wednesday, in at least the two sides have agreed to talk. But they aren’t even at the stage of discussing terms, beyond a vague idea of putting the debt ceiling on hold while the two parties work out a bigger budget deal, with deficit cutting measures included. The problem is given the failure to reach a Grand Bargain Great Betrayal last year, I don’t see why there is any reason to believe a six week delay will pave the way for a deal coming together, given the increased hostility between the two camps and the hard core Republican right insisting on throwing Obamacare into the talks. The longer Washington is in disarray, the weaker its position in pushing for a trade deal. As we’ve said before, that may be the one silver lining of the damaging Federal shutdown. 

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