Cold Water for Hot Trade Deals

The TPP and TTIP trade arrangements still have their toughest work ahead of them.

The Obama administration is charting a radically different course in trade policy. The path is now clearly marked by last week’s announcement of the nomination of deputy national-security advisor Mike Froman, the architect of the new policy, as U.S. Trade Representative.

Until quite recently the United States was focused on the quest for a comprehensive multilateral trade round, the Doha Development Agenda, while also pursuing a handful of bilateral trade deals of minor importance. Today, Washington has essentially written Doha off, and is instead pursuing two giant regional deals: one with countries of the Pacific Rim, the Trans-Pacific Partnership (TPP), whose importance has been enormously enhanced by the recent addition of Canada, Japan and Mexico to its participants; and the other with Europe, the Transatlantic Trade and Investment Partnership (TTIP).

Both negotiations are widely supported by business interests and even the trade unions have voiced support for TTIP. The negotiations are intended to achieve “gold standard” deep and comprehensive trade agreements, a familiar objective of recent bilateral negotiations involving the United States. However, since the TPP and TTIP combined would comprise thirty-nine countries that account for over 60 percent of world trade, the new megaregional negotiations resemble in scope and ambition those of a multilateral trade round rather than a traditional regional deal. In fact, taken together, they bring to mind the early GATT (General Agreement on Tariffs and Trade) Rounds whose negotiations were dominated by the advanced countries, with the United States in the lead.

Twenty-six countries, nearly all advanced economies, took part in the Geneva and Dillon GATT Rounds. Only one, the United States, positioned once again at the center of the system, is participating in both TTIP and TPP. As was the case under the GATT, and in stark contrast to the WTO arrangements, developing countries are likely to play a largely subsidiary role in the TPP and TTIP negotiations, while advanced countries will lead. Only a handful of participating TPP and TTIP countries are classified as developing by the World Bank, and they represent just a small fraction of the deal participants’ combined GDP.

Far from the grand multilateral design of John Maynard Keynes and Harry Dexter White at Bretton Woods in 1944, which paved the way for the IMF, the World Bank and eventually for the GATT system and subsequently for the WTO, the new policy has a troublingly makeshift character. The new U.S. trade policy originated in an invitation by four small countries to join the then-minuscule TPP, but which then generated its own momentum as Doha faltered, concerns about China’s territorial disputes in Asia escalated, and European allies worried about being left behind by the United States’ trumpeted “pivot” to Asia insisted on getting more attention.

The Best of All Possible Worlds

To misquote Carl von Clausewitz, trade policy is the pursuit of diplomacy by other means. Accordingly, a central aim of the impending trade negotiations across both the Pacific and the Atlantic is to cement alliances between countries that share interests in security, democracy promotion, and many other areas. It is no accident that U.S. trade policy is largely run out of the National Security Council in the White House. While this lends the new policy weight within the administration, it also carries the risk of political considerations getting far ahead of economic realities—such as the ability to actually deliver on trade reforms—and to do so while promoting America’s enormous economic interest in China, and in a dozen other large emerging nations that are shaping up to be the trade giants of the twenty-firstcentury.

Still, if it succeeds, the new trade policy may not only consolidate alliances but also impart new momentum to the trading system and help the United States to reassert its leadership in economic relations after the debacle of the Great Recession. Together with the European Union (EU) and its TPP partners, the United States can essentially eliminate tariffs, free foreign direct investment, make government procurement more competitive, raise the bar on the many standards, regulations, and disciplines governing trade and intellectual property, and harmonize and rationalize domestic regulations in areas ranging from competition to government procurement. Moreover, if they succeed, the negotiations could provide a platform from which to effectively determine global standards for everything from car safety, fuel economy, and emissions to accounting and insurance regulation, sanitary and phytosanitary standards, and patent and copyright law.

In addition, the new strategy could trigger a new wave of global liberalization through bilateral trade agreements by countries trying to avoid exclusion or seeking to exploit the new opportunities presented by more closely integrated megaregional markets.

The Feasibility Question

Despite the announcement of tight deadlines to complete negotiations when—and, indeed, whether—the agreements will be concluded is highly uncertain, and their liberalizing effects are likely to be more modest than the sanguine estimates suggest. This should not be surprising, since trade among the parties already flows freely and, where it does not, it is usually because the resistance of vested interests has proven impassable.