US risks losing lead in global trade policy

Barack Obama and Shinzo Abe made little progress at the TPP negotiations in April (photo: dpa)
Barack Obama and Shinzo Abe made little progress at the TPP negotiations in April (photo: dpa)

Washington is negotiating two major trading pacts, the Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership, which also have geopolitical implications. But progress on both deals is slow and global leaders have pegged the lack of US leadership as Barack Obama’s problem. Many nations are increasingly likely to look to bilateral agreements to boost international trade and improve their domestic economies.

US risks losing lead in global trade policy

THE FUTURE of the American free-trade agenda rests on two important trade pacts, currently under negotiation.

A lack of direction from the White House, combined with curtailed ‘fast track’ authority from Congress, puts these agreements at risk, along with the nation’s position as a global trade leader.

Washington has concluded the consensus-driven World Trade Organisation is too cumbersome a vehicle for establishing regimes that focus on free-trade

Prospects for quick action on either deal is unlikely, and it can be expected that other nations will bridge the gap in US leadership, by more aggressively pursuing their own bilateral trade deals.

Global trade liberalisation regimes have largely proved a disappointment in recent years. Washington has concluded the consensus-driven World Trade Organisation (WTO) is too cumbersome to establish regimes which focus on free-trade, instead of managing the flow of specific goods.

New type

The weakness of the WTO was highlighted by a disappointing ‘Doha Round’, which salvaged a limited customs-streamlining ‘breakthrough’ from a much more ambitious, but increasingly moribund, trade agenda.

The US has pushed the WTO to the side, preferring to enhance major regional trading regimes.

The proposed Transatlantic Trade and Investment Partnership (TTIP) has been billed in both Washington and Brussels as a new type of trade agreement, aimed at ensuring 21st century multilateral economic growth for the US and the European Union.

In the US, the current administration has cited reports that the American economy would see a US$150 billion increase in exports within five years due to the TTIP, though these estimates vary. Leaders in Washington and Europe have also claimed the single market would strengthen the political alliance between Western powers.

More members

On the other side of the world, the US is heavily engaged in negotiating the Trans-Pacific Partnership (TPP).

This proposed deal, originally an agreement between Brunei, Singapore, Chile and New Zealand - before the US assumed the lead in negotiations in 2009 - now includes Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam. Additional countries may consider negotiating for entry in the near future.

Broadening the trade coalition will potentially impact nearly 40 per cent of American imports and exports. Including Japan and South Korea, two of Washington’s largest and fastest-growing trade partners, has accounted for US$1.5 trillion worth of trade goods in 2012 alone.

According to the Washington-based Peterson Institute for International Economics, the TPP could mean additional trade of US$78 billion per annum, with a further US$267 billion if it expanded to the rest of Pacific Asia.

Ongoing debate

TTIP and TPP also have geopolitical implications. The current framework excludes China and directly addresses currency manipulation - a move pushed by the US Senate.

But perhaps most importantly, TPP has been described by the administration as a central part of President Barack Obama’s ‘pivot’ to Asia.

The White House’s rhetoric on the value of these new trade deals does not match with the administration’s lack of leadership in moving the deals forward.

The scope of TTIP has not even taken form yet, with debates over whether it should include a single comprehensive agreement, or a series of more modest measures.

Most importantly, the White House seems to lack a clear strategy for dealing with the most contentious issues regarding regulatory ‘harmonisation’ between the US and the European Union.

Survey results

Progress in the more well-established TPP negotiations has been terribly slow. They were originally intended to conclude by November 2011, a deadline advanced by President Obama, but the end of negotiations is nowhere in sight; the American leader’s trip to Japan in April 2014, whose politically influential farmers are protected by steep tariffs, did not deliver any decisive breakthroughs.

The administration has failed to successfully press Congress to re-authorise the president’s ‘fast track’ trade power - the Trade Promotion Authority - which expired in 2007

The administration has done little to capitalise on the domestic interest to use trade to boost the American economy.

A recent quadrennial survey by the Washington-based think-tank, the Pew Research Centre, showed that 83 per cent of Democrats think ‘growing trade and business ties are good for the US’ - higher than the 73 per cent of registered Republicans who agreed with that statement. Republicans, however, are keen to see these deals move forward.

The administration has failed to successfully press Congress to re-authorise the president’s ‘fast track’ trade power - the Trade Promotion Authority (TPA) - which expired in 2007. This authority would allow the administration to send a trade deal to Congress for approval by an up-or-down vote, without the ability to amend or place riders on the bill.

Congress block

The recalcitrance of the Obama administration may, in part, be a reflection of growing opposition within his own party. Trade ‘liberalisation’ is seen as undesirable by American unions, some business interests and coalitions of environmental, human rights, and other interest groups.

Senate Majority Leader Harry Reid blocked the authorisation of a new TPA in Congress, after he was petitioned by Democrats concerned with protecting some anti-free-trade US industries and other interests.

It is likely that nations will increasingly look to bilateral trade deals to boost international trade and grow their domestic economy

This gives the White House an excuse to avoid action on either trade deal, while also playing to the protectionist elements in the Democratic union-base.

With a mid-term election looming, the White House simply blames Congress for the lack of progress. However, global leaders have clearly pegged the lack of US leadership as the American president’s problem.

This was apparent during talks between Mr Obama and Japanese Prime Minister Shinzo Abe in April. The White House claimed success in the wake of the discussions but the Japanese were less hopeful, stating that while some gaps had narrowed, there was no agreement.

Dim prospects

Deputy Premier and Finance Minister Taro Aso had a particularly bleak assessment, saying, ‘at present, Obama is incapable of getting a domestic consensus. Even if we strike a deal, there is no guarantee Congress will approve it’.

The Democrats are not expected to make great gains in November’s mid-term elections, and as the president heads towards ‘lame duck’ status, the prospects for leadership on the trade agenda grow even more dim.

It is likely that nations will increasingly look to bilateral trade deals to boost international trade and grow their domestic economies.

In Europe, the bellwether of change could be the United Kingdom. Lack of progress on TTIP could increase the momentum for pulling out of the EU and aggressively pursuing independent trade deals.

In the Pacific, look for more countries to follow South Korea’s lead, and seek to broaden markets through a family of bilateral trade agreements.

Trade pacts at a glance

  • The World Trade Organisation was set up in 1995 and has 159 member countries
  • The Geneva-based body aims to facilitate global trade, making the flow of goods and services around the world as free and fair as possible
  • It operates with 629 staff compared with the 2,500 employed by the International Monetary Fund or the 50,000 working for the United Nations
  • Russia was the last member of the Group of 20 (G20) major economies to join, in 2012 - China gained membership in 2001
  • Negotiations began in July 2013 on the Transatlantic Trade and Investment Partnership
  • The negotiators meet alternately in Brussels and Washington
  • It has been billed as the biggest bilateral trade deal to be negotiated, worth jointly US$283 billion.
  • The European and American economies together hold about half of the world’s wealth and about one third of global trade
  • Talks on a Trans-Pacific Partnership have been continuing since 2008. Japan joined them in 2013
  • South Korea and Taiwan have both expressed interest in joining
  • Japanese farmers have protested against the pact’s potential effects on the agriculture sector
  • Other critics fear it may affect patent and intellectual property laws, and have attacked the secrecy surrounding the talks

Add your comment