KWR Special Report

Trans-Pacific Partnership: A Current Policy Assessment
By Russell L. Smith

WASHINGTON, DC (KWR) February 24, 2011 - Negotiations among the United States and Pacific Rim trading nations to conclude a Trans-Pacific Partnership have recently crossed some noteworthy thresholds. The parties are embarking on the exchange of substantive negotiating texts on some of the major issue areas. The Japanese government has signaled that it plans to make a decision by this June on whether it will try to join in the negotiations. U.S. Trade Representative Kirk has testified before the new U.S. Congress about the Obama Administration’s efforts so far to achieve a TPP agreement, while at the same time expressing some cautions about whether successful negotiation of a final text can be concluded before the end of 2011.

If one supports trade liberalization, and believes that multilateral cooperation among the potential TPP participants will yield significant positive benefits, this is all good news. But at the same time, objective observers cannot help but question what the good news and accomplishments really mean. Are they concrete evidence of forward movement toward a completed (and enacted) agreement in the foreseeable future? Or are they “busy work” intended to show that the Obama Administration has a trade policy and that it favors trade liberalization, without requiring the Administration to incur any political cost or controversy?

With some concern that readers will stop after this sentence, I suggest that it is too early to know the answers to those questions. I hope, however, that readers will continue so as to better understand why it is still reasonable to ask both questions at this point.

Multiple policy considerations support the conclusion that TPP is one of, if not “the,” premier trade initiative of the Obama Administration. It has become clear over the past five years that China is actively seeking to build a pan-Asian economic zone under its leadership. The size of China’s economy, its geographic and logistical positioning, and its ability and willingness to make massive investments in the trans-Pacific region are all very, very attractive to its neighbors. China’s investments and subsidies to its neighbors are estimated to total billions of dollars and, more importantly, are many times those of the United States. China is investing in the infrastructure of countries to which it has geographic proximity, one benefit of which is the highly efficient transportation of goods between China other countries in the region. Moreover, China’s trade assistance and support, its commercial relationships, and its investments are often given without some of the political “strings” that many Asian nations perceive to be attached to Western, and particularly U.S., trade and other ties.

The United States must respond to this challenge for economic and strategic reasons. The need to avoid having major components of the Asian region deeply tied with, and beholden to, China with little or no substantial counterbalancing U.S. influence is intuitively obvious. This reality alone arguably demonstrates that the Obama Administration’s determination to conclude a TPP agreement is real and urgent. A successful TPP would unify and strengthen trade and political alliances, and provide a regional forum that can serve as a basis for consultation and cooperation on multiple levels. If Japan joins such an alliance, the long discussed goal of a free trade agreement “type” relationship between the United States and Japan, two of the most important global economies, would become far more real and immediate.

But what may be intuitively obvious as policy may not be readily achievable as fact. The challenge of crafting a strong, substantive TPP agreement is well-understood in Washington. That understanding gives rise to the second question--just how serious is the TPP effort? Given the number of players who are or might be involved and the complex and controversial issues that any agreement worth pursuing should include, the actual negotiations will be “heavy lift.” As noted, USTR Kirk has already begun to back away from his 2010 predictions that a TPP agreement can be concluded by the end of 2011. Simply listing the obvious “hot button” issues (integration of existing FTAs in the region, agriculture, intellectual property protection, services, foreign investment, labor, the environment) is enough to discourage the most ardent free-trader.

Even if all of the inevitable differences over substantive issues could be resolved, that hard-won success must then be matched by multiple political victories. To the extent that each participating country makes significant concessions, there will be opposition at home to approving the agreement. It is, in part, the anticipation of such concessions and opposition has caused a widely reported debate in Japan about joining the TPP negotiations.

In the United States, while the TPP has its supporters, few Americans are aware of the initiative. A greater concern is that recent poll numbers indicate a general public ambivalence about the positive effects of trade agreements. That ambivalence is in turn reflected in political divisions in Congress over such agreements. If the TPP comes to a vote, there will almost certainly be a substantial, bipartisan faction that will oppose the TPP because it opposes all trade agreements. This is particularly true in the House of Representatives. Other Members of Congress will vote depending on how the issues of importance to their constituencies have been handled. As was the case in the Korea-U.S. Free Trade Agreement negotiations, there may be one or two major U.S. industrial sectors, or individual companies, that could either defeat the agreement or force its renegotiation. Moreover, it is likely this debate would take place close to the 2012 U.S. elections, further complicating the political situation.

In sum, it makes economic, political and strategic sense to undertake TPP negotiations. But it is premature to assume that a TPP agreement can be successfully negotiated, or that if it is negotiated it will be approved. To achieve those results, the Obama Administration must be willing to make what will be huge investments of its expertise, leadership, human resources and, most of all, political capital, including the personal involvement of the President. While developments to date are encouraging, the greatest challenges are still ahead, and there is no certainty that at the crucial moments such a substantial investment by the Administration will be forthcoming.

Russell Smith is Special Counsel and head of the Government Relations Practice Group in the Washington, DC office of Willkie Farr & Gallagher LLP. The views expressed are solely those of Mr. Smith.

While the information and opinions contained within have been compiled from sources believed to be reliable, KWR does not represent that it is accurate or complete and it should be relied on as such. Accordingly, nothing in this article shall be construed as offering a guarantee of the accuracy or completeness of the information contained herein, or as an offer or solicitation with respect to the purchase or sale of any security. All opinions and estimates are subject to change without notice. KWR staff, consultants and contributors to the KWR International Advisor may at any time have a long or short position in any security or option mentioned.

KWR International Advisor

Editor: Dr. Scott B. MacDonald, Sr. Consultant

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