This is a sneak peek at an article set to run in the upcoming Summer 2015 issue.
Some time in the next several days, the House will likely vote on trade promotion authority, enabling the Obama administration to proceed with its cherished Trans-Pacific Partnership (TPP). Most House Democrats want no part of the deal, which was crafted by and for corporations. And many Tea Party Republicans don’t want to hand the administration any additional powers, even in service of a victory dearly sought by the GOP’s corporate allies. The vote, which has been repeatedly delayed as both the White House and House GOP leaders try to round up support, is expected to be extremely close.
The Obama administration entered office promising to renegotiate unbalanced trade agreements, which critics believe have cost millions of manufacturing jobs in the past 20 years. But they’ve spent more than a year pushing the TPP, a deal with 11 Pacific Rim nations that mostly adheres to the template of corporate favors masquerading as free trade deals. Of the 29 TPP chapters, only five include traditional trade measures like reducing tariffs and opening markets. Based on leaks and media reports—the full text remains a well-guarded secret—the rest appears to be mainly special-interest legislation.
Pharmaceutical companies, software makers, and Hollywood conglomerates get expanded intellectual property enforcement, protecting their patents and their profits. Some of this, such as restrictions on generic drugs, is at the expense of competition and consumers. Firms get improved access to poor countries with nonexistent labor protections, like Vietnam or Brunei, to manufacture their goods. TPP provides assurances that regulations, from food safety to financial services, will be “harmonized” across borders. In practice, that means a regulatory ceiling. In one of the most contested provisions, corporations can use the investor-state dispute settlement (ISDS) process, and appeal to extra-judicial tribunals that bypass courts and usual forms of due process to seek monetary damages equaling “expected future profits.”
How did we reach this point—where “trade deals” are Trojan horses for fulfilling corporate wish lists, and where all presidents, Democrat or Republican, ultimately pay fealty to them? One place to look is in the political transfer of power, away from Congress and into a relatively obscure executive branch office, the Office of the United States Trade Representative (USTR).
USTR has become a way station for hundreds of officials who casually rotate between big business and the government. Currently, Michael Froman, former Citigroup executive and chief of staff to Robert Rubin, runs USTR, and his actions have lived up to the agency’s legacy as the white-shoe law firm for multinational corporations. Under Froman’s leadership, more ex-lobbyists have funneled through USTR, practically no enforcement of prior trade violations has taken place, and new agreements like TPP are dubiously sold as progressive achievements, laced with condescension for anyone who disagrees.
The power and incentive structure of USTR allows it to dictate a modern trade policy that intrudes into practically all corners of American life. Lori Wallach of Public Citizen’s Global Trade Watch puts it this way: “The good name of free trade got hijacked for every retrograde, mortifying policy you can think of.”
A former Citigroup executive, Mike Froman now heads the Office of the United States Trade Representative. Because the office is housed in the president’s Executive Office, there are no “revolving-door” rules to prevent agency personnel from later working in industries with a vested interest in trade policy.
WE HAVE RICHARD NIXON to thank for the modern structure of trade agreements, a break with the preferences of the Founding Fathers. Article 1, Section 8 of the Constitution gave Congress exclusive authority to “lay and collect Taxes, Duties, Imposts and Excises,” and “to regulate Commerce with foreign Nations.” But only the executive branch could negotiate international treaties. This led to an uneasy check and balance, where chief executives played a role in international commerce, but could not pursue their own trade preferences without approval of the elected representatives of the people. Alexander Hamilton wrote in Federalist Papers No. 75 that it would be unwise to “commit interests of so delicate and momentous a kind,” like trade, “to the sole disposal of a magistrate created and circumstanced as would be a President of the United States.”
Congress defined tariff rates unilaterally for more than a century. However, in 1934, after a period of tariff wars, Franklin Roosevelt’s Reciprocal Trade Agreements Act gave increased power to the president but within strict limits. Congress specified a narrow range for tariff reductions. Within that range, the president could negotiate reciprocal tariff cuts with other nations and have them take effect.
But Lyndon Johnson tested the trade consensus in the 1967 round of the General Agreement on Tariffs and Trade (GATT), negotiating two sets of non-tariff alterations, one changing the method of pricing certain goods at the U.S. border, and the other an adjustment to “anti-dumping” laws, which prevent countries from flooding foreign markets with products below their domestic cost. Congress, seeing their legislative authority usurped, refused to implement the non-tariff changes through legislation, even after Johnson signed the agreement. The trade agenda was stalemated.
Nixon then renewed the push for more presidential power. Tariffs had already been lowered in successive GATT rounds; non-tariff barriers, the Nixon administration said, were now the “major impediment to fair competition and the free flow of goods in international trade.” That term referred to protectionist measures in other nations, such as quotas, government subsidies, and industrial cartels closed to American exporters. From that relatively innocent beginning aimed at promoting U.S. exports, “non-tariff barrier” became a euphemism for ordinary health, safety, environmental, and financial regulations that U.S. corporations wanted to weaken both at home and abroad. And trade deals, relying on expanded presidential power, became the vehicle.
THE TRADE ACT OF 1974, passed after Nixon resigned, initiated what is now known as trade promotion authority, or “fast track,” circumventing the normal legislative process. The president got to pick trade partners, launch negotiations, sign agreements, and get an up-or-down vote in Congress within 90 days, with no committee markups, no amendments or filibusters, and strictly limited debate. Congress could suggest “negotiating objectives,” but the executive branch could ignore them and still get trade agreements fast-tracked. And instead of only negotiating tariffs, the executive branch could make broad policy changes, as long as they constituted a “non-tariff trade barrier.”
This meant that practically anything could get into a trade deal. Policies that might have failed under the normal legislative process could get new life, and then return to Congress under expedited rules for passage. For example, the 1995 Uruguay Round of GATT, which instituted the World Trade Organization (WTO), altered meat and poultry inspection standards, changed “Buy American” government procurement laws, gave pharmaceutical interests 20 years of patent protections for medicines, and weakened the Marine Mammal Protection Act, which forbade the sale of tuna fish caught by nets that also captured dolphins. “This became a huge opportunity for lobbyists working for Hollywood or Wall Street.” says Public Citizen’s Wallach, author of a book on the history of U.S. trade policy.
Instead of appealing to Congress, lobbyists wanting to affect trade policy could pursue one-stop shopping with the U.S. Trade Representative, which was established in 1962 as a minor office, strengthened in the 1974 Trade Act, and elevated to cabinet level in 1979. USTR is housed in the Executive Office of the President, and there are accordingly no formal “revolving-door” rules to prevent agency personnel from subsequently working for industries with a vested interest in trade policy. “Three kinds of people work at USTR,” says Democratic Representative Alan Grayson of Florida. “People who were corporate lobbyists, people who want to become lobbyists, and people who were lobbyists and want to become lobbyists again.”
Michael Froman’s USTR tenure represents the apotheosis of this tendency. The assistant trade representative for agricultural affairs, Sharon Bomer Lauritsen, previously lobbied for the Biotechnology Industry Organization (BIO). Christopher Wilson also represented BIO as part of the trade consulting group C&M International, before becoming the U.S. deputy chief of mission to the World Trade Organization. Deputy trade representative Robert Holleyman worked for the Business Software Alliance, representing Microsoft, Apple, and IBM, among others. Froman himself came to USTR from Citigroup, the nation’s largest bailout recipient, where he ran an Alternative Investments division that managed $49 billion in capital. The nominee for U.S. permanent representative to the WTO, Marisa Lago, also came from Citigroup.
Overall, the Center for Responsive Politics identifies 144 former trade office officials who went on to lobby the government. Party identification scarcely matters, as Democrats and Republicans alike cash in on their association. Carla Hills, who headed USTR under George H.W. Bush, is CEO of Hills & Company, which advises companies on global trade. She also sits on the boards of Gilead Sciences, a biotech firm, and mega-bank JPMorgan Chase. Mickey Kantor, Bill Clinton’s first trade representative, was a top fundraiser for the Clinton-Gore campaign, and is now a partner at the high-powered law firm Mayer Brown, specializing in international corporate transactions. He has served on the boards of chemical giant Monsanto and the U.S. Chamber of Commerce, and advises the Council for Biotechnology and investment bank Morgan Stanley. All of these firms have a major stake in trade policy, through liberalizing regulations or extending patents.
The structure of USTR throws top officials in close contact with industry. Congress, shut out of the process, created a trade advisory committee system, where experts with security clearances review trade negotiations and offer ideas. The chairman of the advisory committee on aerospace equipment runs commercial trade policy for Boeing; the chairwoman of the committee on energy and energy services is the head lobbyist for the Electric Power Research Institute, the utility industry’s leading trade group. According to The Washington Post, of 566 cleared advisers on trade agreements, 480 of them represent private industry or trade groups. If the dominant voices in the ear of trade negotiators come from big business, it’s not surprising that the finished product reflects their priorities.
SINCE THE CLINTON administration, Democratic presidents have been inclined to give business what it wants on trade policy—and on regulatory weakening that can be characterized as freer trade. Institutionally, USTR reinforces that predisposition. Here again, Froman’s career is emblematic.
Froman entered government under the Clinton administration, after helping edit the Harvard Law Review with a colleague named Barack Obama. He worked on international trade issues at the National Economic Council from 1993 to 1995, and played a supporting role in the debate over the North American Free Trade Agreement (NAFTA), the first trade deal incorporating a country in the developing world: Mexico.
NAFTA made it easier for American capital to access Mexico and for Mexican goods to enter U.S. markets. The deal gave Mexico a free pass on its terrible labor conditions and less-stringent laws on health and the environment. NAFTA threw this pool of cheap labor into direct competition with U.S. workers. The deal also put limits on food safety and financial regulations, cracked down on intellectual property theft, and included a chapter protecting corporate investments abroad through ISDS. “Most of the analysis leaves all that stuff out, and just looks at the textbook benefits of lowering tariffs,” says Jared Bernstein, former chief economist for Vice President Joe Biden, now at the Center on Budget and Policy Priorities. “The problem is that’s not really what these creatures are like anymore.”
Partially resulting from NAFTA-style trade deals, the 14 largest trade deficits in world history have been the last 14 U.S. trade deficits, an average of $500 billion every year. While some government reports show that NAFTA had a minor impact on the U.S. economy, others point to the wipeout of manufacturing jobs. The Economic Policy Institute estimates nearly 1 million net jobs lost from NAFTA, and another 2.7 million lost since permanent normal trade relations (PNTR) were established with China, leading to a massive trade deficit. The Clinton administration said PNTR “would only increase the trade deficit by $1 billion,” claimed Democratic Representative Brad Sherman of California. “They were off by only 30,000 percent.”
In 1995, Froman moved to the Treasury Department, where he would eventually become Chief of Staff to Robert Rubin, whose brand of Wall Street–friendly policies broke from the Democratic Party’s past. The Treasury Department controlled financial regulation in Clinton’s White House, which became increasingly intermingled with trade. For example, the World Trade Organization’s “General Agreement on Trade in Services” bound member nations to limit financial regulations. By 1999, the Gramm-Leach-Bliley Act had repealed Glass-Steagall, as specifically promised by the Clinton administration in the WTO agreement, with Rubin and Froman driving the policy change.
With Glass-Steagall repealed, Rubin decamped to the bank that benefited most from it—Citigroup. Froman followed him in 2001, and spent nearly a decade there as a counselor and Managing Director. In 2004, Froman introduced State Senator Barack Obama to Rubin and Larry Summers, according to Noam Scheiber’s book The Escape Artists. He was a key fundraiser in the 2008 presidential campaign.
When Obama won the presidency, Froman got a plum assignment as co-chair of the transition, effectively becoming the hiring manager for the president’s entire economic team, despite still being employed at Citigroup, which was dependent on government support. Froman’s assistant in staffing the administration was Jamie Rubin, Robert’s son. While Citi received hundreds of billions of dollars in bailout money, their man in Washington selected key members of Obama’s staff, including Treasury Secretary nominee Timothy Geithner, who while at the New York Federal Reserve helped engineer the Citi bailout.
Froman initially took a position as both deputy national security adviser and international trade adviser at the National Economic Council, joining several Citigroup colleagues. The grateful mega-bank gave Froman a year-end bonus of $2.25 million in 2008, which Obama had to personally ask Froman to give up, according to Jonathan Alter’s book The Promise. The bonus was specifically tied to Froman joining the administration. When the Pacific trade deal became a top corporate and White House priority, Froman moved over to direct USTR and the legislative push for negotiating authority.
USTR’S CURRENT PRIORITY, the Trans-Pacific Partnership, is not about tariffs, despite Froman’s suggestions to that effect. We already have free trade agreements with six of the eleven countries in TPP—Canada, Mexico, Australia, Peru, Chile, and Singapore—and tariffs on nearly all goods between the U.S. and those countries are nonexistent. Outside of Japan, the remaining countries represent 3 percent of all exports to TPP members. And Japan’s average tariff rate is a skinny 1.2 percent.
According to leaked texts, the core part of the deal is regulatory changes sought by powerful industries—using the back door of trade to win changes that Congress would be unlikely to approve in transparent separate legislation. For pharmaceutical companies, the agreement limits regulations that drive down drug prices, and restricts the use of generic drugs in partner countries. It extends patents on lucrative biologic treatments to 12 years, far longer than current law in member countries like Australia. For software developers and the entertainment industry, draft TPP text from last May extends copyright terms, instructs Internet service providers to remove user-generated copyrighted content without a court order, and could criminalize the leaking of information through digital means to journalists.
For the energy industry, TPP allows for dramatic expansion of liquefied natural gas (LNG) exports, obtained through practices like fracking, with automatic approval of all export permits to TPP countries without environmental review. For the food industry, TPP requires food imports to enter the U.S. as long as the exporter alleges that their safety laws are “equivalent.” And for the financial industry, TPP would weaken member country restrictions on capital flows across their borders, freeing foreign investments but increasing risk in more insulated economies like Malaysia or Chile.
Hundreds of farmers including the disaster-hit Miyagi prefecture raise their fists during a protest rally against Trans-Pacific Partnership (TPP) at Tokyo’s Hibiya Park on October 26, 2011. Farmers wearing a headband reading “No TPP Participation ” demanded that Japan should not join U.S.-oriented multilateral negotiations on a trans-Pacific free trade agreement, which generally abolish all tariffs on farm product.
The rules amount to a trans-Pacific regulatory cap. “It creates a subsidy for our firms to locate in TPP member countries and export back to us,” says Damon Silvers, policy director for the AFL-CIO. “This is not something you would be concerned about if you wanted to create jobs in the United States.”
This is enforced in part by investor-state dispute settlement, where corporations can sue for damages in a separate court system, over trade violations they claim cut into their profits. TPP even removes the “essential security” exemption, so foreign investors can file ISDS challenges on what governments claim to be national security decisions. This effectively creates an insurance policy for large firms to move operations, robbing the United States of their one competitive advantage over low-wage countries: a well-developed rule of law. Froman has staunchly defended ISDS, telling the Washington Ideas Forum last October, “It’s hard to imagine a high-standard agreement that doesn’t have the high standard of investment protections as well.”
Past dispute settlement arrangements have had serious consequences. The Obama administration insists that trade agreements cannot change U.S. laws, but in May, WTO ruled against U.S. “country-of-origin labeling” for meat, prompting Agriculture Secretary Tom Vilsack to say that Congress would have to repeal the statute. In addition, the Canadian finance minister recently alleged that the Volcker Rule, a key Dodd-Frank measure restricting risky proprietary trading, violates NAFTA. ISDS would allow corporations rather than national governments to assert these challenges and win monetary damages.
Since USTR kicked off TPP in 2009, labor, environmental, and consumer groups, along with interested members of Congress, have tried to offer input. The AFL-CIO alone made more than 100 specific suggestions about negotiating language. “We had every reason to want a TPP that we could live with and perhaps endorse,” says Silvers, policy director of the labor federation. “Those conversations were exhaustive, and they got nowhere.”
This included entreaties to prevent TPP members from artificially manipulating their currency to lower the cost of their exports, which have a bigger impact on trade deficits than tariffs. Five years into negotiations, Froman admitted in Congressional testimony that they had not brought up currency manipulation, which would raise costs for corporations with factories abroad. “The system seems much too impervious to input,” says former White House official Jared Bernstein, who has raised the currency issue numerous times with ex-colleagues. “I’ve worked this pretty hard, and I haven’t been able to get much traction.”
Advisers and lawmakers describe meetings with USTR as occurring at a “10,000-foot level,” without deep substantive engagement. Even when advisory committees represent non-business voices, like those on labor or the environment, all they provide is advice, which USTR can take or ignore. And there’s strong evidence that Froman takes his cues from Big Business. In written Congressional testimony in 2013, for example, Froman took the side of domestic oil refiners trying to eliminate European Union fuel standards.
Under advisory committee charters, groups cannot call their own meetings, or discuss the text of any trade deals with non-advisers. They issue reports on all completed trade agreements, but not until the fast-track process has triggered. One cleared adviser described their work as the sound of one hand clapping. “They will tell you they had consultation,” says Representative Rosa DeLauro. “They sit, pretend to listen, and then do nothing about it.”
TPP partners include countries like Vietnam, where factory workers make as little as 50 cents an hour, and Malaysia, which has earned the lowest ratingin the State Department’s annual report on human trafficking. The administration calls TPP “the most progressive trade deal in history,” arguing that stronger labor and environmental standards fix NAFTA and level the playing field between American workers and their counterparts. But while the enforcement measures that serve corporate goals, such as ISDS, have real teeth, the ones on labor and the environment are weak or nonexistent.
According to a report from the office of Massachusetts Senator Elizabeth Warren, 10 of our 20 post-NAFTA free trade agreement partners worldwide still use forced or child labor, and 17 routinely commit human rights violations linked to labor rights. In 2014, Peru rewrote its environmental laws in direct contravention of a free trade agreement, and USTR did nothing to stop them. In the case of formal complaints against Honduras and Guatemala, years have passed with no resolution. USTR responded to the murder of a trade unionist every other week in Colombia by arguing that the situation was slightly better than before.
Unlike ISDS, where corporations can directly appeal over trade violations, labor groups must ask their governments to enforce the standards. “We said, why not do it like the corporations do?” says Shane Larson, legislative director for the Communications Workers of America. “If Vietnam is not living up to the terms, why not let the AFL-CIO bring up charges? USTR said, you don’t understand how the system works.”
THE WHITE HOUSE HAS touted “over 1,700 consultations” on TPP with members of Congress, but Froman’s awkward efforts at persuasion have garnered bad reviews. “People don’t believe him because he’s often not telling the truth,” Representative Grayson says. He recalled one instance where Froman discussed legal standards on investor-state dispute settlement. “I practiced before the U.S. Court of Federal Claims for 25 years,” Grayson says. “I know the whole case law about claims against the government. I was appalled by what I was hearing him say. He was seriously misrepresenting the legal standards that apply.”
“Listen to how slippery the proponents are,” says Representative Sherman. “They will say, look at how many good jobs are available in exports! But they don’t mention imports at all.” Discussing trade policy without incorporating imports into the analysis is like counting only one side of the scoreboard, Sherman added. “They’ll say, we’re going to score seven runs! But what if we lose 21-7?”
“We were going over the environmental chapter,” remarked Representative Mark Pocan, Democrat of Wisconsin, about a separate briefing. “I made four key points. After each one, Froman said they were non-negotiable. Then [Representative Lloyd] Doggett asked, so you won’t bring forward a trade deal if those four points aren’t included? Froman replied, ‘I didn’t say that.’”
Pocan alleged that Froman wouldn’t admit that the U.S. would lose manufacturing jobs from TPP or acknowledge any other potential drawback. “It’s not credible. Honestly, I think the more meetings he does, he convinces more people to go our way.”
USTR does have an upper hand in the deal, a knowledge gap they’ve exploited by keeping the TPP text a closely guarded secret. Most of what the public knows about the agreement comes from releases on Wikileaks. Even cleared advisers have complained that they haven’t seen updated text for years, relying on USTR to learn about changes, without the specific language. Members of Congress, after years of complaints, received access to the text, but only in a secure room, after handing over their cell phones, without inviting staff experts or taking notes.
The text itself is difficult to decipher for non-experts, with overlapping sets of each country’s offers, negotiating outcomes in brackets along the side, and constant references to previous agreements that members may not have a working understanding of. “Unless you’re a trade lawyer, the text doesn’t provide a lot of information,” says Pocan, who added that USTR is slow to respond to specific questions about individual provisions. “They treat Congress like children at the kid’s table. And we’re the ones with Constitutional authority.”
Once they leave the secure room, members cannot discuss the contents publicly. “When we had impeachment, we could go to a room and listen to the Nixon tapes and we could talk about them,” says former Congressman John Burton, now chair of the California Democratic Party, at the party’s annual convention in May. Opponents of TPP see the secrecy as deliberate, designed to deceive the public and prevent informed opposition to the policies. Leaked chapters on the environment and investment have only raised concerns that USTR isn’t telling the truth about TPP’s contents. “If it’s such a good goddamn deal,” Burton says, “bring it out in the open and let everybody see it.”
But that transparency is not likely to happen. Presidents, including Obama, tend to see trade deals as part of a geopolitical strategy instead of an economic imperative. In the case of TPP, the administration has stressed a “pivot to Asia” intended to provide regional counter-balance to China. “If we vote no, [Obama] will say you are dishonoring America, undermining our position in the world,” says Sherman.
The fast-track bill designed to grease the skids for TPP had a bumpy ride through the Senate, but ultimately passed 62-37 in May. Amid a crunch to advance it before the Memorial Day recess, Senators failed to add language allowing the U.S. to engage in trade deals with countries scoring low on the State Department’s annual report on forced labor, like Malaysia, a TPP partner. This has led the administration and the House to search for the first legislative compromise on human slavery in America since the 1854 Kansas-Nebraska Act, a powerful symbol of who matters in free trade agreements: corporate actors, not workers on either side of the border.
“They had a president who in 2008 laid out a vision,” says Lori Wallach about the administration. “He said he’d replace fast track and update the NAFTA model. Instead they doubled down. The few remaining unreconstructed NAFTA lovers in the Democratic Party are in with the president.”
At the heart of that decision to double down was Froman, the key adviser on international trade during the entire Obama presidency. “To a large extent, it is Froman’s deal,” Grayson concludes. But even if Ron Kirk, Obama’s first USTR (and a former lobbyist), were still in office, the same poisoned process and captured trade officials would predominate. All modern trade negotiators represent a certain archetype, comfortable among corporate elites and willing to slide casually between government and the boardroom. The scales have been tilted, through legislative maneuvers and political economy, toward more intrusive trade deals with deeper consequences for American workers.
“If the FCC was dominated by telecom companies, it would be bad for America,” says Grayson. “If the SEC were dominated by Wall Street, same thing. That’s the pernicious dynamic we have with USTR.”
Congress has only granted fast track for five of the last twenty-one years, suggesting a growing reluctance to accede to the executive power grab. If the Obama administration can force it through the House, they and their Republican allies will move to finalize TPP in short order, because nobody relishes a trade vote during election season, when citizens might be paying attention. If fast track fails, Congress will have reasserted their Constitutional prerogative, and started to unravel the best method for corporations to commandeer the national agenda.