Trade: Pacts of strife

Trade: Pacts of strife

By James Politi and Shawn Donnan in Financial Times

Two proposed deals to liberalise global trade depend on the outcome of a bitter battle in the US

If Barack Obama’s ambitious trade agenda falls apart, the US president could blame the likes of Richard Ochs, a 74-year-old retired welder from a Baltimore shipyard, and his three-quarter sized guitar. On January 31 Mr Ochs visited an office park in Gaithersburg, Maryland, to provide the music for one of 33 rallies across the country to quash Mr Obama’s push for trade deals with 11 Pacific nations and the EU.

Dick Ochs (right) and Dave Lippman sing "Flush the TPP" in front of the White House, Sept., 2013.

Dick Ochs (right) and Dave Lippman sing “Flush the TPP” in front of the White House, Sept., 2013.

He strummed the chords of “I’ve Been Working on the Railroad”, a classic American folk song, but with different lyrics. “Stop the Trans-Pacific Partnership/flush the TPP,” he sang, drawing cheers from the crowd of environmentalists in yellow hard hats and Teamster labour union members in black bomber jackets.

“This is very dangerous to democracy. It’s an international corporate coup and we have to fight it,” Mr Ochs said, accusing Mr Obama of pursuing trade deals that would undermine labour, environmental, health and safety standards – and internet freedom to boot.

Mr Obama has grown accustomed to Congressional Republicans thwarting his policy objectives. But the opposition to his trade agenda is coming from within his own party and its traditional supporters, such as labour unions and environmental activists.

Their target in Gaithersburg was John Delaney, a Democratic congressman from the area who is wavering on whether to support Mr Obama on trade – unlike many of his party colleagues who have already pledged their opposition.

VIDEO OF PROTEST AT DELANEY’S OFFICE:

“I’m someone who comes to the table believing in trade and thinking that it’s both virtuous for this country and virtuous for the world,” Mr Delaney says. “But I obviously care deeply about the rights of our workers here and obviously some of the environmental concerns that have been raised are totally legitimate.”

A diverse group of constituents gather to pressure Rep. Delaney to oppose Fast Tracking the TPP, Jan. 31, 2014.

A diverse group of constituents gather to pressure Rep. Delaney to oppose Fast Tracking the TPP, Jan. 31, 2014.

Mr Ochs and Mr Delaney are on the front lines of the most fractious US political battle over trade since Bill Clinton fended off a backlash from within the Democratic party to secure approval for the North American Free Trade Agreement with Canada and Mexico 20 years ago.

The stakes for the world economy may be even greater this time. The two sweeping deals being negotiated by Mr Obama would reduce tariffs and set new regulatory standards across a vast majority of the developed world, from the EU to Japan and Australia, as well as a collection of developing nations along the Pacific Rim, from Peru to Vietnam.

To supporters of trade liberalisation, the TPP deal across the Pacific, and the Transatlantic Trade and Investment Partnership with the EU, will spur growth across economies covering almost 70 per cent of global gross domestic product. The new rules would put pressure on those large emerging-market countries left outside the deals, led by China, to adapt or suffer the consequences. The effort is being cheered on by many US blue-chip companies and even some smaller businesses that see liberalised trade as essential to bolstering their exports, global market share and competitive edge.

There are also strategic arguments to be made in favour of both pacts: to reinforce Mr Obama’s “pivot to Asia” and to rekindle what often seems to be a tired transatlantic relationship.

But the American public appears more focused on the slow economic recovery. Unemployment is high and wages remain stagnant. Twenty years after Nafta, there are still doubts that globalisation and more open trade is a solution to middle-class woes.

Critics say that free trade agreements will only lead to a regulatory “race to the bottom”, a flood of cheap imports, an expansion of the US trade deficit and job losses. Some of the arguments mirror the quip by Nafta opponent and former presidential candidate Ross Perot about the “giant sucking sound” of jobs moving to Mexico as a result of the deal.

1002304_10152248097923064_1769785605_n“These deals cost jobs and depress wages in the United States. They have also contributed to rising corporate profits and growing inequality,” said Robert Scott, director of trade and manufacturing policy research at the Economic Policy Institute, a liberal think-tank, in a paper last week.

People up for re-election in 2014 don’t want to deal with this. Democrats have a hard time supporting trade deals that may lead to job losses– Jim Manley, former senior aide to Democratic Senate majority leader Harry Reid

With the trade sceptics gaining momentum, and midterm congressional elections looming in November, it is far from certain that Mr Obama can win the political support he needs for the deals – at least this year.

Last month Harry Reid, the Democratic Senate majority leader, said he opposed “fast track” legislation – or “Trade Promotion Authority” – and that “everyone would be well advised to not push this right now”.

His comments, just a day after Mr Obama had called on Congress to endorse his trade agenda in the State of the Union address, echoed across Washington but not just because it was an unexpected rebuke to the president. It also appeared to signal that no trade bill would move through the Senate until at least after the midterm elections, in which Mr Reid is facing an uphill battle to preserve the Democratic majority in the upper chamber.

“At this point I think it’s going to be difficult to get either the transpacific or the transatlantic trade bills done on the schedule those of us who are free traders would prefer,” says Jim Moran, a veteran Democratic congressman from northern Virginia.

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Trade negotiators around the world – from Brussels to Tokyo to Mexico City – are scrambling to weigh the implications of the imperilled domestic support for Mr Obama’s plans. The TPP agreement is close to being finalised after several years of talks but is the most controversial in the US because it includes a number of lower-wage countries such as Vietnam. The TTIP is about halfway to completion, with a crucial “stocktaking” session set for this month, so it is less vulnerable to US political uncertainty for the time being. On both counts, the Obama administration insists the talks are on track and is adamant that it will secure the backing it needs from Congress. But many believe there will be repercussions.

“It sucks oxygen out of the negotiations,” says Simon Evenett, a professor of economics at St Gallen University in Switzerland and co-ordinator of the Global Trade Alert, which monitors protectionism around the world.

Susan Schwab, former US trade representative (USTR) under George W Bush and now a professor at the University of Maryland, says: “US negotiators could still close an agreement but may feel the need to pull their punches, and then end up with a lesser deal.”

Fredrik Erixon, a trade expert at the European Centre for International Political Economy in Brussels, puts it another way. “If the USTR now wants to push negotiations to the final point . . . they are not going to get what they want. Why on earth would [Japanese prime minister Shinzo] Abe start to agree to difficult agricultural reform at this time when he is going to have a hard time of it in Japan?”

To critics, Mr Obama’s domestic troubles with his trade agenda result from his “lukewarm” attitude to the issue – and lack of passion in defending trade as beneficial to America’s middle class.

But, internationally, he has perhaps done more than any other leader to re-energise trade talks. Soon after he took office in 2009 he asked aides to come up with new approaches towards trade. One result was a push led by Mr Obama to rethink the long-stalled Doha Round launched in 2001 within the World Trade Organisation. In December, WTO ministers agreed in Bali to mount a global attack on red tape at borders. The Obama administration is also leading talks in Geneva on services and information technology products. And in Davos it launched negotiations to liberalise trade in solar panels and other “environmental goods”.

White House officials argue that they have been guided in part by the need to update a system that does not reflect the rise of large emerging economies over the past decade. “If you take a look at what happened to manufacturing over the course of the 2000s and competition with China and others, our view was that we are still an open economy but we want there to be a greater commitment to openness by everybody. It’s not going to be a one-way street,” says Michael Froman, the USTR.

The Obama administration says it can forge a political consensus in favour of trade liberalisation by striking deals that are less divisive than earlier ones, such as Nafta. These “21st-century” deals will have stricter environmental and labour standards, while setting rules that protect intellectual property rights and the role of state-owned enterprises.

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But that vision is colliding with a sobering domestic reality. Passing big trade bills though Congress has always been difficult, relying on a coalition of a majority of pro-business Republicans and a strong minority of Democrats willing to buck their base. The first part of that equation is shakier than usual, with Tea Party and conservative Republicans shying away from giving Mr Obama any victory. Securing the second part remains a big challenge.

Obama administration officials – including cabinet members, Mr Froman and the White House chief of staff – have stepped up efforts to stoke political momentum for trade on Capitol Hill. According to people familiar with the meetings, the president made strong pitches in favour of his trade agenda at private gatherings of congressional Democrats last week. But many believe he will have to do a lot more private arm-twisting and even deliver some high-profile speeches on trade to the American public if he really wants to change the political dynamic in his favour.

“If the president wants to get these trade deals done . . . he is going to have to work harder to pick up Democratic votes,” says Jim Manley, a former senior aide to Mr Reid. “People up for [re-election] in 2014 don’t want to deal with this, and many rank-and-file Democrats have a hard time supporting trade deals that may lead to job losses at home.”

Despite Mr Reid’s comments, there is a path to congressional approval of trade legislation to which optimists can point. A bipartisan fast-track bill introduced last month by Max Baucus, a Democratic senator, and Orrin Hatch, a Republican senator, is on hold because of Mr Baucus’s looming departure to become ambassador to Beijing. Ron Wyden, Mr Baucus’s successor as Senate finance committee chairman, may well want to make a few changes to the legislation to make it more palatable to the Democratic base. But if he succeeds, the finance committee could vote to advance it, sending it to Mr Reid and putting pressure on him to at least bring it to the floor for a final vote. At that point the business community lobbying would kick into gear and help carry the legislation over the finishing line.

For now, however, that scenario seems a long way away, and the phones in the congressional offices of moderate Democrats such as Mr Delaney are ringing with antitrade messages. It seems natural for a lawmaker in that position to hold fire on the subject – even if it keeps the global trade agenda in limbo. “ I come to this with a certain perspective, of someone who believes in trade. But that doesn’t mean I’m a rubber stamp for any agreement,” Mr Delaney says.

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International concerns: Talks trigger protectionist instincts

Barack Obama is not the only leader facing a volatile political climate for trade agreements. Matters are becoming complicated for his negotiating partners, too, write Shawn Donnan and Jonathan Soble.

When the US and EU launched discussions in July to create a Transatlantic Trade and Investment Partnership, it was greeted warmly by almost everyone. But just six months on, the opposition is mobilising.

Consumer and environmental groups have voiced fears that the deal would “Americanise”, and therefore erode, the EU’s high standards. A strong performance is expected from populist and often protectionist parties in the European parliamentary elections in May.

The European Commission, which wields authority to negotiate trade agreements, is likely to remain largely pro-trade when it is reconstituted after the elections. But the European parliament will eventually have to ratify the EU-US deal along with any others.

On the other side of the Pacific in a Shinto shrine, ritually woven “shimenawa” ropes separate sacred spaces from profane ones. Shinzo Abe, Japan’s prime minister, has been struggling to affix his own kind of shimenawa ever since he made Japan a late entrant into the Trans-Pacific Partnership talks last year.

In his case, the sacred areas are five agricultural sectors that he promised to protect from the aggressive tariff-cutting at the heart of the TPP. Rice is the most hallowed but wheat, dairy, sugar, and beef and pork products also qualify as minor divinities.

That Mr Abe has managed to get Japan into the negotiations is a feat: farmers account for less than 4 per cent of the country’s workforce but enjoy outsized political power. More than 200 parliamentarians from his own party – a majority – have joined a body whose name translates as “group demanding immediate withdrawal from TPP negotiations”.

The farm lobby is less powerful than it once was, however. Today only one in 10 Japanese lives in the countryside, down from one in four in 1985. And after winning two election victories since late 2012, Mr Abe is strong enough to keep a lid on intraparty grumbling. The TPP also fits his security agenda: stronger ties with the US as a counterweight to China.