Delay in Pacific trade pact hurts US pivot to Asia and still faces key hurdle in Congress

WASHINGTON – The failure to finalize a landmark trans-Pacific trade pact this year as planned has dealt a blow to President Barack Obama’s policy pivot to Asia.

While negotiators say they have made substantial progress, myriad hurdles remain to creating a bloc encompassing a third of global trade. One of the biggest will be winning the backing of the U.S. Congress.

As recently as October, the leaders of the 12 nations in the Trans-Pacific Partnership, or TPP, had said their goal was reach an agreement by the end of 2013, although most analysts had viewed that as unrealistic given the complexity of the pact and the political pressures governments face in winning domestic approval.

Labour groups and lawmakers from Obama’s own Democratic party wasted little time in pouncing on the indecisive outcome Tuesday of closed-door deliberations in Singapore. Trade ministers said that they had identified “potential landing zones” for most of the outstanding issues, but gave few specifics. They plan to meet again next month.

“The failure in Singapore makes clear that the administration is far from reaching agreement with the other countries, and it’s far from reaching a deal that the Congress can support,” Democratic Rep. Rosa DeLauro told reporters.

With sizeable numbers of lawmakers from Obama’s party coming out against the deal, principally because they argue it will cost American jobs, the administration will be counting on strong Republican support, which is not guaranteed in the bitterly partisan political atmosphere that pervades Washington.

“There may be a significant number of tea partiers who are so fed up with Obama that they’re willing to depart from their values on free trade to obstruct the legislative program,” said Gary Hufbauer, an international trade expert at the Peterson Institute for International Economics. He was referring to the radical wing of the Republican Party that forced a partial government shutdown this fall during a budget standoff.

The administration views TPP key to boosting American exports in Asia’s fast-growing markets and demonstrating U.S. economic leadership in a region where strategic rival China looms increasingly large. That supports a diplomatic and military effort by Obama to shift U.S. foreign policy focus after a decade of costly war in Afghanistan and Iraq.

Congressional support isn’t just needed for ratification of the trade pact. Even before it reaches that stage, U.S. negotiators will face difficulties finalizing the terms of the deal with the other 11 nations unless Congress first gives the administration formal authority to negotiate on its behalf.

That authority, known as fast track, assures that the administration can negotiate a trade agreement that Congress can accept or reject but cannot change. But that authority — under which the U.S. negotiated its most recent trade agreements with South Korea, Colombia and Panama — lapsed in 2007. Unless it is renewed, it could undermine the confidence of other TPP nations in the U.S. negotiators’ ability to stick to their commitments, as Congress could demand changes to the agreement reached by the 12 governments.

The TPP is ambitious. It aims to reduce tariffs on goods and services to close to zero among disparate economies, and address issues beyond the scope of previous trade pacts, including labour and environmental standards, intellectual property and competitive advantages of state-owned companies.

Originally, Obama called for TPP to be completed by the end of 2012. That deadline slipped and was reset, but in the meantime, Japan, the world’s third-largest economy joined the negotiations, which has complicated things but given the pact a strategic clout it lacked before. The other nations are Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.

“The result (in Singapore) was disappointing but not surprising — and not fatal, provided they keep moving toward agreement in the first half of next year,” said Matthew Goodman, a former international economic adviser in the Obama White House. He said the new de facto deadline is probably April, when Obama is due to visit Asia. He was forced to cancel a trip to the region in October trip because of the government shutdown.

Hufbauer said fast track could still squeak through Congress, although a complicating factor is that 2014 is a midterm election year in the U.S. and lawmakers will be reluctant to vote for a trade deal that could be unpopular among their constituents. Some 151 Democrats and 22 Republicans — out of 435 members of the House of Representatives — have already come out in opposition to renewal of fast track.

But there’s also support for TPP in Congress. Prominent Republicans last week called for a consensus on support for TPP, saying it’s in American strategic and economic interests, and congressional aides say there’s been progress toward introducing a bipartisan bill for fast track.

Republican Rep. Dave Camp, who chairs the powerful House Ways and Means Committee that oversees trade policy, said Tuesday he expected a fast track bill could be passed early next year if it has administration backing — although in the past it has taken close to a year from bill introduction to presidential signing.

Economists say TPP would boost growth. The U.S. Trade Representative says goods and services exports to TPP countries already support 4 million American jobs, and if the deal takes effect, it could generate an estimated $305 billion in additional world exports per year, by 2025, including an additional $123.5 billion in U.S. exports. It says that would benefit American businesses, workers, farmers, ranchers, and service providers.

But secrecy of the TPP negotiations has only fed into the skepticism among Democrats and labour unions about how free trade agreements would affect U.S. companies and workers.

Rep. Louise Slaughter of New York said Tuesday that since the trade pact with South Korea took effect in 2012, the U.S. trade deficit with that East Asian nation has hit record levels. He said TPP would benefit multinationals and described fast track as an “undemocratic seizure of power.”

Among the varied demands that have come from Congress on TPP, more than half of the lawmakers in both houses are demanding it address currency manipulation because of worries that trading partners can undercut American producers if their nation’s currency are undervalued against the dollar.

U.S. trade czar Michael Froman told reporters Tuesday that issue was not discussed in Singapore.