After dawdling about the issue most of his first term, President Obama is supposed to embark on a very ambitious trade agenda over the next four years. But it remains to be seen whether new US-backed trans-Pacific and European trade pacts will result in model ’21st Century agreements’, and delve deep into domestic barriers to trade, such as service sector protection and the monopoly practices of state-owned companies.
This drama is being played out most starkly in the Trans-Pacific Partnership agreement (TPP) negotiations, which Obama has identified as a top priority for his second administration and which has become the central symbol for the so-called US ‘pivot’ to Asia. From the outset of the negotiations, the United States has touted the TPP as the model for the new century’s trade agenda: a ‘comprehensive, high standard agreement’. While border tariffs will still form a part of the agenda (the goal is for almost 100 per cent zero tariffs within a short time span), the real focus of the negotiations will centre on behind-the-border, non-tariff barriers to trade and investment. Thus, among the 29 chapters in the TPP, there will be new rules for services (de)regulation; intellectual property; government procurement; competition policy, including disciplines for state-owned-enterprises (SOEs); science-based rules for trade in food products; management of supply chains; regulatory coherence; and labour and the environment.
This is a huge, complex negotiating agenda — and to achieve its goals, the United States will have to make concessions to accommodate the equally urgent priorities of its 10 TPP negotiating partners. Thus, in some cases for the first time ever, the United States will have to tackle its own long-standing protectionist practices and rules. This means liberalising high tariffs (and low quotas) on textiles, apparel and footwear. It will also mean loosening market-distorting rules of origin that drastically curtail supply chains by excluding parts and components from non-TPP members. Then there are the highly restrictive quotas and tariffs in key agricultural sectors, such as sugar, dairy products and cotton.
On sugar, the United States has adamantly opposed curbing a protectionist regime that uses price supports, combined with quotas and sky-high tariffs, to keep out competitors and force US consumers to pay on average twice the world price for the commodity. Similarly, for dairy products, a combination of subsidies, quotas and tariffs ‘milk’ US consumers and keep out foreign competitors. But cotton is the real mindblower: currently US taxpayers are shelling out US$147 million per year to buy off Brazilian cotton magnates who quite rightly won a case against US subsidy programs in the WTO.
With the presidential election out of the way, there was hope that the president’s trade team would reveal a braver face on trade policy. Alas, in January the administration delivered a backhanded, protectionist slap to its NAFTA and TPP partner, Mexico. As anyone who has suffered through rock-hard, unripe Florida winter tomatoes knows full well, the arrival over the past decade of riper, juicier Mexican winter tomatoes has been a godsend. When the Obama administration signalled last year that it would go along with Florida tomato growers’ demands for more protection, the thought was that it was bowing to election pressure. Well, Barack Obama won decisively. But a few weeks ago the government mandated a steep price rise for Mexican tomatoes and cut the amount of the fruit that could be imported — one can only assume out of conviction that US producers must be protected no matter the cost or quality considerations for the consumer.
If this craven attitude and stance prevails in the TPP negotiations, they will surely fail. This would be a double blow to the US and the world trading systems. First, on most of the 21st-century TPP issues, the president and his team are spot on — these are the central issues to ensure more open future markets. Beyond economics, however, TPP failure would be disastrous for US strategic leadership in East Asia where the regional pact has become the central symbol of the US ‘pivot’ and rebalancing.
In coming months, it will be imperative for President Obama to use his hard-won political capital to challenge entrenched protectionist interest groups and policies. After all, on his own word a central element of his legacy is wrapped up in getting the TPP over the finish line. More parochially, during these grey days of February it would be a boon to enjoy an edible Mexican tomato again.
Claude Barfield is a former consultant to the office of the US Trade Representative and a resident scholar at the American Enterprise Institute.
This article was originally published here at the American Enterprise Institute.