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The Trans-Pacific Partnership – Webinar Segment 2《跨太平洋伙伴关系协定》讲座第二部分

Posted in Trade Negotiations

TPP PPT中文翻译请点击这里

Elliot J. Feldman conducted a webinar for The Knowledge Group on January 8, 2016 on the Trans-Pacific Partnership.  Set out below is the essential text of Dr. Feldman’s presentation for segment 2 of that webinar.  Dr. Feldman’s presentation for Segment 1 was provided in a previous post on this blog titled The Trans-Pacific Partnership – Webinar Segment 1.

Segment 2

The rules that govern international trade remedies today were written into the creation of the World Trade Organization that went into effect on January 1, 1995. They are, of course, a lot older, going back to the General Agreement on Tariffs and Trade, or the “GATT.” Trade agreements subsequent to the WTO have not modified the essential rules.

Countries importing goods they believe are unfairly traded (or surging) and therefore competing unfairly with domestically produced similar goods have three options: they may investigate whether the goods are priced unfairly by being dumped – sold for less than it costs to make them, or less abroad than they are sold at home; they may investigate whether goods they are importing are supported in their manufacture or export by government subsidies that are prohibited by the WTO rules; they may investigate whether foreign goods suddenly are surging into their markets so as to jeopardize the capacity of domestic industries to compete. This last option, called “safeguards,” does not require unfair trade. It requires merely a sudden, unanticipated surge that causes injury to a domestic industry. In each case – dumping, subsidies, safeguards – they must demonstrate that their domestic industries are materially injured or are threatened with imminent material injury. When they reach affirmative conclusions, they may impose offsetting duties or, in the case of safeguards (because of surges), they may also impose, temporarily, quotas or tariff rate quotas. Outside of safeguards, quotas are strictly prohibited.

Nothing in the TPP would change these rules. NAFTA created a unique dispute resolution mechanism for trade remedies, enabling parties to a dispute to avoid domestic courts in favor of binational arbitral panels. When Canadians or Mexicans, for example, want to appeal determinations of the U.S. Department of Commerce or the U.S. International Trade Commission, they may go to the U.S. Court of International Trade, subject to further appeal to the U.S. Court of Appeals for the Federal Circuit, or they may request the formation of a binational panel comprised of Canadian or Mexican and American trade experts (typically trade lawyers), which replaces both the CIT and the CAFC.

This alternative to domestic courts will survive the TPP for NAFTA members – Canada, the United States, and Mexico. However, it is not extended to anyone else. Trade disputes among TPP countries will continue to be resolved as they always have been – within domestic agencies and, on appeal, to domestic courts.

The TPP is an international trade agreement. Its primary purpose is to reduce and eliminate tariffs, to liberalize trade. The President’s Export Council, a leading champion of the deal, promotes it in the following glowing terms:

“An agreement that will immediately eliminate 98 percent of duties on industrial goods exports to Brunei Darussalam, Japan, Malaysia, New Zealand and Vietnam, that offers substantial tariff cuts on key agricultural exports, that lifts complex restrictions on U.S. services exports, and that establishes new disciplines to facilitate the growth of digital commerce among economies that together represent almost 40 percent of the global economy, offers the greatest potential to create meaningful new opportunities for expanding exports across all sectors of the American economy.”

So what’s not to like for free traders? The uncomfortable answer is that many duties are not immediately eliminated, and the deal is not only about tariffs. It is also about intellectual property disciplines and extended phase-outs and compromises. Different interests inevitably have different views of the benefits.

Signatories to the TPP are trying to overcome disagreements among themselves through side letters. Here is the ultimate exercise in finding the devil in the details. While United States Trade Representative Michael Froman is promising new side letters to pacify various stakeholders and congressmen (almost sounding like an App salesman—“there’s an App for that, and it comes with a side letter”), there already are many in play.  The informal total count is 120 side letters among the twelve TPP signatories.  Japan already in January had seven, covering 86 pages, for exceptions and safeguards regarding automobiles, agriculture, and quotas. The United States has a 5-page letter restricting foreign mortgage lenders, not surprising following the Recession. The United States has 104 pages of side letters qualifying tariff reductions. Australia and New Zealand have agreed, on the side, not to apply Chapter 9 to each other. Chapter 9, as I will discuss momentarily, enables a foreign investor to sue a government that it may allege is expropriating or otherwise damaging its investment. Investors from other TPP members will be able to sue Australia or New Zealand, but an Australian investor will not have recourse in New Zealand, and vice versa. Such exceptions could lead to investment strategies using third countries.

The United States has a side letter with Australia promising that, should the United States extend to anyone outside the TPP data protection greater than the provision within the TPP (say, the European Union one day), Australia must be extended the same protection. Australia has a 6-page side letter with Japan governing, separately, Australia’s access to Japan’s rice market, and Australia has five side deals with Vietnam as well as protection in government procurement for its own indigenous peoples. And all these examples are drawn from an Australian document. Other TPP signatories have similar if not more separate deals in play. It will never be enough for a company or a lawyer to rely exclusively on the main text of 6000 pages. There may always be lurking a side letter.

An Australian publication, the Financial Review, has considered the major concerns and interests in each of the partners now that each country must decide whether to follow up signature with ratification. It is a useful summary of reasons why each country may, or may not, finalize membership.

For & Against TPPHere are some additional and more specific reasons why completion and approval of the TPP is doubtful, in no particular order:

  • Significant domestic economic interests: In general, intellectual property protection for new pharmaceuticals will last for 8 years throughout the TPP; American pharmaceutical companies are accustomed to and were demanding 12 years of protection. They are not happy about the compromise reduction and do not support the deal. The Japanese are not opening the Japanese market to rice imports, but rice markets more generally are opening, which will mean that American rice producers will not gain much access to Japan, but they will have new competition from Vietnam in Mexico. They do not support the deal.Canadians have made critical concessions on supply management, but for a long phase-out. The new Agriculture Minister has emphasized that his Government remains committed to the Supply Management system. Japan, meanwhile, has agreed to a phase-out that will take 16 years on cheese tariffs and ice cream. Dairy sector representatives of the U.S. industry have reported to the U.S. Government that, “We very much believe this agreement should not be the model for future agreements regarding tariff elimination,” even as they have equivocated as to whether they will oppose it. The United Food and Commercial Workers Union has not equivocated: it opposes the TPP, complaining that it empowers U.S. based companies to move overseas, especially to other TPP members where wages are much lower. Indeed, all the trade unions apparently oppose the deal, which has translated into unanimous opposition among Democratic Party presidential candidates and most Democratic Members of Congress. Although pork producers have endorsed the deal, they also have expressed serious reservations, noting in particular that they have learned that Japan may be introducing domestic measures to offset the intended market effects of the agreement. According to a November 24 report from Reuters, Japan plans to “expand handouts to beef and pork farmers by raising the percentages of losses covered by the government to 90 percent from 80 percent now.”  Tobacco farmers are especially unhappy and, with them, their Members of Congress. Tobacco is specifically and uniquely carved out of investor-state dispute settlement: governments may regulate or restrict tobacco and tobacco investors will not be able to protest, complain, or be compensated. This allowance for public health does not sit well with Senator Mitch McConnell, for example, who represents a tobacco state. He already has said the TPP will not be brought to a vote in the Senate before the November elections, and he largely controls that decision. Although he has not said specifically that the tobacco provision has motivated him, it unquestionably is a factor. Nary an environmental group approves of the TPP, with opposition led by the Sierra Club and Friends of the Earth. They believe that the investor-state dispute provisions, which I will discuss momentarily, invite companies to block and prevent environmental reforms, preserving a polluting status quo.  Ford Motor Company is in active opposition, complaining that the Rules of Origin deal the United States made with Japan does not open the Japanese market but opens the North American market still more to Japanese cars and automobile parts.
  • Each of these groups, organizations and companies have lobbyists and congressional targets for their opposition to the TPP. Negotiations were highly secretive. Some text was leaked, but generally the contents of the TPP were unknown. Only the trade unions, who deplore free trade because they assume it means transferring jobs abroad, and the environmental groups, familiar with investor-state disputes and cognizant of the difficulty faced by governments to tighten environmental regulations, vigorously opposed the TPP even before its contents were known. But now that the compromises and deals the United States entered to get the deal done have been revealed with the release of text after the Atlanta signing on October 5, each special interest dissatisfied with terms is mobilizing congressional opposition.
  • Congress has been, since the beginning of negotiations, the elephant in the room. Historically, all the way back to the nineteenth century, Presidents have moved toward free trade (especially, it may surprise you, Democratic Presidents), while Congress has opposed. It should not be surprising: Presidents take responsibility for the economy as a whole and see free trade for a developed country as a continuing move up the value chain with a distribution of labor that sheds low wages for higher ones; Members of Congress are responsible for narrow constituencies that house still narrower interests. It may be good for the whole economy to see a low wage assembly plant move offshore, but it does not feel so good at election-time for the Member of Congress representing the workers in the assembly plant that may shut down. The current Congress deviates somewhat from the historical norm. As Norm Ornstein and Tom Mann have observed, it has gravitated the American political paradigm that “all politics is local” to a parliamentary framework of party discipline. Members are more prepared to vote with the ideology of their parties than in the past, and consequently prepared to vote against the particular interests of their constituents. This phenomenon has been especially pronounced in Republican opposition to a health care innovation insuring millions more Americans than ever before. It is also pronounced in international trade. Republicans like being perceived as free traders, conceiving Democrats as protectionists. This image is inaccurate when assessing Presidents, and it has been inaccurate even in assessing the current Congress. There surely are more Republicans supporting the TPP than Democrats, especially because Democrats are aligned with the unions and environmental groups, but there are Republican Conservatives so bitterly opposed to the Obama agenda in all things that they will oppose the TPP because they oppose Obama. After his string of international victories in 2015, they are not likely to give him another signature victory in the waning days of his presidency. This view is manifest in the Republican presidential field. Rand Paul opposed Trade Promotion Authority because, he said, it ceded too much congressional power to the President. But, he wants it known that he favors free trade. That this particular President negotiated a free trade agreement makes him suspicious, so he may or may not support it at some future date. Santorum, Christie, Rubio and Carson all have supported TPP, then raised doubt about their support, declaring positive views of free trade but suspicion and doubt about the President that negotiated this particular deal. These equivocations effectively declare that one day, if President themselves, these candidates might embrace TPP – under their final influence and signature. They do not have to oppose the Agreement outright. They need only stand behind the congressional leadership that promises not to bring it to a vote. House Speaker Paul Ryan and some others have intimated that the TPP could be brought before a lame duck session of Congress when those voting would no longer be candidates having to explain their votes to voters. Here, too, the TPP can be undone, being denied congressional approval, without open opposition. The Freedom Caucus, for example, counting around 40 Conservative Republican Members in the House, does not have to oppose the deal. It needs only to oppose the notion of a lame duck Congress voting on it, invoking the right of a new President to decide whether to embrace the deal as written. Senate leaders – McConnell and Orrin Hatch especially – already have said they will not bring the TPP to a vote prior to the November election (virtually all politicians in the United States know that international trade is sufficiently controversial as to pose a threat to an incumbent’s candidacy if she has to vote on a trade deal during an election campaign – and Republicans, in control of both Houses, have the most incumbents and therefore the most at stake). That leaves the lame duck session. So, the Freedom Caucus is already positioning itself on the lame duck session, which would then deny Obama this last international agenda item before the end of his presidency.
  • TPP electionsElections The November elections in the United States are not the only ones that could impact the TPP outcome. Already the Canadian elections, exactly two weeks after the deal was signed by the Harper Government, dealt a blow, with the new Liberal Government declining to reaffirm what Harper had wrought. The Obama Administration had been counting on Canada, even as it had never gotten along with Harper. Prime Minister Abe had held back in the negotiations until Congress approved Trade Promotion Authority (or, “TPA”) for the President. Abe was not prepared to make offers for Japan until he could believe that the President’s word had at least the value of an up-or-down vote in Congress.  Since October 5, Abe has urged quick ratification in Congress, not only because he would like to present to the Diet a deal effectively done in the United States. Elections for the Upper House in Japan must be held no later than July 2016, when national elections may be called. Elections for the Lower House must be held by December 2016, within a month of the U.S. elections. Abe believes the TPP will be evidence, going into new elections, that Abenomics will deliver economic results for Japan. Without TPP, he will enter elections in a more perilous state. Already he has become unpopular in Japan, not least because of his revision of the Constitution and growing militarization. He needs TPP, and he needs the United States to have confirmed the deal. It now appears he will not have what he needs. If Abe were defeated in the elections, Japan may well walk away from the TPP. And, as we have seen, without Japan, Congress is even less likely – the present Congress or the new one in January 2016 – to ratify it. Peru will hold a general election in April. The results remain beyond prediction, as do the implications for the TPP. Vietnam has elections scheduled in May, 2016, but these are not likely to change Vietnam’s position. First, the Communist controlled state’s direction does not change with elections. Second, there is consensus that the net winner in the TPP, by far, is Vietnam. It has won long phase-ins for difficult adjustments, including environmental and labor standards (it will allow independent unions, but there is skepticism about implementation). It has won major concessions for its textiles that will enable it to continue using Chinese yarn to finish and sell products to other TPP members as products of Vietnam. With support from Malaysia, it appears to have won concessions for state-owned enterprises.

Investor-State Disputes

Investor State DisputeForeign investment regulated by domestic rules normally means more money for economic development. Most countries actively seek it. However, investors want assurances that their investments will be protected from capricious government actions that might effectively expropriate or diminish the value of an investment. To protect investors, governments around the world have entered some 3200 bilateral investment treaties. More recently, perhaps beginning with NAFTA, state-investor dispute systems that might normally be found in a bilateral investment treaty, or “BIT,” may be found as a Chapter in a bilateral or multilateral trade agreement. The TPP contains such a chapter, Chapter 9.

Environmental groups, especially, as I mentioned a moment ago, particularly dislike investor-state dispute mechanisms. They believe they accord to foreign investors advantages over domestic companies: domestic companies must take their grievances with governments to domestic courts, whereas foreign investors may choose between domestic courts and international tribunals. Domestic investors must accept changes in laws and regulations. Foreign investors may claim that they made their investments under particular terms and that governments are not free to change those terms to the investors’ detriment. As long as governments want to attract foreign investors, they will have to accommodate them in some fashion. NAFTA incorporated protections for investors primarily because, in the early 1980s, Mexico expropriated American petroleum investments. As Canada and the United States wanted foreign investment encouraged, they insisted that Mexico would have to permit foreign investors to bypass Mexican courts when articulating a grievance over a government expropriation or other unfair treatment.

Consistent with NAFTA, the TPP contains provisions for a foreign investor to bypass domestic courts when challenging a government action that the investor claims expropriates or diminishes the value of an investment, particularly as compared to a domestic company. The TPP includes what is now considered the “standard suite” of protections – for a minimum standard of treatment as recognized in international law; for a most-favored-nation or “national treatment” guaranteeing treatment for the foreign investor indistinguishable from treatment accorded domestic companies; guarantees for the free transfer of funds so that profits may be repatriated. But the TPP also has some elements that are not yet “standard” in BITs, even though they generally are reflected in the “Model BIT” that was introduced in 2012. In general, even as the criticism of these agreements is that they give advantages to foreign investors and make it too easy for them to challenge governments, the terms in the TPP are being touted as “state of the art,” worthy of a twenty-first century agreement, and they generally enhance protections for foreign investors while according governments a swift mechanism for dismissing “frivolous” claims.

The major TPP innovations include a new code of conduct for arbitrators that should protect investors from conflicts of interest that arbitrators sometimes mask, especially those who regularly are chosen as arbitrators by governments. A core difficulty with international arbitration is that a small community of arbitrators makes their living doing little else and their repeat business comes through government appointments. Indeed, the ICSID list of arbitrators is comprised entirely of government nominees. The TPP also introduces a Commission that will oversee arbitrations and is intended to protect against conflicts of interest. The TPP contains a provision to expedite potential disputes over jurisdiction. Parties will be able to comment on draft awards so that there remains room for adjustment and change after what used to be the end of the arbitral process.

The United States, despite having bilateral trade agreements with most of the TPP countries, does not have BITs with six of them. The TPP would cure that deficiency in one stroke, most conspicuously with Japan, but also with Australia (no such provision was included in the bilateral free trade agreement) and with Vietnam.

Notwithstanding that the United States brought Canada and Mexico along when entering the TPP talks seriously itself, envisioning a successor agreement to NAFTA, NAFTA fully survives the TPP. There are provisions in NAFTA’s Chapter 11 that may be more helpful to some foreign investors than the provisions in the TPP. For example, tobacco companies cannot challenge foreign government actions under the TPP, but they can among the NAFTA members. An investor will have to choose: it would not be permissible to make a claim under both NAFTA and the TPP. But tobacco companies, for example, may want to be incorporated in a NAFTA country in order to have and investor-state dispute mechanism available.             

What Happens If The Deal Fails?

The last question I am asking is what happens if the TPP were still to fail, now that the twelve potential member states signed an agreement on October 5, released text a month later, and signed final text on February 4 in New Zealand with the intent to ratify. Although we have been remiss in maintaining our China-US Trade Law Blog at BakerHostetler, introducing new commentary very little over the last twelve months or so, we were warning more than two years ago that the United States, in our view, was staking too much on the TPP. It had become the cornerstone of the non-security, non-military pivot to Asia, and it carried enormous risk that it would fail – whether because of Congress, or the trade partners, or for some other reason. We believed the United States was over-invested in the TPP, and we still think that problem and risk remain.

The Obama Administration has taken to selling the TPP as even more than the cornerstone, the lynchpin, of Asian policy. It now is selling it as the model for future trade agreements. That view has obliged the European Union to take notice, not only of the elements, but of the prospects for passage. The other major trade negotiation underway is TTIP, the Trans-Atlantic Trade and Investment Partnership (there remains disagreement, after recent meetings in Nairobi, as to whether there is still any life in the Doha Round). TTIP will not move forward before all issues regarding the TPP are settled, and should the TPP fail, the future of TTIP surely would also be at risk. Note, too, that TPP does not take on standards and regulations, but they are the central concern of TTIP. It is much easier to reduce tariffs than to change rules and standards.

There are four major economies in Asia. Three of them (China, South Korea, and India) are not parties to the TPP. South Korea, with a newly-won bilateral agreement with the United States, opted to stay out while holding the possibility of joining later on. Japan gratuitously volunteered, after the October 5 signing, that it hoped China one day would join. Meanwhile, however, China consummated an expansive new agreement with Japan and South Korea, including trade and a whole lot else (including initial steps for a Japanese reconciliation with its former principal enemies in the region from World War II; an agreement between Japan and South Korea over “comfort women” followed very quickly). China launched an Asian Development Bank that Europeans and Asians quickly joined, but the United States effectively boycotted, along with Japan.

These developments, instead of unifying Asia with the United States for the future of world trade and cooperation, are dividing Asia between an orbit defined by the United States and Japan, on the one hand, and another orbit revolving around China, on the other. The divide has been amplified by American military and security accommodations for Abe.

It is virtually certain that the United States Congress, despite urging from the Obama Administration, will not have taken up the TPP before elections in Japan (summer 2016), nor before elections in the United States in November. Without the TPP in hand, Abe may be in even deeper political trouble than polling already shows him to be. And were Abe to lose, Japanese sentiment in the Diet for the TPP may diminish.

Without Japan, even in the diluted deal (incomplete commitments in agriculture; uncomfortable compromises on automobiles and automobile parts), Congress will become even less likely to ratify. Many in Congress believe the TPP may be subject to renegotiation with a new President, but this agreement is not like the three bilateral agreements carried over from the Bush Administration and renegotiated by Obama. This agreement is multilateral, with eleven partners. The new Australian Government already has signaled that the deal cannot and will not be renegotiated. USTR Michael Froman is proposing bilateral side letters to resolve concerns among American stakeholders, but there is no assurance that the other TPP countries will agree to side letter adjustments and amendments. As the calendar turned into 2016, leading American business organizations that had been consulted all through the negotiations and have been champions of the deal – the U.S. Chamber of Commerce, the National Association of Manufacturers – still have not endorsed the agreement whose final text they have been studying for two months.

The Administration has warned that the U.S. could lose a great deal of face, and credibility, if it were not to complete an agreement signed after a decade of negotiations. Of course, that indication of time is exaggerated. It was a decade for the first four countries. For the United States, it has been less than half that time.

Presented finally as a challenge to China, China will have consummated a deal with Asia’s most important economic powers, while the United States would have failed in a deal in which it was unquestionably and, alone, the dominant power. Nothing would remain of an American economic initiative in the region, and the United States would have played its strategic cards on behalf of Japan while China continues to grow in strength and stature.

We are left with a dilemma. To fail to bring the TPP to a successful conclusion is to short out American credibility and policy in Asia, and potentially with Europe as well. To succeed is to confirm a strategy China has identified as containment, in China’s neighborhood where China is not likely to be contained. The Administration has forced a position in which no outcome is good.

We have been skeptical about the TPP. We have thought it unsound as the cornerstone of a larger strategy in Asia. It has seemed, since the Japanese entry into the talks in July 2013, to be unnecessarily and unproductively confrontational with China. It has seemed overcharged, with too many uncertainties to have a full geo-strategy dependent on it. And while, in our view, there is no good outcome here, it may be better to start over, rethinking the role and place of China in Asia and the American relationship to China, rather than to finalize a deal built primarily around Japan. We think the architecture of the deal, as it evolved to exclude China, may have played well in Congress, but probably not enough to overcome congressional antipathy toward Obama and therefore not enough to justify the longer term implications of unnecessary antagonisms with Asia’s leading power.

Senator McConnell says there will be no Senate vote before the November elections. House Speaker Ryan has alluded to a lame duck vote, but significant segments of the Republican caucus already have objected to that suggestion, and it would inevitably be difficult with an incoming President opposed to an international agreement that could box in a new Administration as it seeks its own foreign policy in Asia. I think it safe to predict that no presidential candidate who has not yet endorsed the TPP will do so between now and November, and those who may appear to have endorsed may change their minds before the election.

The U.S. International Trade Commission is to report in May on whether the TPP appears to provide net benefits to the United States. Its report ought to matter. It may not.

For American business, the TPP seems to be forcing an undesirable choice between Japan and China. There is a long history of trying with limited success to penetrate the Japanese market. For both strategic and economic reasons, we think the time may have come to prefer focusing on China.

Businesses must plan. Many critics and pundits are urging to plan now. We are not. The history of prior trade agreements indicates that, were the TPP to encounter gentle breezes and calm seas, it would not likely bring about consequential change before 2019. A lot may happen between now and then.

As we have forecast on our blog and as I suggested in a Knowledge Group Webinar in May 2014, we doubt there will be a TPP. We are reasonably confident it will not happen during an Obama Administration, and doubt that it could be confirmed any time soon under a new President. American elections may decide the question, but elections in Japan will matter, too, and other TPP countries may yet have more to say on a final deal. But should it come to pass – read the side letters.

The Trans-Pacific Partnership – Webinar Segment 1 《跨太平洋伙伴关系协定》讲座第一部分

Posted in Trade Negotiations


Elliot J. Feldman conducted a webinar for The Knowledge Group on January 8, 2016 on the Trans-Pacific Partnership.  Set out below is the essential text of Dr. Feldman’s presentation for segment 1 of that webinar, slightly modified to recognize that the webinar was in early January.  Dr. Feldman’s presentation for Segment 2 will be provided in a subsequent post on this blog.

Original planning for this webinar called for an earlier date for presentation.  We proposed a date that would get us past at least some speculation.  Before January, terms had not been finalized; countries had not yet signed. Canada was unhappy with the deal the United States apparently had entered with Japan over rules of origin for automobiles and automobile parts, and with a federal election looming on October 19, it seemed certain only that Canada would not conclude the deal before the election, whose outcome might change the Canadian disposition altogether.   There were plenty of other outstanding issues in other countries.

By early January, we knew at least that one major element of the speculation was passed. The primary terms of the deal had been settled among the twelve countries, even if they were not yet public. Even then, however, a lot of speculation remained.  The deal was inscribed in more than 6000 pages.  No one could honestly claim to have read all of it.  Nor was the deal, in fact, done. The United States was negotiating with its stakeholders with promises of possible side letters.  Other governments were doing the same.

Intense negotiations were taking place with stakeholders (and have been continuing) because, notwithstanding the signatures of heads of governments, ratification still must take place everywhere. This challenge is famously acute in the United States. Whereas most democracies have parliamentary systems that marry the executive and legislative branches, the United States divorces them. When the head of a parliamentary government signs an international agreement, particularly one that may require implementing legislation, he knows he has a majority of the legislature to endorse his signature and pass or amend laws as may be required to give the agreement full effect. Not so in the United States. And even in parliamentary systems there are elections that can change the majority, as happened on October 19 in Canada. Leaders who sign international agreements are not necessarily around to see the agreements ratified. Their successors are not always ready to ratify them.

A discussion of the TPP in early January necessarily was missing a great deal. No one could have been certain of all the terms, and no one but the negotiators themselves was likely to have mastered all of the chapters. To a distressing degree,  that condition still  applies at the end of February,  nearly two months later.  The Obama Administration has been promising the finish line for years, and remains understandably in a hurry to finalize, sign, and ratify. Not a single key member of Congress, however, had yet indicated satisfaction with the deal as written (which is, as far as they know, because so much of it remains unread, unstudied, and not yet fully understood). The Obama Administration wanted the deal done quickly because it understands that little gets done in Congress in a major election year, and little has gotten done in recent Congresses past, even without elections, on any subject. I predicted with certainty, nonetheless, that TPP would not win congressional approval before the presidential caucuses and primaries got underway, as safe and now confirmed prophecy.

Notwithstanding that much of the January discussion necessarily was speculative, I framed the discussion around three questions:

  1. What is the TPP?
  2. What remains to be done?
  3. Should it be done, that is, is the TPP in fact a good thing?

My discussion was mostly macroscopic, going well beyond international trade into the terrain of geopolitics. The Obama Administration declared the TPP in 2013 the cornerstone of its pivot to Asia. The pivot was primarily strategic, and so the cornerstone must be understood as strategic as well.

What Is The TPP?

The original partners discussing what has become the TPP were Brunei, Singapore, New Zealand, and Chile. Their talks began in 2005. They wanted to approximate a free trade zone between South America and Asia. I don’t have their populations in 2005, but estimated in 2015 they totaled around 28 million people, carved into four markets. They did not represent anything strategically or economically significant for the United States, which already had free trade agreements with Chile and Singapore and had excluded New Zealand from its free trade negotiations with Australia for several reasons, one of which was that the United States assigned priority to Australia and did not regard New Zealand as an essential free trade partner. There was no particular interest in the United States in 2005 for a special trade arrangement with the half-million people in Brunei.

In 2008, Australia, Vietnam and Peru joined the talks. Australia and Peru represent, combined, only another 53 million people, and the United States already had bilateral free trade agreements with each of them, too. Chile alone represented more than half the original group’s total population. The countries already with free trade agreements with the United States constituted nearly 80 percent of the total population of the prospective partners. To the extent that free trade agreements are economic (and, predominantly, they are political and strategic, not economic), for the United States they are about market-opening for American goods. There was no plausible reason for the United States to commit resources to a multilateral agreement whose only new markets would be Brunei and New Zealand.

TPP MapThe major and significant change in the negotiating dynamic was the addition in 2008 of Vietnam, with a population alone (at more than 94 million) barely less than all the others combined. Vietnam was a promising major market for the United States, rich in resources. But Vietnam is a Communist, non-market economy governing politically and economically a developing country. The inclusion of a developing country in a regional agreement that intended to remove protectionism and raise environmental and labor standards renewed the controversy that had surrounded the addition of Mexico to the Canada-United States Free Trade Agreement two decades earlier, forming NAFTA.

Vietnam’s inclusion at once stimulated interest in enterprising Americans, but also was an “high standard, twenty-first century agreement,” a model for future trade agreements around the world. Still, the inclusion of Vietnam was also a clue about a growing view of China in the United States, as Vietnam and China were historically implacable foes with deep mutual suspicions.

Malaysia enlisted in 2010, adding another 30 million people, again from a developing country. The transformational event occurred when the Obama Administration, having criticized NAFTA during the 2008 presidential campaign, reimagined the TPP as a successor to NAFTA and enrolled seriously in the TPP talks, first without its North American partners. It took two more years for Canada and Mexico to join, in 2012. Canada was questioned because of its commitment to supply management – government marketing and pricing of dairy products – and consequently its entry into the talks had been blocked.

Now, and only now, did TPP need to be taken seriously, and not by everyone. For American business there was still little that was new. Canada and Mexico already were in a free trade agreement with the United States, along with most of the other prospective partners, and while opening the Vietnamese market appeared attractive, it also appeared to be excessively challenging for its potential value. The average monthly salary of an urban worker in Vietnam, in 2015, is $146. It would be unreasonable to expect Vietnamese to be buying a lot of expensive American goods any time soon.

The weight of the emerging deal, by population and hence by prospective customers for exports, had shifted, but mostly back to North America.

At this point, the Obama Administration had backed into these talks that, for the United States, had been initiated by USTR Susan Schwab and the George W. Bush Administration. The United States was answering the call principally of small Asian states whose agenda was largely to draw more American engagement to offset their worries about China. Having announced that he considered relations between China and the United States as the most important bilateral relationship of the twenty-first century, Obama could not reasonably declare that he was enlisting in a containment of China. So, the contradictions began.

The first contradiction was the suggestion that the TPP’s architecture was to add partners organically (it already had grown from four to eleven in the negotiations), making it open and welcoming of China if and when China might like to join and would be willing and able to make the necessary adjustments. The visions of Brunei and Singapore and Vietnam were not to join a pact with China. Nor did the emphasis on a “high standard twenty-first century agreement” that might exceed China’s grasp make sense with the inclusion of Vietnam. The presumption underwriting the official explanation for China’s exclusion came more than a decade after China had joined the WTO – which was six years earlier, it should be noted, than Vietnam. Vietnam somehow was expected to meet these new standards, while the Administration claimed that China could not. Hence, the second and sustaining contradiction – that Vietnam was to be in, China out, because somehow Vietnam could meet the high market standards that China could not satisfy. Both Vietnam and China were considered non-market economies, but China’s WTO Accession Protocol promised market economy recognition in 2016; there was no such commitment, nor even an expectation, for Vietnam. Nor was there little doubt that, despite the critics focused on China’s state-owned enterprises, China was much further along in a transition to a market economy than Vietnam. Economically, and as a matter of international trade, there was no way to reconcile Vietnam’s inclusion in the TPP, decorated with the suggestion that China was not ready. Vietnam’s inclusion emphasized, above all, the politics and strategic interests, not the economics, of the TPP.

The serious American entry into the talks, with Mexico and Canada, shifted the Asia-Pacific balances dramatically toward North America, but did little to attract American economic interests. Nor was there much interest in Congress where opposition to virtually all Obama initiatives had become the only objective of the Republican majorities, especially after the 2010 midterm elections. But then the situation shifted again.

In December 2012, a month after Obama’s reelection, Shinzo Abe was elected for a second time to become Prime Minister of Japan. He had left office in 2007. Abe had two primary objectives: a Japanese economic recovery through what was called “Abenomics,” and a restoration of Japan’s military capacities, what he argued would be a restoration for Japan to be a “normal” country. For the economic solution he focused on the promise of the TPP; for restoration as a “normal” country with independent military capability, he focused on revising Japan’s Constitution. For both objectives he knew he would need American support.

The Obama Administration was withdrawing from Afghanistan and Iraq, but not from world affairs. The “pivot” to Asia began as an increased commitment to engagement with China, but engagement with China was not the primary objective of the Asian partners with whom the United States had enlisted in the TPP negotiations. They had begun in fear of China. For Japan, particularly for Prime Minister Abe, China was an ideal excuse for advancing his own military agenda. He needed only to nurture an American disquiet about China’s military development, especially in Congress.

Abe insisted upon a renewal of the Alliance with the United States. He staked out China as a common enemy, provoked confrontation over what Naval Intelligence officer Lyle Goldstein calls “rocks and reefs,” and persuaded the United States that a Japanese regional military capability could serve again what the United States had in mind since the earliest days of the Cold War – a bulwark against Communism in Asia. In exchange, as had been the case for sixty years, the United States would help Japan economically.

Seven months after his return to power, Abe led Japan into the TPP talks in July 2013.  Almost simultaneously, the U.S. tone toward China changed. No longer were there any suggestions that the TPP was to be a trade agreement China one day would join. Instead, the Obama Administration started a campaign for Trade Promotion Authority – authority to negotiate the TPP deal with the assurance that Congress would have to accept or reject it but could not modify it – by arguing that either China or the United States was going to make the rules for global trade in the twenty-first century and it had better be the United States. China was cast simultaneously as a military threat to the region – even though American defense expenditures continued to be five times greater than China’s and the U.S. intelligence services did not foresee any projection of Chinese power beyond its region (unlike North Korea, where the United States needed China’s help but was alienating the Chinese defense establishment) – and as an economic threat for the world.

The history of negotiations suggests the evolution of strategic interests, beginning with smaller countries until Vietnam joined. The key turning points came with the full commitment of the NAFTA countries and, subsequently, the first major new market for their interests, Japan.  As trade negotiations go, these went very quickly, accelerated in significant part by the failure of the Doha Round of the WTO, which had begun in November 2001 and dragged on with long interruptions for more than a decade. Blame for failure was commonly assigned to India and China, neither of whom was a party to the TPP. The Doha Round had been conceptualized as the first world trade talks devoted to developing countries. Developing countries seemed preoccupied with food security. The more developed countries wanted more free trade in agriculture. Meanwhile, the new trade agenda – including financial services and intellectual property – became preoccupations for more developed countries and were hardly considered in the Doha discussions.

By April 2015, Japan had become indispensable to the TPP. If there were no deal with Japan, there would be no reasonable expectation for congressional support for a new deal with the other countries. Of the three leading Asian economies – China, Japan, and South Korea – only Japan had joined the TPP talks. China was excluded, and South Korea, which gave serious consideration to joining, preferred its newly-won privileges in a bilateral free trade agreement with the United States and stayed out.

It is apparent that Obama thought he had a quid pro quo with Abe. Obama would vigorously proclaim the American commitment to the military alliance; he would criticize provocative Chinese steps around the rocks and reefs. He would even pass American ships by China, and he would support Abe’s campaign to rewrite the Japanese Constitution, notwithstanding that polls showed a majority of Japanese preferring the post-World War II pacifism that had served Japan very well.

In exchange for the security promises Abe craved, Obama expected Abe to open his market to the United States and the world, particularly in agriculture and automobiles. Japanese automobile manufacturers shut out North American vehicles. The Japanese, Abe said, simply did not like American cars. Japan said that rice, wheat, barley, beef, pork, dairy, sugar and starches were all “sensitive” and trade protections could not be lifted. Powerful Washington lobbies such as the U.S. Chamber of Commerce indicated an interest in the TPP above all if there were a deal with Japan. In April, on the sidelines of the multilateral negotiations, the lead American negotiator began a bilateral negotiation with Japan. The United States had long sought to open Japan’s market. The multilateral TPP was the most promising development for an opening to Japan.

Abe visited Washington. The Administration suggested that it would be a decisive moment to bring the TPP close to completion. Obama pledged American military and security support for Japan. Abe pledged – nothing. The only reference in a joint press conference to automobiles was Obama’s aspirational reference to one day seeing more American cars on the streets of Tokyo. The word “agriculture” was not spoken at all. And when it came to pass, the United States entered a side deal with Japan on automobiles that infuriated the Canadians and Mexicans, diluting the content requirements in the Rules of Origin for North American cars from 62.5% to somewhere between 30 and 55%, depending on the parts. The Japanese market was not opening to North American cars, but the North American market was to become, in the TPP, more accessible to cars from Japan.

As Japan became indispensable to the TPP, antagonism toward China became manifest in the Administration’s campaign, first for TPA, and then for the TPP itself. Japan made agricultural concessions, but not enough to win enthusiastic support for the TPP from any American agricultural interests, and opposition from some. The dairy industry not only found the Japanese market still largely closed once TPP texts emerged; it found itself profoundly dissatisfied with the Canadian position on supply management – the Canadian system whereby governments buy and sell milk, cheese, eggs and poultry, keeping prices for consumers high and imports out. The Canadians, for their part burned on automobiles, on October 19 dismissed the Prime Minister and party that negotiated the TPP (no direct causal relationship is meant to be suggested here in the electoral outcomes), and the new Liberal Government said it would have to examine the deal in its entirety. The new International Trade Minister pointedly said the deal was not the responsibility of her government and she was making no promises whether Canada would support it.

The TPP is the most significant piece of international unfinished business for the Obama Administration as it enters its eighth and final year. Its 2015 accomplishments were both unexpected and spectacular by any fair measure – a deal with Iran that appears to provide reliable assurance that Iran will not develop a nuclear weapon capability for at least another decade; a restoration of diplomatic relations with Cuba evolving quickly toward a full normalization; an unprecedented global agreement to arrest climate change, following the achievement at the end of 2014 — the unprecedented agreement between the world’s two leading carbon polluters, the United States and China. All this as, despite numerous setbacks, the United States removed almost all of its military personnel from harm’s way in Iraq and Afghanistan. There remained room for criticism – an uncertain trumpet answering the calls of ever-more complex crises throughout the Middle East; a reluctant answer to Russian challenges, in Syria but, even more, in Crimea and Ukraine. But, in all, Obama had to be extremely satisfied with his international achievements.

All of these achievements involved executive actions that evaded the control of Congress. There are no binding commitments for the United States in the climate agreements, and so no opportunity for Congress to go back on Obama’s word. Obama maneuvered Congress into an option only to accept or reject the Iranian nuclear deal, but with a tight deadline. Even as many voices in Congress complained about many aspects of the deal, Obama was able to convince them that the other partners to the agreement – including Russia and China — were not about to renegotiate, and the European Union and the Russians already were lifting sanctions and making deals in Iran. Congress was left, effectively with no options.

Congress still controls the embargo on Cuba, but Obama has been proving that Congress does not control much else. Wherever he has been able to act without congressional approval, he has done so. Hence, Obama has exercised his powers as Commander-in-Chief to control the international agenda. These powers, however, do not extend over trade. The TPP requires changes in U.S. law. Implementation requires an Act of Congress. It is, therefore, substantively different from any of the other achievements in Obama’s foreign policy.

Many Members of Congress complained that the nuclear deal with Iran was not good enough and Obama should go back to the table and negotiate again. Eventually, Congress was obliged to recognize that renegotiation was not an option. Many Members of Congress, including all of the leadership on both sides of the aisle, are demanding renegotiation of the TPP, complaining that different chapters either concede too much or achieve, in opening foreign markets, too little. They stand, however, as little chance of a renegotiation of the trade agreement as they had demanding renegotiation of the nuclear deal. One difference may be that side letters, effectively amending the deal, may be possible, which might yet solve the problems the Administration faces. I will say more about side letters in the second segment. The main difference, however, is that the nuclear deal could go into effect without congressional action. The TPP cannot. Congress has a veto, and as of today I would predict it will use it – first by failing to act before Obama leaves office, and then by following the preferences of the new President: of the fifteen remaining presidential candidates seeking to succeed Barack Obama, two Republicans have endorsed the TPP (Kasich and Bush), and two others have indicated that they might support it but are not entirely committed (Rubio and Carson). All three Democrats have rejected it.

Some observers think this calculus could change. President Obama is fond of noting how differently things look from the Oval Office than they may have looked on the campaign trail. John F. Kennedy famously quipped in a press conference shortly after his Inauguration that his biggest surprise had been discovering that things were a lot worse than he had thought. Presidents do not necessarily adhere to the positions they advanced as candidates. After all, NAFTA is still with us. Nonetheless, none of the twelve candidates who have repudiated the TPP, whether because they oppose the deal or oppose Obama, is likely to change between now and January 20, 2016.

President Obama inherited from George W. Bush three bilateral free trade agreements that Congress had resisted. As a new government from a different political party, Obama was able to persuade those trade partners that there could be no deals without renegotiations. All three were adjusted and, as of today, constitute Obama’s international trade legacy – predominantly the completion of the Bush agenda. Without TPP, there will be, effectively, no Obama legacy that he could claim as his own in international trade.

More important, however, than a legacy in international trade is the place the TPP takes in the Administration’s broader global strategy. Here, the legacy turns more on what the deal might mean in the containment of China. That implication I will address in my second segment, which will be published in a subsequent posting on this blog.


Non-parallel Tracks: The Divergence Of Trade Remedies From Climate Control 不平行的轨道:贸易补偿和控制气候变化分道扬镳

Posted in Trade Negotiations

Editor’s Note: The following article was published in the January 2015 issue of Financier Worldwide Magazine. For its Chinese translation, please click here (中文翻译请点击这里)。

The U.S. is a leading proponent of the Environmental Goods Agreement (“EGA”) whose negotiation has begun under the auspices of the WTO. Fourteen countries, representing 86 percent of global trade in what the participants have identified as “environmental goods,” began meeting in Geneva in July. In a rare display of bipartisanship, U.S. Trade Representative (“USTR”) Michael Froman, Senate Finance Committee chairman Ron Wyden, and House Ways & Means Committee chairman Dave Camp, joined with the Coalition for Green Trade in September to promote a deal.

The EGA’s objective is to reduce or eliminate tariffs on environmental goods and technologies so that trade in them will expand and accelerate. The U.S. is presenting its support of the EGA as a “core component” of the President’s “Climate Action Plan.” Conspicuously, however, USTR Froman is promoting the EGA for “driving demand for made-in-America exports, allowing more American workers and businesses to make environmental goods here and sell them everywhere.” Ambassador Froman is not emphasizing free trade in environmental goods to combat climate change. Instead, he wants to open foreign markets for American goods.

This distinction would not be with a difference were it not for the American view of trade and tariffs. The U.S. generally does not consider the application of tariffs based on trade remedies as tariffs at all. Instead, they are regarded as “duties” necessary to “level the playing field,” restoring free trade because subsidies or dumping were determined to be producing unfair trade.

The American view of free trade is not entirely reciprocal, notwithstanding the most favored nation provisions of international trade agreements. The Office of the USTR was created to open foreign markets to American goods, but its mission has never been to open the U.S. market to foreign goods. No American agency is devoted to that mission.

The U.S. Department of Commerce seeks to protect American industry from foreign competition, and while the U.S. International Trade Commission does open its forum to hear from consumers, the Commission typically is inclined to find imports injuring or threatening injury to U.S. production and tries to exclude them from the U.S. market. Congress is notoriously protectionist, reverting to “buy America” provisions in statutes and appropriations whenever it seems possible to suggest a national security interest. The International Trade Commission is an agency of Congress.

On one track, the U.S. is promoting the liberalization of trade in order to get more environmental goods into global circulation. On a second track, however, stretching at the same time but on a divergent path, the U.S. is deploying trade remedy laws to curtail the development of the two most feasible and promising alternatives to the burning of fossil fuels: solar and wind power.

The Office of the USTR is emphasizing, in the initial list of 54 environmental goods for negotiation, “wind turbines, water treatment filters, and solar water heaters.” Yet, earlier in 2013, the U.S. imposed duties on wind towers from China (antidumping and countervailing) and Vietman and is vigorously defending those duties against legal appeals. Wind turbines sit on top of wind towers. There is not a single manufacturer of wind towers in the U.S. capable of producing large quantities of the tallest towers in demand. Without those towers, turbines cannot sit at altitudes necessary for efficient and profitable operation. On the one hand, the U.S. is calling for significant growth in the use of wind turbines, but, on the other hand, it is preventing that same growth by blocking imports of wind towers.

Arguably the situation is even more contradictory for solar water heaters or, more generally, solar power. The U.S. is celebrating an emergent energy independence fuelled by shale, which means a growing reliance on hydrocarbons. Most of the environmental goods identified for the EGA negotiations presume the continuing wide use of fossil fuels. The EGA is promoting scrubbers and other goods that may relieve some of the consequences of fossil fuels without replacing them. The greatest hope for replacing fossil fuels, which means the greatest hope for arresting climate change through environmental sensitivity, is in solar goods.

The U.S. has been imposing duties on solar cells exported from China and Taiwan since 2011. These duties have slowed the development of solar power. The lead petitioner in the US, SolarWorld, is a German-owned company whose parent has led a similar effort against high volume imports in the EU. In October 2014, the U.S. Department of Commerce significantly expanded the scope of solar products subject to import duties, retarding even more dramatically the development of solar alternatives to burning fossil fuels.

Although the disputing parties are still briefing and arguing the Commerce Department’s scope proposal, it is virtually certain now that Commerce will block imports of most solar panels and solar cells from China and Taiwan through an unprecedented interpretation of scope. Imported goods must have a single country of origin. SolarWorld complained that solar panels assembled in China with Taiwanese solar cells were escaping orders against Chinese solar panels because their origin was determined by the origin of the solar cells, which was Taiwan. Now, under a second order against Taiwanese solar cells, the panels assembled in China may be treated as Taiwanese, while under an order against Chinese solar panels the entire assembly, including the Taiwanese solar cells, will be treated as Chinese. SolarWorld calls the problem a loophole that Commerce is closing by assigning two different countries of origin to the same goods.

China has moved ahead of the U.S. in solar technology, and is producing solar cells on a massive scale consistent with a huge domestic market as well as an international market. Because the manufacture of solar cells is largely robotic, jobs are to be found mostly in installation and maintenance. Consequently, the American barriers to Chinese solar cells do not support job growth, do not promote American exports, and seriously impede the battle against climate change. There is nothing in the American trade policy and actions regarding solar cells from China and Taiwan that serves either of the declared American purposes for the EGA.

Adding to the contradictions was the surprising agreement reached between China and the United States in Beijing on 12 November 2014. For the first time, China has agreed to cap emissions. Notwithstanding considerable partisan carping in Washington, the agreement involves mutual commitments that could finally bend the curve on climate change.

As long as the U.S. pursues one track in the EGA negotiations and another track in the implementation of trade remedy law, however – which, in the US, has no public interest clause or provision – the tracks of trade and the reversal of climate change will continue to diverge. China has committed to a massive expansion in the installation of solar power, for which it already leads the world, and of wind power. The mutual goals of 14 November cannot be achieved, however, unless the U.S. opens its market more to foreign production. No train will run on divergent tracks, and no destinations will be reached. The EGA, without a rationalization of American trade remedy law and policy to welcome opportunities to expand the use of environmentally friendly goods, wherever they may be made, will only disappoint environmentalists who see, especially in wind and solar power, a green future.


Posted in Trade Negotiations

The following article substantively follows the text of remarks by Dr. Elliot J. Feldman during a May 2, 2014 Webinar sponsored by the Knowledge Congress Live Webinar Series and BakerHostetler.

The Origins And Direction Of A Trans-Pacific Partnership (“TPP”)

            TPP negotiators have been through more than twenty negotiating rounds since 2010, meeting in ten different countries.  We could spend a lot of time on the details.  Businesses have lobbied their particular interests, trying to assure that the contents of a deal will be to their liking.  However, businesses need a larger picture.  They need to have some idea when the changes that a major trade deal would make might come to pass.  They need to know whether, when, and where they should be investing, based on the applicable trade rules, particularly rules that impact all businesses – environmental and labor standards, intellectual property rules, investor protections.  In my view, TPP is not likely to come to pass at all, at least not during the Obama Administration.  I want to explain why, suggesting that sound business planning will not count on change from TPP, at least for several years to come.

            TPP MapFree trade agreements typically are more strategic than economic, as political as legal.  The Free Trade Agreement with Canada was the product of a Canadian Royal Commission concluding that Canada’s economic future – and consequently its political independence — depended upon secure access to the U.S. market.  Mexico sought NAFTA when it was transforming its politics into a multiparty system.  The TPP is the institutional centerpiece of the Obama Administration’s strategic pivot to Asia.  As much as the international trade details are important, the very possibility of agreement, and the agreement’s architecture, are strategic and political.  As President Obama’s former National Security Adviser, Tom Donilon, has explained,  “The centerpiece of the economic rebalancing is the Trans-Pacific Partnership (TPP), the most important trade deal under negotiation today. The TPP’s most important aims, however, are strategic.  A deal would solidify U.S. leadership in Asia.”

            The United States was motivated to join the TPP talks primarily by two factors.  The United States feared that withdrawal from Iraq and Afghanistan could be misinterpreted as a more general withdrawal of the United States from international engagement, especially in Asia.  The Obama Administration does not mind signaling that the United States is no longer interested in fighting wars that cannot necessarily produce desired outcomes, but it does mind the implication that American power and influence are diminished.  Second, smaller Asian partners asked the United States to join the talks, apparently fearful of being dominated by China’s economy and potentially related power.  The United States, still formulating policies toward China, responded to those smaller partners. 

            The TPP began as the Trans Pacific Strategic Economic Partnership of Brunei, Chile, New Zealand, and Singapore, in 2005.  It was always conceived as an organic entity that could add members.  In 2008, Australia, Vietnam and Peru all joined in negotiations, followed by Malaysia in 2010.  Meanwhile, the United States agreed in 2008 to join talks, and participated in a first round in 2009.  The United States then converted an agreement to manage trade and promote regional growth into a proposed model for world trade in the twenty-first century.  North America effectively became a driving force for a very different organization in 2012 with Canada and Mexico joining the talks and the United States imagining the TPP as a successor agreement to NAFTA.  However, the United States recognized that the number of countries would not be as important as their economic heft.  The three most important Asian economies were not among the signatories, nor were they in the negotiations. 

            Obama -AbeThe United States encouraged Japan to join, and quickly saw that trade concessions from Japan alone might justify the initiative as a trade agreement.  Whereas the United States already had free trade agreements with Peru, Chile, Canada, Mexico, Australia and Singapore, it had no such agreement with Japan.  And, the addition of Japan to the talks worried South Korea about being left out – possibly losing some of the advantages it had just won in its own free trade agreement with the United States.  Hence, once the United States moved into play in 2009, the modest organization of Brunei, Chile, Singapore and New Zealand grew quickly into a potential agreement among 12, even 13 countries, including all of the important economic powers in Asia – except, deliberately and conspicuously, China.

            China interpreted these developments as a containment policy driven by the United States, and although the United States initially was merely answering the call of friendly Asian states to expand trade, it could not persuasively deny what was happening.  On the one hand, the pivot to Asia was to engage China.  President Obama had said the U.S.-China relationship was the most important of the twenty-first century.  On the other hand, the United States was denying China participation in the negotiations on the grounds that the TPP was to be a model, very high standard and sophisticated international trade agreement for which China’s non-market economy was not ready. The United States had transformed the original TPP – a modest trade agreement whose ambition was defined mostly by the number of members it could enlist – into a model that would define free trade according to American criteria, and would confirm, as Tom Donilon wrote in April, U.S. leadership in Asia.

            Eventually, the United States said China would be welcome, but it could not now qualify for such high standards.  However, Vietnam, a lesser developed country and also a non-market economy, somehow did qualify to participate in the talks and become a TPP member.  There was no logical answer to this paradox except to recognize that the pivot to Asia, which had begun as an engagement of China in a constructive relationship, had devolved quickly into a containment in which the distinctions about non-market and lesser developed countries and economies were without a difference. The fulcrum was no longer the smaller founding partners, nor even the weight of North America:  the TPP over the last twelve months became enmeshed in the politics of Asia and the role the United States will play in the tense triangle defined by Japan – in the negotiations but far from agreement – South Korea – pondering participation and worried about exclusion – and China – deliberately and systematically excluded.

Trade v. Security

            American participation in the TPP talks began with Susan Schwab, USTR under George W. Bush.  It had nothing to do with a pivot to Asia.  However, there was a convergence of numerous forces that made TPP emerge as a foreign policy centerpiece for the Obama Administration.  At the same time that the President was pursuing more engagement with China, elements in China seemed to be challenging an imagined security status quo in the region. The initial TPP members were feeling insecure about China’s growing economy, but others, especially Japan, were insecure about China’s potential military capabilities. Even though the United States spends more than five times as much on defense as China, some in the United States focused on a rapid and steep rise in Chinese defense expenditures.  Others noted China’s sustained interest in absorbing Taiwan.  Shinzo Abe’s militaristic nationalism in Japan rattled China and provoked territorial claims and counterclaims that led to an American embrace of its defense alliance with Japan as a response to China.  These developments, focusing on the military and national security, threatened to distort the American profile in the region, moving the United States from economic partnership to economic overseer and military guardian in a cold war atmosphere.  Achieving balance made the TPP the Obama Administration’s available instrument of choice. 

A Coalescence Of Critical Voices

            Domestic pressures also put a focus on TPP.  The cancellation of the President’s planned trip to Asia in October 2013 because of the government shutdown made a replacement journey all the more important if the pivot to Asia were to be credible.  The trade negotiations, however, were not sufficiently advanced for the President to expect any conclusions from such a trip.  Moreover, as awareness of the negotiations matured in the United States, more and more interest groups emerged, making the TPP more controversial.  Constituencies vital to the President, such as trade unions and environmental organizations, lined up against the deal,  while interests not known to be favorites of the Obama Administration, such as banks and the U.S. Chamber of Commerce, became his allies.  His own political party divided, and no one in its leadership offered unqualified support.  Some, like Ranking House Ways and Means Committee Member Sander Levin, have demanded legislation addressing alleged currency manipulation as a condition for supporting Trade Promotion Authority, and constituents such as the Big 3 Automobile manufacturers and American cattlemen have said they will not support a deal without provisions for currency manipulation.  Through 20 rounds, currency manipulation has not been on the TPP agenda, nor on the Administration’s.  Republicans now can present themselves as free traders favoring the deal, while opposing the President.

            A common criticism was (and continues to be) that the TPP has been negotiated secretly.  Some texts have been leaked, but none deliberately shared with the public or much of Congress.  Senator Ron Wyden, the new Democratic Chairman of the Senate Finance Committee, complained at a hearing on May 1, 2014, “Americans expect to easily find online the information they want on key issues like trade.  Yet, too often, there is trade secrecy instead of trade transparency.  It’s time to more fully inform Americans about trade negotiations and provide our people more opportunity to express their views on trade policy.  Bringing the American people into full and open debates on trade agreements that have the effect of law is not too much to ask.”  In an outstanding demonstration of misunderstanding between the White House and Democratic leaders, United States Trade Representative Michael Froman told the Senate Finance Committee at the same hearing, “We have held over 1,250 meetings with Congress about TPP alone.” Such misunderstanding, and such apparent public secrecy, in the absence of Trade Promotion Authority, or fast-track, is a profound problem for the President.

The Need For Trade Promotion Authority      

            The President of the United States cannot complete a treaty or a trade agreement without Congressional approval.  A treaty requires two-thirds of the Senate; an Agreement, a majority of both Houses of Congress.  Because Presidents could sign agreements and treaties with foreign partners, only to see them rewritten by Congress, foreign partners could not rely on the President’s signature and were reluctant to negotiate with the United States.

            The cure for this handicap has been TPA.  It is legislation that authorizes the President to negotiate and enter into trade agreements that subsequently are subjected to an up-or-down congressional vote without amendment.  TPA legislation, however, provides guidance as to what Congress expects in trade agreements, and establishes parameters for congressional participation and obligations for the President to keep Congress informed throughout the negotiations.  TPA gives trade partners confidence that the President’s signature on an agreement is of value and that the U.S. may accept or reject the agreement, but will not change it. It gives the President authority, and it gives Congress assurance that it knows what is going on.

            TPA must precede negotiations and agreements for several reasons.  Trade partners will not expose their full hand, or make their best offers, if they’re uncertain whether the President of the United States can deliver on the deal as written.  Competing domestic interests must be managed in the making of the deal, not after the fact when their only option is to torpedo the deal altogether. 

            President Obama proceeded on TPP without TPA.  Only in 2013 was a bill for TPA even introduced to Congress for the first time since he became President.  The Senate Majority Leader did not support it.  To the contrary, he vowed not to let it come to the Senate Floor.

            With bravado, the President’s trade team suggested they could negotiate a deal so good that it would be an offer that Congress could not refuse.  Of late, however, the trade team has acknowledged that without TPA, they do not expect to gain approval of TPP.  Meanwhile, the negotiating partners have indicated that, without TPA, the President has no effective authority to bring negotiations to a conclusion, and they are not willing to cash their domestic political chips on a deal that, because of the United States, cannot be concluded.  This is the main reason why so many of the chapters in the negotiations remain open.

            The evolving strategy is to place the burden of the whole deal on Japan:  if Japan were to open its agricultural and automobile markets, so the Administration seems to think, the deal would be irresistible to Congress regardless what else may be concluded with the other countries – those with whom the United States already has free trade agreements and those (such as Brunei and New Zealand) whose economies are too small to matter.  The Administration seems to believe that TPA could be granted just for ratification of the TPP, presented as a matter of national security for American leadership in Asia and as an economic victory by opening valuable Japanese markets. 

            Conversely, should the Japanese not deliver major trade concessions, failure of the TPP negotiations could be focused there.  In a classic quid pro quo, the United States is delivering reassurances to Japan on the military alliance, removing any perceived sting from being blamed for trade failure in the TPP.

            This recent shift in ground has embarrassing qualities.  The TPP was, according to the Administration, on a course toward completion without Japan, and some believe the TPP can still be concluded without Japan if necessary.  That Agreement might have been a U.S. victory, replacing NAFTA,  especially with more robust environmental and labor terms; extending American intellectual property rules, thereby especially advancing the interests of the major pharmaceutical companies; and reassuring American investors abroad through enhanced investor-state arbitration.  Instead, now, the Administration appears to have placed the burden of success or failure on Japan, presumably to relieve itself of the looming failure of achieving TPA in Congress. 

Security Claims The Foreign Policy Spotlight

            However much President Obama wanted to talk about trade and the TPP on his April swing through Asia, he had security issues thrust upon him.  His response to the Russian invasion of Crimea and fomenting of revolution in Eastern Ukraine was being watched carefully and shadowed everything else.  Prime Minister Abe made sure the President would seem to take sides in the Japanese dispute with China over the Senkaku/Diayou Islands, and hoped he would do the same for the Japanese dispute with South Korea over the Dokdo/Takeshima islands.  The President spent as much time and energy trying to get Japan and South Korea on the same page as he did advancing the cause of the TPP, particularly because he needs their cooperation – and China’s – on the higher priority of North Korea’s expanding nuclear capability.  When gunboats from different countries are sailing near one another with contrary objectives, trade issues seem less important. 

            Diaoyu Island Japan does not want to be held accountable for a TPP failure.  Deflection of attention to security issues served to further isolate and contain China, ease Prime Minister Abe’s rearmament desires, and secure U.S. support.  It did nothing, however, to advance the President’s agenda and did not move TPP forward.  Instead, the United States was left to contemplate a TPP without Japan — as had been the expectation until a year ago – without South Korea, which is reluctant these days to join anything with Japan – and without China which, despite the U.S. suggestion last August, continues to be the Agreement’s intent.  And all that attention to security is about nothing more than small piles of uninhabited rocks.

            The fate of TPP as a matter of foreign policy is caught between a grand scheme to knit together 40 percent of the world’s economy, on the one hand, and the triangle of disagreement over sovereignty and security involving the three most important economies in Asia, on the other.  It raises the existential question whether a trade pact designed to contain or isolate China is good for the future of world trade.   Many think it is because they doubt that China plays by the rules. Many think it is not because China’s economic power is here to stay.  The regrettable feature of this dilemma is that it has not been addressed systematically at all.  Instead, the Obama Administration has slipped into it, drawn first by four economically and militarily insignificant Pacific countries worried about China, and then pulled more forcibly by a nationalistic Japanese leader looking to rearm and be more assertive globally. 

            There is reason to think that the Obama Administration is not postured as it would have liked.   It wanted to engage China, not contain it.  It wanted to develop a regional trade agreement that would attract China, not repel or even expel it.  TPP, instead of becoming a source of regional amity, has evolved into a potential source of conflict.  The President’s National Security Adviser counsels “constructive relations with China,” but there is little in the pivot to Asia, especially in the cornerstone of the TPP, that is reassuring.

The Status Of Negotiations

            TPP negotiations are unlikely to produce an international agreement regardless whether Japan or South Korea are parties.  There are too many fundamental disagreements among the twelve countries in the talks, and the American attempt to infuse the region with American values and American legalities is transparent.

            Despite the secrecy of negotiations, documents have leaked. Some have included full draft texts, as for an environmental chapter.  Mostly, they have exposed the lack of international progress.  Following the November 2013 Round of Negotiations in Salt Lake City, the internal commentary of one participating government contained, in no particular order of importance, numerous observations. 

            According to the leaked document, notwithstanding that “the U.S. is exerting great pressure to close as many issues as possible this week,” “The results are mediocre.”  The meeting, this commentary reported, ”served to confirm the large differences that continue in most areas of the [IP] chapter.”  For medicines, the United States “resubmitted a text that had been strongly rejected in the past.”  “The United States, as in previous rounds, has shown no flexibility on its proposal [for investment] . . . Only the U.S. and Japan support the proposal.”  The chapter on State-Owned Enterprises “is very far from closed.”  There was “very little progress” on Rules of Origin, and the negotiations over textiles were in “a major crisis.”  The “Meeting” on the environment “was interrupted because we could not get past the second issue [on] the definition of environmental law.”  There was “inadequate progress” on financial services:  “The positions are still paralysed.  United States shows zero flexibility.”  The United States had been aiming to close the entire deal by the end of 2013 and get it before Congress before the summer election campaign. 

Historically, the United States has had its way in international negotiations most when forging bilateral agreements because it has always been the dominant player.  Other countries typically want to draw the United States into multilateral negotiations because they can band together to dilute American power and influence.  Here, the United States has been drawn into a multilateral negotiation that it has tried to treat as a collection of bilaterals (an opportunity to dismantle Canada’s supply management; Japan’s agricultural protectionism; Vietnam’s textile preferences; and so forth).  Yet, even were the United States somehow successful internationally in the negotiations, Congress — probably for the wrong reasons – would not close the deal.

            The United States’ strategy for negotiation and ratification has been complicated and backwards.  The process, as it has evolved, has been to place the initial burden on Japan and to present Congress with a deal it could not refuse.  Congress, nonetheless, whatever it is – Republican or Democrat — will refuse it, for at least three reasons.  First, a Republican Congress will not give President Obama a signature foreign policy success in trade.  Republicans consider international trade their domain (the history of trade commitments to the contrary notwithstanding), and the current Republican Party is obstructionist regarding all Obama initiatives.  Second, the President’s own Party does not support the Agreement, suspicious about labor, the environment, banks, pharmaceutical companies. And third, most of Congress feels betrayed by the alleged secrecy in making the deal.

            Had Obama followed the historical process, in which TPA precedes TPP, he may have been more successful, or he would have known sooner that the objective could not be reached.  Now he is presented with the risk of failure where American credibility throughout Asia is at stake.  It would have been better to know earlier, or to have lowered expectations.  Those options are gone.


            The President needs to complete a very attractive TPP in order to persuade Congress to vote it up or down, requiring prior TPA legislation.  His international partners, however, are not making their best and final offers without TPA coming first.  Prime Minister Abe, for example, does not want to take on his whole agricultural sector in order to make a deal that could fail in the United States Congress. There seem to be almost daily reports that Japan will not give up its protection of five “sacred” agricultural products, a position guaranteed to crater the deal.  So, TPP can’t be completed successfully without TPA, and TPA cannot be passed without a completed and attractive TPP. 

            At first, China seemed to interpret the TPP as a U.S.-led attempt at containment.  Over time, China seemed to recognize fatal problems with the negotiations and worried less.  At one point, a year ago, China called the U.S  bluff  that it might be  included in the talks, whether because China was genuinely interested,  or because China wanted to expose the real purpose of the TPP. 

            Today, China’s public discord with the United States is concentrated on the American engagement as an ally of Japan in sovereignty disputes.  Trade disputes — principally American complaints about state owned enterprises and Chinese state support for exported merchandise – continue unabated in the friendly confines  of government investigating agencies and dispute panels of the WTO, and seem reminiscent of the American confrontations with Japan during the 1980s, in the days of the GATT.  Even as trade disagreements sometimes take on the appearance of a trade war, security issues have replaced them in prominence and have induced President Obama to insist again on the American acceptance of China’s rise as a major power.

              One last word for our European friends, who have been as seduced by TTIP as our Asian friends have been drawn into one protracted negotiation round after another for TPP.  The Administration has made TPA dependent on TPP instead of the other way around.  Consequently, it perceives TPA as a one-off on behalf of TPP.  Even were it possible to imagine that this strategy could succeed once, it could not succeed twice.  Therefore, at least for the life of this presidency, TTIP is even deader than TPP.



自由贸易协定犹如政治和法律活动,通常从战略角度着眼、而非单纯从经济角度着眼。《美加自由贸易协定》的创始者是加拿大皇家协会的一份报告。这份报告总结认为加拿大的经济未来、以及与之相互影响的政治未来建立在确保能够充分进入美国市场的基础上。当墨西哥逐步向多党政治体制转变时,它也开始要求建立《北美自由贸易协定》。而TPP正是奥巴马政府侧向亚洲政策的重要组成部分。贸易协定的细节固然重要,但是是否可能达成协议、协议基础及框架具有战略和政治影响,更为重要。奥巴马总统的前国家安全顾问——Tom Donilon 曾经这样分析:“经济重新平衡的中心是TPP,这是目前正在进行的最重要的贸易谈判。但是,TPP最重要的目的却是战略目的。这一协定将巩固美国在亚洲的领导地位。”




Comments on An Environmental Goods Agreement 评环保产品谈判

Posted in CVD, Trade Negotiations, Uncategorized



         Wind vs. Coal The Office of the United States Trade Representative, in the Federal Register of March 28, 2014 on behalf of the Trade Policy Staff Committee, requested comments and issued notice of a public hearing on negotiations for a World Trade Organization Environmental Goods Agreement as proposed by fourteen WTO members in January 2014.  The negotiation is framed by a list of fifty-four “environmental goods” endorsed for tariff elimination by APEC leaders in 2012.

            The APEC leaders recognize that free trade in environmental goods would accomplish at least two objectives:  increase free trade generally, and enhance the global response to the dangers of climate change.  Easier global circulation of environmental goods, as reflected in the list of fifty-four specific items, should translate into greater deployment of goods that would reduce carbon footprints and thereby help arrest climate change.


            Tariff reduction always increases world trade and inevitably is the first objective of all trade agreements.  Unfortunately, tariff reductions will not be nearly enough to make an important difference in the circulation of environmental goods sufficient to advance toward the objective of reducing the threat of climate change.

            Recent reports from the United Nations Intergovernmental Panel on Climate Change emphasize three points, that:  to a certainty of 95 percent or greater, humans are the main cause of global warming; it is not too late to arrest climate change, but time is running out; the goal of arresting climate change will not be accomplished without significant innovation, experimentation, and development of information. This last point requires money that is not likely to come in sufficient part from the private sector because it is difficult to carry investment in innovation and experimentation quickly to a corporation’s bottom line. 

            Most of the identified APEC environmental goods seek to clean up emissions and make energy production, still using hydrocarbons, more efficient. They would not reduce carbon emissions through alternative energy sources, which in the long term is the only way sufficiently significant reductions will be achieved.


           Alternative energy sources must compete in the marketplace with hydrocarbons.  Once limited to conventional mining and drilling for coal, oil, and gas, hydrocarbon use has been expanding with the discovery and extraction of oil and gas from shale, which is extending and expanding the use of hydrocarbons at the very moment when renewable energy sources might have been competing with hydrocarbons more effectively.

            For more than a century, North American governments have been subsidizing the oil and gas industry for research and development, extraction and sales.  According to a 2011 Report of the International Energy Agency, more than 250 mechanisms are used to subsidize fossil fuels in OECD countries, and according to a July 2011 report of the United States Energy Information Administration, $557 billion was spent globally in 2008 to subsidize fossil fuels, compared to $43 billion for renewable energy. According to SourceWatch, most fossil fuel subsidies are written permanently into the U.S. Tax Code, whereas subsidies for renewable energy are time-limited and specific. 

            Because most of the subsidies to hydrocarbons have been embedded in the tax code for a long time, they continuously are more substantial than assistance for innovation, experimentation, research and development for alternative energy sources.  The gap between the cost of energy to consumers produced by hydrocarbons and the cost through alternative energy sources does not close easily, and as long as there is an important gap (and more than a century growing that gap), hydrocarbons will be preferred, notwithstanding consequences for the environment. Grid parity is a holy grail for public utilities, essential for uploading energy from wind or solar or biomass or geothermal, and alternative energy sources will not achieve it without a dramatic new commitment to the alternatives.  

            As long as the cost of hydrocarbons to produce electricity is less than the cost of alternative energy sources (wind, solar, biomass, geothermal), utilities will rely primarily on hydrocarbons.  As shale brings down the hydrocarbon cost, the alternative sources become even less competitive.  And as long as hydrocarbons are subsidized, with a century’s head start for research and development, they will be preferred. 


          There appear to be four principal strategies for arresting climate change:  controlling and reducing the polluting effects of hydrocarbons, whether through more efficient production or through “scrubbers,” converters and other additional equipment; taxing the use of hydrocarbons, as in “cap and trade” or other policy “innovations” that accept substantial continuing reliance on hydrocarbons but are designed to discourage use; mandating reliance on alternative sources for some percentage of overall energy production, thereby often accepting a higher cost for energy but with reduced use of hydrocarbons; development of new and better alternative energy sources, as in more efficient and cheaper solar panels and wind turbines. 

          The first two strategies generally confirm continued reliance on hydrocarbons, especially coal, whose use is expanding in the United States as well as in developing countries.  The third is inevitably and permanently limited in the absence of grid parity by the limitations on public utilities to raise rates that inescapably would be inflationary and the equivalent of a disproportionately distributed sales tax.  Only the fourth promises a long-term solution to climate change caused by hydrocarbons.  It requires government subsidies, potentially of the scale supplied to hydrocarbon development. The proposed negotiations appear, at present, to be dominated by the first strategy.


          Tariff relief for a host of environmental goods, most of which come within the first strategy, will not be adequate, if only because more efficient use of fossil fuels necessarily means continuing to burn fossil fuels. It is a strategy for slowing down climate change and buying more time for alternative energy sources to catch up, but by itself it will not solve the problem in the long term.  The negotiation of an international trade treaty focusing on environmental goods opens an opportunity to address the single most promising strategy that, at present, confronts the greatest challenge from the WTO régime of international trade.

            To compete with fossil fuels, alternative energy sources need government help.  Innovation, research and development to arrest global warming are public goods worthy of public support.  The Business and Industry Advisory Committee to the OECD has recognized this obvious proposition:  “[S]ubsidies can help support the shift from traditional to new energy sources which are in early stages of commercialisation and where affordability is a key barrier, or where existing infrastructures make it difficult to introduce new energy sources.” The central problem, however, is that countervailing duty laws discourage and even punish subsidies.


            New green technologies, especially solar and wind, are understood almost universally to be vital for the future of the planet, technologies that electrify the globe without burning fossil fuels.  Yet, European and American manufacturers of solar equipment have been waging a trade war against Chinese manufacturers, and the Chinese have retaliated against other solar products from Europe and the United States. The net result of the solar war has been to reduce trade in solar equipment, raise prices, reduce availability of affordable and competitive equipment.  Even as governments everywhere have been urged by climate scientists and economists to reduce the consumption of fossil fuels and expand reliance on solar power, governments implementing trade laws have punished other governments trying to expand the use of solar power.

            The European Union and China negotiated a settlement of the principal dispute over solar panels in July 2013, setting a floor price for Chinese solar panels sold in Europe that generally raised prices while enabling the Chinese to maintain their significant presence in the European market. Nevertheless, the European Union initiated tariffs on Chinese glass used to make solar panels in April 2014, albeit involving a much smaller market. 

            In the summer of 2013, the United States was looking for a comprehensive three-way settlement (EU-China-United States) of the solar panel disputes, but U.S. trade law, lacking a public interest clause and dependent on the consent of the petitioning industry, could not deliver and the EU and China proceeded alone.  The United States, thus, has been left behind, principally because of the rigidities and pro-petitioner biases of its trade law.   

            Steel manufacturers of wind towers, upon which sophisticated turbines are erected, have been raising the cost of wind power, offsetting if not exceeding the efficiency gains of wind turbine manufacturers through innovation, research and development.  As the turbine manufacturers approach grid parity, the tower manufacturers push them further away, one domestic industry involving little technology innovation and few prospects for export trumping another domestic industry devoted to innovation with substantial prospects for international trade.

            Since countervailing and antidumping duties were imposed on wind towers from China and Vietnam in 2012, wind power development effectively has ceased on the coasts and islands (Puerto Rico and Hawaii) of the United States (an offshore project is moving forward in Massachusetts, but is not under construction; small projects are continuing in New York, Connecticut, Maryland and Oregon).  The Chinese and Vietnamese towers had supplied these markets because domestic towers could not be transported, neither logistically nor cost-effectively, from their manufacturing sites in the American heartland.  See attached map from the American Wind Energy Association. 

            The ironies here should not be lost. The manufacture of solar panels is largely robotic and creates few jobs. Installation and maintenance are labor intensive, and the more solar panels mounted, the less fossil fuel is consumed. Yet, domestic panel manufacturers, in Europe and the United States, have complained successfully about subsidies for the development of more, and more efficient, solar panels in China, thereby reducing jobs in the United States and reducing the deployment of solar power.

            There are many, many more jobs in the research, development, production, and installation of wind turbines than in the manufacture of wind towers.  The largest tower manufacturer in the United States has around 600 employees and has only one major competitor.  The third largest turbine manufacturer employs over 1500 to design and build turbines and has many competitors including two that are much larger. Yet, the wind tower manufacturers have succeeded in reducing the deployment of wind power by complaining about Chinese and Vietnamese subsidies to towers, collaterally reducing employment in turbine manufacture.  Hence, as the Chinese and Vietnamese Governments may be supporting the development and sale of green technologies, responding to the fourth and most promising of the strategies to combat climate change (by putting money into alternative energy), U.S. domestic manufacturers of competing products have been able to use trade laws to constrain the reduction of fossil fuel dependence and to kill skilled jobs.

          Job losses result from the application of countervailing duties in at least two ways.  An industry with fewer highly skilled jobs – for example, wind tower manufacturers – may adversely impact wind power development and therefore cost more highly skilled jobs among wind turbine manufacturers.  There is, however, a second way that can be even more damaging.  China, for example, has been willing to slow its own production of solar panels in order to retaliate against European and American trade actions. 

          China does not produce enough solar grade polysilicon to supply fully its production of solar panels.  China, consequently, is the world’s leading importer of polysilicon.  When the European Union and the United States brought cases against China’s solar panels, China launched investigations into imports of the solar grade polysilicon it uses to make the panels.  In January 2014, when the United States expanded investigations into Chinese solar panels, China imposed a permanent tariff of 57 percent on polysilicon from the United States (and 48.7 percent on polysilicon from South Korea).  The net result has been to cost American jobs in manufacturing solar grade polysilicon, and in installing and maintaining Chinese solar panels.

          The American experience contrasts with Europe, and not only regarding solar panels.  China began investigating allegations of dumping against European polysilicon before investigating polysilicon from the United States, but then entered into negotiations, particularly with the largest European producer, Wacker Chemie of Germany.  While negotiations ensued, China resisted imposing tariffs.  Finally, less than two months after making the tariffs on the American product permanent, in March 2014, China and Wacker agreed to a minimum import price that enables the Europeans to continue, and likely expand, their sales to China, probably soaking up some of the American market share. The American trade remedy actions designed to save American jobs had exactly the opposite effect.

            A study for the United Nations by economists at the Peterson Institute, presented April 3-4, 2014 in Geneva, has quantified some of the costs of applying the trade laws to green technologies. On behalf of “Ad hoc Expert Group 2” studying “Trade Remedies in Green Sectors:  the Case of Renewables,” Cathleen Cimino and Gary Hufbauer estimated that trade remedy law applications are reducing global trade in renewable energy goods by $14 billion annually which, they calculated, “translates into a global trade loss of approximately $68 billion over 5 years,” with over 91 percent of the global reduction of imports involving cases initiated by the European Union and the United States.  Over 70 percent of the reduced trade has been in solar energy and, with many pending solar cases, is growing.  Cimino and Hufbauer conclude, “By stifling competition [with “traditional technologies (coal and natural gas)”], trade remedies probably slow the convergence between renewable and conventional electricity costs.”  They add, however, that “the main driver of convergence has to be new technology, beyond what is on offer in any country today.”   Unspoken is that such new technology requires  government help, at least as traditional technologies benefit still and benefited historically, and that trade remedy laws stand in the way.


            Our comments are intended to join others identified by Cimino and Hufbauer who have called for adjustments in the application of trade remedy laws to green technologies.  Cimino and Hufbauer observe that, “Concerns that environmental disputes will undermine progress toward curbing greenhouse gas emissions underlie the calls to reform laws governing trade remedies and dispute procedures.”  They note, and we agree, that “These calls may find resonance in the plurilateral talks announced by a group of 14 countries,” the very talks that occasion these Comments.  Cimino and Hufbauer note a call for a “peace clause” from Lester and Watson (2013), subsequent to Feldman’s critique of trade law in this sector in January 2012, followed in December 2012 by his appeal for an international agreement to curtail trade remedies on subsidized green technology.  Cimino and Hufbauer review a number of proposals advanced in 2013 to reduce the impact of trade remedies on the development of green technologies.

            Not all trade remedy laws are alike, and not all are susceptible to or in need of international agreement.  International treaty negotiations will not lead to a public interest clause that would enable the United States to settle disputes the way the European Union has been settling solar disputes with China.  Nor should there be an effort to change restrictions on local content requirements. 

           The United States has accused India of applying local content requirements to solar development. Local content requirements retard research and development because they exclude lessons from other countries.  To the extent they exist, the United States is right to challenge them.  But investment in research and development of knowledge and products that will reduce the use of fossil fuels, regardless where those investments are made  and notwithstanding that they may help local enterprises before reaching  those further away, can, and should be, regarded as a service to a global public.  Climate change is everyone’s problem and everyone should be investing (a more useful and appropriate term than “subsidizing”) in solving the climate change problem.

            Countervailing duties and antidumping are both designed as remedies for unfair trade, but they address different challenges.  Antidumping concerns prices, which are set by companies; countervailing duties concern financial contributions from governments.  The United States has entered into numerous agreements encouraging foreign governments to invest in green technologies. It makes no sense to encourage or induce such investments and then turn against the results through trade remedy proceedings.

            The idea advanced here concerns only countervailing duties because the concern here is to stop asking governments to invest in the cause of alternative energy, on the one hand, while inhibiting, on the other hand, the export of goods resulting from those investments. There is no good reason for a company with a subsidized product then to dump it, selling it for less than it costs to make it, or selling it abroad for less than the price it would charge at home. The investments promote science and technology; dumping promotes unfair competition.

            There are complications arising with state-owned enterprises (“SOE”) and non-market economies (“NME”) because there can be difficulty in distinguishing between state investment through financial contributions and unfair competitive advantage through price management.  However, the United States Department of Commerce purports to measure separately subsidies and dumped prices. Consequently, the Department of Commerce already claims a methodology that would enable it to identify financial contributions and exempt them from trade remedy actions.

            As Cimino and Hufbauer point out, several scholars have offered a range of trade remedy law modifications, from a complete “peace clause” to limiting tests that might reduce the number of cases or shrink their impact.  Cimino and Hufbauer cautiously dismiss the complete peace clause as “ambitious” and “not politically feasible at this juncture,” but the present is not necessarily the juncture of an international agreement, and as President Obama has recognized, there is nothing more urgent, warranting “bold ambitious goals”, than arresting climate change. 

            The United States wants to assert global leadership to save the planet.  What may seem “politically feasible at this juncture” should not define such leadership.  There is no greater paradox in President Obama’s desire to “lead the world in a coordinated assault on a changing planet” than for the United States, repeatedly and systematically, to keep out of world trade green technologies developed and produced, in some part, by the actions of governments to help achieve the universal goal of saving the planet.

            A common objection to subsidies is that they distort markets, but fossil fuels have been advantaged by accumulating more than a century of government investments that now distort competition for access to the electricity grid.  One solution is to remove those advantages, but that approach would require turning back the clock and rewriting the tax code, which would be impractical and surely not enough.  The United States’ existing fossil fuel infrastructure is here to stay, but green technologies need to be given the opportunities to develop so that their environmental benefits and commercial viability can be evaluated prudently in relation to the existing system of energy supply.  Consequently, the second solution is inescapable, providing the financial support necessary to accelerate invention, innovation, and technological change.

            A further common objection is that investments in developing new products may give unfair advantage to the products of one country over another.  Yet, if Americans could buy more and cheaper solar panels, it would mean more and better jobs overall for Americans.  Innovative or creative Americans could still compete with the Chinese product, by improving upon it or even replacing it with something else.  Achievement of the collective goals – reducing hydrocarbon use and expanding recourse to alternative energy production – would be much closer than it could ever become under current laws, policies, and practices.

            Improvement in the technologies and in the accessibility and affordability of alternative energy sources is not a zero sum game.  It should matter little which country accelerates an improvement that, by getting everyone closer to the goals that will save the planet, serves everyone. 

            There is no better way to adjust laws and practices to encourage research, development, and dissemination of goods and knowledge and techniques combatting climate change, than through an international agreement.  The fourteen countries that launched negotiations at the World Trade Organization with a modest tariff-cutting proposal were not modest in their ambition.  They described their proposal as “one of the most concrete, immediate contributions that the WTO and its Members can make to protect our planet,” a program intended to “protect our environment and address climate change.”  They saw the tariff-cutting only as a beginning, and only as part of something grander, “committed to exploring a broad range of additional products in the context of a future oriented agreement able to address other issues in the sector and to respond to changes in technologies in the years to come, that can also directly and positively contribute to green growth and sustainable development.”

            The USTR Notice inviting Comments did not reflect fully the ambition of the APEC countries, nor faithfully the ambitions of President Obama in his climate change address at Georgetown University on June 25, 2013.  While the TPSC Chair invited comments on all relevant matters, it focused “in particular,” in three of its four parts, on specific products. Fortunately, in the fourth category of invited Comments, the TPSC Chair asked “how best to ensure that such an agreement remains relevant into the future.”  

            A new agreement will not be relevant into the future without ambition beyond tariff-cutting because innovation should mean an endless cycle of new products, and innovation will be encouraged only through government investments that current rules will punish.  Countries investing to protect the planet should not have their products kept out of world trade because they invested.  They should be rewarded, not punished, congratulated, not sued.  These talks are the opportunity to make the rules accommodate the reality of climate change.  Adherence only to the more modest ambition of tariff reduction would be less than the APEC countries seek, an opportunity missed which might never timely present itself again.










          一个多世纪以来,北美政府为石油天然气产业提供研发、开采和销售补助。国际能源组织2011年报告指出,国际经合组织(OECD)成员国共为矿物燃料生产提供超过250项措施补助。美国能源信息管理中心2010年6月的报告则指出,2008年世界各国共支付55.7亿美元补助矿物燃料产业,却仅仅为替代能源产业提供4.3亿美元补助。此外,非政府组织—— SourceWatch 报告显示,大部分矿物燃料补助已经被永久写入美国税法,而为替代能源提供的补助却短暂且有限。




















Federal Circuit Upholds Constitutionality Of Legislation Overturning Its GPX Decision That Countervailing Duties May Not Be Applied To Non-Market Economies 美联邦上诉法院认为向非市场国家征收反补贴税符合宪法

Posted in CVD



CAFCThis blog has been analyzing for more than four years legal disputes over whether the U.S. Department of Commerce (“Commerce”) may apply countervailing duties (“CVDs”) to imports from non-market economies (“NMEs”), particularly China.  Our first comments were posted October 21, 2009 (“U.S. Court Decision Ought To Change Chinese Thinking “Revised and Expanded”).  Since then, we have been following closely the “GPX” line of cases.  The latest development, a ruling of the U.S. Court of Appeals for the Federal Circuit (“the Federal Circuit”) on March 18, 2014, arose as a direct result of GPX, but in a different case, Guangdong Wireking Housewares & Hardware Co., Ltd. v. United States (“Wireking”).


The history of the GPX line of cases is set out by Elliot J. Feldman and John Burke in Testing the Limits Of Trade Law Rationality: The GPX Case and Subsidies in Non-Market Economies which appeared in the American University Law Review in May 2013.  The story began with Commerce’s 2006 decision to apply CVDs to China, notwithstanding its contrary administrative practice of more than 20 years.  After several years of administrative and judicial proceedings, the Federal Circuit in December 2011 found that Commerce’s application of CVDs to China, while Commerce still treated China as an NME, was contrary to the law as it existed at that time.  The U.S. Congress reacted by enacting new legislation explicitly authorizing Commerce to impose CVDs on imports from NMEs, retroactive to 2006.  The new law also instructed Commerce to reduce the antidumping duties applied to imports from NMEs when antidumping and CVD duties imposed on those goods otherwise would be double-counted. However, the double-counting provision was to apply only to investigations started after March 13, 2012.

GPX International Tire challenged the constitutionality of the new law, contending it (1) retroactively changed the outcome of the GPX case after the Federal Circuit had issued its December 2011 decision, in violation of the ex post facto clause of Article I, Section 9 of the U.S. Constitution (holding parties liable to a law that did not exist when they committed the alleged offense); and (2) created a special rule applicable only to GPX and to a few other cases in which Commerce may impose both CVD and antidumping duties on the same merchandise from an NME without attempting to avoid double-counting, thereby violating the Constitution’s  equal protection clause (which guarantees all similarly situated parties the same treatment under the law). 

The Federal Circuit dismissed the ex post facto argument in the GPX case because the Court had not yet issued its mandate when Congress enacted the new law.  (The court’s decision does not become final until it issues a “mandate.”  Rule 41(b) of the Federal Rules of Appellate Procedure provides that “[t]he court’s mandate must issue 7 days after the time to file a petition for rehearing expires, or 7 days after entry of an order denying a timely petition for panel rehearing, petition for rehearing en banc, or motion for stay of mandate, whichever is later.”  Because the U.S. Government petitioned for a rehearing in the GPX case, the Federal Circuit had not yet issued its mandate in that case when the new law came into effect on March 13, 2012.) However, the Federal Circuit concluded that there might be merit in the second Constitutional argument, concerning the equal protection clause, and remanded the case, on May 9, 2012, to the U.S. Court of International Trade (“CIT”).  The Federal Circuit instructed the CIT to make “a determination of the constitutionality of the new legislation and for other appropriate proceedings.” 

The CIT found, in its GPX VII decision of January 7, 2013, that the new law is constitutional, but remanded the case to Commerce to address certain calculation issues.  Commerce recalculated the CVD rate and issued its redetermination on remand on April 16, 2013.  The CIT then upheld Commerce’s remand determination in its GPX VIII decision, issued on October 30, 2013. 

GPX and several other parties appealed to the Federal Circuit on January 2, 2014, filing a brief on March 18, 2014 that challenged the portion of the new law that imposes CVDs on a retroactive basis.  They argued that this retroactivity violates the due process and ex post facto clauses of the U.S. Constitution.


Wireking, which involves certain kitchen appliance shelving and racks imported from China, is a case similarly situated with a limited number of other cases caught between the retroactive application of the authorization to apply CVDs to NMEs, and the prospective application of the instruction to cure double-counting.  Guandong Wireking, like GPX, challenged the constitutionality of applying the new law on a retroactive basis, claiming that such retroactivity violates the ex post facto, equal protection and due process clauses (assuring that persons cannot be deprived of property without proper notice and an opportunity to be heard) of the U.S. Constitution. 

On March 12, 2013, the CIT, in Wireking, concluded that, even if the new law were retroactive, it did not violate the ex post facto, due process or equal protection clauses.  Unlike in GPX, there were no other issues to be resolved in Wireking.  Therefore, the constitutionality of the new law was ripe for appeal to the Federal Circuit in Wireking, ahead of GPX.  Guangdong Wireking appealed the ex post facto issue to the Federal Circuit, but abandoned the other constitutional claims.

The Federal Circuit agreed with Guangdong Wireking that the new law is retroactive.  It also reaffirmed that its December 2011 decision in GPX was a correct interpretation of the countervailing duty law as it existed at that time and, consequently, the legislation Congress passed in 2012 represented a change in the law that Congress applied retroactively.

Having decided that the new law is, as Guangdong Wireking complained, retroactive, the Court then needed to decide whether such retroactivity was punitive, or merely remedial.  The retroactive application of criminal statutes and other laws that are punitive is prohibited by the ex post facto clause, but laws that are not punitive may be applied retroactively without violating the U.S. Constitution.

The Federal Circuit found the new law not to be punitive because: (1) Congress’ purpose was to modify the civil regulatory scheme, not to impose punishment; (2) the new law does not stray from the remedial nature of trade duties generally; and (3) “Wireking has not shown, let alone by the clearest proof, that the absence of a retrospective double counting provision negates the law’s predominantly remedial impact.”  Having found that the new law is not punitive, the Federal Circuit affirmed the lower court’s decision that the new law applying CVDs to NMEs on a retroactive basis does not violate the U.S. Constitution.


There will be at least one more chapter in the GPX story.  GPX itself is now back at the Federal Circuit challenging the constitutionality of legislation that GPX claims violates the ex post facto and due process provisions of the Constitution. 

The Federal Circuit’s decision in Wireking should doom GPX’s ex post facto claim, but Wireking left unresolved whether the new law violates the due process clause.  The due process clause of the Fifth Amendment to the U.S. Constitution provides that “[n]o person shall be . . . deprived of life, liberty, or property, without due process of law.”  GPX argues that the legislation authorizing CVDs on imports from NMEs is a new tax being applied retroactively without notice to the affected importers and with harsh and oppressive effects deprived it of property without due process of law.  The CIT disagreed with this argument in its GPX VII decision, finding that GPX failed to meet its burden to show that Congress did not have a rational basis for passing the new legislation or that GPX had a vested interest in not having the CVD law applied to its imports.  The Federal Circuit should resolve this issue later this year or early next year in a decision that would become GPX IX.

Were the Federal Circuit to find the law constitutional under the due process clause, the decision may conclude the GPX story.  CVD orders on goods from NMEs would continue to apply, regardless whether investigations began or orders were imposed before or after March 13, 2012.  Were the Federal Circuit to find the law unconstitutional, however, there would be at least one more chapter to write, as GPX and other companies affected by the retroactive application of the new law seek to have those CVD orders revoked based on the Federal Circuit’s decision. 

Even were the Federal Circuit to overturn the CIT and agree with GPX that the new law violates the due process clause of the U.S. Constitution, that decision would apply only to the GPX case and the few other cases in which Commerce applied CVDs to imports from NMEs between November 20, 2006, and March 13, 2012. The due process argument, which is the only question still to be resolved by the Federal Circuit, is limited to the duties imposed as a result of CVD investigations initiated between the two effective dates.  The authority to impose CVDs on cases initiated since March 13, 2012 will remain secure and final under U.S. law.





GPX国际轮胎公司就这一法律是否符合美国宪法提出质疑:(1)美国联邦巡回区上诉法院已经于2011年12月做出裁决,但这一法案追溯至2006年,违反了宪法第一章第9款追溯(ex post facto)条款(法律尚不存在,涉案方却需要面对法律指控、承担法律责任);(2)该法案设置了只适用于GPX等个别案件的特殊条款,即在2012年3月13日前展开调查的案件中向非市场经济体出口征收双反税率时无需避免双重征税。因而违背了宪法中一视同仁给予保护的条款(这一条款旨在确保处于同等状态下的各方受到法律公平对待)。

联邦上诉法院驳回了ex post facto条款指控,因为当国会通过该法案时,上诉庭尚未发出责令——mandate。(法院裁决只有在发布责令后才正式生效,详见上诉庭法规第41(b)条。美国政府在裁决发布后7天内就要求重新审理GPX案,因此上诉法院在法律生效日——2013年3月13日尚未下达责令。)但是上诉法院认为GPX的第二项指控可能合理,因此于5月9日向美国国际贸易法庭(CIT)发布责令。上诉法院责令美国国际贸易法庭就新法案以及相关案件是否符合美国宪法重新审判。

CIT于2013年1月7日在GPX VIII 案中裁定认为新法案符合美国宪法,但同时责令美国商务部重新计算某些产品的惩罚性关税税率。美国商务部审核了反补贴税率,并于同年4月16日发布修正后的裁决。CIT在2013年10月30日发布的裁定中支持商务部修正后的裁决。










上诉法院在广东伟经(Wireking)一案中就追溯征税做出的裁决使得GPX案仅剩下2012年贸易法案是否违背了宪法第五修正案正当程序条款这一争议。GPX认为新法案授权向非市场经济体出口的商品征收反补贴税是追溯征收新的惩罚性关税,但却未能提前通知受影响的进口商,是未经正当程序、残酷剥夺他们的财产。CIT在GPX VII裁定中否定了这一观点,指出GPX未能提供证据证明美国国会通过这一法案时缺乏逻辑基础,也未能证明其涉案利益。上诉法院将会在今年或明年就此案做出裁决,即案例法GPX IX.






Posted in Trade Negotiations


Crossing All The “T”s Will Not Dot The “I”s:  Some Of The Politics Of Trade

            Which comes first, TPP (the “Trans-Pacific Partnership”) or TPA (“Trade Promotion Authority”)?  Alphabetically, and logically, TPA.  Strategically, TPP.  Politically, neither is likely to come at all. Nor, then, is TTIP the “Trans-Atlantic Trade And Investment Partnership”), which would be the most important of the “T”s for trade, and for economic development, and the only one with an “I” to dot.  It is way behind TPA and TPP — on the calendar, in negotiation, and in political prospects. 

           Congress TPA refers to “Trade Promotion Authority,” the nomenclature assigned by the Bush Administration to “fast track” during the period when the Bush Administration seemed to believe it necessary to rename anything associated with the Clinton Administration.  Fast Track expired in 1994.  Congress declined to restore or renew TPA to Clinton in his second term.  Bush, placing a high priority on presidential authority to negotiate international trade agreements, renamed fast track (dissociating the reference from the authority denied to Clinton). He then squeezed TPA through Congress by a three vote margin, only once, with expiration long before he left office.

            The United States Constitution confers authority over international commerce on Congress, but Congress collectively cannot reasonably negotiate international agreements.  Presidents have suffered, not infrequently, humiliating defeats of agreements they negotiated without full congressional partnership, most famously the League of Nations. 

            U.S. trade partners have understood that a President’s signature on an international agreement is only as good as the congressional assurance to back it, and that confidence has to precede the conclusion of an agreement.  When Presidents sign agreements without full, prior congressional engagement, they must submit the agreement to a Congress almost certain to change it.  International partners always have understood that the agreement would then be subject to renegotiation, possibly through the President but ultimately and effectively with 100 Senators (for treaties) and 435 representatives (for “agreements”).  

            “Fast track” (now TPA) confers upon the President authority to negotiate and sign international trade agreements that Congress may accept or reject but cannot change. TPA legislation, therefore, contains negotiating guidance:  it instructs the President on what may, and what must, be included, what will be acceptable and what will not be acceptable.  It informs the President of congressional priorities and instructs on negotiating parameters.

            Without TPA, the President is without congressional guidance and priorities, and without congressional commitment.  Without it, his priorities and objectives may coincide with Congress, benefitting perhaps from intensive consultations, but he is without any approval of Congress as a whole and his negotiating partners are without any assurance that the President’s word is backed by Congress.  Although there is no guarantee that Congress will accept a negotiated trade agreement, the President is expected to keep Congress fully informed and not to sign an agreement he is not confident will win congressional approval. TPA provides a template for judging the proposed deal.

            For TPA to have any useful meaning, Presidents need to be negotiating with authority already conferred because both international partners and the President need to know that the President is negotiating an agreement Congress in principle has accepted (because it has been negotiated according to the guidelines Congress has  provided) and cannot change.  The President can expect passage only when he has reason to believe Congress knows thoroughly what he is negotiating. 

            While the logic dictates that TPA must come first, the Obama Administration has operated for five years on the theory that it can come second.  The Administration is not without reason. Obama inherited three bilateral trade agreements signed by President Bush after the expiration of his trade promotion authority.  Congress, declining the “up or down” vote required by fast track, made certain objections clear, particularly as to labor and environment provisions.  The partners to these agreements were either weak and small (Panama and Colombia) or in particular need (South Korea), enough to renegotiate certain provisions with Obama notwithstanding Bush’s signature.  Obama then submitted them successfully to Congress, without TPA. 

            Isolated bilateral deals with weak partners (Colombia represents less than one percent of U.S. trade, Panama much less) or partners with geostrategic needs for American partnership (South Korea) should not be mistaken as useful precedents for multilateral agreements.  Renegotiation with a single bilateral partner is not a comparable task, and bilateral partners are far more willing to put their best deals on the table without confidence in Congress than numerous partners in, inevitably, more complicated negotiations.

            Even with TPA, multilateral negotiations can be especially difficult, as the Bush Administration ruefully learned over failures in the Doha multilateral round and the highly touted Free Trade Area of the Americas (“FTAA”).  Bush devolved onto bilateral agreements (with Australia, Chile, Singapore, Peru, Bahrain and Morocco – and Jordan, signed by Clinton but requiring renegotiation by Bush — plus the three bilateral deals passed on to Obama) only after he failed to make progress multilaterally. These agreements had to substitute for a larger and failed geopolitical strategy to isolate Brazil in the Americas (the FTAA) and to soften wars in Afghanistan and Iraq with trade in the other countries of the Middle East (Bahrain, Morocco, Jordan). Economically, of all the Bush deals, only the Korean FTA meant very much. Moreover, Bush did bilateral deals with four of the eleven TPP partners, in addition to Canada and Mexico already in NAFTA and South Korea.  Seven of the twelve possible TPP partners already have free trade agreements with the United States.   

            Under recent pressure about the lack of transparency and communication, the Obama Administration is scrambling to save TPP (the Trans Pacific Partnership) by acquiescing to the reality that negotiating partners have not been forthcoming in the absence of TPA.  After proclaiming the likely completion of negotiations by the end of 2013, and then announcing probable completion by the end of February 2014, the Office of the U.S. Trade Representative finally admitted in a closed door briefing on February 11, according to Inside U.S. Trade, that TPP “negotiators still face a large number of major outstanding issues, such as rules on intellectual property, state-owned enterprises and labor rights.” TPP 2

            No decision has yet been made to include Korea in TPP and, according to Washington Trade Daily, “Top U.S. and Japanese trade officials were unable to reach agreement on bilateral market access issues – including automotive trade—that stand in the way of conclusion Saturday [February 22] of the Trans Pacific Partnership.”  Worse, perhaps, for the Administration, as Inside U.S. Trade has observed, some House Democrats have “conflated” TPA with the debate over TPP, complaining of a secretive process and a failure to consult with Congress.  “Lawmakers,” Inside U.S. Trade reported on February 14,”are taking positions on the fast-track bill fueled by their opposition to TPP or vice-versa.” 

            Had TPA been granted Obama prior to the TPP negotiations, or even at an earlier stage, Congressmen could not conflate them, the form and extent of consultations would have been mandated, the contours of the negotiations would have been agreed.  Hence, most of the criticisms of TPP now would not have been possible.  The TPP negotiations likely would have advanced further because trade partners would have had more confidence in Obama and would have been more willing to table “final offers.”  The politics of trade negotiations in the Obama Administration has been the subject of several previous articles on this blog, including An Obama Trade Policy Courtesy Of The Tea Party and TPP, TTIP, And Congress: The Elephant In The Room.

            Theoretically, passage of TPA still could precede TPP, and the final negotiations of TPP could conform with TPA requirements.  However, that sequence appears unlikely.  The bipartisan Camp-Baucus bill to confer upon the President Trade Promotion Authority, carrying the imprimatur of the Republican Chairman of the House Ways and Means Committee and the Democratic Chairman of the Senate Finance Committee, was greeted at birth with the outspoken opposition of the Ranking Minority member of the Ways & Means Committee, the House Minority Leader, and the Senate Majority Leader. The Chairman of the Senate Finance Committee promptly abandoned the bill to become the U.S.  Ambassador in Beijing, and his successor as Finance Committee Chairman declined to endorse the bill and, again as reported by Inside U.S. Trade, “clearly signaled that dealing with a pending fast-track bill is not among his immediate priorities.”

            President Obama did not declare a strong interest in TPA until spring 2013, and then left the matter to Congress.  The TPA law that expired in 2007 had been created in 2002.  Many in Congress said a new law would need to address new things, with Democrats especially exercised about alleged “currency manipulation,” labor and environmental issues. Traditionally, none of these subjects has been part of international trade, although labor and environment concerns were articulated in side letters to NAFTA and were central to the Obama renegotiations of the three inherited bilateral agreements from President Bush.

            The Camp-Baucus bill mimics the 2002 legislation. Democrats have sought to amend U.S. trade law unsuccessfully for currency manipulation since before the recession, and Congress people Pelosi (Minority Leader) and Levin (Ranking Ways & Means Committee member) both rejected the Camp-Baucus bill because it contains no currency provision.

            Beyond the details of the Camp-Baucus bill, there are more fundamental congressional divisions.  House Speaker Boehner says he cannot muster the 218 Republican votes needed to pass the bill, and some say that 50-70 Republicans oppose it for various reasons (implacable opposition to Obama; distrust of Obama to implement or negotiate in good faith; inadequacy of the legislation).  There may be fewer than 50 Democrats supporting TPA in the House, and Senator Wyden, the new Chair of the Senate Finance Committee, not only accords it no priority:  he says he will not bring the bill to the floor of the Senate. 

            Obama demurred when asked at a meeting of the House Democratic Caucus in early February whether he would make known to Congress the terms of the TPP prior to a congressional vote on TPA.  No surprise, then, that concerns related to one conflate with the other. In November, three-quarters of the Democrats in the House advised the President in writing that they would not support a revival of TPA as written in 2002, yet the White House endorsed the Camp-Baucus bill. 

            Despite a two sentence rallying cry in his hour-long 2014 State of the Union Address, Obama never mentions international trade among his highest priorities.  According to Inside U.S. Trade, “An official readout from the White House of Obama’s meeting with House Democrats did not mention trade as a topic of discussion.” 

            There is bipartisan consensus on the congressional fate of TPA and TPP.  Neither stands any chance of congressional approval without a forceful, sustained White House engagement, not in 2014, probably not in 2015, and certainly not in the last year of the Obama presidency.  Nor, even with such presidential commitment, is passage likely without a sustained educational, lobbying effort. 

            The American Chamber of Commerce has been telling the diplomatic representatives of foreign trade partners not to worry, that passage will come.  Hundreds of opposing environmental and labor groups, however, have been campaigning hard in Congress. So far, they may not outpace the expenditures and resources of business and financial interests, but they are expending more energy, and to greater effect.  Even the Vice President has uttered publicly his doubts about TPA. 

            Crossing the TPA “t” cannot come soon enough to save TPP, and neither will dot the TTIP “I” (as in the Transatlantic Trade and Investment Partnership).  Mexican spokesmen from the North American Summit of February 20 report that the United States is seeking to accelerate the TPP talks and bring them to a swift completion as a way to force support for TPA, a strategy that seems to misread Congress:  opposition there is explained principally by the perceived need to know and participate more in the TPP process, while the President wants to finish the deal before TPA could require keeping Congress more involved and informed. The President  promises to stay the course campaigning for a trade agenda he says will help fuel economic recovery,  but he leaves no doubt that his heart  is not really in the fight and his head is elsewhere altogether.

It’s Mostly Political Anyway

            President Obama has endorsed TPP and TTIP as additional tools for economic growth.  Some economists agree, and some don’t.          

            The only trade agreement the United States has entered with economic meaning since NAFTA and the WTO (twenty years ago) is with South Korea.  According to Rep. Marcy Kaptur (D-Ohio), the U.S. trade deficit with South Korea has doubled since KORUS was signed.  U.S. exports declined; imports from South Korea increased.  It is not a story that sells subsequent agreements on Capitol Hill. 

            The genesis and negotiating contradictions of TPP are important to appreciate.  The argument that 40 percent of world trade would be represented in the Trans Pacific Partnership depends upon the inclusion of South Korea and Japan, neither of which is yet certain.  U.S.–Japan negotiations appear to be at an impasse over agriculture (as well as the automotive trade), and Australia and New Zealand are indicating that they will not make important concessions on other matters without opening more U.S. and Japanese agricultural markets.  South Korea’s primary trade partner is China, excluded from TPP, and South Korea already has unique advantages in trade relations as the only Asian country (other than Singapore) with a free trade agreement with the United States.  It is not obvious why South Korea might antagonize China, and would make important concessions or even encourage the TPP, which can only dilute its relative advantage with the United States.

            The potential impact of the TPP also depends upon the inclusion of Canada and Mexico, neither of which was involved during several years of negotiations.  The United States now rationalizes that Canada and Mexico should be part of the TPP because NAFTA needs an upgrade best accomplished in this larger Trans-Pacific entity.  Like South Korea, Canada and Mexico enjoy NAFTA advantages that could be diluted in a broader agreement.  At the North American summit convened in Toluca, Mexico on February 20, neither Mexican President Pena Nieto nor Canadian Prime Minister Harper expressed great enthusiasm for the TPP, and in a 1600-word joint closing statement of the three leaders, the Washington Post reported that only one sentence was devoted to the TPP. 

            The idea for the TPP did not originate with the United States.  Negotiations for a Pacific partnership grew out of concern from smaller Asian countries enlisting the United States to help them offset the growing authority and influence of China.  The United States has protested that the TPP was not designed to exclude or contain China, but instead was to be an agreement of such high economic and free market standard that the state-controlled economy of China probably was not ready; eventually, the United States said, China would be welcome.  Yet, one of the more significant economies in the original group of countries is Vietnam, certainly no less a non-market economy than China, and much further behind in economic development.  It is difficult to demonstrate that Vietnam is more able to take on a “high standard” agreement than China. 

            As discussed on this blog in Healing More Important Than Dealing in The Pacific, collateral geostrategic issues, such as the confrontation between China and Japan in the East China Sea, have led the United States to be more transparent about motives.  The United States has taken Japan’s side in that conflict and, in the process, has articulated publicly concerns about China’s growing power, notwithstanding simultaneous assurances to China denying any intent to limit or contain China.  One consequence of these public contradictions has been to emphasize that the TPP is at least as much about balance of power in Asia as it is about international trade and jobs.

            TPP was the catalyst for TTIP, as the European Union worried that the Obama pivot would consign the EU to a backseat in world affairs.  TTIP negotiations have served to remind the United States that, notwithstanding Asian (and especially Chinese) advances, the world’s economy remains concentrated more over the Atlantic than over the Pacific Ocean, and that common values and perspectives are far more apparent there.  TTIP has even less of a chance of succeeding than TPP, but the very existence of negotiations has played a major part in political balance.

            Trade agreements are always more political than economic. TPP and TTIP are not exceptions.  Their politics, and political purposes, are complicated by domestic political imperatives in the United States that focus on TPA. The battle over TPA is more about partisan control of Congress than about foreign relations or trade, but in this instance the President’s greatest problems are with his own party. 

Substance Doesn’t Matter

            Whether TPP is, in the terms Obama presented to Harper and Pena Nieto, “a good agreement,” is not important.  Obama told his North American counterparts that, provided TPP is a “good agreement,” Congress would approve it.  Unfortunately, that conclusion is without any foundation.  Four hundred thirty-five congressmen will vote according to their best estimate of how their votes will be judged by voters, and whether by voting they will enhance or diminish their chances to hold their congressional seats in the 2014 mid-term elections.

            Because there is political risk in voting for international trade agreements, Congressmen would prefer not to vote. Most likely, in an election year, they will not vote.  The Camp –Baucus bill, already rejected by Levin and Pelosi and probably by Wyden, will be replaced by a bill that surely will not be considered before November elections, and then likely will not be taken up in a lame duck session.   TPA now is hostage to the election cycle, and TPP is hostage to TPA.  TTIP will not jump the queue.  Congressional politics, therefore, will dispose of all of them.

What Good (And Not So Good) Could Come Of It

            The good that may be inherent in the trade agreements is not likely to come about during the Obama Administration, if ever.  Although Obama always has been a free trade Democrat, he seems never to have appreciated that pursuit of free trade requires substantial commitment in American politics, and he always has had higher priorities.  George Bush cared about trade, not health care; Obama, in his first term, was committed to health care, not trade.  He found it better to refine trade agreements already signed than to seek authority to negotiate new ones. 

            Now, in his second term, Obama is appreciating more the link between market access and American production.  He understands that trade requires reciprocity:  opening foreign markets almost always requires dealing away something protected or cherished at home.  Giving up anything at home means making political deals which, for trade, he has been unwilling to make.  It has been a lot easier to negotiate trade without authority, than to assign lower priority to immigration, budgets, tax reform, debt ceilings, displacing them on his agenda in order to seek trade negotiating authority.  And, there is no indication that Obama will displace any of them, even as there is more bipartisan support for trade than for anything else on his agenda.

            Obama has brought a new realism to American foreign policy, pulling out of wars that could not be won, declining colonial reflexes of nation-building, avoiding interventions in which getting in would be far easier than getting out.  Critics have accused him of shrinking the American footprint, giving up American influence in the world prematurely, shirking international responsibility.  Yet, the trade negotiations themselves convey a different message.

            Some forty countries are deeply engaged in trade negotiations with the United States, and only because the United States is involved are they at the negotiating table at all.  Most of them are relying on Obama’s word that he can bring these negotiations to successful conclusions.  The negotiations reflect a faith and confidence in the United States, probably unwarranted, but acknowledging the need for, and the reality of, global American leadership.

            There is both hope and risk in these conclusions.  Fully aware of the new realism Obama has brought to American global ambitions, partners in every corner of the globe still look to the United States for leadership and still want to share in the American market if not the American dream.  But the implied promise – negotiate with the United States because the word of the President is good – imperils American credibility.  It is good that there is faith and confidence in the United States, and it is not so good. 

            The political catalysts for the negotiations are also not so good.  Reinforcing a military alliance with Japan, at the very moment when Japan is exacerbating antagonisms with China, may do permanent damage to American interests in the region of the world where the President has declared priorities.  The combination of pressing forward with TPP and aligning with Japan in the East China Sea seems particularly unstable, especially because there is no apparent value in pressing forward with a trade agreement unlikely to be concluded. 

            There is more innocence and greater economic interest in TTIP, but it is inherently a more difficult negotiation notwithstanding the inclusion of non-market Vietnam in TPP. The TTIP parties acknowledge that, despite numerous meetings already, there has been very little progress, which may be to the good, because with less agreed upon, there will be less cause for disappointment.

            For at least three years there has been little else to talk about in the international trade community besides TPA, TPP, and TTIP.  The trade press has reported endlessly and breathlessly about each pronouncement, each meeting, each private communiqué.  Expectations have been high. But, as in the conflation of TPA and TPP, the trade situation has been a muddle, political battles masquerading as technical and technocratic disputes.

            It is past time for reality to set in:  the Camp-Baucus bill will never get to the floor of either house of Congress.  A replacement bill may be introduced, but it will not be debated nor voted upon before the November mid-term elections.  The lame duck Congress will not take it up.  By the end of 2014, TPP negotiations might have concluded, but without TPA final offers in TPP probably will not have been tabled.  TPP then will not be ready, and a new Congress will not likely give President Obama a signature foreign policy achievement during his last eighteen months in office. 

            Those relationships—between TPP and TPA — require only crossing “T”s. They must be crossed before the “I” in TTIP can be dotted.  For the Obama trade agenda, the “T”s will not be crossed, the “I” will not be dotted. Nor is the “I” likely to be dotted in Europe, which requires the concurrence of twenty-eight members.  The mark left in question will be a “C,” for American credibility.













The United States & China: Twenty-First Century Rivals Or Friends? 美利坚和大中国: 21世纪的对手还是伙伴?

Posted in Strategic & Economic Dialogue, Trade Disputes

The following article, The United States & China: Twenty-First Century Rivals Or Friends?, was published in the January 2014 edition of Corporate LiveWire Expert Guide International Trade 2014:

本文刊登于2014年一月出版的Corporate LiveWire Expert Guide International Trade 2014。中文翻译请下移鼠标。

The Obama Administration has referred to Sino-American relations as the most important bilateral international relationship of the twenty-first century.  Obama’s “pivot” to Asia, however, has created a central question: Is the pivot intended to cultivate and enhance relations between China and the United States, or does the United States seek to surround and contain expanding Chinese political, economic, and military power?

As economic leaders, the United States and China should welcome competition.  Ever more prosperous trade partners translate into mutual prosperity.  But, when the goal of economic competition is superiority in national security, competition can turn into an unproductive rivalry.  If the Obama pivot and Chinese reforms were to encourage cooperation and healthy competition, the global and Asian regional futures would be bright.  But if China were not to welcome the American competition and were the United States seeking hegemony, the pivot could become threatening, to China and to others in the region.rivalry 2

The politics of international trade between China and the United States, and in the Asian region, must be understood in the larger context of international relations and security.  We want to touch on four issues, all centered on trade, that may suggest something about the future.

Bilateralism & Green Technologies

China and the United States are the world’s leading energy consumers and the world’s leading producers of carbon gases.  Both governments recognise climate change and have pledged to reduce reliance on hydrocarbons and to cooperate in the development of green technologies and alternative energy resources.  Yet, China is exploiting common needs to flood world markets with green equipment, and the United States, through its trade remedies laws, is closing its market to Chinese solar and wind power products.  Both countries have complained about each other at the WTO.  There is no discernible cooperation.

When the European Union reached a settlement with China over solar cells, the Washington Post suggested that the United States should do the same.  Solar cells reduce the carbon footprint and installation and maintenance create many more jobs than manufacture.  The Europeans reasoned that, if China wanted to flood the international market with solar cells, it would be good for consumers and for arresting climate change.  More solar cells would also create more jobs.

Unfortunately, U.S. trade law has no public interest clause and consequently no means to replicate the European settlement.  U.S. law enables a small industry to undo a large one because any industry can block imports.  And China retaliated, blocking American polysilicon used to manufacture solar cells in China.

Rivalry 3The solar cell problem is repeating in wind towers, where U.S. manufacturers are blocking imports of Chinese wind towers needed for the development of wind power in coastal regions by the U.S. manufacturers of wind turbines.  The turbines are far more valuable and sophisticated than the steel towers.  The smaller and less valuable industry is able to exploit the trade law to the detriment of foreign suppliers, consumers, other domestic industries, and global climate.  The trade law thus defeats Chinese-American cooperation.

The Trans-Pacific Partnership

The United States is committed to the Trans-Pacific Partnership, which was designed originally to exclude China.  China, however, is a far more important trading partner with the United States than the countries that started the TPP negotiations in response to growing Chinese regional power.  Moreover, even were the TPP negotiations to conclude successfully, the United States Congress is unlikely to ratify it.

TPP failure would erode U.S. credibility in the Pacific while still undermining Sino-U.S. relations.  There is an alternative.  China, Japan, and South Korea are negotiating a trilateral free trade agreement that could help calm security and other disputes among the three leading economic powers in Asia.  The United States needs to lower expectations about TPP, and encourage the trilateral deal that would reassure China of the U.S. commitment to its well-being and improve relations throughout the region.

Trade & Non-Market Economies

The Special Safeguard (Section 421 of the U.S. trade law) against China expired in December 2013.  Treatment of China as a non-market economy must conclude, according to China’s WTO Accession Protocol, in December 2016.  However, China’s economy is still dominated by state-owned enterprises, 12 years past WTO accession, and organs of the central government continue to direct much of the economy.  Moreover, Chinese exports dominate trade remedy proceedings everywhere.

The Special Safeguard against Chinese goods was used successfully only once in twelve years (over automobile tires).  When the use of NME methodologies expires, enforcement of fair trade with China will be more difficult.  China already has challenged in the WTO the U.S. application of countervailing duties because the U.S. is treating China, for its own convenience, as both a market and non-market economy.

Isolating or containing China will not solve the distortions of a state-run economy.  As with Permanent Normal Trade Relations and then WTO accession, the United States must embrace China within the standards and norms of multilateral trade.

Military & Security Issues

There has been continuous hostility in the United States Congress toward China, mostly over trade.  Complaints center on alleged off-shoring of jobs (but there are no accompanying statistics) and currency valuations (because the Chinese Yuan is linked to the dollar).  Yet, the U.S.-China Business Council estimates that exports to China in 2012 created more than a half-million U.S. jobs, with around 122,000 added since 2008.  Chinese currency appreciated around 24 percent.    The U.S. dollar was linked to other currencies and did not float until August 1971.

Americans have been seeing China as a global security and potential military challenge.  The United States has appeared to side with Japan in the dispute over islets in the East  and South China Seas.  References to growing Chinese military power are frequent, and the United States has singled out China for continued export restrictions on items being moved off the U.S.  Munitions List.  The Chinese have complained, loud and long, about these restrictions (but without specifying what they may want and cannot buy).  Now China is being singled out by name for exclusion from the most significant reform of U.S.  export controls in decades, making it more difficult for Chinese to see themselves in a friendly relationship with the United States.


There is only one military superpower in the world today.  American military expenditure exceeds the expenditures of all other countries in the world combined and is more than four times the Chinese defense budget.  The United States can encourage a rivalry – reminding everyone of its alliance with Japan in response to growing Chinese military power, restricting trade with China as with no other non-embargoed country, encouraging trade formations that exclude China.  Or, the United States can intensify its dialogue with China.  It can encourage an even-handed settlement of regional disputes and the creation of inclusive regional institutions.  It can cooperate genuinely in reducing hydrocarbons and controlling climate change.

China can adopt a more accommodating posture, accelerating the reform of its economy away from state-owned enterprises, floating its currency, relaxing its military posturing.  China and the United States both know that trade and security are related.  Rather than use one to lever the other, they should be enhanced for both countries together.























CFIUS Annual Report Shows Increased Focus on Chinese Investment

Posted in CFIUS and Investment

The Committee on Foreign Investment in the United States (“CFIUS”), the inter-agency group that conducts national security reviews of foreign acquisitions of U.S. businesses, recently issued its Annual Report to Congress for Calendar Year 2012.  That reports show that China surpassed the United Kingdom in 2012 as the source for the largest number of foreign investments undergoing national security reviews.

Out of the 114 proposed foreign acquisitions of U.S. businesses that CFIUS reviewed in 2012, 39 involved Chinese investors.  Perhaps not coincidentally, 2012 saw substantially more notices withdrawn than in previous years.  It also saw only the second time the President has ordered the divestment of a foreign acquisition since the Exon-Florio amendment granted the President that authority in 1988.

CFIUS cleared 67 transactions during the initial 30-day review phase and an additional 24 after a full 45-day investigation.  The parties to 12 of the reviews withdrew their notifications, either to allow more time for CFIUS’s consideration, or to account for changes in the transaction.  They subsequently refiled.

The parties to ten transactions withdrew their notifications before the CFIUS process was completed.  They never refiled.  Some of them withdrew the notifications because the deals fell apart for normal commercial reasons, but some were abandoned, either because they understood the transaction would not be cleared by CFIUS, or the parties found the conditions required to obtain CFIUS clearance would have made the transactions commercially untenable.

As reported previously in this blog in July 2013 and October 2013, President Obama ordered the divestment of Ralls Corporation’s acquisition of four wind farm sites in Oregon.  The Report states that the reasons were that Ralls is owned by Chinese nationals, and the “wind farm sites are all within or in the vicinity of restricted air space at Naval Weapons Systems Training Facility Boardman in Oregon.”

Not since 2008 have so many transactions been withdrawn from CFIUS review.  Twenty-three transactions were withdrawn in 2008, 22 in 2012.  However, in 2008 the great majority (18) were withdrawn in the initial review stage, largely because the global economic collapse made the transactions financially too difficult. .  By contrast, 20 of the transactions withdrawn in 2012 occurred after CFIUS decided to initiate a full 45-day investigation, at which point it is more likely the notification was withdrawn due to problems arising in the CFIUS process, rather than due to economic conditions.

The Annual Report does not identify the nationality of the foreign investor in the withdrawn transactions, but it probably is not coincidental that 2012 saw a dramatic increase in both the number of transactions withdrawn (from 6 in 2011 to 22 in 2012) and the number of transactions involving Chinese investors (from 10 in 2011 to 23 in 2012). The CFIUS process is not necessarily hostile to Chinese investors, but it is no secret that Chinese investment receives higher scrutiny than investments from long time U.S. allies who are also major investors, such as the United Kingdom, Canada, France and Japan.

Virtually all projects with CFIUS problems now seem to involve either cyber security or “proximity” (“persistent co-location,” in the Department of Defense’s vernacular).  It has been reported that one of the exacerbating concerns is the presence of government contractors in industrial parks, making the “proximity” issue more widespread than once thought.  The Department of Defense, it is being said, is particularly sensitive to Chinese projects in the vicinity of its contractors.

CFIUS notes in the report that CFIUS agencies entered into eight legally binding mitigation agreements in 2012 to resolve national security concerns.  The Annual Report provides the following examples of mitigation measures that were adopted in those agreements:

  • Ensuring that only authorized persons have access to certain technology and information.
  • Establishing a Corporate Security Committee and other mechanisms to ensure compliance with all required actions, including the appointment of a USG-approved security officer or member of the board of directors and requirements for security policies, annual reports, and independent audits.
  • Establishing guidelines and terms for handling existing or future USG contracts, USG customer information and other sensitive information.
  • Ensuring only U.S. citizens handle certain products and services, and ensuring that certain activities and products are located only in the United States.
  • Notifying security officers or relevant USG parties in advance of foreign national visits to the U.S. business for approval.
  • Notifying relevant USG parties of any awareness of any vulnerability or security incidents.
  • Termination of specific activities of the U.S. business.

Chinese and other foreign persons who are considering acquisitions in U.S. businesses that may present national security concerns should think about whether these types of mitigation measures might resolve those national security concerns while still preserving the economic value of the transaction.  It is better to think through possible mitigation measures in advance, rather than try to develop them during the short timeframes of a CFIUS review or investigation.

Finally, CFIUS identified in the Annual Report a number of perceived adverse effects on national security of foreign control of U.S. businesses in the transactions that it reviewed during 2012.  Some of the perceived threats based on the U.S. business being acquired that are less than obvious include:

  • Provide products or services that could expose national security vulnerabilities, including potential cyber security concerns, or create vulnerability to sabotage or espionage. This includes consideration of whether the covered transaction will increase the risk of exploitation of the particular U.S. business’s position in the supply chain.

  • Have operations, or produce or supply products or services, the security of which may have implications for U.S. national security, such as businesses that involve infrastructure that may constitute critical infrastructure; businesses that involve various aspects of energy production, including extraction, generation, transmission, and distribution; businesses that affect the national transportation system; and businesses that could significantly and directly affect the U.S. financial system.

  • Are in proximity to certain types of USG facilities.

The Report also identified the following perceived threats when the foreign persons who would be the acquirer:

  • Are controlled by a foreign government.

  • Are from a country with a record on nonproliferation and other national security-related matters that raises concerns.

  • Have historical records of taking or intentions to take actions that could impair U.S. national security.

These concerns would appear to be aimed primarily at Chinese investment.  All but 29 of the covered transactions that CFIUS reviewed in 2012 were from countries that are long-term U.S. allies.  Chinese persons accounted for 23 of those 29 transactions.

The United States remains open to foreign investment, including investment from China.  Most acquisitions of U.S. businesses continue to be approved.  But, when Chinese companies, especially, seek to acquire existing U.S. businesses, they should notify the proposed transaction to CFIUS, and plan thoroughly for political and public relations processes favorably promoting the project. Chinese projects may have raised more questions than projects from other countries because of their substance, but they may also raise more questions because they are Chinese.  The obstacles can be overcome, and the investments likely continue to be profitable and worthwhile, but they may take longer, requiring more planning, and more sophisticated execution.


Healing More Important Than Dealing in The Pacific

Posted in Trade Negotiations

BidenVice President Joe Bidens visit to South Korea, Japan, and China during the first week of December was to have been about bilateral issues with each country, and the Trans-Pacific Partnership (TPP) with South Korea and Japan.  The agenda, however, was hijacked by an urgent national security concern as Japan and China tested each others perceptions of sovereignty over contested islets and air space, and the United States reasserted its defense alliance with Japan by sending B-52 bombers into the area over which China unilaterally announced restrictions.  Nonetheless, Biden did not abandon the original trade agenda in his meetings.

While Japan and China are contesting sovereignty over islets, so are China and South Korea over protruding rocks.  Moreover, South Koreas President Park has refused to proceed with a planned summit with Japans Prime Minister Abe because of Japans apparent refusal to address sufficiently, as Koreans see it, slave labor andcomfort womenduring the Japanese Occupation and World War II. 

There is growing alarm in the region about possible military escalation, born of historically-based mutual suspicion and hostility.  The region lacks effective foundational institutions bringing Japan, South Korea, and China to a common negotiating table.  They have not really settled World War II, and each of them carries grievances toward the others.  All view history their own way. 

The United States remains a critical broker preserving peace in the region, a role Biden was quick to invoke on his tours first stop in Japan. But the United States also shares a historical responsibility for the problems, which stretch back to World War II and even before.  Whereas in Europe the Marshall Plan rescued and revived economies throughout Western Europe while American Occupation helped Germany reconcile with its foes and restore its place in the family of nations, in Asia the United States cultivated Japan as a bulwark against Soviet and Chinese Communism, did little to integrate the region and nothing to encourage Japan to reconcile with the countries it invaded and the peoples it conquered.  Today, Japan is regarded throughout Asia with doubt and suspicion, creating an excuse for China to flex new muscles and South Korea to complain of inadequate apology and reparations.

Until Japans history, as seen especially by China and Korea, is fully acknowledged by Japan, Japans conflicts with China and South Korea will persist and grow more dangerous.  Enhanced international trade is not a panacea, but it could provide the foundational institutions that could transition Japan into an accepted leadership role commensurate with its economic importance.  Regrettably, the TPP is not likely to be the needed institution, and the United States will not be a successful broker until it fully appreciates the Chinese and Korean grievances.

TPP And China

Economic and trade relations often defer or overcome national hostilities.  South Korea, Japan, and China are mindful of the importance of trade.  They are heavily invested in each others economies as most FDI remains regional, and they are negotiating a trilateral free trade agreement, albeit fitfully, notwithstanding their security disputes. 

The TPP, the central trade and economic item on Bidens agenda, does not relieve any of the tensions among the three key countries in the region.  To the contrary, the TPP was conceived originally to exclude China, and neither South Korea nor Japan was among its founders or early champions.  South Korea has not yet joined the negotiations formally, even as the United States Trade Representative has declared the talks almost completed, and the United States is still pressuring Japan to satisfy the United States on old issues such as automobiles and agriculture, which Prime Minister Abe seems to welcome for domestic political reasons. 

The small Asian countries that drew the United States into the TPP negotiations were reacting to the growth of Chinese power in the region.  Their instincts were to combine their modest capabilities with the United States and effectively surround China, much the way George Kennan imaginedcontainingthe Soviet Union.  It was not difficult to sound principled in excluding China as a non-market economy that could not satisfy the elevated standards of a twenty-first century trade agreement, but no one could miss the political overtones. 

China responded cautiously, understanding the Cold War overtones but not wanting to appear as an opponent to trade liberalization.  The United States, recognizing the potential contradiction between its support for Chinas rapid development as an economic power and its exclusion from the TPP, declared that a China willing to embrace the new disciplines of a new agreement would be welcome.

China signaled an interest in the TPP during the Strategic and Economic Dialogue with the United States in July, and at the end of November, just as the United States repeated its objective to complete the multilateral deal by the end of 2013, China decided to call the apparent American bluff, indicating it wants to join the talks.  With Japan admitted to the talks only in July and South Korea not yet formally in the multilateral negotiations, the United States would not seem to be in a position to deny China an opportunity to join.  Moreover, as China is South Koreas leading export market, South Korea probably would prefer to join only if China were included.

The United States is finessing the dilemma by postponing South Korea’s participation until after the conclusion of an agreement with the other countries.  However, the Korean postponement has been based on an expected conclusion to the talks by the end of 2013, which will not happen.  The longer the talks continue into 2014, the more the United States will have to confront the exclusion of China.

The late and uncertain addition to the TPP of the three most important economic forces in Asia can only push back the TPP calendar. The further into 2014 the talks go, the closer looms mid-term congressional elections in the United States.  As the elections approach, the legislative calendar will fade away. Meanwhile, the very existence of the TPP dilutes any improvement of relations among South Korea, Japan, and China because the larger framework does not encourage them to resolve their more particular differences.

Odds Long And Unlikely

The odds for the TPP ever to come to pass remain long and the risks for the United States in promoting high expectations for the TPP very substantial.  The United States seems to have convinced most of the countries in Asia that once they agree to terms, the deal will be done.  Therefore, the United States is pursuing agold standardfor trade agreements, in which American preferences and values over all international commerce, including especially intellectual property, pharmaceutical products, agriculture, and virtually every other disputed sector, would be codified in a trading bloc representing more than half the global economy as measured by gross domestic production (but only if China were included). 

The United States is asking its negotiating partners to make dramatic compromises they have resisted in the past, whether in bilateral trade with the United States or in the multilateral forums of Uruguay and Doha.  In exchange for these concessions, the United States is promising economic renewal and a new prosperity for Asia. 

The United States never mentions any doubt about enacting the TPP.  Unfortunately, the President of the United States cannot bring about the TPP without the cooperation and consent of the Congress of the United States.  There, the necessary support is improbable.  One hundred fifty-one congressmen of the Presidents own party have signed a declaration complaining about the secrecy of the TPP negotiations, while a bloc of Republican congressmen oppose virtually any legislation proposed and promoted by President Obama.  They are determined to deny Obamasignature achievements,which is what a successfully concluded and enacted TPP would be. 

The TPP And The Trilateral Agreement

Optically, it is easier for the United States to be in pursuit of a broad regional agreement than to promote a trilateral agreement in which it would not be a member.  It would seem more in the U.S. interest to pursue an agreement that would enhance U.S. trade directly, rather than promote an agreement that could improve trade for competitors.  Yet, the regional tensions that are generating fear of military accident or confrontation may be more important than both trade deals, and management of the potential trade agreements could help bring calm to the region.

The United States still looks to its alliance with Japan and hopes that Japan will assume regional leadership.  Unfortunately, the promise of regional leadership is interpreted by some in Japan, including especially the current Japanese Government, as a need to break free from constitutional constraints that assign Japan a pacifist role in world affairs.  Japanese nationalist sentiment seems wedded to a certain militarism that translates into confrontation, whether with China over islets or Korea over history. 

Regional leadership for Japan commensurate with its relative economic prosperity and heft will not be accomplished through reassertions of conventional power because leadership requires trust.  The American goal of Japanese regional leadership requires, above all, better Japanese relations with Korea and China.  A trilateral free trade agreement can build a foundation for a new friendship which an American-led TPP cannot.

Relentless regional pursuit of the TPP is also dangerous for the United States because failure likely would erode American credibility and stature.  Confidence in the United States could be shattered by a loss of confidence through an American failure to deliver on the promise. The United States, by contrast, would not be blamed were the trilateral agreement to founder, but could be cheered were it to help bring it about.

Strategically, achievement of a trilateral free trade agreement among China, South Korea, and Japan would be of greater value to the United States than a negotiated TPP that Congress declines to approve.  It would focus Japanese energy on reconciliation with its neighbors, a process indispensable to a trilateral agreement.  It would reassure China that the United States is not seeking its isolation, something the United States could never accomplish in Asia anyway.  And it would strengthen the Asia region as a trading and economic partner of the United States.

A trilateral agreement will be very hard to make happen.  The three countries involved have talked about it for a decade, and each has blame for the others for the continuing failure to make serious progress.  The concerted efforts around the TPP, however, do not help.  The American energy and leadership devoted to the TPP could matter if redirected, and would have a greater long-term benefit, for the United States and for the world.  China integrated into the region, Japan reconciled with its neighbors, South Korea entrenched in a process of reconciliation and extending benefits derived from its free trade agreement with the United States:  such an agreement might not achieve a free trade gold standard, but it could augur a political transformation for peace.

Links And Priorities

The military tensions in Asia are rooted historically.  When the United States pushes back against new Chinese declarations about air space, it is doing the bidding of Japanese nationalists who want dealings with China to be confrontational.  Yet, the United States could not maintain its own regional peace-keeping role were it to accept the Chinese steps passively.  Bidens diplomacy recognizes the dilemma, but it would be far more successful, and more in the American interest, were it also to recognize the longer and deeper history.  It then could comprehend, too, that the confrontation between Japan and China is not wholly distinguishable from the confrontation between Japan and Korea, nor between Korea and China. 

The United States owes it to Japan, and to the region, to retreat from Cold War imagery and philosophies that acquit Japan of its past and protect present-day Japanese militarists.  The United States owes it to China to be reliably and consistently inclusive, giving no refuge to Chinese expansionists who appreciate little more than Japanese amnesia that licenses their own aggression.  And the United States owes it to Korea to recognize Koreas colonized past.  The United States could help broker peace in Asia by sacrificing its own short-term aspiration for an unlikely multilateral trade agreement and committing itself to the regions internal needs, just as it did in Europe after World War II.  The moment of highest tension could not be a better time to start.