First published in Landings, May, 2014.
Let’s talk trade. We all know what it means to sell something. I have a widget, you want a widget, I sell you my widget for an agreed-upon price. What happens, though, when I want to sell you my widget and you live in another country?
That’s when things get complicated. Nations use a tax called a tariff to protect those native industries they consider important. For example, the Japanese eat rice and rice cultivation is a part of the country’s cultural heritage. So Japan has long had in place tariffs on imported rice to protect local growers from foreign competition. Those tariffs make rice produced in other countries, such as the United States, much more expensive for Japanese people to buy.
Countries also have different health, safety, and environmental standards for items that they make which affect the cost of production. Sustainability, for example, is a hot topic in the United States and Europe. Consumers want to know that the fish they buy in the grocery store was caught sustainably or that the shrimp they purchase meets certain safety standards. Creating and then enforcing those standards adds to the cost of the final product.
So what happens among countries who want to sell things to each other but which may have tariffs and different standards for their products? They make trade agreements.
One trade agreement with which most Americans are familiar is the North American Free Trade Agreement, an international treaty agreed to by Canada, the United States, and Mexico in 1994. That agreement basically eliminated tariffs on products traded among the three countries. Its major focus was on agricultural products but it also affected other sectors such as textiles, electronics, and automobiles.
Twenty years after the agreement went into force, the question of whether NAFTA has been a boon to the United States is much debated. In a paper published by the Council on Foreign Relations earlier this year, Mohammed Aly Sergie noted that after NAFTA came in, trade flows among the three countries increased greatly, from roughly $290 billion in 1993 to more than $1.1 trillion in 2012. Today the United States trades more in goods and services with Mexico and Canada than it does with Japan, South Korea, Brazil, Russia, India, and China combined. Most of that growth comes from increased trade between the United States and Mexico. In 1993, the trade balance was a $1.7 billion U.S. surplus; in 2012, the U.S. ran a $61.4 billion deficit (we bought more from Mexico than Mexico bought from us).
Currently the United States is in talks with the countries around the Pacific to enter into a trade agreement. Australia, Brunei, Chile, Malaysia, Mexico, New Zealand, Canada, Peru, Singapore, Vietnam, Japan, and the United States are in the fourth year of negotiating the Trans-Pacific Partnership (TPP) agreement. But this trade agreement includes numerous provisions that go beyond NAFTA. The treaty has 29 chapters, dealing with everything from financial services and telecommunications to standards for food products.
The United States has also begun negotiations with the European Union for a separate trade agreement, called the Transatlantic Trade and Investment Partnership (TTIP). This agreement would remove trade barriers in a range of sectors in order to make it easier to buy and sell goods and services. In addition to removing tariffs, the TTIP will address other issues, called non-tariff barriers, such as protection of intellectual property, technical regulations, and environmental and health standards.
Asia: Trans-Pacific Partnership (TPP)
Maine House representative Sharon Treat knows a lot about the pros and cons of U.S. trade agreements. Formerly a state senator, Treat is co-chair (with Sen. Troy Jackson) on the Maine Citizen Trade Policy Commission. The commission was created in 2003 expressly “to assess the impact of international trade policies and agreements on Maine’s state and local laws, business environment and working conditions.” Maine is one of only three states in the country with such a commission.
Treat also is an official Advisor to the U.S. Trade Representative, Michael Froman. There are about 700 such advisors across the country, organized in 28 committees, who offer input to the Representative on everything from agriculture to the environment. Many of those individuals come from large corporations and firms.
Foreign policy analysts generally concur that if agreed to, the TPP would provide a strong economic bulwark for the United States against China. But, argues Treat, that agreement will primarily benefit large multi-national corporations while it may prove costly to smaller businesses.
“When you talk to [the negotiators] and read the text that has leaked you realize that they very much see themselves as standing in the shoes of very large corporations, the big pharmaceutical, insurance, and banking corporations,” Treat said. “Those corporations want to reduce the level of regulation applied to them. They are very clear about that.”
The TPP alarms people for a number of reasons. First, the elements of its 29 chapters are secret. The details are not made public until the negotiations are concluded. Second, it’s a really big agreement that addresses many non-tariff barriers, such as copyright law, drug standards, and investor-state relations. In fact, of its 29 chapters, only five deal with traditional trade issues such as tariffs.
One chapter is the Phytosanitary chapter. Phytosanitary regulations refer to health and safety standards for food items. The United States has a strong seafood inspection program through the U.S. Food and Drug Administration and through the National Oceanic and Atmospheric Administration. “One goal of this chapter is to make it easier to sell foreign-caught seafood in the U.S. without requiring strict compliance with U.S. food safety standards. If a Vietnamese company shipping to the U.S. meets Vietnamese standards for food safety then it’s OK to come in to the U.S.,” Treat said. “This is definitely not going to improve sales of seafood from Maine because we’ll always be more expensive.” The theory is that the agreement will cause those countries with lower Phytosanitary standards to raise them to a higher level. In practice, Treat said, that may not occur due to lax enforcement of those standards.
The TPP also could affect labeling standards for many products. Treat explained that the negotiators are drawing on earlier trade agreements under the World Trade Organization (WTO). The WTO, to which the United States is a party, has overturned U.S. labeling standards for “dolphin-safe tuna” and ruled against the U.S. in a case brought by Canada that successfully challenged U.S. country-of-origin labels for beef. “In the U.S. we have standards for what is dolphin-safe tuna. We require the fishing industry to ensure there is no by-catch of dolphin,” Treat said. However, the WTO found such standards to discriminate against Mexico, which has its own tuna fishing industry that does not use the same fishing requirements. “We don’t know how the labeling issue will be handled [in the TPP] but we do know that they will build on previous agreements and strengthen them,” Treat said.
The investment provisions in the TPP also worry Treat. Through a provision called investor-state dispute settlement, companies can sue a nation for implementation of regulations unfavorable to that company. The company would not go to court to do so; instead it would go to an international arbitration panel. This process means that U.S. laws on health, safety or the environment that are seen as adversely affecting trade could be challenged by large corporations outside of the U.S. court system. “If a company doesn’t operate in a certain country, it could create a subsidiary and then sue against laws that it does not like,” Treat said.
The effect the TPP might have on Maine seafood producers and exporters is unclear. Removing tariffs on seafood exports to countries such as Korea or Malaysia would surely be a financial benefit. But it might also leave the door open to a flood of cheaper seafood imported to this country. “The question I have is, what would a good agreement look like?” Treat said. “What in this agreement would make things better?”
European Union: Transatlantic Trade and Investment Partnership (TTIP)
The Transatlantic Trade and Investment Partnership would reduce tariffs on many U.S. and European items. Currently EU tariffs on lobster vary from 8% to 20%. But the TTIP would also address many of the same issues contained in the TPP, such as copyright laws, investor-state arbitration, and food standards. Canada recently concluded a trade agreement with the EU, which will remove tariffs on seafood and agricultural products.
Treat is concerned about the impact so-called “harmonization” of laws and regulations implicit in the agreement would have on Maine and other U.S. states. Under U.S. law, states must meet federal regulations for such things as clean water or food quality. However, states have the right to pass their own laws that are stricter than federal law. For example, California long ago passed air quality standards for automobiles that are much stronger than EPA regulations.
According to documents leaked from the TTIP negotiations, there is a major effort by European Union negotiators to preempt state regulations. “They want to make sure that state regulations are no different than those of the U.S. government,” Treat explained. “In addition, some European regulations are stronger than those here. U.S. companies don’t like that.”
Treat sees additional concerns for Maine and other states which have small, regionally recognized products. “We are marketing Maine as a place with sustainable agriculture, sustainable fisheries. The way things are going, we need to look very closely at anything that supersedes state or federal laws,” she cautioned. Provisions within TTIP negotiations could restrict or even eliminate criteria that favor local or regionally-grown foods as barriers to trade.
Fast Track Power
Since the mid-1970s, the U.S. President has the power to negotiate international treaties and offer them to Congress, which must vote on them without amendment. The authority was provided as a way to reassure other nations that an agreement reached by the U.S. Trade Representative, on behalf of the executive branch of government, could actually make it through Congress in a finite period. The President’s trade promotion authority, nicknamed fast track authority, expired in 2007.
The Obama administration has asked Congress to pass a bill renewing fast track authority in order to conclude the TPP. That, however, has not happened. “There is a bill in Congress right now to reinstate fast track authority but it will not come to the floor before the November elections,” Treat said. Both Democrats and Republicans in Congress have voiced their unease with reauthorizing such authority.
According to critics, fast track authority is yet another way to keep the public from knowing what is in these trade agreements. “It limits review, speeds up the time frame [for voting], allows no changes, and requires an up or down vote,” Treat explained. With fast track authority, the President would send an international trade agreement to the appropriate Congressional committees for review. Those committees then have 45 days to report the bill out of committee. The House and the Senate then must vote within 15 days after the bill is reported. Once the treaty is up for debate, it can be debated for no more than 20 hours (no filibusters are permitted). The whole process can take no more than 90 days.
“Congress will probably look at authorizing legislation after the November election. If it passes then it is a push for the TPP. If it doesn’t pass, then it will be a rockier road to get that agreement through,” Treat said.
Keeping track of these trade agreements as they are developed is difficult since the text of each agreement is not made public. Those interested can visit the official Web site www.ustr.gov/tpp to learn more about the TPP. For information about the TTIP, visit http://ec.europa.eu/trade/policy/in-focus/ttip/.
The Maine Citizen Trade Commission is drafting a report on the TTIP and Maine food policy. The commission will be holding a hearing on the topic in June. For further information about the commission, visit the Web page, www.maine.gov/legis/opla/citpol.htm.