Media  Global Economy  2014.02.28

The Prospects of TPA and the prospects of the TPP

English translated version of "Business Prospect" on NHK Radio Channel 1 on January 21, 2014

1. In the US the TPA has recently become a popular topic in relation to the TPP. Why is that?

The abbreviations TPA and TPP sound similar, but they represent different things. TPP is an abbreviation of Trans-Pacific Partnership, a shortened name for the Trans-Pacific Strategic Economic Partnership Agreement. It is a multilateral trade agreement aiming to promote trade and investment in the Asia-Pacific region. Negotiations for the agreement are under way.

TPA is an abbreviation of Trade Promotion Authority. According to the Constitution of the United States, the authority to negotiate international trade agreements is vested in Congress. It has a free hand to amend a trade agreement even after the government has completed negotiations with other countries. Actually, in the period under the GATT system (before the WTO was established), the US Congress refused to ratify a part of international agreements the government had made with other countries. This is the reason for the introduction of the law under which the authority to negotiate is transferred to the President and the administration. Under this authority Congress only has the right to approve or disapprove, not amend, an agreement negotiated by the government. This law is called TPA.

However, authority under the TPA is not granted permanently to the President. The last TPA was enacted in 2002 granting negotiation authority to President George W. Bush. This expired in 2007 and no TPA has been granted since then. A vote from Congress is required for each TPA to be granted. Congress usually sets certain conditions on the TPA by, for example, limiting the effective period of the authority or approving the authority only for specific trade negotiations.

Generally, Congress is reluctant to approve the TPA as it makes it impossible for them to intervene in trade negotiations. It is also common for many objections to be raised in Congress against the TPA legislation. Furthermore, there are many factions in the US Congress that are against trade liberalization itself. For example, CAFTA-DR, the free trade agreement concluded between the United States and several Latin American countries in 2004, passed the House by only two votes, and the last TPA was only passed by one vote with many strict conditions for trade negotiations being placed on the government.

In theory, the US government can negotiate trade agreements with other countries without the TPA, and submit the result of negotiations to Congress for ratification. In that case, however, the US government runs the risk of possible amendments by Congress. Also countries negotiating with the US may wonder if they are negotiating with the correct parties as any agreements made may be altered later by Congress. This situation undermines the seriousness of other countries in the negotiation with the US. For this reason, the US government always seeks to obtain the TPA from Congress at the very least before trade negotiations come to their final stage.

2. What is the current situation of TPA in the US Congress?

On January 9, 2014, bipartisan leaders of the Senate and House of Representatives introduced the TPA legislation for the first time under the Obama administration. The bill covers not only the TPP but also the negotiations with the EU over trade and investment in addition to the WTO negotiations.

In the present TPA legislation, a variety of conditions are imposed on the government. Some of them concern procedural matters which, in essence, require more involvement from Congress in trade negotiations. For example, the legislation allows members of Congress to access to the draft trade agreements under negotiation, or requires the US Trade Representative (USTR) to consult with Congress during negotiations.

Some of the conditions relate to contents of trade agreements, many of which are to reconfirm the requirements previously imposed on the government or to require the government to achieve more favourable negotiation results for the United States. For example, the legislation requires the reduction of barriers to investment; to bring intellectual property protection to the level of that in the US; and to ensure certain labour standards and environment protection to be maintained in trade partner countries. One of the new conditions of the legislation is a desire to seek commitments from trade partners in order to eliminate market distortions caused by state-owned enterprises. The main target of this condition is clearly China. The United States seems to be working under the assumption of China's future participation in the TPP agreement. To prepare for such situation, the US is now trying to introduce regulations on state-owned enterprises in the TPP negotiations.

A troublesome condition included in the TPA is that the US must oblige its trade partners not to conduct a policy of currency manipulation in order to expand exports. This provision applies to Japan at the moment and is rooted in the frustration of the US automobile industry at the increase of Japanese car exports, some say driven by the Japanese government and a currency depreciation policy. However, the US government is against this condition because it may restrict the government's manoeuvrability in financial policy as it gives trade partners a chance to bring the exchange rate issue into trade negotiations, and thus may backfire on the US when the value of the US dollar decreases. The US Secretary of the Treasury argues that the currency issues should be separated from the negotiations for the TPP and other trade agreements, and be discussed bilaterally or on a multilateral platform such as the G20.

3. What is your opinion on the possibility of passage of TPA legislation in Congress and also the prospects of the TPP?

According to the most optimistic view, the TPA will be granted this April. But many congressional sources indicate that it will be this November after the midterm elections are over.

While, generally speaking, a free trade agreement gives benefits to a country as a whole, it may have negative impacts on certain industries. Therefore all governments tend to avoid concluding trade negotiations just before elections. Although it largely depends on when Congress passes the present TPA bill, the Obama administration may try to conclude the TPP negotiations either six months before the midterm elections in November (around April when President Obama is due to visit Asia) or in 2015 some time after the midterm elections. The year 2015 is an off-year for the United States. Also it is most probable that Japan will have a general election in 2016. For this reason and taking into account the insufficient time necessary for Congress to pass the TPA legislation in April in addition to the slow progress of the TPP negotiations at the moment, I would think it more probable that the TPP negotiations will be concluded in 2015.

(This article was translated from the Japanese transcript of Mr. Yamashita's speech in the "Business Prospect" session of the radio program "First in the Morning News" broadcast by NHK Radio Channel1 on January 21, 2014.)