Column  Global Economy  2016.10.17

The TPP spoiled by foolish America

The article was originally posted on Webronza on September 13,2016

Approval of the TPP by Congress seems difficult.

Approval of the TPP in the US congress now seems quite difficult. President Obama was optimistic on approval of the TPP in the US congress when he visited Asia. However there are few people who believe this in the US.

Trade has not been such a big issue in US presidential elections until now. A year ago, most people in the US did not know the name TPP. However, everyone knows now.

During the Democratic National Convention, placards showing the letters 'TPP' crossed out were waved. Trump and Sanders campaigned aggressively that jobs for the US people have been taken away through bad trade deals with foreign countries. Even Clinton, who promoted the TPP enthusiastically when she was the Secretary of State, started to say that she opposes the TPP and she is also going to oppose the TPP after the election, or upon becoming president.

Whether Trump or Clinton becomes president, it is unlikely that either will ask congress to approve the TPP and its related bill.

It's not easy in a lame duck session either

Therefore, President Obama needs to gain the approval of congress for the TPP during a lame duck session, which is the period after the election until the next president and his administration are established. However, this is not easy.

The leader of the Upper House Mitch McConnell is dissatisfied that tobacco was left out of the ISDS clauses, which is a rule that investors can sue investee countries at the International Court of Arbitration. The chairman of the Senate Finance Committee Orrin Grant Hatch, who is in charge of the approval of the TPP, is dissatisfied that the period of data protection regarding new medicine in the pharmaceutical industry was agreed for a period of 8 years, not 12 years as it is under US law. On top of this, the speaker of the US House of Representatives Paul Ryan, who is from Wisconsin, is dissatisfied that the dairy market there was not sufficiently opened up.

These influential members of the Republican Party, who are key people for the approval in Congress, are asking for renegotiation of the TPP.

Ryan has announced that he is not going to accept a vote during the lame duck session because insufficient votes for the approval of the TPP are expected. You may think that it would be easy to gain a favourable vote for the approval of the TPP in the lame duck session because there will be members who have lost their seats in the election. However, the TPA established in 2015, which gives the president trade promotion authority, was decided by a narrow majority: 218 in favour; 208 against. If 5 members had changed their votes to 'No', it could have been even.

In addition to the presidential election, the election decides one third of the members of the upper house and all members of the lower house. Candidates from the Democratic Party and Republican Party in this election also disagree with each other over the TPP and free trade. Furthermore, many members who supported the TPA bill clearly oppose the TPP. Therefore, as Ryan insists, it is unlikely that enough favourable votes to approve the TPP can be found during the lame duck session either.

Will the new president and new congress ask for renegotiation of the TPP?

If Trump wins the presidential election and the Democratic Party who oppose free trade wins in the upper house, not only the TPP but also free trade will be dead. In this case, the Republican Party who promotes free trade may have second thoughts and try to approve the TPP in the lame duck session. However this is only a slight possibility.

In the case that the TPP is approved in the Japanese National Diet, it will not influence the US congress at all. This is because they do not care about opinions of foreign countries.

Then, will the new president and new congress ask for renegotiation of the TPP?

Clinton and other members of the Democratic Party insist that the TPP does not solve the problem of China and Japan controlling currency and exporting products at a lower price. However every country, as well as the US Department of the Treasury, agrees that the currency fluctuation is caused by macroeconomic policy such as monetary easing, and does not want to connect it to the TPP, which is a trade agreement. The Republican Party will oppose the renegotiation of the TPP on this currency manipulation issue.The Republican Party supports the pharmaceutical industry over the period of data protection regarding new medicine. However the Democratic Party who are on the side of working people will oppose this because it will increase the length of time before generic drugs can be made available.

It is anticipated that the Democratic Party will be the majority in the upper house and the Republican Party will be the majority in the lower house. If this happens, agreement between the lower and upper houses on renegotiation of the TPP will be difficult.

How about other countries who participated in the TPP negotiations, such as Japan?

Agreements in the TPP negotiations were the result of a lot of compromises. If the US asks for renegotiation over one issue, other countries will ask for renegotiation over other issues. Even if a new agreement is made in the renegotiation, there is no guarantee that the US congress will be satisfied with the result. Renegotiation over the TPP will not end. Regardless, Australia will never accept renegotiation over the period of data protection of new medicines.

Other countries will not accept renegotiations, or if the US asks for different trade negotiations after the TPP fails to be approved in the US congress, these will be refused as well.

If the TPP is not approved in the US congress, Asian countries in the Pacific area will stop trying to have trade negotiations with the US because even if they accept the US's irrational demands and come to an agreement, there is a possibility that the US congress may still refuse to approve it.

This will influence the presence of the US in the Asia-Pacific area not only on trade and economic issues but also on security issues. The US has been trying to rebalance the Asia-Pacific area, but will have lost there as a result. This reminds me of "The Greedy Dog" from Aesop's Fables.

What should Japan do?

Then, what should we do?

We should make a new TPP agreement without the US. A good idea would be to make an offer to the UK who has left the EU. Someday the US who has been left out of the Asian Pacific Ocean area may request to join the new TPP agreements..

In this case, new countries should not be able to make requests to existing member countries. It will be a negotiation where the US needs to accept the demands of existing member countries. Australia would request 5 years as the period of protection of the data regarding new medicine, and Japan, who had to accept a period of 25 years to abolish the tariff on cars, will be able to request the immediate abolition of tariff on cars.

It would be the most miserable negotiation that the US has ever experienced. Then the US will surely realise how foolish they were.

(This article was translated from the Japanese transcript of Dr. Yamashita's column in "Webronza" on September 13,2016.)