Donald Trump and Hillary Clinton don’t agree on much, but they seem to be in sync on trade. Each wants to address China’s alleged currency manipulation, both want more litigation at the World Trade Organization (WTO), and Trump has borrowed a page from Clinton’s 2008 playbook in promising to move unilaterally against foreign trade partners that Washington deems to be violating U.S. exporter rights.
But most of all, Trump and Clinton both vehemently oppose the Trans-Pacific Partnership (TPP), a trade agreement involving 12 Pacific Rim nations that, together, account for 40 percent of global GDP. Why?
There is a saying in Washington that it takes a Republican to launch a trade deal and a Democrat to conclude one. Presidential candidates have historically tended to favor protectionist policies, only to reverse themselves once elected. In 2008, for example, Hillary Clinton and Barack Obama fought over who would move faster to renegotiate NAFTA, the North American Free Trade Agreement. But Obama later signed the TPP, a deal that makes NAFTA’s legal obligations look archaic by comparison.
In 2016, however, something more fundamental than mere populism is happening. Critics insist that TPP and deals like it are suspicious because they are too long and complicated. Trump complained that “[i]t’s 5,600 pages long, so complex that nobody’s read it.” Clinton suggests that she has read it, and yet, without referring to any particular provision, insists that “[o]nce I saw what the outcome was, I opposed it.” Could something so long and complicated be any good?
Where does the TPP’s complexity come from, and what’s it really about?
In 1947, the General Agreements and Tariffs and Trade (GATT) began tackling tariffs as the main protectionist instrument of governments. The GATT preamble makes clear that the goal was to reduce discrimination in trade, not necessarily create what we like to call “free trade.” After all, governments were allowed to keep their tariffs, often at levels never historically charged. The deal, instead, was that most of these tariffs would have to be capped and lowered through subsequent GATT rounds of negotiations.
GATT 1947 is a very parsimonious document in this regard. Its logic plays out in a mere four articles: convert all non-tariff barriers into tariffs (GATT XI), bind them (GATT II) and offer “national treatment” (GATT III) on all fiscal and nonfiscal measures beyond the tariffs applied on a most-favored nation basis (GATT I). This “convert-cap-cut” approach has worked wonders. Tariffs are at historical lows, and almost all tariffs have upper bounds that cannot be legally broken.
Then, in 1995, the World Trade Organization (WTO), the successor to the GATT, went on to tackle services and intellectual property, as well as more specialized non-tariff barriers, notably health and food-safety standards and technical regulations. These standards and regulations are especially tricky, since, rather than acting as a tax on trade, they can trigger a complete import ban. In trade, this is where the action is.
Standards and technical regulations are used as protectionist weapons.
Countries routinely set different regulations on things ranging from labeling food ingredients to the color of a farm tractor’s backup lights. These types of technical regulations cover nearly all of global trade, including over 92 percent of U.S. exports.
Herein lies the beauty of technical regulations: It is easy to find a compound or material that is perfectly correlated with country of origin, for historical or geographical reasons, and ban it. Firms know this, and lobby their governments to legislate accordingly. Governments, in turn, explain these measures as centering on consumer safety, not commerce, opening up countless opportunities to impose what the WTO calls “disguised restrictions” on trade.
It’s not just the content of these technical regulations. The testing that goes into proving conformity with them is yet another trove of protectionist policies. For example, the U.S. and Brazil agree on many global standards on telecommunications equipment, but Brazil does not accept foreign test data, so equipment exported to Brazil is subjected to redundant testing. In this sense, “conformity assessment” acts as a bottleneck, and can be prohibitively costly for the U.S. exporter. The effect is to deter trade.
TPP tackles these issues head-on.
The complexity of TPP traces to a desire to deal more fully with such measures. Building on Korea-U.S. (KORUS), TPP builds in “WTO plus” provisions on standards and technical regulations. Across the board, there is a deeper emphasis on basing these measures on agreed-upon science; making the process of formulating regulations more transparent; and giving foreign exporters opportunities to offer substantive input in the formulation of these measures.
Not all of the provisions of these chapters are new. In the case of technical regulations, for example, TPP “incorporates” key articles from the WTO. For those disputes centering on purely incorporated text, moreover, TPP requires that they be filed at the WTO — to avoid creating a parallel (and potentially contradictory) body of case law on these issues.
The novelty of TPP, though, is that it goes much further than the WTO in calling on members to afford each other “national treatment” on both the substance and procedural aspects of technical regulations, eliminating the need to retest and recertify exports, for example. These “WTO plus” provisions will surely be tested in litigation under TPP.
Some critics insist all of this goes too far. They argue TPP is an unprecedented reach into members’ regulatory politics. This is Sen. Bernie Sanders’s point when he noted that “TPP is much more than a ‘free trade’ agreement.”
But trade discrimination in 2016 is different than it was in 1948, when the GATT made its debut, or even 1994, when NAFTA came into effect. The process of legislating national standards and regulations that can differ from global ones means that governments can block trade in ways the drafters of GATT could never have even imagined.
Those who believe in a rules-based global economy should cheer rather than condemn the fact that TPP runs thousands of pages. Its complexity reflects the fact that, like KORUS before it, the deal is going after high-hanging fruit. After all, the WTO has already picked the low-hanging fruit by disciplining most tariffs.
In fact, the real benefit of TPP will be that the new provisions on standards and technical regulations set the stage for even deeper provisions in the Transatlantic Trade and Investment Partnership (TTIP) between the U.S. and the European Union. Unlike the situation with TPP, there simply aren’t 18,000 tariffs to cut — so the TTIP aims to boost compatibility and transparency in U.S-E.U. bilateral trade.
Both candidates are really talking about the 21st century TPP agreement in 19th century language. Its complexity is a sign of the times, and an indication that future agreements will require even more page length, starting with TTIP.
Marc L. Busch is Karl F. Landegger Professor of International Business Diplomacy, School of Foreign Service, and professor of business administration at Georgetown University, and a member of the Industry Trade Advisory Committee on Technical Trade Barriers. Krzysztof J. Pelc is William Dawson Scholar and associate professor in the Department of Political Science at McGill University.