This article has been updated.
As President Obama spends his first day in Asia Wednesday, one of the big topics will be the Trans-Pacific Partnership, a free trade agreement that his administration has spent years negotiating. It's a giant unwieldy treaty that has inspired many strong opinions at home and abroad.
Here'a quick guide to what's going on and what effect this whole thing could have on the global economy.
What is a free trade agreement?
Countries make free trade agreements in order to open up new markets for their goods, while avoiding the tariffs and import quotas on many goods that usually govern global economics. If another country does not produce goods or services that are plentiful and inexpensive in your country, it would be beneficial for both countries to negotiate a free trade agreement.
The most famous free trade agreement the United States currently takes part in is the North American Free Trade Agreement, or NAFTA. It governs trade between Canada, Mexico and the United States, and was passed in 1994. The United States currently takes part in 14 FTAs, with 20 countries.
What is the Trans-Pacific Partnership?
The Trans-Pacific Partnership -- known as TPP for short -- is a free-trade agreement that would open up markets in Asia to the United States, and create new rules for all of these countries to operate under when trading with each other.
It would be the largest international trade agreement since the World Trade Organization was created in 1995.
What countries would it affect?
The partnership would include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. These countries make up 40 percent of the global economy. South Korea has expressed interest in joining, and other countries would likely jump on in the future.
But not China?
Nope. It's (probably) nothing sinister -- China is working out its own deals with many of the parties involved with the TPP and is trying to work out a similar agreement with the European Union. The United States definitely sees the Trans-Pacific Partnership as a way of staying competitive in Asia as China has asserted its dominance, but the U.S. trade representatives have said China is free to join the agreement down the road. The United States likely hopes that China decides to open up its market in the near future -- if the country had to obey global market rules and was forced to compete on the same playing field as the U.S., it could change international trade in a big way.
Why is this important for the United States?
In 2012, 46 percent of U.S. goods exports went to FTA partner countries. U.S. merchandise exports to the 20 FTA partners with agreements in force totaled $718 billion, up 6 percent from 2011. The United States also enjoyed a trade surplus in manufactured goods with our FTA partners totaling $59.7 billion in 2012, a 30 percent increase from the surplus in 2011.
For companies that export U.S. goods, new markets could mean a lot of money. The Peterson Institute of International Economics estimates that the deal could reap $78 billion in income gains for the United States. The United States already has FTA with six of the countries at the TPP negotiating table, but they really want to ink a deal with Japan, the third largest global economy. In particular, the United States likely wants to open up the Japanese agricultural market and allow rust belt automakers to sell vehicles in Asia. (Other countries are also likely excited about the prospect of open trade with Japan. Here are projections focusing on how all 50 states would be affected by the TPP.)
The free trade agreement is also important for the Obama administration's political legacy. Obama has long signaled that a "pivot to Asia" was one of his biggest foreign policy priorities, as China has gained global influence and other Asian economies follow right behind. The Trans-Pacific Partnership, first unveiled in 2009, is the "centerpiece" of this pivot -- although the White House has increasingly had to focus on other international issues (Syria, Russia) in the past year.
Hillary Clinton could also use a Trans-Pacific Partnership win. As secretary of state, building relationships with countries in Asia were among her top priorities. In October 2011, she wrote an essay in Foreign Policy titled, "America's Pacific Century." It provided an in-depth walkthrough of the Obama administration's planned pivot. On the Trans-Pacific Partnership, she wrote:
We believe trade agreements need to include strong protections for workers, the environment, intellectual property, and innovation. They should also promote the free flow of information technology and the spread of green technology, as well as the coherence of our regulatory system and the efficiency of supply chains. Ultimately, our progress will be measured by the quality of people's lives -- whether men and women can work in dignity, earn a decent wage, raise healthy families, educate their children, and take hold of the opportunities to improve their own and the next generation's fortunes. Our hope is that a TPP agreement with high standards can serve as a benchmark for future agreements -- and grow to serve as a platform for broader regional interaction and eventually a free trade area of the Asia-Pacific.
If the treaty is a success, and Clinton decides to run for the presidency in 2016, expect to hear a lot more about this than you've heard during the negotiating process.
Why is it taking so long?
With so many countries taking part in the potential partnership, there are many different domestic regulations to consider and parties to please. Add to that the many corporations, nonprofits and academics who have ideas on how the treaty should look, and it's surprising that the TPP could be finished after only five years!
A few other hiccups have happened along the way to slow things down too, including the government shutdown. President Obama was scheduled to take a week-long trip to Asia last October but had to cancel in the face of the shutdown. During that trip, Obama was supposed to attend the Asia-Pacific Economic Cooperation summit, where the Trans-Pacific Partnership would be discussed.
The political landscape has also changed since the Obama administration first announced their pivot to Asia. His approval ratings are down, America's foreign policy concerns elsewhere have ramped up, and relations between some of the other countries in the potential partnership are growing tense. Kurt M. Campbell, a former assistant secretary of state, told Washington Post reporter David Nakamura this month, “Relations have gone from being generally positive at the strategic level among the great powers to extremely difficult. It’s a much more challenging strategic landscape.”
The Edward Snowden leaks have also come up during recent negotiations, although officials say they have not derailed any plans.
The treaty is also very, very controversial in many of the countries currently negotiating its final parameters. That has made the process painfully slow.
As the Financial Times sums up the debate, "But what, precisely, is the Trans-Pacific Partnership? To some, it is the 'gold standard' of trade deals. They argue that the 12-member club of aspiring free-trade purists led by the US can jump-start the stalled multilateral Doha round, which the World Trade Organisation initiated in 2001 to break down global trade barriers. To opponents, the TPP is a 'giant corporate power grab' that would endanger food safety, access to medicines and national sovereignty."
The TPP is very large and broad. Think of it like an omnibus bill in Congress, where a bunch of the treaty's drafters get to toss in pork to keep their constituencies happy. No one is completely happy when an omnibus bill is passed. Same deal here.
The TPP covers so many different industries, that few people remain who aren't worried about what the final treaty may contain. Many of the complaints leveled against the Trans-Pacific Partnership are the same that were made against NAFTA 20 years ago. As Matt Stoller pointed out in 2012,
NAFTA-style agreements have provisions that constrain domestic food safety, environmental and health regulations, shield foreign investment capital from domestic laws, and generally transfer sovereignty from the government to the corporate sector. Consequences of these kinds of trade agreements include offshoring of U.S. manufacturing and service-sector jobs, inexpensive imported products, expanded global reach of U.S. multinationals, and less bargaining leverage for labor. The debate over this direction in trade policy was particularly acute in the early 1990s, and NAFTA serves as an effective symbol of agreements that follow the basic model.
In 1992, NAFTA was highly controversial for a number of reasons; third-party presidential candidate and businessman Ross Perot argued that it would cause a “giant sucking sound” of American jobs heading to Mexico. Today, the U.S. has lost one out of every four manufacturing jobs that existed before NAFTA – over 5 million with 42,000 factories closed. A modest trade surplus with Mexico was replaced with a large, persistent deficit. As documented in “The Selling of Free Trade,” NAFTA’s new investor protections dramatically increased the ability of corporations to outsource entire factories to Mexico, which reduced union bargaining leverage. The era of wage declines and pension cuts did not begin with NAFTA, but the agreement and a wave of similar pacts that replicated its terms were contributors to the decline of bargaining power of the American worker. U.S. real median wages now hover at 1972 levels with levels of income inequality equalling those of the pre-New Deal state.
A belief that most Americans will not benefit from this trade agreement is one of the biggest arguments against the TPP. A recent study from the liberal-leaning Center for Economic and Policy Research predicts that 90 percent of workers in the United States would see a decrease in real wages under the TPP. CEPR also asserts that cumulative GDP gains in the United States won't be much more than 0.13 percent by 2025 -- not much more than a rounding error.
Democratic Reps. George Miller (Calif.), Rosa DeLauro (Conn.) and Louise Slaughter (N.Y.) wrote an op-ed in the Los Angeles Times this week lambasting the effect the TPP could have on middle class Americans, saying "this agreement would force Americans to compete against workers from nations such as Vietnam, where the minimum wage is $2.75 a day. It threatens to roll back financial regulation, environmental standards and U.S. laws that protect the safety of drugs we take, food we eat and toys we give our children. It would create binding policies on countless subjects, so that Congress and state legislatures would be thwarted from mitigating the pact's damage."
Twenty four senators sent the White House a letter in 2012 requesting the Obama administration prioritize workers' rights during treaty negotiations.
The complaints go on from there. Many are worried that intellectual property provisions could mean more expensive drugs in many of these countries -- especially HIV drugs. In February, Malaysian protesters dressed up like zombies to protest the TPP, which they believe would give more power to big pharmaceutical companies with exclusive patents in Western countries.
Other intellectual property provisions sound a lot like the Stop Online Piracy Act (SOPA) that spectacularly bombed in Congress last year, at least according to the draft released by Wikileaks last November. Bill Watson, a trade scholar at the Cato Institute, a libertarian think tank, said last year, "It's impressive to me how well this chapter plays into the fears that folks who are concerned about intellectual property expansion have about the TPP. It really seems to be their worst nightmare."
Sen. Elizabeth Warren (D-Mass.) has expressed worries that the agreement could weaken the Dodd-Frank financial industry regulations. Environmentalists are worried that the United States will backtrack from pollution and logging regulations -- among many others -- if that would endanger final passage of the agreement. The United States has been demanding that the other parties in the TPP agree to existing global environmental regulations, as well as other tough environmental provisions, which few of the Asian countries are willing to sign on to. Countries with stiff tobacco regulations are worried that the final free trade agreement would allow big tobacco to sue them over domestic regulations.
The list goes on and on, which helps explain why the talks have gone on so long -- as well as the uphill battle that even a completed treaty would face from Congress.
The fact that few people know exactly what's in the TPP hasn't helped resolve these worries.
Not only are many of these aspects of the trade agreement touchy subjects, they've mostly been kept hush hush. Trade agreements are usually secretive processes -- no one wants to endanger a long and political ordeal by bringing more voices with just as many opinions into negotiations. Around 600 corporations with stakes in the talks have seen draft text, as have a few labor unions. Congress and the public have not, except for the few chapters released by Wikileaks online last year.
The secrecy of the negotiations has many legislators miffed.
Sens. Warren and Ron Wyden (D-Ore.) have been particularly outspoken about how little we've been told about the Trans-Pacific Partnership. Last June, Warren opposed appointing Michael Froman as the U.S. Trade Representative -- a job that has made him the chief arbiter of the final treaty-making process. Said Warren:
I asked Mr. Froman if he would provide more transparency behind what information is made [available] to the trade office's outside advisors. Currently, there are about 600 outside advisors that have access to sensitive information, and the roster includes a wide diversity of industry representatives and some labor and NGO representatives too. But there is no transparency around who gets what information and whether they all see the same things, and I think that's a real problem.
Mr. Froman's response was clear: No, no, no.
Last May, Wyden, chair of the U.S. Senate Finance Subcommittee on International Trade Customs and Global Competitiveness, introduced legislation that would force the U.S. trade representative to be more communicative with Congress.
It was our Founding Fathers’ intention to ensure that the laws and policies that govern the American people take into account the interests of all the American people, not just a privileged few. And yet, Mr. President, the majority of Congress is being kept in the dark as to the substance of the TPP negotiations, while representatives of U.S. corporations – like Halliburton, Chevron, PHRMA, Comcast, and the Motion Picture Association of America – are being consulted and made privy to details of the agreement. As the Office of the USTR will tell you, the President gives it broad power to keep information about the trade policies it advances and negotiates, secret. Let me tell you, the USTR is making full use of this authority.
Congressional Republicans have been more supportive of the trade agreement process, but not all of them. Rep. Darrell Issa (R-Calif.) was also displeased by the fact Congress was not kept in the loop with how the treaty process was unfolding. He released a statement after being barred from negotiations last July that read:
The TPP process should be transparent and open to oversight, not a secretive backroom negotiation. TPP agreements impact multiple sectors of the American economy—especially our ability to innovate and create new intellectual property, as well as preserve an open Internet. Congress has a constitutional duty to oversee trade negotiations and not simply act as a rubber stamp to deals about which they were kept in the dark. While I had hoped the TPP would permit me to observe this round of the negotiation process firsthand, our efforts to open TPP negotiations up to transparency will continue.”
Because of all the friction between Congress and Obama on all these issues, Congress was unwilling to renew "fast track," trade promotion authority legislation that would give President Obama more authority to pass the TPP without congressional oversight. Congress gave previous presidents this power -- starting with Richard Nixon -- but it expired in 2007. The countries working with us on this agreement would probably prefer working under the "fast track" rules, which mean that Congress is not allowed to amend a treaty. But, 151 House Democrats and 23 Republicans signed a letter last year saying they are against "fast track" and Senate Majority Leader Harry Reid has always opposed it on principle.
The 2014 midterms likely also play a role in Congress' growing skepticism of the Trans-Pacific Partnership. Labor and environmental groups are usually concerned by global trade agreements, citing worries that jobs will head overseas or companies will get to bypass local environmental regulations. Labor and environmental groups are also known for organizing and spending money on behalf of politicians who share their interests -- and Democrats need a lot of help this election season.
Correction: An earlier draft of this article mentioned the International Trade Association. It is called the International Trade Administration.