[CTC] The Trans Pacific Partnership won’t fix our China problem

[Arthur Stamoulis]

http://thehill.com/blogs/congress-blog/foreign-policy/239154-the-trans-pacific-partnership-wont-fix-our-china-problem <http://thehill.com/blogs/congress-blog/foreign-policy/239154-the-trans-pacific-partnership-wont-fix-our-china-problem>

The Trans Pacific Partnership won’t fix our China problem

Trans Pacific Partnership (TPP) negotiations are in the final stages and trade negotiating authority consideration appears to be just around the corner.  Now is a good time to parse the time-honored progression of arguments surrounding free trade agreements, because that progression, for the TPP, is going poorly. 

In their initial stages, proponents sell them as engines for creating jobs and restoring American industry and prosperity.  But as hard evidence on those claims isn’t available, and concern about the results of past trade agreements increases, proponents shift to promoting the alleged importance of a deal for U.S. foreign policy.

We’ve reached that stage with the TPP.

Americans want trade agreements that produce benefits in their workplaces, at their kitchen tables and in their finances -- helping to improve their standard of living and their children’s future.   And past agreements have fueled rising trade deficits, stagnating wages, lower economic growth and job loss.  That reality hasn’t been lost on the average citizen.
As momentum for the TPP has stalled, the administration and its allies are changing course:  Now, the TPP is about “writing the rules, so China doesn’t get to.”  Let’s take that argument head on.

First, that argument is a profound indictment of the World Trade Organization (WTO).  China, along with the countries party to the TPP, is already bound by its rules.  In fact, those rules were the Clinton administration’s principal argument during the debate on the granting of Permanent Normal Trade Relations to China.  But with this single claim about TPP creating a new framework, the Obama administration has highlighted the fundamental flaws in our existing international trade regime – flaws which the TPP won’t fix.

The TPP will not effectively deal with the core reason China enjoyed a $342.6 billion goods trade surplus with the U.S. last year, or an accumulated goods trade surplus with our country of $3.1 trillion since it joined the WTO: China operates based on a state-capitalist, mercantilist model, under which international trade law doesn’t mean much.

Nothing in the TPP will deal with China’s currency manipulation, which has cost millions of jobs here at home, and induces neighboring countries to manipulate their currencies as well.  The administration has made clear it has no intention of providing effective and enforceable disciplines in currency manipulation in the TPP.

China has also built up enormous overcapacity in industry after industry, resulting in a flood of steel, aluminum, paper, tires and many other products into our market.  The prices Chinese firms are charging have decimated U.S. production and jobs.  Once they drive U.S. producers out of a sector, they will have us over a barrel.  Nothing in the TPP will deal with overcapacity.

TPP’s draft rules on state-owned enterprises (SOEs) won’t stop their activities.  Indeed, reports indicate TPP parties will exclude many of their SOEs from coverage.  For those subjected to coverage, there are many questions about the effectiveness of any disciplines.  Will SOEs be required to act based on “commercial” considerations?  When you’re a non-market economy – as TPP participant Vietnam is, and China is as well – what exactly does that mean?  Is a “commercial” interest rate the 5.75% rate an American steel company has to float a bond at, or the cost of capital available for companies doing the bidding of the Chinese government?  How will that be determined and by whom?  Without hard and fast definitions, we’re not likely to have any real impact on Chinese industrial policies and their continued negative impact on our producers and workers.

More questions arise. Will there be rules that effectively prohibit selective enforcement of laws and approaches such as the “antimonopoly” laws China uses to disadvantage foreign companies doing business in its markets?  Will the rule of law be as transparent and fair as that which exists in the U.S.?

And even if the TPP rules did marginally improve things, China – if it were actually in the TPP – is unlikely to abide by them.  Hoping that China will play by the rules has already proven to be foolish; it was the basic argument during its WTO accession.  Fourteen years later, China has proven itself to be a trade outlaw, and the enforcement efforts of the U.S. and its partners have failed to make much of a dent in Chinese policy.

 China’s failure to comply with their WTO obligations is clear.  The catalog of its unfair trade practices is lengthy.  The TPP won’t change that. 

The Obama administration may want to consider a new argument.

Wessel is a long-time trade policy expert who currently serves as a commissioner on the U.S.-China Economic and Security Review Commission and as a cleared staff liaison for the United Steelworkers Union to the Advisory Committee on Trade Policy and Negotiations and the Labor Advisory Committee.   The views expressed in this article are his own.


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