[CTC] ITC report to drive TPP debate, but not timeline

Tue May 17 07:27:28 PDT 2016

ITC report to drive TPP debate, but not timeline
Politico Pro
By Victoria Guida
May 16, 2016

This isn't how President Barack Obama wanted it to be.

The U.S. International Trade Commission's report on the potential economic impact of the Trans-Pacific Partnership is expected to take center stage in the debate on the blockbuster trade pact, and the release of the study this week was supposed to build momentum for the deal's passage.

But seven months after the U.S. closed out the TPP, that's not how events have unfolded. As the ITC prepares to publish its report Wednesday, the continued criticisms of the pact on the presidential campaign trail and in Congress have made the agreement too politically toxic to take up anytime soon - a stark reminder of how far behind the president is in his fight for the legacy-clinching deal.

"We know there are benefits associated with this trade agreement," House Ways and Means Trade Subcommittee Chairman Dave Reichert told POLITICO. "We know how critical this agreement is. But we also know we have issues that we have to resolve before it moves forward." 

Still, the report will matter in the political calculus. If, as expected, it's upbeat on the overall effects of the deal, "certainly we're going to use that to promote TPP," the Washington Republican said. And House Democrats who lent their much-needed support for trade promotion authority, such as Reps. Ron Kind of Wisconsin and Henry Cuellar of Texas, have pointed to the report as a key moment in securing their backing for the Asia-Pacific deal.

Rep. Rosa DeLauro (D-Conn.), a staunch TPP opponent, also noted it's "a report people look to" and acknowledged the findings will help set the debate on the overall economic benefits of the TPP and which sectors win or lose under the deal.

The ITC has to conduct a study of the potential impact of any finalized trade deal on the U.S. economy. Even before striking the deal with 11 Pacific Rim countries, the Obama administration kept the quasi-judicial body as updated as possible on the talks in hopes of speeding up the 105-day timeline for the report and hastening congressional action on the pact. The unlikely-to-be-realized plan was to kick off a window between now and the July recess for hearings or even markups of the TPP implementing bill.

But the detailed report - it will be hundreds of pages - is likely to inspire an uptick in activity from groups that feel strongly about the pact. It's expected to follow past ITC efforts, taking a snapshot of the U.S. economy and holding all economic factors constant except for changes in the trade deal, mainly tariff cuts, to come up with predictions about how TPP will change exports, imports, gross domestic product and specific industrial sectors.

Agricultural groups are expecting some of the most positive numbers, with the American Farm Bureau Federation estimating a $4.4 billion increase in net farm income as a result of the TPP. Those groups are likely to be some of the most vocal, too, following the report's release. The Farm Bureau and the North American Meat Institute have already said they plan to highlight the ITC's numbers in conversations with lawmakers, so long as those figures meet their expectations.

"It's ... an important report that will hopefully show the value that the TPP will bring," NAMI spokesman Eric Mittenthal said.

Also watch for defensive maneuvers from TPP opponents like DeLauro, who worry the ITC report will give an inaccurately rosy picture of the likely outcomes under the deal. The Connecticut Democrat even launched a pre-rebuttal last week, arguing that because it's the only congressionally mandated report on TPP's effects, lawmakers shouldn't underestimate its political significance.

"I think the administration will look to this report and use it as a tool to twist arms to look for votes," DeLauro told reporters on a call last week. "They would like to move forward on the agreement, so it's important for us to take a very hard look at this report and point out what has been its flaws in the past."

Meanwhile, the U.S. Chamber of Commerce says the ITC report will likely only bolster what the business group already knows - that TPP will boost the U.S. economy.

"We don't expect ITC to be in a completely different ballpark" from past reports by the Peterson Institute for International Economics and the World Bank that have shown net economic benefits of the deal, said John Murphy, senior vice president for international policy at the Chamber. In fact, he said, the ITC has "historically been very conservative" in its estimates. "The increase in the U.S. exports has consistently been much higher than the ITC reports," he argued.

A good measure of TPP?

Trade watchdog Public Citizen, however, is raising questions about how accurate ITC's assessments really are by comparing the wide gaps between its projections and the reality under past trade deals, including the North American Free Trade Agreement, China's accession to the World Trade Organization and the U.S.-South Korea free trade deal.

"The USITC's past trade agreement assessment studies have proved to be widely off mark," the group said in a report last week. "The systematic disconnect between USITC projections and actual outcomes is evident when reviewing the USITC studies for the three most impactful trade agreements prior to the proposed TPP."
Public Citizen goes on to point out that the trade deficits with Mexico, China and South Korea were all larger than the commission estimated.

But that type of analysis misunderstands the basic purpose of the report, said former ITC Chairman Dan Pearson, now a senior fellow at the libertarian Cato Institute.

"A lot of people misinterpret it," Pearson said in an interview. "It actually is telling you about the degree of reform that's included in the agreement. It can also give you sectoral guidance; you can see that one sector may shrink a little bit. It's actually a very useful and strong analytic tool. You just have to use it in the knowledge that it's not a forward-looking predictive tool."

In a memo published Monday, USTR emphasized the point. "[M]odels like ITC's ... produce estimates rather than forecasts and ... those estimates are designed to isolate the impact of trade as much as possible by comparing a world with a given trade agreement to a world without a given trade agreement, and holding all other factors constant," it said.

But critics in Congress and anti-TPP groups like Public Citizen argue this approach ignores the most important question - the effect that a trade deal has on jobs.

"It is really troubling that when the ITC has put together economic predictions, they have assumed no job losses," DeLauro told reporters. "We want to avoid a flawed document that doesn't provide accuracy and leads to drawing wrong conclusions as to what the effects of the Trans-Pacific Partnership agreement are going to be."

Although the ITC does hold the total number of jobs constant, the TPP report will examine possible employment changes by industry - that is, any job losses predicted in one sector would be offset by gains in another, showing the relative winners and losers in the U.S. economy.

There are ways to estimate total changes in employment, Pearson acknowledged, such as assuming in the economic model that profits would go toward more jobs rather than higher wages (models generally express gains as one or the other, but not both simultaneously). But he argued potential job changes would probably be "really small" under TPP because the U.S. didn't actually agree to cut that many tariffs, limiting increased exposure to foreign competition.

"My guess is it's not worth the effort," Pearson said of estimating the employment impact. "Whatever the changes would happen driven by TPP are going to be entirely outweighed by other things that happen in the economy over the next several years" such as economic bubbles or other financial shocks.

Even the ITC's modeling on tariff cuts won't quite match reality because the ITC assumes they happen instantly rather than over the time periods outlined under the deal. And the report has other limitations as well. It likely will not examine the effects of removing most so-called non-tariff barriers because such changes are too hard to quantify. 

However, the agency typically includes "qualitative descriptions" of all aspects of the agreement, including new disciplines on state-owned enterprises, investment rules and cross-border data flows.

That means the benefits calculated by the ITC will likely be much smaller than those estimated by the Peterson Institute, Pearson said. That think tank found implementation of the 12-nation pact would increase U.S. real income by $131 billion, or 0.5 percent of gross domestic product, by 2030. It also found a small percentage of U.S. jobs - about 53,700 - would be affected by the trade deal.

The ITC held a hearing in February to solicit a wide range of feedback for the report, and witnesses weren't shy about submitting ideas on what should be in it. Trade experts will be watching to see which, if any, of these suggestions are incorporated into the final product.

Sen. Sherrod Brown (D-Ohio) and House Ways and Means Committee ranking member Sander Levin (D-Mich.) asked the commission to consider the potential impact of foreign currency manipulation, and Levin also urged it to look at the effect of the pact's intellectual property rules on drug prices in United States and other countries.

Alan Wolff, chairman of the National Foreign Trade Council, recommended the ITC examine the economic impact of not approving the agreement since that could put the United States at a disadvantage to other countries, such as those of the European Union, China, Canada and Japan, that are busily pursuing trade deals.

Celeste Drake, trade policy specialist at the AFL-CIO, urged the ITC to use a model that would also examine how the pact would affect income inequality and "help workers understand why their slice of the pie is getting smaller."

But the ITC is cognizant of the need for objectivity and so will give attention to criticisms of TPP opponents, Pearson said. "So, anyone who looks at the ITC study is going to be able to find some material that it'll be helpful" to their argument, he added.

And because Congress won't move the deal anytime soon, supporters and opponents likely will argue from now through the November election, with equal intensity on both sides.

"The reason I have not decamped to a tropical island, that I'm still working as hard as the White House is, is that they're working really hard on this," said Lori Wallach, director of Public Citizen's Global Trade Watch.
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