Trans-Pacific Partnership: Pros & Cons

May 17, 2012

Jagdish Bhagwati
, Senior Fellow for International Economics, the Council on Foreign Relations; University Professor, Columbia University

Motoatsu Sakarai
, President, Japan Society

Professor Jagdish Bhagwati of Columbia University visited Japan Society to share his views on the proposed Trans-Pacific Partnership agreement.

During the height of Japan-bashing 10 or 15 years ago, Professor Bhagwati recalled, he had a conversation with Senator Levin of Michigan, whose constituents of course include the Detroit automakers. The senator "kept saying, 'Japan is closed and we are open,' and I said, 'That's crazy, because you have the VER—voluntary export restrictions—of 2.2 million'" vehicles per year, whereas "'the Japanese don't have any restrictions at all. But they are hard to penetrate, which is a different issue.'"

There are two basic approaches to trade liberalization, Professor Bhagwati noted. One is the multilateral approach, exemplified by the Doha Round. The multilateral approach is efficient and modern, a turnpike that gets you swiftly to your destination. However, the Doha Round, now in its 11th year, is at best in intensive care, if not lifeless. "I don't know who will come in next in November, because the president doesn’t have the slightest interest in the subject matter." As for Mitt Romney, "he hasn’t said a word about trade. And the only thing he has said is that he’s against China."

The other approach is a bilateral or regional approach, which also has been going on for some years. "You take the dirt road in the country.... It’s not efficient. It’s time consuming. You will probably end up in the wrong places once in a while, but ultimately you will get there" to your destination.

These bilateral or plurilateral agreements, of which the Trans-Pacific Partnership is an example, are preferential trade agreements: free trade among members, but "by definition discrimination against people who are not members." The word partnership in Trans-Pacific Partnership is a euphemism. "Particularly since this is a discriminatory arrangement, we have to use words like partnership to suggest cosmopolitanism, and we are the great guys, and so on," he said dryly.

With the advent of ASEAN and ASEAN Plus One and ASEAN Plus Three, the United States was eager to find a place at the table. A sudden series of aggressive acts on the part of China in the East China Sea, the South China Sea and even in the Indian Ocean gave the Americans their opening. "So, the U.S. moved in very cleverly into this opportunity to be back in the region, because the U.S. is looking at it not from the point of view of containing China; it’s these other guys—the partners in TPP—are really looking at it in political terms."

"Of course there will be some military implications. The U.S. cannot but have military implications. It’s the world’s biggest power—the biggest Rottweiler on the block, as I call it. There are other little dogs all over the place, but this is the biggest one."

During negotiations on bilateral agreements with small countries like Singapore, Vietnam and New Zealand, Congress and the president were pressed by various interest groups to add all kinds of demands that "have nothing to do with trade," Professor Bhagwati continued. "It determines a template where all kinds of things are put in. We don’t even know what is a full list"; the Structural Impediments Initiative of the early '90s covered some 250 different items.

"And some of it leaks out, and so on and so forth. They’re going to come to countries like Japan later, because Japan is not a Rottweiler, but it’s at least a Labrador or something. It’s a big country, so it can’t be ignored."

"I'm in favor of labor standards. But there are lots of other places where you can negotiate them," for example the ILO, the International Labour Organization, he said. For environmental issues, there's UNEP, the United Nations Environment Programme, or standalone arrangements like Kyoto or Copenhagen. "That's where you've got to negotiate these things—in appropriate agencies.... Here, it's all shoved in whether you like it or not. And there's no discussion. And it's not even public, which surprises me."

If signing on to TPP means a country has to agree to a raft of non-trade conditions, "how do we practice open regionalism in the sense of telling Japan to come in, India to come in, China to come in? You can't do that, in my opinion," Professor Bhagwati declared.

"My proposal is that open regionalism apply to TPP and the people who are members of it right now, and the potential members should say, 'We will sign on to the trade part, and Japan will have to make its adjustments on agriculture, for example. But that’s a standard trade negotiation. But we don’t have to sign on to all this other rubbish, which is nothing to do with trade. Not in any integral way.' So, we can have direct foreign investment, which is important for trade. We can have trade issues. And we can negotiate them, and that will move the system forward and enable people to come on board, but we don’t then have to sign on to all the rest. Because that is U.S. politics."

A big power like Japan or India can decline, and in fact India has just sent back an FTA to the EU, saying "'take everything which is not related to trade out of it and then come back, and we'll sign something.' So the EU is working on it."

Another strategy is to develop alternatives to the TPP, as Japan has done with negotiations on a Japan-Korea-China FTA, Professor Bhagwati said. India and Brazil could develop an alternative. Brazilian President Lula da Silva is a giant among trade union leaders, but he "resolutely rejects" labor standards as part of an FTA. "It's not that he's against unions. How can he be? But he doesn't want it in a trade treaty." Even the EU is more flexible and could do this; so could South Africa.

The idea is to say "here is another template, or a lot of templates, which are not necessarily the one the U.S. is trying to impose on" the region. "I would do that in a quiet way, because I do feel that America is a force for good generally. It’s the way the system works. It creates problems with the leadership at the executive level. And so they’ve got to carry all kinds of people with them."

"So, I would not confront the U.S. I would just present it with alternatives and a suggestion that the ideal thing would be not to split the area into two," with countries that agree to side conditions on one side and India and China on the other, refusing to agree to side conditions. "Because that's what we have done in South America, because Brazil would not agree to all this stuff" that Mexico acceded to in NAFTA.

"I think Japan can play that role," Professor Bhagwati concluded. "Because Japan in the end doesn't want to wind up confronting China; this is in nobody's interest."


Q&A with the audience followed:

How do you view the timing of Japan's entry into the TPP negotiations, both for Japan itself and for the other participants?

The U.S. got Mexico and Canada to agree to these side conditions as part of NAFTA, and went to "the little guys first" in Asia—"not very diplomatic to say, but if I was in Asia I would use that phrase," Professor Bhagwati said. "Japan could not have been at the beginning of this process, simply because you were not acceptable, because you raise questions."

"Trade was not on the radar screen of Japan" for a long period. "I think you need to get back to normal, but not in the defensive posture of being bashed for your trade, but in a participatory mode saying, 'We are a big country. These are our ideas.' And you’re in our region after all. Asia is not really America’s region."

Could you give one or two examples of the most objectionable of the side agreements that you think are obstacles?

Intellectual property protection is one; "you need some intellectual property protection, that goes without saying," but it needs to be an optimum level, whereas "we have allowed ourselves, because of lobbying pressures largely from the people who want their property protected, to really go and keep expanding it," Professor Bhagwati said.

And the problem with putting labor standards into a trade agreement is that "as soon as you use it in a trade instrument, you’re automatically bringing in the self-interest argument and devaluing the altruistic notion."

How unique is TPP in terms of the security dimension?

"The immediate security dimension is simply that many of these smaller countries feel if they’ve got the U.S. there, that automatically increases their sense of security with this gigantic, aggressive neighbor," Professor Bhagwati said. There are other activities outside the trade framework: an American base in Darwin, joint exercises between Indian and American forces. "If we confronted China the way George W. Bush wanted, we would have probably gotten more trouble than security. Now the balance has changed."

—Katherine Hyde

Topics:  Business, Policy

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