Abbott and Abe to influence US decision on TPP
Asia's newest odd couple might help Obama get trade agreement over the line.
Twenty
years ago, billionaire political maverick Ross Perot evoked a “giant
sucking sound” of vanishing jobs if Bill Clinton signed a free trade
deal with Mexico. Military chief Colin Powell said he’d need five army
divisions on the Mexican border if Clinton didn’t.
Now another Democrat president faces a similar dilemma. Barack Obama
is caught between his goal of “rebuilding America” and his main foreign
policy initiative, the “Pivot” or “Rebalance” to Asia.
A free trade deal even bigger than the one Clinton eventually signed
with Mexico and Canada has become widely perceived as the main substance
to the Pivot, a test of whether Obama is all high-blown rhetoric or
not.
This is the Trans-Pacific Partnership, joining the three North
American economies to nine other economies around the Pacific, including
Japan, Australia and probably South Korea. The combined gross domestic
products of the 12 countries add up to 40 per cent of the global
economy.
Why are the Democrats hesitating? More US exports to dynamic Asia
should create more jobs. Yet Americans have lost trust in wealth
distribution. Free trade has meant a shrinking middle class, good jobs
replaced with “McJobs”, and closing factories. Polls show most Americans
no longer believe their children will be better off than they are.
The winners from the TPP on the US side, if it goes ahead, will be
providers of insurance, e-retailing, education, healthcare, investment
advice, professional advice, information technology, entertainment and
other services, which would be allowed to set up and sell behind
currently closed borders and local preferences, plus some
agribusinesses.
This kind of service-sector activity is now the biggest part of
mature economies such as the United States and Australia, but lags as a
percentage of their trade behind manufacturing, agriculture and
resources.
Proponents keenly describe the TPP with words such as “modern”,
“cutting edge”, “high quality”, “a new type of trade agreement”, and
“embodying high standards worthy of a 21st-century trade agreement”.
They see it enabling countries like the US to play their strengths into
the rapidly growing economies of Asia.
Washington’s Peterson Institute for International Economics estimates
the TPP could add $US295 billion to the income of member countries by
2025 (Australia gaining $US8.6 billion or 0.6 per cent of GDP).
Ultimately, if all the 22 countries in the Asia-Pacific Economic
Co-operation group joined, it could add $2.4 trillion.
Immediate losers, however, would be US manufacturing workers, notably
in the garment and footwear sectors, since TPP members include Vietnam,
a low-wage country with communist restrictions on labour organisation.
Obama’s backers in Hollywood and Silicon Valley love the TPP, because
of its enhanced copyright enforcement. Big trade unions such as the
AFL-CIO and Teamsters, necessary to ensure the Democrat turnout at the
mid-term congressional elections in November, hate it.
Rather than risk losing their senate majority, leaving Obama with an
entirely hostile congress for his last two years, Democrats have refused
to vote Obama the fast-track authority to sew up the TPP. But it leaves
Obama looking ineffectual in Asia.
The delays, meanwhile, have brought out civil society groups, and
farm, labour and environmental groups demanding more transparency,
fearing a transfer of power from elected governments to corporations.
Internet activists see a restriction in the flow of information, and
worry about the US push for criminalisation of online piracy activity
such as file-sharing, even where no commercial gain is involved.
Médecins Sans Frontières sees it resulting in more expensive drugs and
less scope for Third World governments to make antivirals or other
treatments cheaply available.
Nobel laureate economist Joseph Stiglitz is one critic. “There is a
real risk that it will benefit the wealthiest sliver of the American and
global elite at the expense of everyone else,” he wrote in The New York Times last week.
In particular, critics unite against a proposed mechanism called
Investor-State Dispute Settlement (ISDS), whereby foreign investors can
take a host government to an outside panel of lawyers for binding
arbitration of disputes about direct or indirect expropriation. Philip
Morris International’s use of an ISDS mechanism in a treaty with Hong
Kong to try to overturn Australia’s tobacco plain packaging law is
widely cited as an example of how foreign companies might overturn laws
and regulation introduced to protect health, safety and the environment.
It could be the Opium Wars all over again, says Stiglitz.
Adjudication in that case is not over. But it was the reason the
Rudd-Gillard government opposed inclusion of dispute settlement in the
TPP in 2010. The Abbott government recently abandoned this blanket
opposition (and in December signed a free trade agreement with South
Korea that includes ISDS) with Trade Minister Andrew Robb insisting
safeguard clauses would be adequate to protect the public interest.
Now Tony Abbott, from a party traditionally more simpatico with the
Republicans, has emerged as someone who might help steer Obama out of
this dilemma. Embarking next week on his first big Asian tour, he gets
to Tokyo two weeks ahead of Obama.
US Trade Representative Michael Froman has been working frantically
on Prime Minister Shinzo Abe’s government to get major concessions ahead
of the visit that might disarm the domestic US opposition. “In a way
the TPP is a US-Japan free trade agreement,” says Fred Bergsten, a
leading economist at the Peterson Institute.
Opening Japan to the extent required for the TPP would also take the
Japanese most of the way through the hard structural reforms seen as the
necessary “third arrow” of Abenomics, the effort to reflate the sagging
Japanese economy (the first two arrows being massive money creation and
fiscal spending).
It could also eventually pull in China, which will lose about $US57
billion in exports if the TPP goes ahead without it, according to the
Peterson Institute. As in Japan, some of its economic planners see the
TPP helping new leader Xi Jinping in his own structural reforms,
switching China from its faltering export-and-infrastructure model to
one based on domestic consumption.
Enter Abbott. Canberra has been negotiating a bilateral free trade
agreement with Tokyo for some years. Like the South Korean agreement, it
seems about to come good as an achievement on his watch.
Abe may be offside with near neighbours, but Abbott loves his steps
to bring Japan’s military into closer interoperability with the US and
its allies. Abbott has also found a strong personal rapport with Abe.
If not too miffed about this week’s whaling decision, Abe might just
give the nod to the bilateral free trade agreement, to be signed when
Abe visits Australia in July. To be credible, it would have to include
many of the features Washington seeks for the TPP. If Abe makes those
concessions to Australia, he’s unlikely to hold them back from the US
for long.
For his part, removal from Washington’s toxic politics might
encourage Obama to take a more strategic stance on the TPP. “In the end
these trade deals are always sold on national security grounds, not the
economic arguments,” Bergsten notes. In which case, the TPP may be
closer than we think, and our government needs to do
a much better job of explaining what it’s all about. This one is not just for farmers. It will impact everyone.
years ago, billionaire political maverick Ross Perot evoked a “giant
sucking sound” of vanishing jobs if Bill Clinton signed a free trade
deal with Mexico. Military chief Colin Powell said he’d need five army
divisions on the Mexican border if Clinton didn’t.
Now another Democrat president faces a similar dilemma. Barack Obama
is caught between his goal of “rebuilding America” and his main foreign
policy initiative, the “Pivot” or “Rebalance” to Asia.
A free trade deal even bigger than the one Clinton eventually signed
with Mexico and Canada has become widely perceived as the main substance
to the Pivot, a test of whether Obama is all high-blown rhetoric or
not.
This is the Trans-Pacific Partnership, joining the three North
American economies to nine other economies around the Pacific, including
Japan, Australia and probably South Korea. The combined gross domestic
products of the 12 countries add up to 40 per cent of the global
economy.
Why are the Democrats hesitating? More US exports to dynamic Asia
should create more jobs. Yet Americans have lost trust in wealth
distribution. Free trade has meant a shrinking middle class, good jobs
replaced with “McJobs”, and closing factories. Polls show most Americans
no longer believe their children will be better off than they are.
The winners from the TPP on the US side, if it goes ahead, will be
providers of insurance, e-retailing, education, healthcare, investment
advice, professional advice, information technology, entertainment and
other services, which would be allowed to set up and sell behind
currently closed borders and local preferences, plus some
agribusinesses.
This kind of service-sector activity is now the biggest part of
mature economies such as the United States and Australia, but lags as a
percentage of their trade behind manufacturing, agriculture and
resources.
Proponents keenly describe the TPP with words such as “modern”,
“cutting edge”, “high quality”, “a new type of trade agreement”, and
“embodying high standards worthy of a 21st-century trade agreement”.
They see it enabling countries like the US to play their strengths into
the rapidly growing economies of Asia.
Washington’s Peterson Institute for International Economics estimates
the TPP could add $US295 billion to the income of member countries by
2025 (Australia gaining $US8.6 billion or 0.6 per cent of GDP).
Ultimately, if all the 22 countries in the Asia-Pacific Economic
Co-operation group joined, it could add $2.4 trillion.
Immediate losers, however, would be US manufacturing workers, notably
in the garment and footwear sectors, since TPP members include Vietnam,
a low-wage country with communist restrictions on labour organisation.
Obama’s backers in Hollywood and Silicon Valley love the TPP, because
of its enhanced copyright enforcement. Big trade unions such as the
AFL-CIO and Teamsters, necessary to ensure the Democrat turnout at the
mid-term congressional elections in November, hate it.
Rather than risk losing their senate majority, leaving Obama with an
entirely hostile congress for his last two years, Democrats have refused
to vote Obama the fast-track authority to sew up the TPP. But it leaves
Obama looking ineffectual in Asia.
The delays, meanwhile, have brought out civil society groups, and
farm, labour and environmental groups demanding more transparency,
fearing a transfer of power from elected governments to corporations.
Internet activists see a restriction in the flow of information, and
worry about the US push for criminalisation of online piracy activity
such as file-sharing, even where no commercial gain is involved.
Médecins Sans Frontières sees it resulting in more expensive drugs and
less scope for Third World governments to make antivirals or other
treatments cheaply available.
Nobel laureate economist Joseph Stiglitz is one critic. “There is a
real risk that it will benefit the wealthiest sliver of the American and
global elite at the expense of everyone else,” he wrote in The New York Times last week.
In particular, critics unite against a proposed mechanism called
Investor-State Dispute Settlement (ISDS), whereby foreign investors can
take a host government to an outside panel of lawyers for binding
arbitration of disputes about direct or indirect expropriation. Philip
Morris International’s use of an ISDS mechanism in a treaty with Hong
Kong to try to overturn Australia’s tobacco plain packaging law is
widely cited as an example of how foreign companies might overturn laws
and regulation introduced to protect health, safety and the environment.
It could be the Opium Wars all over again, says Stiglitz.
Adjudication in that case is not over. But it was the reason the
Rudd-Gillard government opposed inclusion of dispute settlement in the
TPP in 2010. The Abbott government recently abandoned this blanket
opposition (and in December signed a free trade agreement with South
Korea that includes ISDS) with Trade Minister Andrew Robb insisting
safeguard clauses would be adequate to protect the public interest.
Now Tony Abbott, from a party traditionally more simpatico with the
Republicans, has emerged as someone who might help steer Obama out of
this dilemma. Embarking next week on his first big Asian tour, he gets
to Tokyo two weeks ahead of Obama.
US Trade Representative Michael Froman has been working frantically
on Prime Minister Shinzo Abe’s government to get major concessions ahead
of the visit that might disarm the domestic US opposition. “In a way
the TPP is a US-Japan free trade agreement,” says Fred Bergsten, a
leading economist at the Peterson Institute.
Opening Japan to the extent required for the TPP would also take the
Japanese most of the way through the hard structural reforms seen as the
necessary “third arrow” of Abenomics, the effort to reflate the sagging
Japanese economy (the first two arrows being massive money creation and
fiscal spending).
It could also eventually pull in China, which will lose about $US57
billion in exports if the TPP goes ahead without it, according to the
Peterson Institute. As in Japan, some of its economic planners see the
TPP helping new leader Xi Jinping in his own structural reforms,
switching China from its faltering export-and-infrastructure model to
one based on domestic consumption.
Enter Abbott. Canberra has been negotiating a bilateral free trade
agreement with Tokyo for some years. Like the South Korean agreement, it
seems about to come good as an achievement on his watch.
Abe may be offside with near neighbours, but Abbott loves his steps
to bring Japan’s military into closer interoperability with the US and
its allies. Abbott has also found a strong personal rapport with Abe.
If not too miffed about this week’s whaling decision, Abe might just
give the nod to the bilateral free trade agreement, to be signed when
Abe visits Australia in July. To be credible, it would have to include
many of the features Washington seeks for the TPP. If Abe makes those
concessions to Australia, he’s unlikely to hold them back from the US
for long.
For his part, removal from Washington’s toxic politics might
encourage Obama to take a more strategic stance on the TPP. “In the end
these trade deals are always sold on national security grounds, not the
economic arguments,” Bergsten notes. In which case, the TPP may be
closer than we think, and our government needs to do
a much better job of explaining what it’s all about. This one is not just for farmers. It will impact everyone.
This article was first published in the print edition of The Saturday Paper on Apr 5, 2014 as "Abbott and Abe". Subscribe here
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