Progress on the Trans-Pacific Partnership

America's poor response to the Asian Infrastructure Investment Bank has underscored the importance of the Trans-Pacific Partnership trade negotiations.  A failure would risk hollowing out one of President Obama's major strategic foreign policy initiatives--the pivot to Asia.  A critical piece for both negotiations and Congressional approval is the granting of trade-promotion authority (aka fast-track), which allows for an up-down vote on the final agreement. 

Late yesterday Congressional leaders appeared to have reached agreement to grant Obama such authority.  A vote can be held as early as next week.   There are two main issues.  First, the bill imposes some 150 conditions or negotiating objectives including on intellectual property rights, human rights, labor rules and environmental protection.  Will these conditions hamper negotiations?  Second, can a sufficient coalition be created for passage of the bill?  

The Chairman of the Senate Finance Committee and the House Ways and Means Committee (both Republicans as that major has a majority in both chambers) and the senior Democrat on the Senate Finance Committee are sponsoring the bill.  There is an escape clause in the bill that provides a mechanism to remove the trade-promotion authority if the final agreement fails to meet Congress' negotiating requirements.  The bill also includes an agreement to help not only manufacturing but service sector workers who lose their jobs because of international trade.  Such an agreement often has accompanied fast track authority. This bill also contains a four-year extension of the tax credit for health insurance for displaced workers. 

Trade unions, environmental groups, and their political representatives are opposed while many business organizations and their political representative are supportive.  Passage by the Senate is seen as relatively easy.  However, led by the third ranking Democrat in the Senate, there will likely be an attempt to amend the measure to include measures on currency market manipulation.  The US Treasury has been required by Congress to issue a report twice a year about other countries' actions in the foreign exchange market.  Although it has objected to the practices of several countries, the US Treasury has deemed these falling shy of "manipulation" to the frustration of some in Congress. 

A bigger challenge lies in the House.  Early reports indicate that at least initially only around two dozen Democrats in the House are supporting the bill.  Last year House Speaker Boehner said that at least 50 Democrat voted would be needed.  There also appears to be a significant minority of Republicans who do not want to give the Democrat President any substantial authority.   Electoral political calculations ahead of next year's national elections are also complicating the calculus.  

The Trans-Pacific Partnership essentially marries two trade blocs--NAFTA (US, Canada, and Mexico) with the 2005 Trans-Pacific Strategic Partnership (Brunei, Chile, Singapore and New Zealand).   It also includes Japan, Australia, and Peru.  Ironically, Japan's Abe previously was reluctant, but now it is a center-piece of his reform efforts. 

If the trade promotion authority fails to pass both houses, there is a grave risk that it would seal the fate of TPP.  It would give a boost to efforts to create an alternative.  There may not be an immediate market response.  While the US would suffer a strategic setback, Japan’s Abenomics may also be dealt a blow.