Politics & Policy

Rushing to Finish a Global Free-Trade Deal


Rushing to Finish a Global Free-Trade Deal

Illustration by Bloomberg Businessweek

On paper, big, ambitious free-trade deals are the best kind. The more countries that agree to open their markets, the greater the benefits to consumers. But there’s a catch: If big trade deals try to include too many countries or take on too many issues, the negotiations can collapse under the weight of thousands of pages of details. Just look at what happened to the Doha Development Agenda of the World Trade Organization. That attempt to lower trade barriers worldwide began in the Persian Gulf nation of Qatar in 2001—and sputtered to an inglorious halt in 2011 after India, Brazil, and South Africa deadlocked over the fine print with the U.S. and Western Europe.

The U.S. and eight other nations now negotiating a new free-trade agreement hope to avoid a similar fate. The Trans-Pacific Partnership is the most ambitious free-trade deal ever—and thus is at high risk of getting Doha’ed.

The goal is to make the partnership a model for 21st century trade by taking on sensitive issues such as control of data, intellectual-property protection, supply chains, and environmental and labor standards. With Europe in crisis, trade in the Asia-Pacific region is increasingly important. The U.S. Trade Representative’s office says the other countries in the talks—Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam—are collectively the U.S.’s third-largest export market for goods, and the fourth-largest for services.

Maintaining the momentum of the talks is critical. At the same time, negotiators don’t want to water down the agreement to speed its passage, a real danger with so many seats at the table. “We expect this will be a path-breaking accord, not a cookie-cutter agreement,” says Calman Cohen, president of the Emergency Committee for American Trade, a pro-open markets group in Washington. To prevent getting bogged down, the U.S. and its negotiating partners have put off Canada, Mexico, and Japan—all eager to join, but whose participation could complicate the haggling. “We’re kind of sprinting toward a conclusion,” says Deputy U.S. Trade Representative Demetrios Marantis.

Perhaps not sprinting. After a meeting last November in Honolulu, President Obama announced “the broad outlines of an agreement” and said the heads of state hoped to see a treaty by the end of 2012. That’s unlikely. While progress has been steady, Marantis says, “No one wants to put a hard end date. You want to have the substance drive the timing.”

If they do pull it off, the Trans-Pacific Partnership will clear out barriers such as subsidies and other privileges some nations grant to state-owned enterprises. Another important point under negotiation is for nations to honor each other’s regulations. Currently, foreign goods entering the U.S. must meet American safety and health standards to the letter. U.S. goods must meet other countries’ rules, even if the differences between the competing sets of paperwork are minor and don’t threaten health or safety. Under the treaty, small discrepancies wouldn’t slow the flow of products.

The treaty also seeks to eliminate the hassle of getting goods and packages through customs, which differ from country to country and are a major stumbling block to trade. No surprise that FedEx (FDX) is paying particularly close attention to this part of the talks. In the U.S., customs officers work around the clock inside FedEx’s hub in Memphis—a service for which the company pays a premium. Other countries could provide a fast lane through customs as well if the treaty’s signers agree. In a statement, FedEx said it “strongly supports” the negotiations.

The U.S. must give to receive, though. One big obstacle to concluding a deal is American tariffs on textiles, clothing, and footwear—predominantly low-tech, low-wage industries that have strong support in Congress. Vietnam and Malaysia won’t go along with U.S. demands that they open their markets to U.S. tech products until the U.S. gives more access to their shirts and shoes. Another significant sticking point: the U.S.’s insistence on strong protections for copyrights and patents, which are being pushed heavily by Hollywood and pharmaceutical companies.

Negotiations started in 2002 with just three nations, each with a deep commitment to free trade—Chile, New Zealand, and Singapore. Tiny Brunei, on the island of Borneo, joined in 2005. Australia, Peru, the U.S., and Vietnam came on in 2008, and Malaysia in 2010. Trade negotiations often expand like this. Countries don’t want to be left out, fearing they’ll lose business. But they also don’t want to lower barriers that protect the products they make, so talks stall.

Inviting more nations would mean more demands, and more time to satisfy them. Japan is working hard to gain admission, even though it protects its farmers more aggressively than the partnership will permit. New Zealand opposes letting in Canada, which has been reluctant to dismantle protections for producers of eggs, poultry, and milk. Mexico, which has shown a willingness to deal, could get in sooner, says Murray Hiebert of the Southeast Asia Program at the Center for Strategic and International Studies in Washington.

One country notably absent: China. The world’s second-biggest economy is far from qualifying because of its favoritism toward domestic producers. Instead, Beijing is at work on a less ambitious three-way pact with Japan and South Korea.

In trying to rush a deal, the U.S. Trade Representative’s office has angered some lawmakers, who say the negotiations have been unnecessarily secretive. Though Marantis insists “we have provided an unprecedented level of transparency,” Democratic Senator Ron Wyden of Oregon says, “The USTR’s practice of over-classifying trade documents … leaves all but a handful of members of Congress in the dark about what TPP may hold and raises questions about the legitimacy of these negotiations.”

With the goal of wrapping up just seven months away, the next round of talks in San Diego in July will be especially important. “Whether we can get it done this year is increasingly doubtful,” says Hiebert. “If it’s a short delay, it’s not a problem. But if it drags on and on, it can get into a Doha situation.” To a treaty negotiator, more frightening words were never spoken.

The bottom line: To avoid gridlock over a major free-trade pact, the U.S. and eight other Pacific nations have told Japan, Canada, and Mexico to wait.

Coy_190
Coy is Bloomberg Businessweek's economics editor. His Twitter handle is @petercoy.

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