Should the TPP include labour and environmental standards?

The United States Congress has now given President Barack Obama so-called fast-track negotiating authority to conclude the Trans-Pacific Partnership (TPP), the proposed mega-regional free-trade agreement among the US and 11 other countries. But Obama’s victory was not an easy one: Members of his own Democratic Party overwhelmingly opposed fast-track authority, which limits Congress to a single up-or-down vote on finished trade agreements, thereby ruling out amendments. The fast-track measure, officially known as Trade Promotion Authority, passed only because Obama was able to rely on rare backing from the Republican majority in both the House of Representatives and the Senate.

But the Democrats have a point. They want the Obama administration to ensure that the TPP includes core international labor standards for all participants, a high level of environmental protection, and access to affordable medicines, among other measures. If the administration takes these entirely reasonable demands on board, the resulting agreement would have considerable bipartisan support. If it chooses to ignore such demands, the final agreement would be much more polarizing – and would be approved by Congress with very little Democratic support.

Though Obama has promised that the TPP will be the most progressive trade agreement in history, which is achievable, the shroud of secrecy that surrounds almost all details of the negotiations has made it difficult to evaluate claims and counterclaims on this point. But once the agreement is concluded, it will be published in full, leaving no possibility of obfuscation.

And the markers that have been laid down by congressional Democrats are very clear, quite specific, and well thought-out. In fact, in an agreement between House Democrats and former President George W. Bush’s administration in May 2007, almost all of the key principles were already spelled out in considerable detail.

In 2005, only 15 House Democrats voted for the Central American Free Trade Agreement, precisely because its terms on labor standards and the environment were so weak. In 2007, by contrast, 109 House Democrats voted in favor of the US-Peru Trade Promotion Agreement, precisely because its terms had been adjusted as requested and in line with the May agreement. And, in October 2011, the House approved the much-debated US-Korea Free Trade Agreement with 59 Democrats in favor. The extent of congressional Democratic support depends directly on what exactly is in any trade agreement.

The main principles in the May 2007 agreement are straightforward and difficult to oppose. Workers should be allowed to form trade unions. Child labor should be abolished. All forms of forced or compulsory labor – including human trafficking – should be prohibited. Vague promises on these issues are not acceptable; countries must enter into compliance before a trade agreement takes effect.

Moreover, the agreement calls for the inclusion of existing international environmental standards in free-trade agreements, including rules concerning pollution and endangered animals. Likewise, such agreements should support fair access to pharmaceutical patents and to the data used to prove the safety of medical treatments. And the May 2007 agreement makes it clear that “foreign investors in the US will not be accorded greater substantive rights with respect to investment protections than US investors in the US.”

In a paper issued in January 2015, and again in a major speech in May, Sander Levin, the ranking Democrat on the House Ways and Means Committee, applied these principles to all of the outstanding issues regarding the TPP.

It would not be difficult for the administration to give Levin and his colleagues what they want. Some participants in the TPP may indeed balk at being required to raise labor or environmental standards; in such case, however, policymakers need to ask whether these countries should get easier access to the US market. Similarly, access to affordable medicines is something other countries desperately need; it is large pharmaceutical companies that are not entirely enthusiastic.

The most difficult challenge for the Obama administration may be the issue of currency manipulation. Democrats are pushing for provisions to prohibit or limit currency-market intervention by central banks that is intended to give a country’s exporters a competitive edge. This is also a huge potential problem with the TPP, because competitive devaluations can swamp any other gains from trade by an order of magnitude, with substantial negative effects on US jobs. The administration urgently needs to take this point on board.

“Free trade” has always been something of a misnomer. Yes, the logic of market-based global commerce is very strong. But every market exists within a specific set of rules, which are not random and are not handed down from the heavens.

The TPP represents an important opportunity to write better rules for international trade and investment. But we are not there yet.

This article is published in collaboration with Project Syndicate. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Simon Johnson, a former chief economist of the IMF, is a professor at MIT Sloan, a senior fellow at the Peterson Institute for International Economics, and co-founder of a leading economics blog, The Baseline Scenario.

 Image: An American flag is seen in front of the Capitol Building. REUTERS.