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The Trans-Pacific Partnership is a pending trade agreement among countries bordering the Pacific Ocean, including the United States, Japan, Vietnam, Australia, and Chile.
What is the Trans-Pacific Partnership?
The Trans-Pacific Partnership is a trade agreement among countries bordering the Pacific Ocean, including the United States, Japan, Vietnam, Australia, and Chile. Negotiations on the treaty were completed in October 2015, and the treaty was released to the public in early November.
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This map from the Congressional Research Service shows the countries that are parties to the TPP and the volume of US trade with each of them. The TPP is expected to reduce trade barriers among these countries, lowering tariffs on goods such as trucks, rice, and textiles.
But it would do a lot of other things, too. The agreement could require countries to adopt stricter labor and environmental rules, provide stronger legal protections to drug companies, lengthen the term of copyright protection, give foreign investors a new way to challenge countries' laws and regulations, and much more.
In short, modern trade deals like the TPP are about a lot more than just trade. They've become one of the major ways the world hashes out the rules of the global economy. And that's a big reason the deal has become controversial. For example, digital rights groups and global health advocates who are not normally focused on trade issues have warned that the deal could negatively impact digital innovation and the global effort to combat AIDS, among other things.
Critics also say the process of drafting the TPP is deeply flawed. Negotiations over the TPP's terms were conducted in secret, with well-connected interest groups having access to more information — and more opportunities to influence the process — than members of the general public.
In June 2015, President Obama convinced Congress to pass legislation to grant him "fast track" authority, which guarantees that the TPP will get a prompt up-or-down vote in Congress. He hoped to get that vote in Congress in early 2016, clearing the way for the TPP to come into force.
Instead, election-year politics has essentially killed the TPP. The Republican nominee, Donald Trump, is an opponent of the TPP and most trade agreements. Hillary Clinton announced her opposition to the TPP last fall to help her ward off a primary challenge from Bernie Sanders. It now looks unlikely that the TPP be approved during this Congress — or possibly ever.
Why is the TPP so complicated?
Traditionally, trade deals focused on reducing trade barriers such as tariffs and quotas. But modern trade deals do a lot more than that.
A turning point came with the creation of the World Trade Organization in 1994. It included a new, more robust process for settling trade disputes. If one country believes another country has failed to fulfill its trade commitments, it can seek arbitration before a WTO dispute settlement panel. If the panel agrees with the country that brought the complaint, that can trigger targeted trade sanctions designed to pressure the offending country to come into compliance.
Soon people realized that this same enforcement mechanism could be used for things that had little connection to trade. Interest groups sought to use WTO dispute resolution processes to enforce provisions favorable to them. Pharmaceutical companies, for example, have pushed for trade deals to include rules increasing patent protection for drugs.
The TPP has a WTO-style dispute settlement process, and a variety of interest groups pushed to have their pet issues addressed in the treaty. As a result, it covers a wide range of issues: pharmaceutical regulations, state-owned industries, foreign investment, labor rights, environmental protections, copyright law, government procurement, e-commerce, and more. Many of these issues have been addressed before in standalone agreements. But tying them to a trade deal makes it more likely that countries will actually keep their commitments.
The TPP would lower some trade barriers. How big would the economic benefits be?
The countries negotiating the TPP have already committed to freer trade with one another under the last big global trade agreement, known as the Uruguay Round, in 1994. Most TPP countries also participate in regional trade agreements such as NAFTA. As a result, tariffs among TPP countries are already fairly low.
Yet the TPP could bring about significant reductions in trade barriers for certain products. How big are these effects? While the deal is now public, experts haven't yet crunched the numbers to get an estimate of its economic impact. So for now we're forced to rely on estimates made before the TPP was public. One widely cited estimate from the Peterson Institute found that the TPP could increase US incomes by $77 billion by 2025. That's an increase of less than 1 percent, but $77 billion is still a significant amount of money. And advocates hope the TPP could set a precedent for broader trade deals with other parts of the world, such as China and Europe, which could have larger economic benefits.
Trade liberalization could also have significant benefits for American trading partners such as Vietnam.
What's ISDS, and why is Elizabeth Warren so upset about it?
Sen. Elizabeth Warren (D-MA) is one of the TPP's most prominent critics, and her campaign against the deal has focused on an otherwise obscure provision called investor-state dispute settlement (ISDS). The goal — to mediate disputes between a government and foreign investors — might sound innocuous. But Warren warns that ISDS poses a threat to American sovereignty and could inhibit robust regulation of industries such as banking.
ISDS rules are designed to address a real problem. Suppose an investor from one country spends money building a factory in another country. Then a new government comes to power there and nationalizes the factory. That's unfair to the investor, and in the long run it's likely to be bad for the country with the factory as well. ISDS is an arbitration process that uses trade sanctions to pressure governments to compensate investors whose property is seized.
Obviously, the United States has a robust legal system that doesn't allow this kind of naked expropriation. Nevertheless, the TPP is expected to allow foreign investors to make ISDS complaints against the United States. And Warren argues that could "tilt the playing field in the United States further in favor of big multinational corporations" in a way that would "undermine US sovereignty."
TPP opponents worry that foreign companies could argue that the way America regulates banks, the minimum wage, or the environment constitutes an unjust taking of their property. If an ISDS panel agrees, the United States could be on the hook for millions of dollars in damages.
There are two aspects of ISDS that have raised particular concern. One is the fact that, as with most trade dispute settlement panels, the process is overseen by arbitrators rather than independent judges. Warren worries these arbitrators, who may also represent corporate clients in other cases, will cause panels to be biased toward big companies.
Second, while the ordinary WTO dispute settlement process only allows complaints by governments, ISDS allows any foreign investor to complain. Critics say that removes an important check on misuse of the dispute settlement process.
Defenders of ISDS say Warren's concerns are overblown. The White House notes that there are about 3,000 trade deals around the world with ISDS provisions, including about 50 that involve the United States. According to the Obama administration, the US has only faced 13 ISDS cases under those treaties, and has never lost a case. The White House also says the ISDS provisions in the TPP will have stronger safeguards against abuse than those in previous treaties.
And it's important to note that ISDS can't actually force countries to change their laws or regulations. The most an ISDS panel can do is impose a financial penalty.
Why are some public health groups opposing the TPP?
Public health groups such as Doctors Without Borders and the AIDS research group amfAR have warned that the TPP could delay the introduction of generic drugs, boosting drug prices and ultimately costing lives. Here's how that could happen.
Laws in the US and around the world grant patents and other legal privileges to the first company to invent a new drug — a reward to encourage research and development. After these legal protections expire, other companies can make cheap generic versions of the drugs.
Of course, big pharmaceutical companies hate this competition. So they've lobbied for the TPP to include rules delaying the introduction of generic drugs into the market.
For example, one proposal would expand the types of inventions that are eligible for patent protection to include modifications of existing drugs. Critics say this would make it easier for drug companies to engage in "evergreening," a process where drug companies make minor modifications to their products in order to extend the effective length of patent protection.
The TPP requires governments to extend the term of patent protection if the patent office processes a patent application too slowly, or if regulators delay approval of a pharmaceutical patent.
Another provision concerns complex drugs called biologics. Before these drugs can be introduced to the market, the Food and Drug administration requires drugmakers to prove they are safe and effective. Often, data from one drug's clinical trials is useful to other companies wanting to introduce competing, biologically similar drugs. But a controversial US law requires competing drug manufacturers to wait 12 years before they can use this data in their own applications. That makes it harder for generic drugmakers to get into the market, raising prices.
The Obama administration reportedly pushed for language requiring that all countries adopt a similar 12-year requirement. That was surprising because Obama's own 2016 budget suggested reducing the exclusivity period to seven years. Ultimately, US negotiators didn't get what they wanted; the final text of the TPP requires countries to provide five to eight years of data exclusivity for biologic drugs.
In short, the TPP can be expected to reduce competition and therefore raise the prices of drugs in some TPP countries. The deal probably won't have much effect in the US, where biologics already receive 12 years of protection and the law is relatively friendly to evergreen patents, but it will have a bigger impact in other TPP countries.
How would the TPP affect copyright law?
Trade agreements have proven a powerful way for Hollywood and other creative industries in the US to export those parts of US copyright law that it likes to other countries. The Trans-Pacific Partnership is no exception.
The TPP requires every country to adopt the same long copyright terms that prevail in the United States: the life of the author plus 70 years. Countries whose laws are based on the previous "life plus 50" standard will now have to wait two extra decades before classic works from the 20th century are free for anyone to use.
The TPP also prohibits people from tampering with copy-protection schemes that protect movies, music, and other copyrighted works. Notably, the American version of this law recently created headaches for people wanting to unlock their cellphones so they could switch carriers.
The TPP requires criminal penalties for people who commit copyright infringement on a "commercial scale."
These provisions wouldn't require the US to change its laws, since we're already in compliance. However, the treaty could become an obstacle if Congress wanted to repeal them in the future.
Will the TPP protect labor rights?
While they were critical of the TPP overall, labor groups also saw the treaty as an opportunity to pressure US trading partners to adopt stronger protections for workers' rights. During the negotiating process, labor groups said that trade liberalization without strong labor standards puts American workers at a competitive disadvantage.
And while previous US trade agreements have included language on workers' rights, labor groups contend that these deals lack robust enforcement mechanisms. Celeste Drake of the AFL-CIO points to the 2005 CAFTA-DR agreement with Central American countries as an example. The United States used this treaty to file a complaint about labor rights violations in Guatemala in 2008, but the case still hasn't been resolved seven years later.
The White House has courted labor groups, touting the TPP's stronger protection for workers' rights and calling the agreement the "most progressive trade agreement in history." The White House insists that TPP will end child labor, protect the right to bargain collectively, and ensure workplace safety standards.
When the agreement was released in November 2015, the Obama administration touted it as a big win. Among the deal's accomplishments: a commitment from Vietnam to allow independent labor unions to exist.
But the labor movement wasn't impressed. AFL-CIO president Richard Trumka declared himself "deeply disappointed" that his recommendations had been "largely ignored." In the view of labor unions, the deal's labor protections don't go much beyond those of previous trade deals. And they fear that the process for enforcing those protections will be as toothless as they were in earlier agreements.
A big problem, according to critics, is that the agreement depends on the US government to act if countries with weak human rights records, such as Vietnam, fail to keep their agreement. They fear that a Republican president will be insufficiently committed to labor rights, or that US administrations will softpedal the issue to avoid alienating allies whose support they need on other issues. Labor groups would prefer a system that allows labor groups to directly challenge other countries' labor practices, much as the investor-state dispute settlement process allows investors to directly challenge foreign government policies.
What is Trade Promotion Authority, and why is it important for the TPP?
Trade agreements generally require approval from Congress to go into effect, but this creates a potential problem: Countries could be reluctant to bargain with the United States knowing that Congress might try to change the terms of an agreement after it's negotiated.
So Obama, like his predecessors, has sought and received Trade Promotion Authority, also known as "fast track." This legislation commits Congress to giving trade deals a prompt up-or-down vote with no amendments. Presidents Bill Clinton and George W. Bush both used fast-track authority to pass important trade deals, and fast track is seen as an important precondition for concluding the TPP.
This was a rare case where the president and Republican leaders in Congress saw eye to eye. It took months of negotiations and several false starts, but ultimately Republican leaders, supported by lobbying from the president, were able to shepherd TPA through Congress.
The bill Congress passed in June 2015 grants the president trade promotion authority for six years, so Obama's successor will be able to get up-or-down votes for any trade deals negotiated during his or her first term.
However, it's looking increasingly unlikely that Obama will get the up-or-down vote he fought so hard for last summer. Both parties' presidential candidates have turned against the TPP, and there's been no sign that Congressional leaders intend to put the agreement up for a vote before the November election.
