Let’s Get the Trans-Pacific Partnership Right

The Obama Administration is wisely moving forward with a landmark trade agreement, the Trans-Pacific Partnership (TPP). With origins in the Bush Administration, the TPP would increase regional economic integration between the United States and eight other Asia-Pacific nations: Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam. The TPP represents a great opportunity for the U.S. to strengthen its trade ties with growing and dynamic markets but only if it truly raises the bar for fair, market-based trade. As spelled out in Gold-Standard or WTO-Lite?: Shaping the Trans-Pacific Partnership, a new report from the Information Technology and Innovation Foundation, as it stands the TPP unfortunately runs the risk of enabling, rather than curbing, a continuation of some of the rampant mercantilist trade practices that have hurt economic growth and invited skepticism of global trade.

In the old days, mercantilism and protectionism was as simple as erecting high tariffs and imposing import quotas. Now, it has become more sophisticated and complex: intellectual property theft, extensive use of non-tariff barriers, and abuse of anti-trust, regulatory, and tax policies are on the rise. The aim for the countries that use these devices is to grow jobs, ideally high-wage, innovation-based jobs, at the expense of other countries. These practices are especially damaging to an innovation leader like the United States. The TPP provides a unique opportunity to begin to roll back these corrosive practices but only if it becomes a gold-standard trade framework for our times — and one that works for all countries.

One of the most significant areas for improvement is in protecting intellectual property rights. IP-intensive industries employ more than 19 million Americans and account for approximately 60 percent of total U.S. exports. As more exports are based on knowledge-intensive products and services, the U.S. has a huge stake in codifying and enforcing strong and clear IP standards. Unfortunately, as the Office of the U.S. Trade Representative (USTR) itself reports, most TPP signatories have spotty or even terrible records on these issues, notably with regard to industries such as software or pharmaceuticals.

Another area for improvement is in government procurement. A core principal of market-based trade is that government purchases should be made on the basis of the best value for government, not on the basis of national preferences. But only one of the eight other TPP countries, Singapore, is a signatory to the World Trade Organization’s Government Procurement Agreement (GPA) and Australia is the only major industrialized country that is not a GPA signatory. A third area where the TPP should leverage changes in national behavior concerns state-owned or state-sponsored enterprises. U.S. companies have for too long struggled in vain to compete with unfairly subsidized and sheltered government-sponsored companies in other countries. If the TPP sanctions the continuation of the kind of quasi-governmental businesses that have become the norm in China and, increasingly India, we will have missed an important opportunity to dismantle a structural distortion of global commerce. The TPP is a chance to take on these practices and set a higher standard for all countries.

The TPP is also perhaps the most important opportunity to finally improve standards when it comes to trade in services. After long taking a back seat to trade in goods, global services trade is growing faster than goods trade and getting more focus by trade officials. Once again, USTR’s own 2011 National Trade Estimate Report on Foreign Trade Barriers shows how much work there is to do to really have a gold-standard trade pact for the 21st century. Almost every would-be TPP partner place contains significant barriers on trade in services. Chile restricts U.S. asset fund management services; Malaysian restricts retail trade; New Zealand and Peru place barriers to competition in wireless communications through high mobile termination rates, just to cite a few examples.

What’s more, many TPP nations restrict market access — a core tenet of free trade. Malaysia has an approved permit system that acts as a quota by restricting the total number of vehicles that can be imported in a given year. Peru restricts imports of used vehicles and trucks. Several candidate and member TPP countries place limits on the ability of U.S. pharmaceutical manufacturers to market and distribute innovative biopharmaceutical products. And in many cases, nations continue to have astoundingly high tariffs.

There’s no point in the United States participating in a TPP if it does not significantly move beyond this kind of status-quo mercantilism. Any TPP that the United States signs should have strong IP protections, strict government procurement provisions, rules regarding state-supported enterprises, much more open services markets, and dramatic reduction or elimination of quotas, import restrictions, and tariffs. In addition, the TPP should also anticipate advances in information technology and include strong, binding provisions ensuring trade in computer and related services and the cross-border flow of data, information, and digital goods.

President Obama clearly understands the economic and strategic imperatives of TPP. As a group, TPP countries constitute the United States' third largest goods export market and fourth largest services export market. These exports support jobs and higher real wages. For a president who wants to double exports and show the world the U.S. has not retreated from its leadership on trade liberalization, the TPP must be a trade agenda priority. But negotiating an agreement that does not draw a line on dramatically reducing mercantilism policies will be worse than no treaty at all. As such, the U.S. must negotiate a transformative, high-standard 21st century trade agreement that leaves trade-distorting, unfair policies behind for once and for all.

Rob Atkinson, is president and founder of the Information Technology and Innovation Foundation, a Washington-based economic policy think tank.