Recent Congressional News About the TPP

(Remarks as prepared)

“The Commission’s report on the potential economic impact of the Trans-Pacific Partnership (TPP) comes at a turning point in American trade policy.

“We all recognize that trade can be beneficial. The issue is not whether Members of Congress such as myself could pass an Econ 101 class, as President George W. Bush’s Chair of the Council of Economic Advisers, Gregory Mankiw, recently put it. Instead, the issue is whether we are going to face up to the fact that our trading system today is much more complex than the simplistic trade model presented in an Econ 101 class.

“What do David Ricardo and Adam Smith have to say about the inclusion of investor-state dispute settlement in our trade agreements? What do they have to say about providing a five-year or an eight-year monopoly for the sale of biologic medicines? About the need to ensure that our trading partners meet basic labor and environmental standards? How about the issue of currency manipulation? And what about trade in services on the internet or the offshoring of jobs that result from greater capital mobility? Does the theory of comparative advantage address these new issues?  No – and yet those are the kinds of issues at the crux of the debate over the TPP Agreement today.

“As you know, one of the most critical economic issues facing our country today is growing economic inequality and a stagnant middle class.

“There is growing agreement among economists today that trade contributes to economic inequality in the United States, with estimates ranging from 10% to 50% of the total inequality growth.

“Against this backdrop the Commission is now charged with undertaking an economic analysis of this Agreement. It will need to cut through the simplistic and prevalent generalizations in the debate today that trade is categorically good or bad. It will need to move beyond the old models.

“The most recent example of an economic analysis of the TPP was completed by the World Bank and was released just last week. The World Bank’s analysis suggests that the TPP will result in a 0.3-.0.4 percent rise in total, cumulative GDP in the United States by 2030 – a very small figure.

“In my view, the World Bank report raises a number of issues regarding the manner in which typical economic analysis of trade agreements are completed, and which I hope the Commission will avoid.

“First, the World Bank bases its analysis on the computable general equilibrium (CGE) models, which has a number of defects.

“Second, the authors conclude that tariff cuts account for only 15% of the increase in GDP resulting from the TPP, with cuts in non-tariff barriers accounting for the remainder of the gains. But the authors merely assume that the provisions in TPP will eliminate some portion of the non-tariff barriers without analyzing the obligations in any detail.

“Third, TPP is about much more than cuts in tariffs and non-tariff regulatory barriers.

“The Commission’s upcoming report needs to reflect how trade policy and economic thinking has changed over the years, how the TPP involves both trade and  international investment issues, as well as global rules in new areas with a large, economically significant and very diverse group of countries.

“Specifically, I urge the Commission to consider the following points:

• The Commission should estimate not only the long-term impact of the Agreement, but its impact in the short-term, including any costs and benefits associated with the transition. Further, most economic models of trade agreements assume a fluid labor market in which, if someone loses their job, that person can easily find a similar job. The Commission should analyze the ability of workers in sectors negatively affected by the TPP to be able to find commensurate employment after losing their job. The Commission should also avoid assumptions that are unrealistic at least in the short-term, such as full employment.

• There are claims being made on both sides about the impact that our trade agreements have on the U.S. trade deficit. While proponents of trade agreements often tout the benefits of increased exports, the Commission needs to fully consider the impact that increased imports have had on our economy as well. And it would be helpful to hear from the Commission as to what impact trade agreements have on U.S. trade balances.

• The Commission should estimate the impact the Agreement will have on jobs, wages, and inequality. For instance, if the Commission finds that the U.S. economy will see gains from the TPP, in which sectors will those gains be realized? In other words, the Commission should explicitly examine who will win and who will lose as result of this agreement, with a particular focus on income distribution.

• What economic impact would compliance with basic international labor standards have in the TPP region, and will the TPP Agreement ensure compliance with those standards? For example, Mexico today falls far short of those standards. How would labor standard compliance affect competitiveness between the United States and Mexico?

• Will the investment protections and other provisions in the Agreement make it more likely that U.S. producers will offshore production to other TPP countries?

• What impact will the intellectual property rules in TPP have on drug prices in the United States, and in other countries, particularly poorer ones?

• What impact will the environment chapter of TPP have on the United States economy?

• What impact will the relative weakening of the automotive rules of origin in TPP have on the North American supply chain that has been greatly influenced by the stronger rules in NAFTA?

• What issues aren’t addressed in TPP that could nullify or impair the benefits of the Agreement? For example, an incredibly important issue that has traditionally been neglected in economic analyses of trade agreements is currency manipulation, even though currency values have such a big impact on trade flows.