A close look at Trans-Pacific Partnership
Last updated 1/7/2016 at 11:42pm
Just say the words trade agreement and you are likely to touch off a contentious debate in Washington, D.C., and throughout the country.
There are two competing narratives in America, and most likely anywhere else when it comes to trade.
One narrative is that increased trade overseas opens up new vistas of opportunity, markets where goods harvested and made by American hands can be sold to the other 95 percent of the world's consumers.
The other evokes the shuttered factory and a global economy tilted in favor of foreign nations. An economy where inner cities are decimated by the effects of outsourcing and the drive for competition comes at the expense of the American worker, farmer and rancher.
In October, seven years of discussions concluded on the Trans-Pacific Partnership. Representatives from the United States and 11 other nations — Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, South Korea and Vietnam — walked away with a 5,544 page agreement that, if passed, would affect nations that, all together, make up 45 percent of global trade.
The agreement reaches into multiple sectors of the global economy: manufacturing, human rights, workers rights, intellectual property, energy and agriculture.
As lawmakers in Washington look at the fine print, both narratives are playing out in discussions and in the minds of TPP advocates and opponents.
In Montana, a state where agriculture dominates and from where $1.5 billion of goods were exported in 2014, according to the Montana Department of Commerce, views of the pact are mixed.
Ask Lochiel Edwards, a wheat farmer from Big Sandy, if he thinks the TPP will benefit farmers along the Hi-Line, and he will say that, while every agreement has winners and losers, Montanans — especially its grain growers — come out on top.
“There is no question for the grain industry this opens up our markets because we have a surplus of grain in the U.S. and always do,” Edwards said.
Wheat is Montana’s number one export, 75 percent of which is sold to buyers in Asia, according to the Montana Department of Commerce.
“You have a lot more middle class people in Asia now, and this has changed the demand and increase in goods,” Edwards said.
A central objective of any trade agreement is the lifting of tariffs, or taxes on imported goods.
Import tariffs are taxes levied by a country on goods bought and sold on foreign markets, to drive up the price of that good. The imposition of tariffs or duties are meant to prevent a deluge of cheap goods from flooding the domestic market.
To do this, countries impose a tax on that good, which is passed on to the consumer, ensuring that the imported product costs more than the same product produced domestically.
Those seeking to expand into foreign markets view such tariffs as barriers to other markets.
The U.S. imposes few if any tariffs on foreign goods. However, the office of the U.S. Trade Representative said tariffs on agricultural products are on average about 19 percent in Japan and 16 percent in Vietnam.
Edwards said the abundance of cheap goods produced at low costs — along with regulation or the lack thereof — in other countries tilt the playing field in favor of other countries and against the U.S.
The TPP, Edwards said, will make progress in remedying that.
However, those looking at the TPP as some kind of immediate fix for all that ails farmers when it comes to selling their products overseas will likely be disappointed, said Les Rispens, executive director of Hill County Farm Service Agency in Havre, a federal agency that administers farm regulatory laws.
“Our short-term barrier is the strong U.S. dollar,” Rispens said.
A robust dollar drives up the cost of U.S. goods in countries overseas, making those consumers less willing to purchase them. The strength of the dollar, along with low commodities prices, are the issues most likely on the minds of farmers right now.
In the long-term, however, the TPP contains mechanisms and reforms that will likely be beneficial to farmers, or at least not harmful, Rispens said.
Among other things, the TPP establishes a modern framework for a uniform grading system that will be used in evaluating the quality of a given product.
For example, if wheat in the U.S. is rated grade one or grade two, it might not matter in another country because they might have a different grading system. The TPP will create a common standard in all 12 countries rather than 12 separate standards.
The deal will also help make America a stronger player in the Asia Pacific region, providing a counterbalance to China, Rispens said.
China, which is not part of TPP, is growing more wheat, but given the country’s large population, their harvest will most likely stay within their domestic market, Rispens said.
Beyond wheat and grain, the Hi-Line’s ranchers are likely to be affected by the TPP.
Altogether, Montana exported nearly $4 billion of beef and beef products in 2014 to countries party to the TPP, according to the U.S. Department of Agriculture’s Foreign Agriculture Service.
Still, many of those countries can impose tariffs as high as 50 percent on such products. If approved, the TPP will lower those tariffs, allowing more product to be sold in foreign markets.
“In the beef industry, we’re all for it,” said Leon LaSalle, a Bear Paw Mountains rancher and member of both the North Central Stockgrowers Association and the Montana Stockgrowers.
LaSalle said with increased demand overseas, ranchers need as many opportunities as they can get to sell their product on the world market.
LaSalle said Errol Rice, vice president of Montana Stockgrowers, had traveled with Gov. Steve Bullock on a trade trip to Asia in November, confirming what LaSalle said many ranchers knew: beef, especially American beef and beef products, is in high demand.
“They recognize our product is safe and they want access to it,” LaSalle said about Pacific Rim nations.
But where many see promise and the chance to tap new markets or “write the rules” for global trade as President Barack Obama likes to say, many others see peril and cause for anxiety.
Politicians such as Democratic presidential candidate Sen. Bernie Sanders, I-VT., have been the voice of such frustration.
“In the Senate I will do all that I can do to defeat this agreement,” said Sanders, when the deal was released back in October.
Opponents decry what they see as secrecy surrounding the details over the course of seven years when the agreement was being negotiated.
Some in Montana are wary about, if not outright opposed to, the TPP.
“We believe it will be a disaster for our cattle and sheep industry,” said Bill Bullard, CEO of R-CALF USA, an organization based in Billings that has chapters in 48 states, The group advocates for cattle ranchers small and large.
After 23 free-trade agreements, some of which have been entered into with TPP member countries such as Australia, Canada, Chile, Mexico, Peru and Singapore, Bullard said, the U.S. has accumulated a $46 billion trade deficit in the trade of beef, cotton, beef products and processed beefs.
U.S. Cattle imports have increased 25 percent greater over last year and cattle prices have been falling, Bullard said.
Though the TPP does reduce tariffs, Bullard said it fails to address practices such as currency manipulation, where a country purchases or sells a foreign currency to prevent it from having equal value with the domestic currency. Not addressing this issue, Bullard said, can have the effect of a backdoor tariff.
“You can spend 10 years negotiating tariff reduction and currency manipulation can nullify any concessions over night,” Bullard said.
Furthermore, opponents of the TPP say the agreement allows for legitimate domestic regulations regarding worker’s rights and food safety standards to be challenged through the investor-state dispute settlement process, an arbitration process for settling disputes between states, corporations and states and individual states.
When nations, corporations or individuals have a dispute with a country, it is brought before the three-person panel and a decision is reached. Critics worry such a process could be used to undo legitimate regulations.
“It represents another step of ceding U.S. sovereignty to international tribunals that will circumvent and second guess our legislative and judicial systems here in the U.S.,” Bullard said.
Making the agreement more vexing for TPP opponents is the fact that members of Congress can not filibuster or add amendments. The deal has to either be passed or rejected.
The text of the TPP was just made public in November.
Under the trade promotion authority granted to the president by Congress in June, the president cannot sign the TPP into law until 90 days after the agreement is made public, said the office of Sen. Orrin Hatch, R-Utah, and chairman of the Senate Finance Committee.
In the coming months, members of both houses of Congress will scrutinize the agreement to evaluate whether the TPP is a fair deal or a raw deal for the U.S.
Montana’s two senators, Democrat Jon Tester and Republican Steve Daines, along with Rep. Ryan Zinke, R-Mont., the state’s only member in the U.S. House of Representatives, all said they are looking over the deal, in statements released from their offices Nov. 5, when the text of the full agreement was made public.
All three said they support expanding trade but want to ensure it is fair trade that benefits Montanans.
The offices of Daines and Zinke have not released any further statements since the release of the proposed agreements text.
"Jon continues to review the final agreement to make sure it works for ordinary working Americans, strengthens family farms and ranchers and protects Montana jobs from being shipped overseas," said Les Braswell, deputy Communications Director for Tester.
Braswell said Tester had "major concerns with the lack of transparency when TPP was being drafted."
Initially when the deal was reached in October, it was thought it would come up for a vote in Congress early next year.
However, Senate Majority Leader Mitch McConnell. R-Ken., in a December interview with the Washington Post, warned that if the TPP is put up for a vote in Congress before November’s elections, the deal would likely be defeated.
McConnell said the deal should be brought up no earlier than the lame duck period between the November elections and January when President Obama leaves office.
It’s something that doesn't surprise Edwards.
“Everything gets tougher in an election year,” Edwards said.