According to a March 2015 CRS report about the Trans-Pacific Partnership (TPP) and the annual level of trade already taking place between the US and the other twelve trade bloc members is quite high; in 2014 over $1.6 trillion in merchandise trade between the US and the other eleven TPP members took place. Foreign Direct Investment (FDI) flows have also been robust amounting to tens of billions annually. By 2013 the total stock of US FDI in the other eleven partnership countries amounted to nearly $984 billion while FDI within the US from the other eleven partners was just over $664 billion. The promotion of annual goods trade and direct investment liberalization hardly needs a new foreign trade agreement (FTA) among these twelve trade partners! As noted by the CRS report;
"...the TPP negotiators have expressed their intent to achieve a "comprehensive and high-standard" FTA that will broadly liberalize regional trade and investment. From the U.S. perspective, a significant share of this liberalization has already occurred from existing U.S. FTAs with 6 of the 11 TPP partners..."
As I've noted in previous diaries, the TPP is just more corporate globalization designed to enhance corporate power over national level decisions regarding patent protection and intellectual property rights, labor and environmental standards and other key issues that will be beyond the reach of elected representatives by some of the terms of the TPP. The net impact on jobs and wages will also be dire.
An updated report from the Globe and Mail, claims that Japanese negotiators seek a concession allowing them to bring assembled vehicles and auto parts into the US duty free "...but with substantial content from non-TPP countries". Current NAFTA rules stipulate that assembled vehicles can be shipped into the US, Canada or Mexico if 62.5% or more of the content originates in the three NAFTA countries. The US and Japan provisionally agreed upon much lower content rules for parts and assembled vehicles in a recent phase of the TPP negotiations which allows Japanese companies to source raw materials and parts from countries outside the TPP free trade agreement (FTA). Both Canadian and Mexican auto industry officials are quoted by the report as saying;
“If this provision were to come into force, our companies and workers would be placed in a competitively disadvantaged [position] in the North American market. [It] would seriously compromise our operations in the North American region, and we may be forced to significantly reduce our operations...”
Efforts to break the impasse are still in progress but the point seems to be that with each succeeding FTA, more and more of the meager guarantees from past agreements are breaking down as each new FTA seeks to concentrate the benefits of global trade in fewer and fewer hands. The TPP, which, according to the Office of the US Trade Representative (USTR), seeks to govern an area that covers roughly 40% of global GDP and a third of all world trade, is the most radically deregulated trade area thus far allowing corporate control of all aspects of trade, production and public standards to be entirely governed by corporate rules.
One example is the effort by the TPP to denationalize state owned enterprises (SOEs) in many of the Pacific Rim economies even those which exist "...to fulfill a public function neglected by the market or which is a natural monopoly..." may be challenged in the court system of a particular country "on the basis of commercial considerations" as trade discrimination under the terms of the TPP. SOEs would be prohibited from "discriminating" in favor of local businesses in sourcing goods or services which is one of the advantages of SOEs for sustaining the local economy and local jobs through upstream and downstream linkages. The WikiLeaks report points out that;
Foreign companies would be given standing to sue SOEs in domestic courts for perceived departures from the strictures of the TPP, and countries could even be sued by other TPP countries, or by private companies from those countries. Developing countries such as Vietnam, which employs a large number of SOEs as part of its economic infrastructure, would be affected most. SOEs continue to fulfil vital public functions in even the most privatised countries, such as Canada and Australia.
This is one threat to job creation in several of the non-US TPP partners. But the TPP is one of globalization's ways of consolidating corporate control over the global economy and concentrating the benefits of international trade and direct investment. A "Ministerial Guidance" brief from the TPP negotiations was published by WikiLeaks in December 2013 showing how the TPP will place restrictions on SOEs beyond those now imposed by the WTO stating that, "The majority of TPP countries have supported additional disciplines on the commercial activities of SOEs and Designated Monopolies that go beyond existing obligations in the WTO and in FTAs..." New "disciplines" or restrictions and regulations placed on SOE activity in TPP countries are designed to eventually replace state owned or subsidized activity with private corporate investment generally reducing overall local employment. It is certain that the TPP negotiators seek to transfer currently provided government services and production to the private sector. The fact that the Office of the USTR has sought to limit, through new provisions and "disciplines" in the TPP treaty, competition between existing SOEs and private corporations, indicates that privatization is a major goal of the TPP.
But what of the effect on jobs and worker income in the United States? One of the most frequently cited studies on the TPP's effects came from economist David Rosnick with the Center for Economic and Policy Research. In this brief study he claims that, "Taking into account the un-equalizing effect of trade on wages, the median wage earner will probably lose as a result of any such agreement. In fact, most workers are likely to lose..." This is not a very promising outlook!
Rosnick goes on to substantiate his views that growing trade levels increases existing wage inequality by stating that;
From 1990 to 2007,3 wage inequality in the U.S. increased significantly...the bottom 90-95 percent of the annual wage distribution grew more slowly than the average wage...The median (50th percentile) wage fell 7.6 percent relative to the national average, while the wage at the (top) 99th percentile rose 17.2 percent. If even 10 percent of the change in inequality was the result of increased trade, and if only 20 percent of increased trade was due to trade agreements, then the median wage fell by about 0.34 percent on account of trade-agreement related inequality—three times the estimated average gain from implementing the TPP.
Rosnick expects "...the contribution of trade to inequality to be much the same in the future as in the past. He argues that there has been, over the past twenty five years, a growing correlation between increased trade intensity and wage inequality in the US, in other words losses for those workers in all but the top ten percent of earners. In essence, the higher the level of trade intensity the higher the inequality and the greater the impact of trade intensity on wage inequality, the greater the median wage falls relative to the national average. Rosnick explains that the biggest changes over the 25 year period under consideration occurred in the 50th to 80th percentile of the wage level distribution with those below being affected mostly by minimum wage benchmarks and those above being harmed less with the top ten percent actually gaining higher wages. Rosnick explains the correlation between trade intensity and changes in wage inequality; "...over the period 1990-2007 the median wage fell by about 1.3 percent relative to the average, for every percentage point increase in trade intensity."
Regarding future trade agreements, Rosnick calculates that;
"...with the assumption of just 10 percent of the increased inequality due to increased trade, the median wage actually falls – in absolute terms, not just in comparison with the average – by 0.0087 percent. Under the assumption of 50 percent of the inequality due to increased trade, it falls by 0.58 percent. Thus, under any reasonable assumptions about the effect of trade on inequality, the median wage-earner, and therefore the majority of workers, suffers a net loss as the result of these trade agreements."
This is mostly because US workers find themselves competing with much lower wage workers in the countries of our major trade partners. The other reason that trade intensive economies depress average wages is through imports displacing workers and creating higher average unemployment rates which are known to depress average wage growth. Rosnick therefore concludes that a strong fiscal stimulus program over the course of a year or two would have many times the beneficial impact on average wage levels as any FTA over the same time period. But what about job creation itself?
Think Tanks like Public Citizen remind us of the post-NAFTA trade related job losses. Using Bureau of Labor Statistics, PC estimates that around five million US manufacturing jobs have been lost and 55,000 manufacturing establishments closed since the mid-1990s. As is often noted, globalization itself, and thus the trade deals so emblematic of the global era, are less about trade than foreign direct investment and other advantages for transnational corporations. One reason that US trade related job loss and trade deficits increased over the past twenty years is that US trade partners offered significant inducements to US corporations to relocate production outside the US. This led to a loss of jobs and increased US trade deficits over time. Economists at the Economic Policy Institute assert that the protection of intellectual property rights, particularly for big pharmaceutical firms, is the most important feature of the TPP. It will be the US manufacturing sector, which comprises about 69% of all US industrial R&D spending in 2012, had total output of $5.9 trillion in 2013 and contributed over 35% of US GDP in 2013 that will be most harmed by the TPP's implementation. The terms of the TPP could lead to job loss by making specific US industrial sectors vulnerable to duty free imports. It should be remembered that most lost manufacturing jobs are replaced by new jobs offering significantly lower wages with less benefits and job security.
Like the US auto parts industry, the US textile industry is vulnerable to cheap duty free imports under the terms of the TPP treaty. According to a CRS report from August 2014, the US textile industry employed more than two percent of all manufacturing sector workers and generated $57 billion in output about a third of which is exported. Up until now, the US textile industry enjoys a large net export surplus annually to the NAFTA/CAFTA/Dominican Republic countries that are part of the agreement. The TPP would change much of this allowing Asian TPP members, principally Vietnam, to export textiles and garments duty free to the US threatening the US textile industry and the nearly quarter million US jobs in that sector. It would also allow manufacturers located in Mexico and Central America to source yarn and fabric from Asian TPP member countries displacing US textile exports to other NAFTA/CAFTA member states by allowing garments made with Asian member textiles privileged access to US markets. Much of the existing US textile industry could be displaced by cheaper fabric made in places like Vietnam by US manufacturers locating there for cheaper labor. It would also allow in assembled garments from TPP members made with fabric from non-TPP countries such as China. The TPP would not open new markets for US made textiles but merely send US manufacturing jobs to Asian countries displacing US domestic apparel manufacturing. It would also replace US textile exports to Mexico and Central America with those from Asian TPP countries like Vietnam. US textile manufacturers fear a loss of market share in the western hemisphere to Asian TPP member countries. It is retail and apparel firms that want to import clothing duty free regardless of wear the fabric is made and by whom. These are the corporate interests most supportive of the TPP.
Asian manufacturers, who now face a 32% tariff against finished apparel and textiles, would gain duty free access to US markets under TPP. This would clearly be a disaster for US jobs both in industries that produce for export and for domestic markets. The global apparel industry is a complex network of production and supply chains that span many regions. US textile production has declined since the 2008 recession with the closing of some 2,555 domestic manufacturing plants. Billions in new investment in the US textile industry, much of it in technological improvements, has taken place over the past decade but new production and jobs are now threatened by foreign competition most from TPP countries. Like past FTAs, the TPP will likely reduce US industrial manufacturing employment.
The apparel industry is very labor intensive and low tech but the textile industry is comparatively capital and scale intensive requiring highly skilled workers. US textile jobs tend not to be offshored to the extent that garment assembly is but over the past five years, China has become the world's leading textile manufacturer far outpacing all others. Up until now, most of the decline in US textile manufacturing has been from technological improvement or, for the most part, garment imports using foreign textile inputs. Domestic US textile industry employment has, according to the CRS report, declined since 1990 by over half a million workers. China is not a TPP member but much of the assembled clothing from Asian manufacturers getting duty free access to American markets would surely source their textile inputs from China unless the TPP stipulated that duty free clothing imports from that region would have to be made with textiles from the TPP. The recovery brought in more textile imports to the US but almost all of the imports of clothing from Mexico, the Caribbean, Canada and Central America are made with US textiles. The problem is that NAFTA/CAFTA apparel imports accounted for only 16% of all apparel imports to the US in 2013 with most of the rest coming from Asia using mostly Chinese textile products!
A recent Wall Street Journal report explains the scope of the problem. US apparel imports from Vietnam have increased faster over the past ten years than from any other source. More than 85% of the textile inputs into Vietnam's apparel manufacturing is imported, mostly from China, South Korea and Taiwan-all non-TPP members-with very little from the US (which exports raw cotton to Vietnam but little processed material). The WSJ explains the main concern,
Clothing brands want duty-free entry to the U.S. for all goods made in the new free-trade zone, no matter where the fabric is produced. The trade negotiations could slash U.S. duties on many of Vietnam’s exports of garments and shoes to zero from between 7% and 32%.
Vietnam plans to reduce its reliance on Chinese textile imports but it plans to replace the Chinese and other non-TPP member imports with domestic production. The WSJ report explains;
Vietnam has its own ideas. The country is working quickly to develop a homegrown textile industry, which would help get around the restrictions. “Vietnam is seeking to reduce its reliance on imports from China for its garment industry to better benefit from TPP,” said Phan Chi Dung, a senior official with Vietnam’s Ministry of Industry and Trade. However, he sees little chance of U.S. producers filling the void.
The "yarn forward rule" that US trade negotiators are requesting only stipulates that "...each component starting with the yarn used to make the textiles or apparel must be formed within the free trade area." (CRS Report/April 28, 2014) This still allows non-TPP members such as China, South Korea and Hong Kong to establish textile manufacturing inside Vietnam allowing apparel from that country to enter all TPP markets duty free. This is hardly advantageous to US employment growth since Vietnamese apparel exports to the US market won't include US textile inputs. The WSJ report notes that future output from foreign owned textile operations in Vietnam could eventually compete with US textile exports to Mexico and Central America. In addition, under pressure from US retailers and apparel manufacturers, "...the trade agreement would allow Vietnam to continue to source from any country textiles and yarns on a “short-supply list”—inputs that aren’t produced in sufficient quantities inside the proposed trade zone." It has not yet been established whether or not this special treaty provision is temporary. In any case, it is a real threat to US textile industry employment.
The TPP, like all FTAs, has had a negative effect on US wages, employment and overall consumer welfare not to mention the downward pressure it has had on other social standards. It widens the range of corporate power by concentrating the benefits of world trade and investment among fewer and fewer transnational corporations. Special rules, often referred to as "global governance" reduces democratic control by elected national representatives over the global economy. Wealth, income and productive assets are greatly concentrated on a global scale. A race to the bottom presses down on wages and living standards eliminating the middle class in many places. The global economy becomes more stagnant, concentrated and exclusive.
The threat the TPP poses to key US industries such as passenger vehicle manufacture and textiles, to name a few, by allowing trade partners duty free access for products with parts sourced from outside the trade area endangers jobs and the overall US economy. It is easy to see how the spirit if not the letter of the agreements can be broken to the disadvantage of American workers. The TPP and all such FTAs should be rejected.