Congress Should Pass Trade Promotion Authority

Wayne Winegarden

Too frequently politics trumps sound policy. Fast track trade negotiating authority, also known as trade promotion authority (TPA), presents an opportunity for our lawmakers and the executive branch to illustrate that good policy can still prevail.

If re-authorized, TPA, which was first passed in the Trade Act of 1974, would give the Obama Administration credibility with our trading partners as negotiators try to successfully conclude the Trans Pacific Partnership Agreement (TPP).

Under a TPA, Congress would maintain a powerful voice over whether the U.S. would enter into the TPP agreement. However, Congress would only have the ability to conduct an up or down vote on the deal, Congress would not have the ability to amend the trade deal.

Such a commitment is important. It is unlikely that our trading partners will approve a free trade agreement with the U.S. knowing that the terms of that agreement could, and likely would, be endlessly changed or bottled up in Congressional committees due to amendments from any one of the 535 Members of Congress.

Free trade has been a cornerstone of U.S. policy across the political spectrum. Indeed, the free trade debate has frequently proven to be an area of rare bipartisan agreement going as far back as NAFTA, where President Clinton leaned heavily of Republican’s in congress to move the agreement forward to passage. 

Without TPA authority, the chances of successfully completing the TPP agreement are slim at best. But, the potential benefits to the U.S. (as well as our trading partners) from successfully concluding TPP is too great to ignore.

The Trans-Pacific Partnership would create a free trade bloc across the Pacific-Rim countries from Australia to Japan, and from Chile to Canada. If successful, the benefits to American consumers and producers would be significant. American producers benefit from more business opportunities abroad; while consumers benefit from greater choice and innovation here at home.

The United States is already the world’s largest exporter of goods and services.[1] Approval of the TPP would grant businesses manufacturing in America broader access to fast-growing Asian markets. It is expected that more than 70 percent of GDP growth over the next decade will come from emerging markets, and many of those markets are in Asia.[2] Therefore, broader access to these Asian markets offers U.S. businesses the opportunity to maintain their leadership role across the global economy.

 

By some estimates, an agreement could grow the U.S. economy by $77 billion a year by 2025.[3] All told, the TPP could generate annual income gains of $295 billion globally.[4] These benefits arise due to the significant reduction in tariff and non-tariff barriers that still burden economies across the region.

For instance, the average tariffs imposed by several of the countries that are part of the TPP negotiations significantly exceeds the average tariffs imposed by the U.S. These tariffs diminish trade opportunities for U.S. companies and reduce the overall value that expanded trade offers to both the U.S. and our trading partners.

Then, there are other non-tariff barriers that are even more complicated. Take state sponsored patent trolls, officially known as Sovereign Patent Funds (SPFs) as an example. Patent trolls – entities designed to purchase old patents with the sole purpose of extorting money out of established companies – are a large problem. SPFs are the state sponsored version of this problem.

SPF’s use government subsidies to extort royalties from foreign competitors who are already using the new technology. SPFs are a means for governments to exploit gaps in the patent system in order to disadvantage companies from other countries.

Due to their government subsidies, these state sponsored patent trolls are able to pursue patent claims that are typically even more dubious than privately funded patent trolls.

By targeting foreign companies, SPFs raise the operating costs of foreign competitors relative to their domestic champions, thereby creating a non-tariff barrier. But, unlike other non-tariff trade barriers, government sponsored patent trolls will adversely affect foreign competitors global profitability. Consequently, the negative impacts on trade and economic growth including less job creation, slower income growth, and diminished consumers benefits are all amplified.

Unfortunately, the use of SPFs is pervasive across the TPP region. Taiwan has a SPF called the Industrial Technology Research Institute that holds nearly 19,000 patents; South Korea has a SPF known as Intellectual Discovery; Japan has created the Innovation Network Corporation; and China has the $50 billion the Ruichuan IPR Funds.

Not only are these funds unfair, they diminish the vibrancy of the most innovative sectors of the U.S. economy.

The TPP offers the best pathway for eliminating these high tariffs and non-tariff barriers. Through TPP negotiations, the U.S. government has the opportunity to lower the tariffs on U.S. exports, increase the quality and availability of goods and services available to U.S. consumers, and push for the dissolution of non-tariff barriers such as Sovereign Patent Funds.

Americans benefit from an approach to trade that encourages competition and enhances consumer choice. The Trans-Pacific Partnership, by removing current obstacles from trade, does just that. This opportunity will likely be squandered, however, if the Obama Administration is denied trade promotion authority.

 

Wayne Winegarden, PhD is a Senior Fellow at the Pacific Research Institute, a Contributing Editor to EconoSTATS at George Mason University, and a Partner at the consulting firm Capitol Economic Advisors. 



[1] “The Benefits of International Trade” U.S. Chamber of Commerce; www.uschamber.com/international/international-policy/benefits-international-trade-0.

[3] Petri, Peter A., Plummer, Michael G. and Zhai, Fan (2013) “Adding Japan and Korea to the TPP” March 7; asiapacifictrade.org/wp-content/uploads/2013/05/Adding-Japan-and-Korea-to-TPP.pdf.

[4] Petri, Peter A. (2012) “The Trans-Pacific Partnership and Asia-Pacific Integration: Policy Implications” The Peterson Institute for International Economics; www.piie.com/publications/interstitial.cfm?ResearchID=2146.

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