Foreign Affairs just published a piece by me regarding TPP in its online
edition at
https://www.foreignaffairs.com/articles/americas/2016-09-21/trading-down.
It is entitled: Trading Down: Is the TPP Making the United States a Less BenignHegemon?

Excerpts:

The United States may be on the verge of walking away from a trade pact, theTrans-Pacific
Partnership (TPP), that it virtually wrote. 45 percent of thelanguage in previous U.S. FTAs can be
found copied verbatim in the TPP, andthat figure rises to 80 percent for the TPP's investment
chapter, which isof particular interest to the United States.

Yet the United States did not offer to open its market very much in returnfor the concessions that
it was able to wrest from others. According to theU.S. International Trade Commission (USITC), by
2032 the TPP would boostU.S. imports by a negligible 0.2 percent of GDP compared to baseline
projections.

In short, the United States has gained more on its priorities, such asinvestment, finance, and
intellectual property, than it has given to itsnegotiating partners on theirs. And yet, after years
of arduousnegotiations, the normally pro-trade Republican leadership in Congress isnow pushing to
reopen settled issues, largely to please special interestgroups such as pharmaceutical and tobacco
firms. No wonder, then, that U.S.trade partners, after resisting some of their own domestic interest
groupsto reach a deal, are expressing outrage..

The U.S. government simply no longer has as much power to corral competinginterest groups to agree
on a trade pact that would promote growth throughmarket liberalization, while at the same time
addressing the concerns ofthose who are hurt by liberalization. Hence, U.S. negotiators have
produceda TPP unable to command broad political support-a vacuum that gives narrowinterest groups
their veto power. To its allies abroad, the result is thatthe United States now appears both less
benign and less hegemonic.

The United States tells itself that in most sectors, tariffs were already solow that even
eliminating them altogether would not have done much toliberalize U.S. markets. However, there were
many other things besidestariff reduction that the Obama administration could have offered
othercountries. It didn't do so because Congress would have rejected the entirepact.

Consider government procurement, which amounts to more than ten percent ofU.S. GDP and has a history
of being protected by Congress. Foreigners areeligible to bid on only 20 percent of total U.S.
procurement. In 2014, only4.6 percent of the United States' total procurement was spent on imports,
compared to 4.7 percent in Japan, 6.1 percent in China, and 7.5 percent inthe European Union.
Suppose that the U.S. procurement market had the sameshare of imports as the U.S. economy as a whole
-roughly 13 percent. Thatwould increase U.S. imports by one percent of GDP, five times what the
USITCprojects the TPP will accomplish. Given that Japan's procurement market isworth about $1
trillion, and Canada's about $265 billion, mutualliberalization of procurement would have boosted U.
S. exports as well.Although the United States wanted changes in procurement policies fromMalaysia
and Vietnam, the USITC reports that the United States was unwillingto accept real changes to its own
procurement policies. Meanwhile, Japan andCanada, along with Australia, Chile, and Peru, have all
agreed to liberalizeprocurement for provinces and localities-as they have done in pastagreements-but
only for countries that reciprocate. The United States, alongwith Malaysia, Mexico, New Zealand, and
Vietnam, rebuffed the offer.

To placate the U.S. auto industry, Washington insisted that Japan acquiesceto an extremely lengthy
phase-out of auto import tariffs as a condition ofjoining TPP talks in 2013. Rather than using auto
tariffs as a bargainingchip to gain more Japanese concessions in farming or other areas,
Washingtoninsisted they were nonnegotiable. As a result, the United States' 2.5percent tariff on
imports of Japanese passenger vehicles and SUVs is to bephased out over 25 years. For pickups and
work vans, the tariff is to stayat a stunning 25 percent until year 29 and then drop to zero in year
30.These are far more stringent terms than those granted to South Korea throughthe U.S.-Korea trade
agreement, in which the passenger car tariffs arephased out in five years and the light truck
tariffs in ten.

The United States is hardly the only country that tries to protectpolitically connected special
interests-Japan's stubborn resistance toagricultural liberalization was a big factor in delaying the
pact. But U.S.leaders should reflect that such behavior on the part of Tokyo is one of thereasons
why Asia does not look to Japan as a leader.

Richard Katz

The Oriental Economist

www.orientaleconomist.com