Article

FEB 23, 2017 – 9:00AM

A Model Trade Agreement? Congress Already Provided One

JOHN G. MURPHY

Senior Vice President for International Policy
In light of President Trump’s pledge to pursue expanded trade that is both free and fair, it’s worth revisiting the question of how the federal government should pursue enforceable new trade agreements to advance these goals. In this context, the suggestion that a “model trade agreement” could expedite trade negotiations has arisen. But it so happens that we already have a pretty good approximation to such a model. The “Bipartisan Congressional Trade Priorities and Accountability Act of 2015’’—also known as Trade Promotion Authority (TPA-2015 below)—was passed by Congress and signed into law just a year and a half ago. It may not be a fill-in-the-blank template, but it provides detailed instructions to U.S. trade negotiators on just what kind of trade agreements they should pursue. In fact, it’s more than a set of instructions: It’s the law. It reflects the Constitution’s charge that “Congress shall have power … to regulate commerce with foreign nations.” In TPA-2015, Congress delegated to the executive branch for a period of time authority to enter into negotiations regarding commerce with foreign nations, but it did so with strict conditions. It requires close executive-legislative consultations, reserves the right of Congress to approve or reject the resulting agreements, and provides detailed instructions regarding the content of such agreements. In its negotiating objectives, the TPA statute provides a detailed roadmap for new trade agreements—one that secured bipartisan support in Congress and broad approval from the U.S. business and agriculture communities. So there’s no need to devise a new model for possible new trade agreements with other countries. TPA provides that model. * * * The following is from a summary of TPA-2015 prepared by the staff of the House Ways and Means Committee and the Senate Finance Committee (shown in italics), with added detail from Trade Promotion Authority (TPA): Frequently Asked Questions, published by the Congressional Research Service. Updates Negotiating Objectives for the 21st Century: Through TPA, Congress sets clear and ambitious negotiating objectives for the Administration and puts U.S. trading partners on notice about Congressional expectations. TPA-2015 updates and modernizes existing negotiating objectives to ensure that U.S. trade agreements open markets to U.S. goods, services, and investment and deliver for American workers. CRS provides this detail on how trade agreements should open foreign markets: “The market access negotiating objectives under TPA seek to reduce or to eliminate tariff and nontariff barriers and practices that decrease market access for U.S. products.” U.S. trade agreements have generally been much more comprehensive in terms of their market access than those of other nations, with duties eliminated from more than 99% of all tariff lines and extensive non-tariff barriers also swept away. CRS adds that TPA-2015 requires “that U.S. negotiators strive to reduce or eliminate barriers to trade in services, including regulations that deny nondiscriminatory treatment to U.S. services and inhibit the right of establishment (through foreign investment) to U.S. service providers.” TPA-2015 also highlights “the role of services in global value chains and calling for the pursuit of liberalized trade in services through all means, including plurilateral trade agreements (presumably referring to the proposed Trade in Services Agreement (TiSA)).” Establishes New Goods and Services Objectives for the Digital Age: New and expanded provisions recognize the role of services in generating benefits across all sectors of the economy and facilitating trade, and encourage the negotiation of an ambitious TiSA. Updates objectives to facilitate digital trade, including through protections for cross-border data flows, and to recognize the significance of the Internet in international trade. CRS elaborates: “The Internet not only has become a facilitator of international trade in goods and services given its borderless nature, but also is itself a source of trade in digital services such as search engines or data storage. At the same time, however, digital trade and cross-border data flows have increasingly become the target of trade restricting measures, especially in emerging markets… [TPA-2015 calls] for trade in digital goods and services to be treated no less favorably than corresponding physical goods or services in terms of applicability of trade agreements, the classification of a good or service, or regulation.” It also instructs U.S. negotiators to secure commitments from governments to “refrain from enacting measures impeding digital trade in goods and services” and “extends that commitment to cross-border data flows, data processing, and data storage.” Strengthens Rules for Agriculture: Updated provisions seek robust and enforceable rules on sanitary and phytosanitary measures and address improper use of geographical indications. The TPA-2015 statute specifies that with regard to agricultural market access, the objective for U.S. negotiators is “to obtain competitive opportunities for United States exports of agricultural commodities in foreign markets substantially equivalent to the competitive opportunities afforded foreign exports in United States markets.” CRS notes that TPA-2015 describes in detail “what U.S. negotiators should achieve in negotiating robust trade rules on sanitary and phytosanitary (SPS) measures (i.e., those dealing with a country’s food safety and animal and plant health laws and regulations). This increased emphasis aims to address the concerns expressed by U.S. agricultural exporters that other countries use SPS measures as disguised non-tariff barriers, which undercut the market access openings that the United States negotiates in trade agreements.” Maintains Balanced Objectives for Investment: TPA-2015 maintains strong objectives to eliminate barriers to cross-border investment and protect U.S. investors from unfair treatment, while ensuring that trade agreements provide no greater substantive rights than U.S. investors have under U.S. law and have strong transparency and procedural protections. CRS adds that these protections for U.S. investment abroad include provisions calling for “non-discriminatory treatment, free transfer of investment-related capital flows, reducing or eliminating local performance requirements, and including established standards for compensation for expropriation consistent with U.S. legal principles and practices.” TPA-2015 also calls for “meaningful procedures for resolving investment disputes” in language that provides guidance to negotiators on how best to frame investor-state dispute settlement (ISDS) mechanisms. While progressives such as Senator Elizabeth Warren have opposed ISDS, an amendment she championed during the TPA-2015 debate was soundly defeated on a bipartisan vote of 39-60. Protects Intellectual Property (IP): Updated provisions to address government involvement in cyber theft, protect trade secrets, and facilitate legitimate digital trade, and the negotiating objectives continue to call for trade agreements to provide a high standard of IP protection, and to ensure that trade agreements foster innovation and promote access to medicine. As CRS notes: “The promotion of adequate and effective protection of IPR through the negotiation of trade agreements that reflect a standard of protection similar to that found in U.S. law is a key provision, as are provisions for strong protection of new technologies, standards of protection that keep pace with technological developments, non-discrimination in the treatment of IPR, and strong enforcement of IPR… A new objective in the proposed TPA-2015 seeks to negotiate the prevention and elimination of government involvement in violations of IPR such as cybertheft or piracy.” Updates Labor and Environment: Updated provisions reflect the United States’ most recent trade agreements, to require trading partners to adopt, maintain, and not waive or derogate from measures implementing internationally recognized core labor standards in a manner affecting trade and investment and multilateral environmental agreements to which the United States is a party, with the same dispute settlement and remedies as for other enforceable obligations. Promotes Human Rights: New negotiating objective recognizes the importance of trade agreements in advancing internationally recognized human rights aimed to ensure implementation of trade agreement commitments to strengthen good governance, transparency, the effective operation of legal regimes, and the rule of law, which promote respect for internationally recognized human rights and more open and democratic societies. Addresses Currency Manipulation: New negotiating objective for the first time directs that trade partners avoid manipulating exchange rates, such as through cooperative mechanisms, enforceable rules, reporting, monitoring, transparency, or other means, as appropriate. CRS notes: “The legislation, as introduced, stipulates that U.S. trade agreement partners ‘avoid manipulating exchange rates in order to prevent effective balance of payments adjustment or to gain unfair competitive advantage.’” The Senate defeated an amendment that “would have required the United States to negotiate ‘strong and enforceable rules against exchange rate manipulation,’ enforceable through the dispute settlement system of a potential agreement,” CRS adds, preferring to leave a menu of options for U.S. negotiators as cited above. Addresses Impact of State-Owned Enterprises (SOEs): A new negotiating objective calls for eliminating trade distortions and unfair competition from SOEs and ensuring that they act solely on commercial considerations. CRS explains that “U.S. firms often face competition from state-owned or state-influenced firms. The proposed TPA-2015 principal negotiating objective for SOEs seeks to ensure that SOEs are not favored with discriminatory purchases or subsidies and that competition is based on commercial considerations in order that U.S. firms may compete on a ‘level playing field.’” Seeks Strong Enforcement: Directs the President to secure strong dispute settlement mechanisms in agreements. CRS notes that such mechanisms allow the resolution of disputes “first through consultation, then by the withdrawal of benefits to encourage compliance with trade agreement commitments.” Seeks Improved Regulatory Practices: New and updated provisions aim at improved regulatory practices, regulatory coherence and compatibility, stronger transparency, and ensure that government regulatory reimbursement regimes are transparent, provide procedural fairness, and are not discriminatory. CRS explains: “The regulatory practices negotiation objective seeks to reduce or eliminate the use of governmental regulations (non-tariff barriers)—such as discriminatory certification requirements or non-transparent health and safety standards—from impeding market access for U.S. goods, services, or investment. Like the 2002 TPA, it attempts to obtain commitments in trade agreements that proposed regulations would be based on scientific principles, cost-benefit risk assessment, or other objective, non-discriminatory standards. It also seeks more transparency and participation by affected parties in the development of regulations, consultative mechanisms to increase regulatory coherence, regulatory compatibility through harmonization or mutual recognition, and convergence in the standards-development process.” Takes on Localization Barriers to Trade: A new negotiating objective addresses forced localization of facilities and related barriers to U.S. goods and services exports. CRS offers additional detail: “TPA-2015 adds a principal negotiating objective on ‘localization,’ the practice by which firms are required to locate facilities, intellectual property, services, or assets in a country as a condition of doing business. While localization can be motivated by privacy and security interests, there are concerns that such measures can be trade distorting and may be used for protectionist purposes. TPA-2015 would direct U.S. negotiators to prevent and eliminate such practices, as well as the practice of indigenous innovation, where a country seeks to develop local technology by the enforced use of domestic standards or local content.” Promotes Global Value Chains: New provisions encourage U.S. participation in global value chains and ensure trade agreements reflect the increasingly interrelated and multi-sectoral nature of trade and investment activity. Preserves Trade Remedies: Preserves the ability of the United States to enforce rigorously its trade laws. CRS explains: “The principal trade negotiating objective concerning trade remedies in TPA has been to ‘preserve the ability of the United States to rigorously enforce its trade laws’ and to avoid concluding ‘agreements that weaken the effectiveness of domestic and international disciplines on unfair trade.’”

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