Politico | 6 November 2015
Critic: TPP deal has ‘exclusions up the wazoo’
By Adam Behsudi
As the Obama administration extols the benefits of a massive Asia-Pacific trade deal unveiled Thursday, it is unlikely to mention how Peru can continue to limit performances by foreign circuses or that Chile can still ban foreigners as security guards.
The exceptions, laid out in multiple annexes and embedded in various chapters of the 1,000-page-plus Trans-Pacific Partnership agreement, range from these obscure provisions to controversial measures that could make it harder for U.S. businesses to compete overseas — and not incidentally, cost congressional votes where there might be no margin for error for passage.
The agreement allows Malaysia, for instance, to maintain preferential treatment for ethnic Malays in government projects, making it harder for U.S. construction companies to win bids for those contracts.
Mexico won language to prevent foreign companies from filing disputes challenging certain Mexican laws that cover everything from oil extraction to railways. That could anger some U.S. companies who feel wronged by Mexican policies.
“The text that I’ve read so far includes annexes and exclusions up the wazoo,” said Rep. Bill Pascrell (D-N.J.), a House Ways and Means member. “You think you’ve seen it all? You have not. Exclusions to rules by each country. Bilateral deals with Japan, and more than 50 two-way side letters.”
But what might seem like a quirky or inexplicable loophole from one partner’s perspective turns out to be a make-or-break provision for another, based on that nation’s history and economic traditions. And building a trade deal with 12 partners — especially one that will cover 40 percent of the world’s gross domestic product — involves a delicate balancing act, juggling among numerous sensitivities on the path to a deal.
U.S. Trade Representative Michael Froman says the deal will lower trade barriers and advance America’s values, as well as its interests in the fast-growing Asia-Pacific region.
"Other countries, such as China, are already moving forward with deals that don’t reflect our interests and our values," he said Thursday. "Failure to pass TPP would come at a high price here at home: jobs lost, wages cut and opportunity squandered."
Froman asserted that a foreign government’s ability to win exceptions in the deal was often weighed against the commercial impact on U.S. businesses.
Malaysia, for instance, sought to retain programs that give native Malays, known as Bumiputera, preference for contracts for government projects. The final deal laid out a sliding scale, allowing Malay businesses to get greater preference for smaller projects, while larger procurement bids, which are more interesting to U.S. firms, would provide fewer advantages.
“It’s an absolutely central policy there, absolutely central to their politics,” Froman said of Malaysia. “They would not be able to participate in TPP if they were not accommodated in one form or the other for what is a defining feature of their political system.”
By the same token, the U.S. was able to maintain the advantages given to small or minority-owned businesses when bidding on government contracts.
Vietnam made new openings in its public procurement market, which has largely been off limits to outside firms. But Hanoi can require foreign firms that win government contracts to use local labor and materials to benefit Vietnamese businesses.
“In terms of opening markets, it’s going to take them time,” said Jean Heilman Grier, a trade consultant who served as chief procurement negotiator for the U.S. Trade Representative’s office.
For the first time, the U.S. was also able to include rules that establish fair competition between private companies and state-owned enterprises, which some regard as a signal to China that membership in TPP would require drastic economic reforms.
But even as those rules seek to level the playing field in Vietnam, Malaysia and Singapore — countries with extensive state ownership throughout the economy — the deal allows those governments to shield such entities from certain requirements — potentially raising concerns among pro-business Republicans who want to see companies from their districts thrive in foreign markets.
Singapore’s massive sovereign wealth fund, Temasek, was exempted from the agreement’s rules on competition, for instance, despite its involvement in what are considered state-owned companies. But many of the companies it owns will be covered by the pact’s rules if Temasek appoints the CEO, or a majority of the senior management or board of directors, or if it actively directs the business.
Malaysia was able to preserve the ability of state-owned companies to offer preference to ethnic-Malay-owned businesses when purchasing goods and services, but only for commercial activities taking place within the country.
Vietnam was permitted to bypass a rule restricting government subsidies to state companies — as long as the funding is used for restructuring and does not give the company an unfair market share or enable it to undercut prices.
Despite the number of those exclusions for state-owned enterprises, U.S. businesses seemed heartened that few were granted a blanket exemption.
“I think the objective was every SOE [state-owned enterprise] had to eat something on the menu,” said a business source closely following the talks. “I’m expecting to give a ‘B’ to USTR.”
Lawmakers may also raise concerns over the definition of a state-owned enterprise, which the deal requires to be more than 50 percent owned by the government.
“If a government owns 49 percent of the shares in a particular company and let’s say no other shareholder owns more than 1 percent ... you would pretty likely expect that there would be a great deal of government influence and control over that enterprise,” said a House Ways and Means Committee staffer. “So I think that is a very real concern of ours.”