Submission for the Record in Support of the Trans-Pacific Partnership Free Trade Agreement

The Council of the Americas (Council) appreciates the opportunity to express support for the proposed Trans-Pacific Partnership Free Trade Agreement (TPP) with Australia, Brunei, Chile, New Zealand, Peru, Singapore, and Vietnam. The Council is a policy organization representing approximately 190 member companies invested in and doing business throughout the Western Hemisphere. Since 1965, the Council has been dedicated to the promotion of democracy, open markets, and the rule of law, and we are widely recognized for our policy and commercial leadership throughout the Americas.

The Council strongly supports efforts to expand trade and investment, both on the basis of U.S. economic and national security interests and in the belief that open markets and healthy investment flows are critical tools in the search for sustainable, inclusive growth in the hemisphere.

In light of the stalled WTO Doha round and the lack of momentum toward reigniting discussions on the Free Trade Area of the Americas, the TPP may well be the most promising opportunity for hemispheric trade expansion that includes the United States. For this reason, engagement in the TPP was one of the main recommendations in the Council’s 2009 Trade Advisory Group report, Building the Hemispheric Growth Agenda: A Framework for Policy.

Given the desire of many nations in the Western Hemisphere to link more closely to Asia and the high-standards approach that the original parties have promoted through the agreement, the TPP is a creative and appropriate initiative that would build a bridge across the Pacific Ocean. Further, by engaging those parties in the Asia-Pacific region who truly want to expand trade and investment in a forward-looking manner, this vehicle provides an exceptional opportunity to begin to rebuild the hemispheric trade and investment agenda, as existing trade agreements are rationalized and additional countries seek to become parties to the process.

Countries in Latin America continue to negotiate with countries in the Asia Pacific, and the United States has consistently lost market share in both of these regions as other nations move more aggressively to negotiate preferential terms for their products. With the current U.S. focus on export-led growth, the United States must continue to open foreign markets to promote domestic recovery. Despite critics, trade agreements have proven to be an effective way to level the playing field for U.S. products and services abroad. In fact, statistics show that our trade is more balanced with the majority of our FTA partners than it is with our non-FTA partners.

There are currently more than 160 agreements in force in the Asia-Pacific region, most of which exclude the United States. The United States risks being left behind should it not pursue further trade liberalization. The exclusion of the United States from a number of proposed East Asia integration initiatives could lead to a situation where U.S. exporters are at a significant disadvantage at precisely the moment the United States should look to outside markets to promote domestic economic growth. The Asia-Pacific region accounts for nearly 60 percent of world GDP, half of all global trade, has markets totaling 41 percent of the world’s population, and, at least until recently, was growing faster than the world average with real GDP growth of 7.9 percent for the period 2007-2008. Already, the region is emerging more quickly from economic recession than other regions of the world.

Similarly, the countries of Latin America continue to move toward further regional integration at the expense of the United States. The failure of the U.S. to pass trade agreements with Colombia and Panama – two of our staunchest, strategically important allies in the region – has left other potential partners less willing to risk moving toward further liberalization with the United States. Meanwhile, a number of regional proposals, including UNASUR and ALBA, exclude the United States largely for political reasons but could also put U.S. exports at risk at a time when increased exports could prove to be a significant boost to U.S. economic growth. As well, the Arc of the Pacific excludes the United States. The Arc of the Pacific is a model of regional integration that seeks to promote trade and investment among the countries on the Pacific coast and also with Asian members of APEC. The idea of such a regional grouping was originally promoted by Peruvian President Alan Garcia before the financial crisis. With the emergence of China, India, and other Asian nations as principal drivers of economic growth post-financial crisis, coupled with the inability of the United States to move ahead with its own trade integration efforts, the Arc of the Pacific will be increasingly seen as a viable alternative to dependence on the U.S. market.

U.S. participation in the TPP – particularly in light of the fact that three additional countries have come on board since the original September 2008 announcement of full U.S. participation – could also create a critical mass, encouraging other nations in the Asia Pacific to come to the table to build a broader trade integration paradigm based on a high-standards, cutting edge, comprehensive approach. This would provide rewards to those nations in Latin America that have already taken the difficult political and economic steps to reform by linking them more firmly into the international system. Further, this approach could provide a significant incentive for other countries in Latin America to move ahead quickly with their own reforms in order to participate in the TPP, so long as the TPP is of significant economic weight as to be interesting in the first place. Finally, it would help expand trade and investment ties in the hemisphere among willing parties, allowing us to leave behind the broken hemispheric paradigm which relies on consensus with nations that are fundamentally opposed to closer links with the United States.

The Council strongly urges the administration to move forward expeditiously to define the outlines of the TPP based on the strategic economic interests of the United States in both Asia and Latin America. The rise of intraregional architectures, such as the East Asia Summit, the ASEAN + 3, and the Arc of the Pacific, continues even as the United States has taken a years-long hiatus. Until the U.S. actively negotiates and implements relevant agreements, it will continue losing opportunities, including market share in Latin America and Asia. And while the United States stands still, other countries will continue to negotiate with each other to break down barriers to trade and investment, putting U.S. products at a competitive disadvantage and U.S. strategic interests at risk.

NEGOTIATING OBJECTIVES

The Council supports the United States’ effort to craft a 21st century trade agreement and believes that the following objectives should be kept in mind in order to produce the highest-quality Trans-Pacific Partnership Free Trade Agreement.

First and foremost, as negotiations from the start include countries aligned in the presumption that open markets are mutually beneficial, the TPP should capture the most innovative aspects of existing free trade agreements and seek to make them even better. The countries involved in the negotiations are self-selected, and as such, the TPP presents a rare opportunity to begin at the highest existing level of trade agreements and improve from there, including product categories and trade disciplines that simply did not exist even a few short years ago. Such an opportunity should not be squandered but rather embraced.

The TPP would be an appropriate vehicle to use to begin to rationalize rules of origin among existing trade agreements in the region and to strengthen commitments on regulatory transparency. As over 90 percent of the world’s consumers live outside the United States, simplification of the existing complex system of rules of origin, along with enhanced regulatory transparency, would greatly improve the ability of U.S. companies, and in particular small and medium-sized enterprises, to take advantage of new potential markets.

At the same time, the vision for the agreement should be broader than a simple rationalization of existing agreements in force or under negotiation. As such, the agreement should be comprehensive, including substantially all products, services, and sectors. If the United States’ opening position in the negotiations includes sector and product exclusions, other countries would immediately follow suit. This would quickly dilute the gold standard argument for negotiating a TPP in the first place, making the ultimate agreement less useful for the purpose of improving people’s lives.

Once it is concluded, the agreement should go into force quickly between and among those parties who ratify it. That way, progress in building the trans-Pacific community will not be held up by domestic politics in any individual country or countries.

The agreement must also contain an accession clause allowing other countries to join at a later date, once they have met the standards of the agreement and are willing and able to take on the obligations enumerated therein. Membership in the TPP should not be limited to the 21 Asia-Pacific Economic Cooperation members. Rather, on trade, economic development, and foreign policy grounds, it should also be open in the near term to additional Latin American countries such as Colombia, Panama, and Uruguay, and others as appropriate, perhaps including these nations as observers or even participants in the first negotiation round in Australia in March.
Given the Administration’s focus on inclusive economic growth, outreach to small and medium enterprises in all participating countries should be prioritized with the intention of educating SMEs on the provisions of the agreement with recommendations for how to expand exports to the partner countries.

CONCLUSION

The Council strongly supports U.S. participation in the TPP as it would open the door to broader Asia-Pacific regional economic integration with like-minded countries in the Western Hemisphere committed to a high-standard trade and investment agreement. Given the current standstill in multilateral negotiations, further work on trade liberalization within the Asia-Pacific may offer the best path forward. U.S. engagement in the TPP could accomplish a number of U.S. objectives, while inaction would entail economic cost to the U.S. economy and strategic costs to our national interests, both in Asia as well as in Latin America. Negotiation of the Trans-Pacific Partnership Free Trade Agreement should be prioritized. The Council looks forward to working with the United States to craft a 21st century trade policy that will more broadly spread the benefits of trade.