3p Weekend: A Triple Bottom Line Look at the Trans-Pacific Partnership

With a busy week behind you and the weekend within reach, there’s no shame in taking things a bit easy on Friday afternoon. With this in mind, every Friday TriplePundit will give you an easy read on a topic you care about. So, take a break from those endless email threads and spend five minutes catching up on the latest trends in sustainability and business.

Earlier this week, the Coalition for a Prosperous America (CPA) and the American Sustainable Business Council (ASBC) released an open letter to Congressional leadership urging them not to hold a vote on the Trans-Pacific Partnership after the November elections. Together, the groups represent over 250,000 American businesses, primarily small- and medium-sized companies.

If anything, trade deals are supposed to be good for business. So, why do the CPA and ASBC have beef with a lame duck TPP? The letter sums it up nicely:

"American voters’ trust in national leaders has been ebbing. Both major party presidential candidates oppose the TPP. A lame duck session vote on the TPP would further erode citizen’s trust in government. Legislators who have been defeated or are retiring would vote, but are no longer accountable to voters.

"President Obama seeks a legacy, but that legacy is not supported by either of his potential successors. A President Clinton or a President Trump deserves the opportunity to re-examine trade policy with a new analysis to determine what works and what does not."

The groups pointed to a May study from the U.S. International Trade Commission, which analyzes the deal's likely impact on the U.S. We took a gander at the same report through the lens of the triple bottom line.

For starters, what is the TPP?

If you're playing catch-up, here's the gist. The TPP is a trade deal between the United States and 11 other countries, mostly from the Pacific Rim region: Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Negotiations on the deal stretched over seven years before it was signed in Auckland, New Zealand, on Feb. 4 of this year. It has yet to enter into force, hence the back-and-forth about a lame duck vote here in the U.S.

The White House is all about the deal. "With the TPP, we can rewrite the rules of trade to benefit America’s middle class," the administration wrote on its TPP webpage. "Because if we don’t, competitors who don’t share our values, like China, will step in to fill that void."

But the deal was controversial from the start. Critics pointed to the fact that negotiations were closed to the public, but open to select business interests. Adding to the lack of transparency, the full text of the agreement was not released to the public until last year. Public resources like Read the TPP and a searchable version from WikiLeaks quickly followed.

While national security is a common argument in defense of the deal (i.e., let's do this before China can), the CPA and ASBC aren't buying it: "We are not persuaded by the national security argument in favor of the TPP," the groups said simply, adding that none of the 30 chapters in the International Trade Commission report reference national security.

Potential 3BL implications of the TPP in the U.S.

A rise in the U.S. trade deficit: In its study, the U.S. International Trade Commission (ITC) noted "the effects of [free trade agreements] on the U.S. trade deficit are ... widely debated." But the group did come to a conclusion on how the TPP may affect U.S. exports and imports: "The aggregate trade balance for the United States would decline by $21.7 billion by 2032" (page 94, for those following along). The CPA and ASBC noted this figure as further evidence that the TPP has "no economic benefit for the U.S."

Dodgy estimates on real income and GDP: The nonpartisan Economic Policy Institute had some strong words for the ITC report the day after its release. On the above figure, the group noted: "All else equal, this rise in the trade deficit would put downward pressure on U.S. GDP."

"Nonetheless, the report concludes that over the next 16 years, the agreement will increase U.S. national income by $57.3 billion, 0.23 percent. This GDP gain stems largely from the ITC’s adoption of the standard full-employment assumption in modeling the TPP’s effects. There may have once been a time where such an assumption was warranted, but it seems highly inappropriate to apply to an economy that has been operating beneath full employment for at least 8 years and counting." The CPA and ASBC also pointed to this faulty full-employment assumption, insisting "U.S. annual real income growth and GDP growth will be nearly zero."

A decline in U.S. manufacturing:  "Our current poor manufacturing trade performance will worsen by $24 billion per year, and manufacturing output and employment will shrink," the CPA and ASBC insisted in their letter. "All manufacturing sectors studied by the Commission will decline. None will improve."

The Economic Policy Institute forecast equally grim results, saying: "The ITC study predicts that most of the gains from the TPP will be concentrated in agriculture and service industries, while manufacturing, natural resources and energy will see growing trade deficits ... As a result, output in manufacturing, natural resources and energy is projected to fall 0.1 percent, and employment will fall by 0.2 percent."

A widening wage gap: In its report, the ITC estimates the TPP would "increase employment in the United States by about 128,000 full-time equivalent jobs, and increase the real wage rate by about 0.19 percent" (page 90). The Obama administration also insists the TPP would strengthen the U.S. middle class. But critics aren't sold.

"These results fly in the face of both the rising gap between the wages of college and non-college educated workers, and the ITC’s own claim that the TPP will reduce output and employment (Table 2.3) in high-wage manufacturing industries, while increasing output in low-wage agriculture (0.5 percent) and service sectors (0.1 percent, despite a growing trade deficit)," the Economic Policy Institute determined in its analysis. (For those of you looking for that table in the ITC report, it can be found on page 73.)

The CPA and ASBC agreed, saying in their letter: "Income inequality will worsen as U.S. workers are competing directly with foreign workers being paid a fraction of our wages. The 70 percent of U.S. workers who do not have a college degree will suffer the most wage deterioration. Thus, the middle class will further erode."

Erosion of labor and environmental standards: In their letter, CPA and ASBC say labor and environmental standards in the TPP are "insufficient because they are not subject to direct enforcement, in stark contrast to investor rights." In January, 3p's RP Siegel noted another factor that may erode labor and environmental standards -- the so-called 'dispute settlement' provision, outlined in chapter 28 of the text (click here for a user-friendly version on Medium).

The provision calls for “the establishment [of] a dispute settlement panel tasked with determining whether a party has failed to comply with its obligations under the Agreement.” The panels will consist of “three objective international trade and subject matter experts,” appointed by the disputing parties. The dispute process further allows for “trade retaliation.”

Siegel drew a comparison to TransCanada's suit against the U.S. government over its rejection of the Keystone XL pipeline, which relied on the dispute mechanism in NAFTA. TransCanada sought $15 billion in damages under the retaliation provision, saying U.S. environmental regulations hurt its business.

Would the TPP mean more of the same? It's tough to tell for certain, but the TPP was modeled after NAFTA -- an agreement critics say continues to threaten labor and environmental regulations and American sovereignty. The CPA and ASBC said simply: "Lower environmental standards in the TPP harm U.S. businesses that internalize environment costs but face foreign competitors that are allowed to externalize those same costs."

Increased exports of natural gas: The ITC study carries disturbing realities about the future of American natural gas exports under the agreement. "Natural gas, traded either via pipeline (in its natural state) or as a liquid (LNG) for movement in tankers, currently requires an export license approved by the U.S. Department of Energy, which is provided if the license is in the 'public interest,'" the study reads. "If the United States has a [free trade agreement] with the export destination, the application is automatically deemed consistent with the 'public interest'” (pages 222-223).

Environmental groups like the Sierra Club warned that such a change in licensing would "open the floodgates" for fracking in the U.S. And as such groups continue to insist the majority of global fossil fuel reserves must remain in the ground if we are to avoid the most significant impacts of climate change, the effect of free natural gas trade become even more ominous.

The bottom line

These are just a few of the factors that could influence America's future under the TPP from a 3BL perspective. We encourage readers to continue research on their own, utilizing resources like Read the TPP and the Economic Policy Institute's analysis of the ITC study. Once you've decided on your stance on the agreement, call your representatives to make your voice heard.

Image credits: 1) Flickr/SumofUs; 2) Official White House photo via nznationalparty on Flickr (press and personal use only); 3) Flickr/AFGE