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PCI Perspectives
Information, Analysis and Insights
into International Trade Policy
 
January 12, 2015

Keystone Bout:  The Undercard for TPA

Happy New Year and welcome to the 114th Congress! The short session at the end of last year accomplished just enough to keep this town's engines running, gearing up for big initiatives to come. The news cycle leading up to the presidential primaries and 2016 elections promises to be chock full of significant policy developments for international business. 

Right out of the gate, Senate consideration of the Keystone XL pipeline bill will test the new GOP leadership’s management of highly controversial legislation. In particular, the pledge to return to “regular order,” allowing amendments from both sides of the aisle to be fully aired and voted on.  We would expect nothing less than a full-throated debate over the most difficult aspects of this issue, including global climate change and U.S. energy security. All of this may be a harbinger of what is to come on the even more contentious subject of Trade Promotion Authority.  

Admittedly, the two topics differ radically in one major respect: the Keystone measure overrides existing executive authority and the White House has indicated that the bill would be vetoed if presented to the president.  TPA, on the other hand, would facilitate the conclusion of important international agreements and is something President Obama claims to want. Still, the Keystone drama will be instructive for its illustration of how the pros and cons will arise and be handled on the Senate floor.

State of play: Last week, the U.S. House of Representatives approved, by a vote of 266-153, legislation to permit the completion of TransCanada’s Keystone oil pipeline system. The bill, HR 3, is a straightforward four pages of legislative text, summarized as follows by the Congressional Research Service:

  • Authorizes TransCanada Keystone Pipeline, L.P. to construct, connect, operate, and maintain the pipeline and cross-border facilities specified in an application filed by TransCanada Corporation to the Department of State on May 4, 2012.

  • Deems the Final Supplemental Environmental Impact Statement regarding the pipeline issued by the Secretary of State in January 2014 to fully satisfy the National Environmental Policy Act of 1969 and any law that requires federal agency consultation or review, including the Endangered Species Act of 1973. 

  • Maintains in effect any applicable federal permit or authorization issued before enactment of this Act.

  • Grants original and exclusive jurisdiction, except for review in the Supreme Court, to the U.S. Court of Appeals for the District of Columbia Circuit over any civil action for the review of a federal agency action regarding the pipeline and related facilities.

  • Declares that this Act does not alter any federal, state, or local process or condition in effect on the date of enactment of this Act that is necessary to secure access from an owner of private property to construct the pipeline and cross-border facilities.

    The Senate is considering an identical bill, S. 1, which was reported by the Energy and Natural Resources Committee on Jan. 8 after a polarized exchange of views among the panel’s Republicans and Democrats that foreshadowed the arguments to come on the floor. 

    What’s next: This evening, the Senate has scheduled a  “cloture” vote to facilitate bringing the Keystone bill up on the floor.  Once the Senate begins debating the actual bill, the process will continue for at least several days and probably longer.

    What we’re looking for:  First, lots of amendments, including some that could impact trade beyond Canada.  For example, there could be a proposal to prohibit exports of any Keystone-transported oil, and others to require the use of American-produced iron, steel, and manufactured goods for the pipeline's construction, connection, operation, and maintenance; and/or to make sure that any foreign steel used is reported and certified as “fairly traded.”  If the bill is amended in any way, it will have to be reconciled with the House version before heading to the president. 

    Second, conflicting claims about potential job creation. The Washington Post’s Glenn Kessler already has provided some helpful fact-checking, showing that the impact would likely be more positive than the dismissive estimates of detractors (including the president), but less than proponents claim. The jobs debate associated with trade agreements will be even more important, and no less susceptible to Mark Twain’s “lies, damned lies, and statistics.” 

    PCI Periscope
                      
    Upcoming events of interest —

    January 13: House Ways and Means Committee hearing: "Moving America Forward, With a Focus on Economic Growth." A chance for the new chairman to set the tone for trade and tax reform efforts in the 114th Congress. 

    January 20: President Obama’s State of the Union Address. Expectations are high (maybe too high) for the trade agenda and TPA to be among the president’s top priorities. 


    Press & Pundits
                     
    In case you missed it --

    Sen. Elizabeth Warren’s speech to the AFL-CIO.  Sen. Warren is expected to be one of the most influential voices of the 114th Congress and in the 2016 presidential election cycle, so we’re paying close attention to what she says.  Here are excerpts on trade and taxation from her remarks at the labor organization's Jan. 7 summit on raising wages. The statements strike a characteristically progressive/populist note, while being vague enough not to tie her hands:

    “[Among] the choices Washington has made, the choices that have left America’s middle class in a deep hole…[is] the choice to sign trade acts and tax deals that leg subsidized manufacturers around the globe sell here in America while good American jobs get shipped overseas.”

    “We believe in trade policies and tax codes that will strengthen our economy, raise our living standards, and create American jobs — and we will never give up on those three words: Made in America.”

    Latest Pew poll on trade — A majority doubts that trade boosts jobs/wages but recognizes the benefit for the overall economy, and supports pending agreements with Asia (TPP) and Europe (TTIP).  Outside the beltway, more Democrats than Republicans favor the deals; ironically the opposite of the situation prevailing on Capitol Hill.  The write-up by Bruce Stokes is here.

    Thanks for reading; we always appreciate your comments and ideas.

    ____________________________________________________________



    November 12, 2014

    Lame Duck Priorities, Peril, and Promise

    “Trade is back!” exclaimed a colleague in an email after the Nov. 4 election results were in.  Today, Congress is back for its "lame duck" session. Various press editorials, lawmakers (mainly GOP), and the president himself have proclaimed trade policy to be an area where the two ends of Pennsylvania Avenue could meet during the next couple of years. Whether such collaboration might start with passage of Trade Promotion Authority (TPA) by the outgoing 113th Congress remains to be seen. There are plenty of reasons to hope the answer is “yes” and plenty of other reasons to suggest we’ll have to wait until 2015.

    In the latter column loom the preferences and priorities of Senate Majority Leader Harry Reid (D-Nev.), of which free trade has never been one. Plus, the agenda for the short post-election session already is crammed with must-do items like funding the government beyond December 11; authorizing defense programs; dealing with dozens of expired or expiring individual and business tax breaks; extending a moratorium on taxation of Internet access; and moving at least some of the administration’s 190-some pending nominations (not counting the recent pick of U.S. Attorney Loretta Lynch to replace Eric Holder as head of the Justice Department). 

    Nonetheless, a compelling reason for rapid action on TPA is the need to maintain momentum for U.S.-led initiatives like the Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Partnership (TTIP). The importance of concluding such high-level agreements is being underscored this week as China and various other countries clinch or promote other deals that are less ambitious and/or could hurt U.S. interests. One bright spot: a U.S.-China breakthrough on tariff elimination for advanced information technology products. The actual payoff may be years away, however, depending on the phase-out period that is in a yet-to-be finalized agreement among the 54 participating countries.

    The leaders of the 12 TPP countries declared on Nov. 10 that they have “instructed our Ministers and negotiators to make concluding this agreement a top priority so that our businesses, worker, farmers, and consumers can start to reap the real and substantial benefits of the TPP agreement as soon as possible.”  Yet the best offers most likely will be withheld until Congress enacts TPA. Moreover, we wonder if the announced two-year study of a Free Trade Area of the Asia Pacific (FTAAP) will ultimately provide another convenient excuse for some countries to avoid the tough commitments that will be required to complete TPP.  

    As House Ways and Means Committee member Rep. Charles Boustany (R-La) recently told Inside U.S. Trade, holding off on TPA  until next year could mean significant delay, as the new Congress will take time to organize itself, and new TPA legislation will have to be drafted. The timing for TPA could stretch well into the spring, which would not bode well for wrapping up TPP negotiations by mid-year.

    The current Senate Finance Committee chairman, Sen. Ron Wyden (D-Ore.), reportedly wants to make changes to the pending bill to increase the transparency of negotiations, strengthen trade remedy enforcement, and put greater emphasis on human rights as a negotiating objective. Wyden surely will remain a key player in the new Congress, but these remaining weeks as the trade committee chairman could be his last best chance to determine the content of TPA legislation. 

    Sen. Orrin Hatch (R-Utah), the likely next chairman of the Senate Finance Committee, seems to be fine with taking up TPA now, rather than waiting until he holds the committee gavel. According to Politico, "Hatch said he believes there would be strong support to pass trade promotion authority in the 'lame duck' session of Congress if Senate Democratic leaders decide to allow a vote. Whether that happens during the lame duck is ultimately up to Democratic leadership.”’ 

    The president already has used his Asia trip to note the importance of trade in anchoring U.S. engagement in the region. He will have an opportunity in his policy address in Brisbane to forcefully drive that message home, and repeat his request to Congress to send him a TPA bill.  If he does, it will be difficult for Majority Leader Reid to deny the request yet again.

    PCI Periscope

    Upcoming events of interest —

    Wednesday, Nov. 19Abenomics: Time to Rethink the Three Arrows? In this East-West Center seminar,  Mr. Hiroaki Kuwajima, Chief Financial Officer of Japanese think tank/consulting firm Aoyama Shachu Corporation (ASC), will discuss the political debate regarding the set of upcoming economic policy choices and the broader political/economic implications of the policy decisions expected to be finalized this December. More info and registration link here. 

    Thursday, Nov. 20 — A Double Opportunity: The WTO Environmental Goods Agreement. The Global Business Dialogue and the National Association of Manufacturers are sponsoring this colloquium on the Environmental Goods Agreement currently being negotiated in Geneva, with speakers from participating governments and affected companies. National Press Club from 9 a.m. to 10:30 a.m. Event notice and registration are here. 

    Thursday, November 27Thanksgiving Day.  Also, the Organization of Petroleum Exporting Countries (OPEC) meets in Vienna, Austria. Will they make us less thankful at the pump by cutting production? The fiscal pressure of slumping crude prices is an increasingly important factor, yet the status quo could hold for now, say analysts quoted by CNBC.

    Press & Pundits
     
    In case you missed it  —

    Peterson Institute for International Economics' Gary Hufbauer on how a GOP-led Senate could impact trade:  prospects for negotiations and TPA improve, but probably not in the lame duck session. See his blog post here.


      Council on Foreign Relations’ Robert Kahn, on the international economic agenda facing the new Congress. Among the issues he highlights: "The administration should also take the opportunity to reintroduce the proposed IMF reform package, which would slightly increase the resources available to the IMF and, far more importantly, increase the voice given to rising emerging market powers at the institution. Failure to do so will have substantial geopolitical consequences if it pushes those countries to attempt to operate outside of global institutions such as the IMF and World Bank.” Kahn’s blog is here.


      Thanks for reading; we always appreciate your comments and ideas.

      ____________________________________________________________


      October 24, 2014

      The road to structural reforms (including trade liberalization) could be…more roads.

      As countries struggle with anemic growth and lack of confidence in economic governance, infrastructure spending might be a promising path forward.A new push for global investment in transit, energy, communications and other infrastructure was a big theme at the recent IMF/World Bank annual meetings, and is likely to be a central focus at the G20 summit in Brisbane, Australia on November 15-16.  

      There is widespread agreement on the need for labor and product reforms to raise global employment and output, but those policy changes are politically tough, especially amid “mediocre” economic conditions. A takeaway from seminars during the IMF/World Bank confab was that infrastructure projects might ease the way for those hard choices.

      Former U.S. Treasury Secretary Larry Summers and International Labour Organization Deputy Director General Sandra Polaski, among others, advocated for a dose of public infrastructure spending in countries where it’s needed and affordable (including Germany and the U.S.), to spur demand while also improving supply side productivity down the road. 

      “Strengthening demand and avoiding deflation makes structural reform easier,” Summers argued.  Considering labor market reforms in particular (though the same comments could apply to fears about free trade agreements), Summers asked “In what kind of environment are you likely to be more successful at peeling away excessive job security rules — an environment where you say ‘structural reform is our priority, growth will come later,’ or an environment where you’re doing a whole set of things to create alternative jobs?”

      Skeptics may contend that the Obama administration’s effort in 2009 to fund “shovel-ready” projects didn’t pack the recovery punch it was supposed to.  Yet a report by economists at the San Francisco Fed suggests that national highway spending would have declined by 20% during 2008-2011 without the federal stimulus. 

      High-quality, but not necessarily high-profile Washington Post opinion writer Charles Lane rightly warns about cost overruns and benefit shortfalls, not to mention bridges to nowhere.  

      Indeed, the IMF analysis acknowledges that “a key priority in many economies, particularly in those with relatively low efficiency of public investment, should be to raise the quality of infrastructure investment by improving the public investment process”— and that doing so could provide as much of a boost to capital stock as several percentage points of increased spending in emerging markets and low-income countries.

      Meanwhile, flashy projects like new roads, high-speed rail lines or airports aren’t the only ones worth pursuing.  Lower-profile maintenance spending, like repairing bridges and fixing potholes, can have high rates of return in the form of reducing capital depreciation and extending the lifetime of existing infrastructure.  But because they usually don’t generate actual income streams, these upgrades are unlikely to be funded by the private sector. This is where the rubber of government spending has to meet the road.

      Public or private, there is more to come on the topic of infrastructure investment. The World Bank, together with other multilateral lending institutions and private investment managers have established a collaborative facility to fund new projects in developing countries, which is supposed to be “road-tested” later this year. G20 leaders at their mid-November summit are expected to announce a new infrastructure information hub to match available money with viable projects. In December, the European Investment Bank and the Commission are to report to EU Finance Ministers on potential public investment opportunities. The U.S. Congress will have to come up with a new federal highway and transit spending plan by May 31, 2015, when current authority is set to expire. 

      Connectivity boosts commerce — Colombian Finance Minister Mauricio Cárdenas drew attention to this obvious linkage during a session on trade and global value chains. “Having the right institutional framework — the free trade agreements, the rounds of negotiations — those are very important components to have higher trade.  But there are others that are equally important, like, for example, infrastructure.  So you really have to invest in infrastructure to generate more trade. One of the things we are doing in Colombia is precisely that,” said the minister, citing examples of toll roads and broadband access initiatives. 

      We will see how many others adopt the same playbook in the months ahead, in ways that can be broadly judged efficient and effective. 


      PCI Periscope

      Upcoming events of interest —


      Ukrainian parliamentary elections are scheduled for Oct. 26, amid economic collapse and the ongoing struggle with Russian-supported rebels in the Donbas (who are planning their own, unconstitutional elections Nov. 2). Think tank discussions in the aftermath include:  CSIS on Oct. 27, and the Brookings Institution on Oct. 29.  

      Economic summits fill the first half of November — The APEC leaders’ meeting is Nov. 10-11 in Beijing, followed by the East Asia Summit in Myanmar Nov. 11-12, and the G-20 summit in Australia Nov. 15-16.  Progress or stasis on major trade and investment initiatives will help determine global growth prospects in the new year. 

      The U.S. Congress returns on Nov. 12 for its post-election “lame duck” session.  Ambition may be colored by the results of polls on Nov. 4, but the agenda already includes several  “must-do” tasks. Among the most important:  funding the federal budget and authorizing defense programs for the rest of FY 2015; dealing with myriad expired business and individual tax breaks (the IRS says next year’s filing season will be snarled if this isn’t done by the end of November); and extending a ban on Internet access taxation. Action on Trade Promotion Authority is unlikely until next year. 


      Press & Pundits 

      In case you missed it  —

      Will the Largest Agreement in the World Be Achieved? Swedish lawyer Jan E. Frydman analyzes the background for the on-going negotiations between the EU and the United States to create a transatlantic partnership on trade and investment (TTIP), focusing on the challenge of regulatory convergence. Frydman, now a Partner at the law firm of Ekenberg & Andersson, is former European Commission head of unit for international regulatory agreements.  A summary of the article as well as the full text are featured here on the trade and investment blog site of the BritishAmerican Business organization.


      Thanks for reading; we always appreciate your comments and ideas.

      ____________________________________________________________


      September 23, 2014
       
       
      TPP end game (finally)? — Momentum is building ahead of President Obama’s Asia trip in November.  USTR Michael Froman and Akira Amari, Japan’s Minister in charge of TPP talks, will meet in Washington this week to make progress on sensitive agriculture and auto trade issues. The two countries aim to share their bilateral agreements with other TPP partners by mid-October, when the broader negotiations are expected to resume in Australia.
       
      Amb. Froman and other high-level experts underscored the economic and geostrategic significance of the Trans-Pacific Partnership (TPP) initiative at a Sept. 18 event co-sponsored by the U.S. Chamber of Commerce and the Center for Strategic and International Studies.  They stressed the need to complete the deal soon, and laid out some ideas for overcoming impediments among the participating countries and with the U.S. Congress.
       
      The talking points weren’t new, but the “pros” of a successful TPP and the “cons” of failure were presented with compelling insights and anecdotes.  While no one predicted an exact timetable, in our view the commentaries laid groundwork for a post-election push to rally congressional support and finish the TPP negotiations by early next year.
       
      Admittedly this is a heavy lift in a polarized Congress and an economically downbeat electorate that is deeply skeptical about the job-creating benefits of trade. Yet a solid majority (68%) still thinks trade is generally good for the country, according to a Pew poll released last week. At the same time, the political/military upheaval in just about every region heightens the national security relevance of the TPP and other big trade initiatives (like the Transatlantic Trade and Investment Partnership).
       
      The Chamber/CSIS event topic was billed as “The TPP: What’s at Stake for the United States,” but plenty of attention also was devoted to implications for Asia.  Japan could see tens of billions of dollars worth of new exports, but would also benefit if TPP helps Prime Minister Abe deliver his crucial “third arrow” of structural reforms, several speakers stressed (A similar dynamic could work for China’s domestic reform agenda if Beijing seeks to join or converge with TPP, even as more trade is diverted to lower-cost neighbors in SE Asia).
       
      Getting to “yes” with trading partners and on the Hill will require at least two important elements:  first, long transition periods to implement meaningful trade and regulatory reforms in sensitive sectors like agriculture; and second, engagement by President Obama and all of his cabinet chiefs to rally support in Congress.
       
      Opposition to TPA and TPP will be fierce, and devils lurk in all the details yet to be worked out —  as catalogued by House Ways and Means Committee Ranking Member Sander Levin (D-Mi) in a report to the Council on Foreign Relations.  Still, one gets the sense that the end game really is beginning, with the hardest bargaining about to get underway.  In that regard, Peterson Institute fellow Peter A. Petri quoted Chinese billionaire Jack Ma, whose company Alibaba launched the biggest initial public share offering in history: “Today is difficult, tomorrow is more difficult, but the day after tomorrow is beautiful.”
       
       
      PCI Periscope

      Upcoming events of interest —
       
      Sept. 24: The EU Parliaments International Trade Committee meets for a full day of briefings and discussion on a broad spectrum of issues, from TTIP to Russia.  Latest agenda and link to broadcast are here.
       
      Sept. 29-Oct. 3: Seventh round of TTIP negotiations in Chevy Chase, MD. USTR has background and stakeholder signup info here.
       
      Oct. 2: Abenomics Will It Work for Japan and the Region? at Carnegie Endowment for International Peace.  Details here.
       
       
       
      Press & Pundits
       
      In case you missed it  —
       
      Shinzo Abe: The Next Stage of Abenomics is Coming. In this Sept. 18 Wall Street Journal essay, the Japanese Prime Minister reaffirms his administration’s commitment to structural reform. He closes with a note on the importance of TPP.
       
       
      Thanks for reading; we always appreciate your comments and ideas.
       
       
       

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