This article appears in the Summer 2015 issue of The American Prospect magazine. Subscribe here.
As we go to press, a deal between President Obama and the Republican leadership has kept the Trans-Pacific Partnership alive—just barely. With negotiating authority headed to the president’s desk, the trade deal itself still has to be approved. All the parliamentary maneuvering has only increased skepticism among most House and Senate Democrats and their allies in the labor, environmental, and consumer movements. One question on the minds of many Democrats: Why has Obama been more vigorous in fighting for the TPP, in league with Republicans and corporate America, than in seeking, say, a public option for health insurance, or stiffer regulations on financial institutions, or a larger economic stimulus package?
The administration entered office promising to renegotiate unbalanced trade agreements, which critics believe have cost millions of manufacturing jobs over the past 20 years. But TPP, a pact with 11 other Pacific Rim nations, mostly adheres to the template of corporate favors masquerading as free-trade deals. Of the 29 TPP chapters, only five include traditional trade measures like reducing tariffs and opening markets. Based on leaks and media reports—the full text remains a well-guarded secret and is still in flux—the rest appears to be mainly special-interest legislation.
Pharmaceutical companies, software makers, and Hollywood conglomerates get expanded intellectual property enforcement, protecting patents and profits at the expense of competition and consumers. Firms get improved access to poor countries with nonexistent labor protections, like Vietnam or Brunei, to manufacture their goods. TPP provides assurances that regulations, from food safety to financial services, will be “harmonized” across borders, creating a virtual regulatory ceiling. In one of the most contested provisions, corporations can enforce the agreement themselves through the investor-state dispute settlement (ISDS) process, appealing to extra-judicial tribunals that bypass courts and usual forms of due process to seek monetary damages equaling “expected future profits.”
How did we reach this point, where trade deals are less about trade and more about corporate wish lists, and where all recent presidents, Democrat or Republican, pay fealty to this model? This formula partly reflects the power of corporate campaign finance, which in turn reinforces the dominance of free-market ideology. One little-explored aspect is in the political transfer of power, away from Congress and into a potent but relatively obscure executive branch office: the United States Trade Representative (USTR).
As the lead agency for negotiating trade deals, USTR has become a way station for hundreds of officials who casually rotate between big business and the government. Currently, Michael Froman, former Citigroup executive and chief of staff to Robert Rubin, runs USTR, and his actions have lived up to the agency’s legacy as the white-shoe law firm for multinational corporations. Under Froman’s leadership, more ex-lobbyists have funneled through USTR, practically no enforcement of prior trade violations has taken place, and new agreements like TPP are dubiously sold as progressive achievements, laced with condescension for anyone who disagrees. Lori Wallach of Public Citizen’s Global Trade Watch puts it this way: “The good name of free trade got hijacked for every retrograde, mortifying policy you can think of.”
Hundreds of farmers including the disaster-hit Miyagi prefecture raise their fists during a protest rally against Trans-Pacific Partnership (TPP) at Tokyo's Hibiya Park on October 26, 2011. Farmers wearing a headband reading "No TPP Participation '' demanded that Japan should not join U.S.-oriented multilateral negotiations on a trans-Pacific free trade agreement, which generally abolish all tariffs on farm product.
WE HAVE RICHARD NIXON to thank for the modern trade agreement structure, a break with the preferences of the Founding Fathers. Article 1, Section 8 of the Constitution gave Congress exclusive authority to “lay and collect Taxes, Duties, Imposts and Excises,” and “to regulate Commerce with foreign Nations.” But only the executive branch could negotiate international treaties. This led to an uneasy check and balance, where chief executives played a role in international commerce, but could not pursue their own trade preferences without approval of the elected representatives of the people. Alexander Hamilton wrote in Federalist Papers No. 75 that it would be unwise to “commit interests of so delicate and momentous a kind,” like trade, “to the sole disposal of a magistrate created and circumstanced as would be a President of the United States.”
Congress defined tariff rates unilaterally for more than a century. However, in 1934, after a period of tariff wars, Franklin Roosevelt’s Reciprocal Trade Agreements Act gave increased power to the president, but within strict limits. Congress specified a narrow range for tariff reductions. Within that range, the president could negotiate reciprocal tariff cuts with other nations.
But Lyndon Johnson challenged the trade consensus in the 1967 round of the General Agreement on Tariffs and Trade (GATT), negotiating two sets of non-tariff alterations, one changing the method of pricing certain goods at the U.S. border, and the other an adjustment to “anti-dumping” laws, which prevent countries from flooding foreign markets with products below their domestic cost. Congress, seeing their authority usurped, refused to implement the non-tariff changes through legislation, even after Johnson signed the agreement. The trade agenda was stalemated.
Nixon then renewed the push for more presidential power. Tariffs had already been lowered in successive GATT rounds. Non-tariff barriers, the Nixon administration said, were now the “major impediment to fair competition and the free flow of goods in international trade.” That term referred to protectionist measures in other nations, such as quotas, government subsidies, and industrial cartels closed to American exporters. From that relatively innocent beginning aimed at promoting U.S. exports, “non-tariff barrier” became a euphemism for ordinary health, safety, environmental, and financial regulations that U.S. corporations wanted to weaken both at home and abroad. And trade deals, relying on expanded presidential power, became the vehicle.
The Trade Act of 1974, passed after Nixon resigned, initiated what is now known as trade promotion authority, or “fast track,” circumventing the normal legislative process. The president got to pick trade partners, launch negotiations, sign agreements, and get an up-or-down vote in Congress within 90 days, with no committee markups, no amendments or filibusters, and strictly limited debate. Congress could suggest “negotiating objectives,” but the executive branch could ignore them and still get trade agreements fast-tracked. And instead of only negotiating tariffs, the executive branch could make broad policy changes, as long as they constituted a “non-tariff trade barrier.”
This meant that practically anything could get into a trade deal. Policies that might have failed under the normal legislative process could get new life, and then return to Congress under expedited rules for passage. For example, the 1995 Uruguay Round of GATT, which instituted the World Trade Organization (WTO), altered meat and poultry inspection standards, changed “Buy American” government procurement laws, gave pharmaceutical interests 20 years of patent protections for medicines, and weakened the Marine Mammal Protection Act, which forbade the sale of tuna caught by nets that also captured dolphins.
Instead of appealing to Congress, lobbyists wanting to affect trade policy could pursue one-stop shopping with the U.S. Trade Representative, which was established in 1962 as a minor office, strengthened in the 1974 Trade Act, and elevated to cabinet level in 1979. USTR is housed in the Executive Office of the President, where there are no formal “revolving-door” statutes to prevent agency personnel from subsequently working for industries with a vested interest in trade policy. “Three kinds of people work at USTR,” says Representative Alan Grayson, a Florida Democrat. “People who were corporate lobbyists, people who want to become lobbyists, and people who were lobbyists and want to become lobbyists again.”
Michael Froman’s USTR tenure represents the apotheosis of this tendency. The assistant trade representative for agricultural affairs, Sharon Bomer Lauritsen, previously lobbied for the Biotechnology Industry Organization (BIO). Christopher Wilson also represented BIO as part of the trade consulting group C&M International, before becoming the U.S. deputy chief of mission to the WTO. Deputy Trade Representative Robert Holleyman worked for the Business Software Alliance, representing Microsoft, Apple, and IBM, among others. Froman himself came to USTR from Citigroup, the nation’s largest bailout recipient, where he ran an Alternative Investments division that managed $49 billion in capital. The nominee for U.S. permanent representative to the WTO, Marisa Lago, also came from Citigroup.
Overall, the Center for Responsive Politics identifies 144 former trade office officials who went on to lobby the government. Party identification scarcely matters, as Democrats and Republicans alike cash in on their association. Carla Hills, who headed USTR under George H.W. Bush, is CEO of Hills & Company, which advises companies on global trade. She also sits on the boards of Gilead Sciences, a biotech firm, and mega-bank JPMorgan Chase. Mickey Kantor, Bill Clinton’s first trade representative, was a top fundraiser for the Clinton-Gore campaign, and is now a partner at the high-powered law firm Mayer Brown, specializing in international corporate transactions. He has served on the boards of chemical giant Monsanto and the U.S. Chamber of Commerce, and advises the Council for Biotechnology and the investment bank Morgan Stanley. All of these firms have a major stake in trade policy, through liberalizing regulations or extending patents.
The structure of USTR throws top officials in close contact with industry. Congress created a trade advisory committee system, where experts with security clearances review trade negotiations and offer ideas. But this attempted check on the power of USTR has just become a giant lobbying opportunity. The chairman of the advisory committee on aerospace equipment runs commercial trade policy for Boeing; the chairwoman of the committee on energy and energy services is the head lobbyist for the Electric Power Research Institute, the utility industry’s leading trade group. According to The Washington Post, of 566 cleared advisers on trade agreements, 480 of them represent private industry or trade groups. If the dominant voices in the ear of trade negotiators come from big business, it’s not surprising that the finished product reflects their priorities.
U.S. President Barack Obama, center, and members of his delegation are seated during a bilateral meeting with Chinese President Xi Jinping at the Great Hall of the People in Beijing, Wednesday, November 12, 2014. Pictured are U.S. Ambassador to China Max Baucus, second left, U.S. Secretary of State John Kerry, third left, U.S. National Security Adviser Susan Rice, third right, U.S. Trade Representative Mike Froman, second right, Counselor to the President John Podesta, right.
SINCE THE CLINTON administration, Democratic presidents have been inclined to give business what it wants on trade policy—and on regulatory weakening that can be characterized as free trade. Institutionally, USTR reinforces that predisposition. Here again, Froman’s career is emblematic.
Froman entered government under the Clinton administration, after helping edit the Harvard Law Review with a colleague named Barack Obama. He worked on international trade issues at the National Economic Council under Robert Rubin from 1993 to 1995, and played a supporting role in the debate over the North American Free Trade Agreement (NAFTA), the first trade deal incorporating a country in the developing world: Mexico.
NAFTA made it easier for American capital to access Mexico, and for Mexican goods to enter U.S. markets. The deal gave Mexico a free pass on its terrible labor conditions and less-stringent laws on health and the environment. NAFTA threw this pool of cheap labor into direct competition with U.S. workers. The deal also put limits on food safety and financial regulations, cracked down on intellectual property theft, and included a chapter protecting corporate investments abroad through ISDS. “Most of the analysis leaves all that stuff out, and just looks at the textbook benefits of lowering tariffs,” says Jared Bernstein, former chief economist for Vice President Joe Biden, now at the Center on Budget and Policy Priorities. “The problem is that’s not really what these creatures are like anymore.”
Partially resulting from NAFTA-style trade deals, the last 14 U.S. trade deficits have been among the largest in U.S. history, an average of $500 billion every year. While some government reports show that NAFTA had a minor impact on the U.S. economy, others point to the wipeout of manufacturing jobs. The Economic Policy Institute estimates nearly one million net jobs lost from NAFTA, and another 2.7 million lost since permanent normal trade relations (PNTR) were established with China. The Clinton administration said PNTR “would only increase the trade deficit by $1 billion,” claimed Democratic Representative Brad Sherman of California. “The proponents were off by 30,000 percent.”
In 1995, Froman moved to the Treasury Department, where he would eventually become chief of staff to Rubin, whose brand of Wall Street–friendly policies broke from the Democratic Party’s past. The Treasury Department controlled financial regulation in Clinton’s White House, which became increasingly intermingled with trade. For example, the World Trade Organization’s “General Agreement on Trade in Services” bound member nations to limit financial regulations. By 1999, the Gramm-Leach-Bliley Act had repealed Glass-Steagall, as specifically promised by the Clinton administration in their WTO commitments, with Rubin and Froman driving the policy change.
With Glass-Steagall repealed, Rubin decamped to the bank that benefited most from it—Citigroup. Froman followed him in 1999, and spent a decade there as a counselor and managing director. In 2004, Froman introduced State Senator Barack Obama to Rubin and Larry Summers, according to Noam Scheiber’s book The Escape Artists. Froman was a key fundraiser in the 2008 presidential campaign.
When Obama won the presidency, Froman got a plum assignment as a member of the transition’s advisory board, effectively becoming the hiring manager for the president’s entire economic team, despite still being employed at Citigroup. Froman’s assistant in staffing the administration was Jamie Rubin, Robert’s son. While Citi received hundreds of billions of dollars in bailout money, their man in Washington helped select key members of Obama’s staff, including Summers and Treasury Secretary nominee Timothy Geithner, who while at the New York Federal Reserve helped engineer the Citi bailout.
Froman initially took a position as both deputy national security adviser and international trade adviser at the National Economic Council, joining several Citigroup colleagues. The grateful mega-bank gave Froman a year-end bonus of $2.25 million in 2008, which Obama had to personally ask Froman to give up, according to Jonathan Alter’s book The Promise. The bonus was specifically tied to Froman joining the administration. When the Pacific trade deal became a top corporate and White House priority, Froman moved over to direct USTR and the legislative push for negotiating authority.
THE TRANS-PACIFIC PARTNERSHIP is not about tariffs, despite Froman’s suggestions to that effect. The United States already has free-trade agreements with six of the eleven countries in TPP—Canada, Mexico, Australia, Peru, Chile, and Singapore—and tariffs on nearly all goods between the U.S. and those countries are nonexistent. Outside of Japan, the remaining countries represent 3 percent of all exports to TPP members. And Japan’s average tariff rate is a skinny 1.2 percent.
According to leaked texts, the core of the deal concerns regulatory changes sought by powerful industries—using the back door of trade to win changes that Congress would be unlikely to approve in transparent separate legislation. For pharmaceutical companies, the agreement limits regulations that drive down drug prices, and restricts the use of generic drugs in partner countries. It extends patents on lucrative biologic treatments to 12 years, far longer than current law in member countries like Australia. For software developers and the entertainment industry, draft TPP text from last May extends copyright terms, instructs Internet service providers to remove user-generated copyrighted content without a court order, and could criminalize the leaking of information through digital means to journalists.
For the energy industry, TPP allows for dramatic expansion of liquefied natural gas (LNG) exports, obtained through practices like fracking, with automatic approval of all export permits to TPP countries without environmental review. For the food industry, TPP requires food imports to enter the U.S. as long as the exporter alleges that their safety laws are “equivalent.” And for the financial industry, TPP would weaken member country restrictions on capital flows across their borders, freeing foreign investments but increasing risk in more insulated economies like Malaysia or Chile.
The rules amount to a trans-Pacific regulatory cap. “It creates a subsidy for our firms to locate in TPP member countries and export back to us,” says Damon Silvers, policy director for the AFL-CIO. “This is not something you would be concerned about if you wanted to create jobs in the United States.”
This is enforced in part by investor-state dispute settlement, whereby corporations can sue for damages in a separate court system, over trade violations they claim cut into their profits. TPP even removes the “essential security” exemption, so foreign investors can file ISDS challenges on what governments claim to be national-security decisions. ISDS creates an insurance policy for large firms to move operations abroad, robbing the United States of its one competitive advantage over low-wage countries: a well-developed rule of law. Froman has staunchly defended ISDS, telling the Washington Ideas Forum last October, “It’s hard to imagine a high-standard agreement … that doesn’t have a high standard of investment protections as well.”
Past dispute settlement arrangements have had serious consequences. The Obama administration insists that trade agreements cannot change U.S. laws, but in May WTO ruled against U.S. “country-of-origin labeling” for meat, prompting Agriculture Secretary Tom Vilsack to say that Congress would have to repeal the statute; the House passed the repeal in June. In addition, the Canadian finance minister recently alleged that the Volcker Rule, a key Dodd-Frank measure restricting risky proprietary trading, violates NAFTA. ISDS would allow corporations rather than national governments to assert these challenges and win monetary damages.
Since USTR opened TPP negotiations in 2009, labor, environmental, and consumer groups, along with interested members of Congress, have tried to offer input. The AFL-CIO alone made more than 100 specific suggestions about negotiating language. “We had every reason to want a TPP that we could live with and perhaps endorse,” says Silvers, policy director of the labor federation. “[Those conversations] were exhaustive, and they got nowhere.”
This included entreaties to prevent TPP members from artificially manipulating their currency to lower the cost of their exports, which have a bigger impact on trade deficits than tariffs. Five years into negotiations, Froman admitted in congressional testimony that they had not brought up currency manipulation, which would raise costs for corporations with factories abroad. “The system seems much too impervious to input,” says former White House official Jared Bernstein, who has raised the currency issue numerous times with ex-colleagues. “I’ve worked this pretty hard, and I haven’t been able to get much traction.”
Advisers and lawmakers describe meetings with USTR as occurring at a “10,000-foot level,” without deep substantive engagement. Even when advisory committees represent non-business voices, like those on labor or the environment, all they provide is advice, which USTR can take or ignore. And there’s strong evidence that Froman takes his cues from big business. In written congressional testimony in 2013, for example, Froman took the side of domestic oil refiners trying to eliminate European Union fuel standards.
Under advisory committee charters, groups cannot call their own meetings, or discuss the text of any trade deals with non-advisers. They issue reports on all completed trade agreements, but not until the fast-track process has triggered. One cleared adviser described their work as the sound of one hand clapping. “They will tell you they had consultation,” said Connecticut Representative Rosa DeLauro. “They sit, pretend to listen and then do nothing about it.”
TPP partners include countries like Vietnam, where factory workers make as little as 50 cents an hour, and Malaysia, which has earned the lowest rating in the State Department’s annual report on human trafficking. The administration calls TPP “the most progressive trade deal in history,” arguing that stronger labor and environmental standards fix NAFTA and level the playing field between American workers and their counterparts. But while the enforcement measures that serve corporate goals, such as ISDS, have real teeth, the ones on labor and the environment are weak or nonexistent.
According to a report from the office of Massachusetts Senator Elizabeth Warren, 10 of our 20 post-NAFTA free-trade agreement partners worldwide still use forced or child labor, and 17 routinely commit human rights violations linked to labor rights. In 2014, Peru rewrote its environmental laws in direct contravention of a bilateral agreement, and USTR did nothing to stop them. In the case of formal complaints against Honduras and Guatemala, years have passed with no resolution. USTR responded to statistics showing that trade unionists are murdered in Colombia every other week by arguing that the situation was slightly better than before.
Unlike ISDS, where corporations can directly appeal over trade violations, labor groups must ask their governments to enforce the standards. “We said, why not do it like the corporations do?” says Shane Larson, legislative director for the Communications Workers of America. “If Vietnam is not living up to the terms, why not let the AFL-CIO bring up charges? USTR said you don’t understand how the system works.”
THE WHITE HOUSE WAS UNPREPARED for the ferocity of opposition to their trade agenda from members of their own coalition. Froman proved inept at selling the deal to congressional Democrats. “People don’t believe [Froman]because he’s often not telling the truth,” Representative Grayson says. He recalls one instance where Froman discussed legal standards on investor-state dispute settlement. “I practiced before the U.S. Court of Federal Claims for 25 years,” Grayson says. “I know the whole case law about claims against the government. I was appalled by what I was hearing him say. He was seriously misrepresenting the legal standards that apply.”
Members of Congress describe Froman’s behavior in briefings as a combination of arrogant and slippery, challenging opponents’ grasp on the facts while personally making inconsistent or even misleading claims. He often leaves out key parts of the analysis, like focusing solely on the benefits of exports and ignoring the impact of increased imports. He refuses to admit any downsides for U.S. workers from global trade, even claiming that the U.S. would not lose manufacturing jobs from the Pacific trade deal, alleges Representative Mark Pocan, a Wisconsin Democrat. “It’s not credible,” Pocan says. “Honestly, I think the more meetings he does, he convinces more people to go our way.”
An activist walks with Malaysian flag as others hold a banner during a protest rally against Trans-Pacific Partnership Agreement (TPP) ahead of U.S. President Barack Obama's Malaysia visit, outside the U.S. Embassy in Kuala Lumpur, Malaysia, Friday, April 25, 2014.
USTR does have an upper hand in the deal, a knowledge gap they’ve exploited by keeping the TPP text a closely guarded secret. Most of what the public knows about the agreement comes from releases on Wikileaks, which have raised concerns that USTR is painting too sunny a picture about the outcome. Even cleared advisers have complained that they haven’t seen updated text for years, relying on USTR to learn about changes, without the specific language. Members of Congress, after years of complaints, received access to the text, but only in a secure room, after handing over their cell phones, without inviting staff experts or taking notes. Once they leave the secure room, members cannot discuss the contents publicly. Opponents of TPP see the secrecy as deliberate, designed to deceive the public and prevent informed opposition to the policies.
The text itself is difficult to decipher for non-experts, with overlapping sets of each country’s offers, negotiating outcomes in brackets along the side, and constant references to previous agreements that members may not have a working understanding of. “Unless you’re a trade lawyer, the text doesn’t provide a lot of information,” says Pocan, who adds that USTR is slow to respond to specific questions about individual provisions. “They treat Congress like children at the kid’s table. And we’re the ones with constitutional authority.”
Amid the legislative maneuvering of the fast-track debate, the administration all but abandoned the economic rationale for TPP, stressing instead a geopolitical imperative to assist allies in Asia and provide regional counterbalance to China. And they accented this by spinning dark consequences of lost prestige and irreparable harm from Congress’s failure to pass the agreement. “Repudiation of the TPP … would reinforce concerns that the vicissitudes of domestic politics are rendering the U.S. a less reliable ally,” intoned Larry Summers days after a setback in the House of Representatives. “It would signal a lack of U.S. commitment to Asia at a time when China is flexing its muscles.”
SINCE 1974, FAST-TRACK legislation has been linked to enactment of trade adjustment assistance, modest retraining and support for workers who lose their jobs because of trade deals. Democrats like the program because they can say they secured help for ordinary Americans, even though studies find it ineffective, like throwing money in a tip jar for someone who loses their house. At press time, Republican leaders de-linked the two bills, because their rank and file oppose trade adjustment assistance. Democrats who can provide the margin of victory on fast track were asked to take a leap of faith, advancing fast track first while hoping Republicans will allow trade adjustment assistance to pass later.
Even if Obama and the Republican-held Congress managed to enact negotiating authority, the biggest enemy to actually getting TPP passed is the calendar, combined with the harsh sunlight of eventual transparency. Under fast track, after negotiations are completed, USTR must release the text of any trade deal online at least 60 days before signing. Then the House has 60 legislative days to act, and the Senate an additional 30.
That means the earliest that any TPP vote could take place, if everything ran smoothly, would be this winter, at the height of presidential campaign season. Additional slippage would push the timeline further. “[Former Senator] Trent Lott used to say that you can’t pass a fair trade deal in an even-numbered year,” says Senator Sherrod Brown of Ohio, an opponent of TPP. The implication is that members of Congress don’t want to record their support for unpopular trade agreements when voters might be paying attention. And unlike with fast track, once the deal’s details are unveiled, everyone involved will actually know the contents of what they’re voting on. That said, there are no examples of trade deals, once negotiated, failing to advance through a fast-tracked process.
Regardless of outcome, the trade debate has reawakened a broad economic-justice coalition on the political left, which has recognized the role of modern trade agreements as an end run around the democratic process. Trade became a proxy fight for the future of the Democratic Party: whether it will be controlled by monied elites on behalf of big business, or by progressive representatives on behalf of ordinary people.
Inside the White House, the elites still reign. “The few remaining unreconstructed NAFTA lovers in the Democratic Party are in with the president,” said Public Citizen’s Lori Wallach, putting Michael Froman and his allies in that category. But Congress has only granted fast track for five of the last 21 years, suggesting reluctance to accede to the executive power grab. The Obama administration only had the opportunity to kick-start their trade agenda when Republicans gained full control of Congress; the president’s own party wouldn’t give him that chance, a reality that Democratic candidates to succeed Obama are likely to heed.
Though the word “protectionist” gets lobbed at opponents of fast track, their complaint is more nuanced: that the still-to-be-proven benefits of opening new markets to domestic goods and services are overwhelmed by two sets of costs—the political cost of corporate hegemony and the economic cost of policies that keep battering down wages. The old mantra that elevates “free trade” as an automatic public good doesn’t work when the deals mainly benefit the executive suites.
The TPP debate has provided an airing of the deeper issues, and has allowed the progressive wing of the Democratic Party to demonstrate that it is fed up with bargains like this one. That reckoning is long overdue. Without the constitutional hijacking of trade policy, and without a trade office captured by special interests, America might build a new economic paradigm rooted in shared prosperity and a more equitable society.