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Trade Promotion Authority A Vital Component of U.S. Trade Policy

trade

On Wednesday, October 29, the Information Technology and Innovation Foundation hosted an event exploring whether the United States needs a new approach to Trade Promotion Authority (TPA), which featured keynote remarks from U.S. Representative Jim Moran (D-VA) and remarks from former Congressman Phil English, now Senior Government Relations Advisor at Arent Fox; former Deputy U.S. Trade Representative Miriam Sapiro; Grant Aldonas, Principal Managing Director, Split Rock International; and Tim Keeler, a Partner at Mayer Brown.

ITIF believes that Trade Promotion Authority plays an important role in enabling the United States to pursue 21st century trade agreements—such as the Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Partnership (T-TIP)—that support and create U.S. jobs while helping American manufacturers and service providers increase U.S. exports and compete in a highly competitive, globalized economy.

These next-generation trade agreements matter particularly because, as an economy, U.S. comparative advantage increasingly lies in innovation-based industries—such as life sciences, information and communications technologies (ICT), digital services, music and film, aerospace, advanced manufacturing, etc.—and these agreements are being intentionally designed to ensure that America’s innovation-based enterprises can fairly compete and thrive in global markets.

They do so by articulating new trade rules and standards, for example, that ensure access to cross-border data flows; that eliminate localization barriers to trade such as local content requirements or the forced localization of intellectual property, technology, or production as a condition of market access; and that maintain strong IP protections for patents, copyrights, trade secrets, and data protection for novel biologic medicines.

TPA plays a vital role in enabling America’s trade negotiators to complete these next-generation trade agreements. But more than that, ITIF believes there are three other major reasons why TPA is a vital component of the U.S. trade policy agenda:

  1. First, passing TPA legislation sends a clear and unmistakable signal that both Congress and the Administration take seriously the need for strong American leadership in crafting a successful global trade system going forward.
  2. Second, a TPA will make the trade agreements that America’s negotiators conclude better; and
  3. Third, TPA supports exports, jobs, and American economic growth.

1. Regarding the first point, make no mistake: there is currently a fight for the soul of the global trading system. The years since the Great Recession have seen a dramatic increase in countries’ use of innovation mercantilist policies—such as forcing local production as a condition of market access, subsidizing exports, stealing intellectual property, or manipulating currencies and standards—which seek to favor domestic enterprises at the expense of foreign competitors. Viewing with envy China’s rapid economic growth, dozens of other countries—from Brazil and India to Malaysia and South Africa—have enacted similar mercantilist policies, giving rise to an emerging “Beijing Consensus” (i.e., innovation mercantilism). In fact, as evidence of this, the World Trade Organization reported that the number of technical barriers to trade reached an all-time high in 2012. And as this emerging “Beijing Consensus” gains strength, it comes at the expense of the long-dominant, but now exhausted, “Washington Consensus” which has believed in the unalloyed benefits of free trade, even when it is one-sided, and that has fretted that robust enforcement of trade rules may ignite a trade war.

As such, we need a new consensus, one that holds that trade and globalization remain poised to generate lasting global prosperity, but only if all countries share a commitment to playing by a strong set of rules that foster shared, sustainable growth. And that’s what the United States is doing in seeking to negotiate TPP and T-TIP agreements as model, 21st century compacts that set the bar and lay the foundation upon which a stronger set of future global trade rules can be built.

If America doesn’t successfully conclude and pass through Congress these next-generation trade agreements—and let’s be clear, it will be much more difficult, if not impossible, to accomplish this without TPA—America risks losing out on the ability to set the agenda and standards for a more robust and liberalized global trade system going forward.

2. The logic of TPA is sound, and TPA actually helps make U.S. trade agreements better, in several ways.

First, TPA is an effective mechanism for Congress to delegate its Constitutional authority to “regulate commerce with foreign nations” as stipulated by Article 1, Section 8 of the U.S. Constitution.

  • Through TPA, Congress outlines high-standard objectives and priorities for U.S. negotiators to pursue in trade agreements, a process which helps build consensus on U.S. trade policy.
  • Moreover, the TPA increases transparency in U.S. trade policy, for it establishes consultation and notification requirements for the President and USTR to follow throughout the trade agreement negotiation process—ensuring that Congress, interested stakeholders, and the general public are closely involved before, during, and after the conclusion of trade agreement negotiations.

In addition, having given USTR direction in its negotiation of U.S trade agreements, TPA expedites the process of Congressional debate on trade agreements, as each chamber suspends ordinary legislative procedures and considers implementing legislation subject to time-limited debate with no (or limited) amendments. And given the importance of the two massively transformational agreements currently being negotiated in the TPP and T-TIP, it’s essential that we have a streamlined, easily managed framework for reviewing, analyzing, and ultimately approving these trade agreements quickly and efficiently.

Yet perhaps even more importantly, Trade Promotion Authority recognizes that U.S. trade partners would be reluctant to negotiate agreements that would be subject to unlimited Congressional debate and amendments. As U.S. Trade Representative Mike Froman wrote in a Foreign Affairs article, The Strategic Logic of Trade, last week, “By ensuring that Congress will consider trade agreements as they have been negotiated by the executive branch, TPA gives U.S. trading partners the necessary confidence to put their best and final offers on the table.” And as Inside U.S. Trade wrote in an article on Friday, October 24, the timing of Froman’s Foreign Affairs piece calling for TPA is likely because he’s “received a clear signal from one or more TPP countries that they need to see TPA passed before they will put their best offer on the table.” In short, TPA helps make the trade agreements the U.S. signs better by compelling our trade partners to put their best offer on the table.

3. Trade Promotion Authority—and the free-trade agreements TPA supports, including the 20 bilateral FTAs the U.S. currently has in place and future agreements such as TPP and T-TIP—supports U.S. exports, jobs, and economic growth.

The traded sectors of the U.S. economy are key drivers of U.S. economic and employment growth. In 2013, the United States posted record exports of $2.3 trillion of goods and services, which supported11.3 million American jobs. And over the last five years, the increase in U.S. exports has accounted for nearly a third of total U.S. economic growth and supported 1.6 million jobs. In fact, according to the U.S. Department of Commerce, every $1 billion in new exports of American goods supports more than 6,000 additional American jobs.

The two major trade agreements American negotiators are working on now–TPP and T-TIP–include countries accounting for 65 percent of the world’s goods and services trade and would account for 69 percent of U.S. goods exports. The Peterson Institute estimates that the TPP could generate an additional $123.5 billion in U.S. exports by 2025. Moreover, it’s estimated a completed T-TIP agreement would increase both U.S. and European Union GDP by 3 percent, generating annual gains of $450 billion for the United States. Without securing TPA, we risk sacrificing significant economic benefits for the United States and the global economy.

In conclusion, the American public recognizes that rules-based trade, with proper enforcement, is good for America. In research released at the end of September, the Chicago Council on Global Affairs found that 64 percent of the American public supports agreements that lower trade barriers, with 63 percent supporting TPP and 62 percent T-TIP. Sometimes the American public does get it right, and ITIF hopes that policymakers will take this cue from their constituents, and pass enabling TPA within the next six months—whether in the lame duck session, or as one of the first acts of the 114th Congress.

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About the author

Stephen Ezell is vice president, global innovation policy, at ITIF. He focuses on innovation policy as well as international competitiveness and trade policy issues. He is coauthor of Innovating in a Service-Driven Economy: Insights, Application, and Practice (Palgrave MacMillan, 2015) and Innovation Economics: The Race for Global Advantage (Yale, 2012). Ezell holds a B.S. from the School of Foreign Service at Georgetown University.