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How Obama Can Revive His Stalling Trade Pacts

Robert B. Zoellick

(The Wall Street Journal) – How far away last summer already seems: In June a Republican congressional majority, backed by a small but hearty band of pro-trade Democrats, deftly passed a bill giving President Obama authority to negotiate free-trade deals. In December the president highlighted trade as one of the few opportunities for cooperation with Congress in 2016. Yet now trade policy is in deep trouble.

When Trade Ambassador Michael Froman in November released the text of the landmark Trans-Pacific Partnership, known as TPP, he acknowledged that concessions had been made on intellectual property and investment that would concern Senate Republican leaders. Negotiators always face difficult choices; unfortunately, the Obama administration titled TPP toward the interests of civil-society groups that will likely oppose the deal no matter what. The administration tilted away from the interest of Republicans and businesses, whose support they need to enact TPP. Negotiators must keep a close eye on congressional votes, as the legislative branch has authority over trade.

The U.S. already has free-trade agreements with six of the 11 TPP partners, so American exporters are focused on opening major new markets, especially Japan and Vietnam, and on updating trading rules that will apply to all countries. U.S. farmers and ranchers stand to gain new sales. Some industries that generally support open trade, however, are finding few gains in TPP and some setbacks. For example, biopharma firms receive fewer years of protection for the data they must develop for regulatory filings and financial firms are singled out for limits on data servers.

Even so, TPP as a whole is greater than the sum of its parts, particularly if the agreement can draw other partners. But the president will have to press his case forcefully: All of the Democratic and some of the Republican presidential candidates oppose the deal. Senate Majority Leader Mitch McConnell knows that pro-trade Republican colleagues facing re-election will attacked by protectionist Democratic challengers.

The administration, though, has an unrecognized tool to garner the support it needs: When Congress granted the president the authority to negotiate TPP, it preserved a significant role for itself in drafting the final legislation. This offers the Obama team one last chance to negotiate with Congress to build support. For example, the enacting legislation could affirm that even if the standards for intellectual property in TPP are not as high as wished, U.S. legal standards will prevail at home.

Congress also authorized a Trans-Atlantic Trade and Investment Partnership, or TTIP, which is being negotiated between the U.S. and European Union. Together, the two agreements could reinvigorate a drive toward open markets, economic reforms to boost productivity and growth, and fair, transparent rules for the global economy. If the administration discovers new agility in negotiating, it also might be able to make up for TPP disappointments through TTIP gains.

But negotiations on TTIP are at risk of stalling. To revive them both the president and the European Union need to explain how this negotiation is different. Traditional trade barriers, such as tariffs, between the U.S. and EU are already low. Where obstacles remain high – agriculture, for instance – political costs have so far outweighed economic benefits.

The most pronounced economic gains from TTIP could come from harmonizing product standards and certification, cutting duplication to improve efficiency without lowering consumer protections. These regulatory costs prove particularly burdensome to small businesses. The best outcome would be for the two continental economic giants to agree on approaches for setting standards that would then guide others around the world.

Yet the work is complex, politically difficult and mind-numbingly tedious, with agreement on common standards proving most difficult. It is politically unacceptable, for example, to trade a chemical safety standard from one party for an IT data standard from another. Regulators need to build trust – and to understand the objectives and methods – of their counterparts.

Europeans, especially Germans, long the stalwart free traders of the EU, are fearful that TTIP will lower standards and put health and safety at risk. Americans, in turn, do not want to import costly European regulations. And the recent U.S. actions against VW’s diesel engines raise questions about whether the EU enforces its standards. Both sides need to assure their citizens that the U.S. and EU will retain sovereign autonomy and accountability.

The TTIP negotiators cannot achieve all this in 2016. But they could clarify their approach to compatible but independent regulation, push U.S.-EU private industry technical groups to offer recommendations, and launch a process that would make it hard for the next U.S. president to walk away from the table.

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