Pacific trade pact seeks to embed American values in Asia to counter China

The intense final hours of negotiations to conclude the Trans-Pacific Partnership trade deal came down to granular, last-minute disputes over milk imports, drug patents and origin of car parts.

But the seven-year effort by the U.S. was always about something much bigger: embedding an American-led vision of an economic and political order in Asia.

The 12-nation accord, concluded Monday, is the biggest regional trade pact ever reached. If approved by Congress, the pact would eliminate duties on countless goods and establish uniform rules on intellectual property, labor rights, the environment and other issues affecting trade and investment that the U.S. hopes will be a model for future agreements.

Although details of the agreement won’t be published for some days, it’s expected to help a few U.S. industries while hurting a handful of others. In general, the deal will benefit larger companies in several California industries such as pharmaceuticals and entertainment as well as other services in which the U.S. is a global leader. Businesses such as mom-and-pop car-part dealers and apparel makers will probably face more competition from foreign-made goods.

Farmers in California should be able to export a little more rice and dairy products to Japan. Meanwhile, tariffs on Japanese imports of cars and trucks will be phased out over many years.

The accord is also expected to give a boost to Hollywood and other entertainment firms, which sought the U.S. term of 70 years of protection for copyrighted films, music and other works despite criticism from groups that advocated shorter terms and a freer flow of information.

But despite the rhetoric on both sides about the potential harm and benefits, the deal isn’t likely to affect most U.S. workers much, and studies suggest that it would add only modestly to U.S. economic growth and have little overall effect on jobs. The accord is as much about geo-political competition as it is about economic globalization.

President Obama has made no bones about the fact that the Trans-Pacific Partnership is largely motivated by the need to prevent China, the world’s second-biggest economy, from leading the way in the fast-growing Asia-Pacific region — a point he reiterated Monday.

“When more than 95% of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy,” Obama said. “We should write those rules, opening new markets to American products while setting high standards for protecting workers and preserving our environment.”

To that end, Monday’s breakthrough — the culmination of years of stalled progress and political wrangling — represents a significant victory for Obama in his pursuit of a legacy-making platform to expand U.S. influence in the Asia-Pacific region.

The Trans-Pacific Partnership nations are the U.S., Japan, Canada, Australia, Mexico, Malaysia, Singapore, Chile, Peru, New Zealand, Vietnam and Brunei.

Conspicuously absent is China, which has the biggest economy in Asia and is trying to organize a rival trade pact in the region.

“We are in effect organizing our friends in a way which should reinforce their disinclination to ally more with China,” said Robert J. Shapiro, chairman of the consultancy Sonecon and a former economic adviser to President Clinton.

Shapiro noted that during the Cold War in the 1950s, the U.S. offered economic benefits to those countries that joined the U.S. against the Soviet Union. “This is a more sophisticated version of that,” he said of the Trans-Pacific Partnership.

The pact sets the stage for what is almost certain to be a huge political battle, intensified by the 2016 presidential campaign, that pits the White House, some Republicans and supporters of the TPP against organized labor, civic groups and many lawmakers from Obama’s own party, who fear the deal will hurt workers and the environment.

Congress, which now must either accept or reject the final agreement, won’t vote on it for at least a few months, and possibly not until the end of next year. The deal received a surprisingly skeptical reception from Capitol Hill on Monday, including from some Republicans who previously supported the pact. That suggests the president will face a tougher time than expected in winning approval.

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FOR THE RECORD: An earlier version of this story said the U.S. already has free-trade agreements with seven of the 11 trading partners in the pact. In fact, the U.S. has agreements with six other Trans-Pacific Partnership nations.

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The deal will have limited economic impact, in part, because the U.S. already has trade pacts with six of the dozen Trans-Pacific Partnership nations, including Canada, Mexico, Australia, Singapore and Peru. So the biggest trade effect will be with Japan, Malaysia and Vietnam — but even there, the effects will be incremental and may play out differently than assumed.

U.S. textile makers, for example, were thought to be among the most vulnerable to an expansion of trade with Vietnam, but the domestic textile industry association had one of the more positive reactions to the Pacific agreement Monday.

It’s not that there won’t be more foreign competition for U.S. firms, but Augustine Tantillo, president of the National Council of Textile Organizations, said the Pacific deal would allow for a slow phase-out of import tariffs for the most sensitive products. And, importantly, he said, it would set out clear rules that would encourage yarn sourcing within the dozen Pacific trading partners.

“What we didn’t want was an outside party like China to be able to shift their yarn to Vietnam to be finished” into goods and exported to the U.S. tariff-free, Tantillo said. He added that the high quality of American yarns may lead to greater sales from Trans-Pacific partner countries.

The inclusion of Vietnam, in particular, drew fire from labor and some congressional Democrats who said its cheap wages and poor worker protections will provide a competitive disadvantage for the U.S.

Rep. Sandy Levin (D-Mich.) said the agreement represented “substantial progress” in enhancing worker rights in Vietnam and Malaysia. But other lawmakers remained skeptical, even as Vietnamese and Malaysian officials pledged Monday at a news conference to follow the standards in the accord.

One of the Pacific accord’s potentially biggest benefits will be in the further market opening of Japan, the world’s third-largest economy. Its markets, especially for autos and agricultural goods, have long been heavily protected and considered almost impenetrable by American companies.

Health groups lauded a provision in the agreement that would prevent tobacco companies from using the trade pact to file lawsuits, challenging for example a country’s cigarette packaging laws, and have these cases decided by a special tribunal.

But that so-called carve-out for tobacco firms was one reason Sen. Mitch McConnell, the Republican Senate Majority leader from Kentucky, a tobacco state, said Monday that “serious concerns have been raised on a number of key issues.”

Although major business groups applauded the agreement, albeit cautiously, Ford Motor Co. was one that spoke out in opposition to the deal. Ford, along with unions and many Democratic lawmakers, remains unhappy that the deal failed to address the problem of countries unfairly using currency exchange rates to boost trade.

A provision on enforceable currency rules was not seriously considered in the negotiations, but in an effort to appease lawmakers and other critics, U.S. officials were working on a side agreement that would bring all the members of the Trans-Pacific Partnership to agree to adopt high standards on currency practices, although it wouldn’t be part of the package or anything envisioned as enforceable.

During the last year of negotiations, one of the thorniest issues was over patent lengths for certain complex drugs known as biologics. U.S. trade officials had pressed for eight years of intellectual property protection for these drugs before the release of data could lead to generic substitutes. Most of the Trans-Pacific Partnership countries have drug exclusivity for five years or less, and countries led by Australia were loath to go along with longer periods that could strain state-subsidized health programs.

Trade officials in Atlanta, where final talks were held, indicated that the sides had reached a compromise that established at least a five-year period of exclusivity, leaving wiggle room for the U.S. to seek protections for longer duration.

don.lee@latimes.com

Twitter: @dleelatimes