The Future of U.S. Trade and the Trans-Pacific Partnership: A Conversation With Michael Froman
In conversation with Merit E. Janow, Dean of Columbia University School of International and Public Affairs, Michael Froman, United States Trade Representative, discusses the future of U.S. trade, the Trans-Pacific Partnership, and U.S. economic leadership in Asia. Froman examines how the TPP raises labor and environmental standards, addresses exchange rate policy and currency transparency, and prohibits data localization in an unprecedented way. He also speaks to the political challenge of getting TPP passed, which countries are likely to benefit most from its implementation, and how the agreement relates to China’s economic future in particular.
JANOW: Well, good morning, everyone. Pleasure to see you here today.
It’s my great privilege to moderate this morning’s discussion with Ambassador Michael Froman. We’ll have a brief conversation, and then we’ll open it up to hear your questions and comments. I believe this discussion is on the record.
I think—Ambassador Froman is so well known to all of us—I will be very brief in my introduction. But I noticed that he was sworn in as USTR almost exactly three years ago today, so I—they may be dog years, seven for one—
FROMAN: It seems like 21, yes. (Laughter.)
JANOW: —but it is a great accomplishment.
As the U.S. trade representative, he is, of course, responsible for all trade negotiations, a spokesman on international trade, principal interlocutor with Congress and with our major trading partners. Before that he was, of course, in the White House as assistant to the president and deputy national security advisor for international economic affairs, and coordinating on international economic policy and trade, energy finance, climate, and development and democracy issues, so an enormous range of responsibilities. He was sherpa for the G-20/G-8, and had an earlier period in government as well at Treasury and in the National Security Council. So I can’t imagine anyone more ready for this enormous responsibility and playing such an extraordinary role.
Let me first invite you, if you would, to help us as we’re talking today about TPP and U.S. leadership in Asia. Could you help us frame our understanding of what you see as the key attributes of this agreement and what it means for the United States?
Well, first of all, thanks for having me. It’s good to see a lot of familiar and generally friendly faces. (Laughter.) So good to—good to be back here at the Council.
Look, the Trans-Pacific Partnership currently is 12 countries representing about 40 percent of the global economy. The agreement eliminates traditional trade barriers, like tariffs—18,000 tariffs on American exports; completely eliminates tariffs on manufactured products; eliminates, or greatly reduces, or opens up markets to a wide range of agricultural trade as well. It’s very important when it comes to services in terms of opening up markets. We’re locking them open so that—we have a major services surplus from the United States. We’re a globally competitive services provider, and it opens that as well.
But as important as those are is the rules that are equally important—the fact that this—the agreement raises labor and environmental standards around the world to the highest level ever, and these are fully enforceable standards; that it’s the first trade agreement to really take on the digital economy, issues around e-commerce and the free flow of data across borders; pushing back on new forms of digital protectionism, with countries trying to put walls around the internet or require companies to move their infrastructure to a country in order to serve that country. It takes a major step forward in putting disciplines on state-owned enterprises, so that when government-owned corporations compete with our private firms, they have to do so on a fair and level playing field or we can impose sanctions on that country.
And so it’s very important because this region, the Asia-Pacific region, it’s currently about a billion middle-class consumers, expected to grow to 3 billion middle-class consumers by 2030, some of the largest, fastest growing economies in the world. We need to be part of those markets. And we want to make sure that the rules of the road for that region reflect our interests and our values, and that we’re not ceding that role to others, whether it’s China or others. And so that’s why it’s so important that we get it done, and that we get it done this year.
JANOW: Mmm hmm. I’m sure we’ll turn in a few moments to the question of getting it done, but could you just say a little bit more about how we should think about this agreement? We have trade agreements—free trade agreements with five of the TPP partners already. So, in a sense, how much further to we go in this framework? And do we think of it primarily as an economic framework, or is it, in your mind, equally important as a foreign policy or security framework?
FROMAN: So, first of all, I think all trade agreements first and foremost have to be justified and defended on their economic grounds, what they do to promote jobs and growth in the United States, and TPP holds up very well under that analysis. The Peterson Institute has estimated it’ll add about $130 billion to GDP when implemented, that it will increase U.S. exports by about $350 billion a year. And the reason why that’s important is that we know that every billion dollars of exports supports somewhere between 5,000 and 7,000 U.S. jobs, and those jobs pay up to 18 percent more on average than non-export related jobs. So if you’re worried about wage stagnation, you’re worried about income inequality, the majority of the benefits of this agreement go to workers, both skilled and unskilled workers, according to the Peterson Institute. And this is one way of making sure that we’re addressing those issues.
It is equally important on a strategic level and from a position of U.S. leadership. You know, I mentioned the rules in TPP, but as we speak there are—countries are moving ahead with their own trade agreements, their own regional arrangements. And whether it’s RCEP, which is the mega-regional agreement that China’s leading, it doesn’t include labor and environmental provisions, it doesn’t include disciplines on state-owned enterprises, it doesn’t commit to a free and open internet. And so it’s very important that, from a U.S. leadership perspective, we’re there helping—working with our like-minded partners in the region to set these rules of the road and not giving that up.
You know, also, you—people like Prime Minister Lee, who has said, if you can’t deal with us on cars and services and agriculture, can we depend on you when it comes to security and military matters? And I think that’s a very important sentiment. These countries very much want to be embedded with us, or want us embedded with them in the region, both for economic purposes—so that they can diversify their partnerships, diversify their markets—but also, very importantly, from a strategic perspective. And they see this partnership as having broader political and strategic ramifications.
JANOW: Mmm hmm. So do you see the agreement as provoking an economic reform agenda in TPP countries that is meaningful to the United States?
FROMAN: I think that’s absolutely right. I mean, whether it’s in Japan, where the—Prime Minister Abe has viewed TPP as part of his third arrow in Abenomics, the structural reform agenda, and sees TPP as encouraging the kind of reform of the agrarian sector that he has been advocating for; or in Vietnam, where the Vietnamese leadership has agreed to allow independent unions for the first time, or to reform or to use TPP to reform their state-owed enterprise sector, or to raise their IP standards because they want to become a more innovative economy. So, from country to country, they’ve looked at this as a way of helping to support a domestic reform agenda.
JANOW: Mmm hmm. You know, I think the consequences of a loss of American leadership is a bit of an ephemeral concept to convince, you know, the electorate. And I wonder, how do you—how do you engage that? How do you think the consequences really are if, in fact, this doesn’t go forward, and the U.S. has negotiated this, and countries have made commitments in good faith? What are the consequences?
FROMAN: Well, first, there are economic consequences. Again, the Peterson Institute has estimated that even just a one-year delay would be a permanent cost to the U.S. economy of $94 billion. That’s about a $700 tax on every American household.
Then there’s the cost to U.S. leadership. Again, whether—you know, we have been the primary driver of a rules-based, international, open system since the Second World War. It’s allowed countries like Japan and throughout Europe to rebuild themselves. It’s allowed developing countries to become emerging economies. It’s lifted—it’s help lift hundreds of millions of people out of poverty. And that system is something we can’t take for granted. We shouldn’t be complacent about it because there are other alternatives being promoted out there—more statist, more mercantilist systems. And we think it’s very important that the rules-based system, where every country has certain rights, where there’s dispute settlement that they can count on, where it’s not just big countries pushing little ones around, that that’s a very important part of a stable and prosperous Asia-Pacific region, and more generally an international system.
And then, thirdly, there are the strategic costs. Prime Minister Key of New Zealand has said, you know, the rest of the world isn’t going to just stand by. Beijing will fill whatever void we create, and other countries will feel the need to line up accordingly. And that cannot be in the interest of the United States. And so, as people are critical of TPP—I mean, it’s been interesting. There’s been a lot of criticism of China in the—in the recent debate, and I think a lot of that criticism is well-founded. And it’s something that we need to constantly press China on: to live up to a rules-based system, implement their obligations, and be prepared to take enforcement actions where they—where they don’t. But TPP is one of the greatest tools we have for raising the standards in this region. And as other countries raise the standards, it’ll force China to up its game as well in order to compete. And that’s in all of our interests. So it doesn’t make a lot of sense to me to be critical of China on one hand and then be willing to give up one of our most important tools for creating the environment around China that will be important to raise China’s performance as well.
JANOW: Mmm hmm. So do you see this as triggering China into altering its own practices? Or do you think it accentuates this argument in China that the U.S. is trying to contain China?
FROMAN: We’ve been very open with the Chinese from the start of this negotiation. This isn’t directed against them. It’s not an effort to contain them. It is an effort to raise standards in the region and around the world.
And the Chinese have followed the negotiations in great detail. We’ve kept them very much up to date throughout the negotiations.
And I think, ultimately, again, because as countries like Vietnam and Malaysia and the other countries who have now signaled they’d like to join TPP in the future. You know, we have 12 countries in the agreement. You know, we’ve heard from another 12 or 13 economies that they would like to join TPP in the future, or they’d like to have conversations about joining TPP in the future. As this becomes the set of rules that defines what a high-standard economy is all about, I think it’s going to help encourage a competitive race to the top. And that’s good—I think, again, good for all of us.
JANOW: Mmm hmm. Let’s turn to the United States. And obviously, trade has, you know, been negatively cast in the election process by both of the candidates thus far. So what is your strategy for advancing this agreement in this very difficult political context? And how do you appeal to the American public to recognize the values?
FROMAN: Well, first, I think the good news is that, as—now that the agreement is done, it’s been out there in public since November, people have had a chance to dig into it, they’re seeing the value that’s in there, what’s in it for different constituencies or different stakeholders. And those stakeholders are beginning to speak out. So you have broad support across virtually the whole economy, whether it’s the agriculture sector; the manufacturing sector; the high-tech sector; the business sector, broadly; the small-business sector, very importantly, because we have a real focus in the agreement on helping small businesses engage in global trade.
And that support is beginning to trickle through to members of Congress, as well. I’m spending a lot of my time, when I’m not traveling abroad, up on the Hill talking to members of Congress. And, again, the good news is, as they dig into the details and they see what’s in it for their constituents, which is their primary driving—the driving force behind their decision-making, they are seeing both the potential—the positive upside—and what’s at risk in not getting it done.
You know, just to give you—to give you one example, the cattlemen, the beef—the beef producers. Because Australia already has an FTA with Japan, and so it faces a lower tariff exporting beef into Japan than we do, we’re losing market share. And that’s going to continue until TPP gets put into place. So we’re losing over $120 million a year of beef exports to Japan. As constituents really dig into that and say there’s a lot in here for us in getting this done and there’s a lot to lose if this gets delayed, that—those voices on Capitol Hill are being heard. And I think, at the end of the day, there will be the necessary support to get it done.
JANOW: Mmm hmm. So, you know, it seems to me that, ever since NAFTA, administrations have had to justify trade agreements, you know, state by state and sector by sector, stitching together the necessary coalitions. Where is the heart of your coalition around this, do you think? Or is it really very broad-based?
FROMAN: Well, it’s pretty—it’s pretty broad-based. There are regional elements to it, but again, I think the—one of the things I’m most proud of is that we worked very hard not to leave any sector behind. So we have the support of the textile producers in the United States—this is the first time they’ve really been unified behind a trade agreement—and the apparel importers, the people who rely on imported clothing. We have the support of the domestic footwear producers and the footwear importers. We have the broad support of the agricultural community, with very few exceptions, of the manufacturers, of the service providers. The technology companies have now come out, the internet association, the apps developers, Google, et cetera. And all of that has been very, very positive. And so, again, as members of Congress are hearing about that and beginning to get a feel for what’s really at stake, there—I think the necessary support will be there.
JANOW: Mmm hmm. And could you speak about where you see the opposition? You know, I’ve heard, of course, sectoral opposition—you know, concern by biologics, you know, Senator Hatch; concern about investor-state, which is a bigger, more systemic kind of concern; and, of course, by labor, although you have ambitious labor provisions in here. So could you speak about the opposition?
FROMAN: Sure. There are a handful of issues that Congress identified when the agreement was done that they wanted us to make sure we were fully addressing. And, bit by bit, we’ve been able to address those. So there were issues around pork and issues around dairy, and those groups are now fully supportive. There were issues around the financial services sector and the free flow of data, and I think we’re quite close to reaching a resolution of that issue. I think the main outstanding issue right now has to do—and you mentioned biologics, which is a(n) intellectual property rights issue. And we are working with members of Congress and with the industry to try and find solutions there to reassure them about the issues that they care about without reopening the agreement or trying to renegotiate the agreement.
You know, I think in terms of the opposition, as you mentioned, there are a lot of things in here that are very strong on labor, the strongest labor provisions ever. The Vietnamese—if you look at what the Vietnamese have agreed to in terms of allowing independent unions that can elect their own leaders, control their own finances, conduct strikes, affiliate with whom they choose, again, assistance from outside from the AFL or the ILO or others, it’s really quite groundbreaking. And some of the other labor measures that countries have taken on on their own to address outstanding issues have been really quite groundbreaking. But it is true that organized labor is strongly and unified against it.
JANOW: Mmm hmm. Could you speak a moment about the strategy—legislative strategy for advancing this forward? I mean, the expectation is that this is—that you’re pursuing a lame-duck strategy. And, you know, I would just observe that the president of the United States always ultimately has to really weigh in and make it a priority to get over the finish line. What do you see in the six months ahead?
FROMAN: Well, we’d like to get it done as quickly as possible, as early as possible. And we’re working with congressional leaders and with the leaders of our committees—the Finance Committee and the Ways and Means Committee—to chart that pathway forward—laying the groundwork, doing the preparatory work, drafting the bills, drafting the reports that need to get done—so that, when that window of opportunity opens, we’ll be ready to walk through it. And that’s what our—that’s what the work over the next few months is going to take.
And again, I think there’s a lot of desire to get it done. There’s a recognition that if it doesn’t get done this year, it’s unclear when it would get done and how long it would have to linger. And that has serious costs, as we talked about, both economically and politically and strategically. And so our strategy is just to work with individual members, make sure they know what’s in the agreement, that they appreciate what’s in it for their constituents or stakeholders that they care about, and then move forward when the time—when the time is right.
JANOW: Mmm hmm. OK.
FROMAN: And the president—and you mentioned the president; president has been very much—he’s fully invested in this. We have a whole-of-White-House, whole-of-Cabinet effort underway with hundreds of events around the country by Cabinet, sub-Cabinet officials. If you haven’t seen it already, I commend you the president’s performance on Jimmy Fallon last week where he slow-jammed the news with a good plug for TPP right in the middle of it. So he’s very much fully invested in this effort as well.
JANOW: OK. Well, that’s a first, I think.
FROMAN: That is a first. (Laughter.)
JANOW: You know, one of the things you didn’t mention which I know has gotten some attention and which has some controversy around it is currency. Could you speak to what—there is a currency agreement of some sort. I have not read it myself, I must admit. But it doesn’t apply sanctions, I believe. Does it take you forward in collaboration in a new way? And, you know, this is really not an area that trade has dealt with historically.
FROMAN: I think—that’s right. This is the first time we have an agreement on currency among a group of trading partners to an agreement. And it’s—really, it’s a three-part agreement. It lays out criteria of what appropriate exchange rate policy is, drawing from the IMF and the G-20 and the G-7. It requires certain transparency so that for the first time, we’ll have visibility into how central banks intervene in the market, how often they intervene, when they intervene. And then it has an accountability mechanism where the finance authorities get together on a regular basis and assess each other’s performance against those criteria. So it’s the first time ever we’ve had something like this. I think it’s a major step forward. And the Treasury Department negotiated this with its counterparts around the TPP countries.
What it doesn’t do at the end of the day is end with trade sanctions, which is what some of the critics have advocated. And the reason for that is, well, we may have a particular view of what currency manipulation looks like; other countries have—in our view wrongly—but other countries have looked at our monetary policy, quantitative easing, and have said, that has the same effect on relative currency values. And we would never subject our Federal Reserve and our monetary policy to a trade tribunal and trade sanctions, and no other country would either. So it does stop short of that.
But between this new agreement and some other tools that Congress gave the Treasury Department in the recently passed customs bill, I think we have more teeth, the Treasury Department has more teeth to deal with the issues of currency manipulation than ever before, and I think it is a significant step forward.
JANOW: Mmm hmm.
Let me ask you two other quick questions before we open it up. They’re a little bit more sector-specific. You’ve alluded to disciplines around state-owned enterprises. And could you just say more about that? Is that—some of those have dealt with transparency and also procurement practices. We have an international procurement agreement. China is not yet a party to that. So what is this framework doing that we don’t have at the multilateral or other level?
FROMAN: So this goes further. It looks at both the purchases and sales of products and services, so it goes beyond goods to cross-border services and says, if you’re a state-owned enterprise, you’ve got to—and you engage in commercial activity, you have to engage on a commercial basis. And if you don’t, and if the noncommercial assistance that you receive from your government, whether it’s subsidies or other measures, has an adverse effect on a private firm, we have a trade action against you. And that adverse effect could be us trying to sell something into Vietnam and a Vietnamese SOE distorting the market. It could be a Vietnamese SOE operating in the United States having a green field investment in the United States but undercutting our private firms. Or it could be in a third TPP country. And that’s never been done before. And so in any of those cases, if it has an adverse effect on our private firms, then we can bring a trade action against the government and ultimately impose sanctions if it doesn’t get rectified.
And we think that’s important because—and again, in a lot of the public debate we’re hearing about trade, there’s an underlying theme that people worry that the system isn’t fair or that other countries aren’t playing by the same rules that we play by. And this is one of those ways of rectifying that by saying that a state-owned enterprise competing against a private firm has to play by the same rules of fairness than anybody else, and if they don’t, we have an enforcement action against their government.
JANOW: Mmm hmm. Very good.
Let me ask you a bit more about the digital economy because more and more I think is trade, whether it’s services or manufactured goods, is really implicated by the ability to have data flow across borders. If I’m understanding, this agreement is the first that really is going to prohibit data localization. Is that fair?
FROMAN: That’s right. I think that’s right. I think that’s right. Look, it’s very important because as you mention, first of all, this isn’t just about tech firms and their importance of having data across borders. Data is part of everything. It’s part of services. It’s part of manufacturing. And firms need to be able to move data from one jurisdiction to another. And this is the first time that there is a prohibition on data localization, prohibition on forcing a country to have servers in every market that they want to provide services in in order to be able to participate so they can have their data stored where it’s secure, where there is integrity to the network. There are a whole series of other provisions about not imposing duties on digital products like apps, and so making sure that there is a free flow of innovation in that regard as well.
And then from a small business perspective—you know, most small and medium-size businesses don’t have widespread distribution systems or sales forces around the world. They rely on e-commerce. And when they’re selling something from—on Etsy in Brooklyn from here to somebody in Australia—and I met with a number of Etsy producers who were—who were doing just that—they’re using telecom services, software services, electronic payment services, express delivery services. And all those services are covered in this agreement. So we’ve worked very hard to make sure that the rules are such that, again, support the continued development of the digital economy, including for e-commerce, especially for small and medium-size businesses so they can all take advantage of the opening of the markets that we’ve been able to secure.
JANOW: Thank you very much.
With that, why don’t I open it up for questions and comments—questions, not comments—from our very distinguished audience. And if you could just briefly identify yourself and ask a brief question.
Q: Good morning. Thank you. Ted Pulling from JPMorgan Asset Management.
You mentioned the window of opportunity which you need to get this passed before the election. Can you tell us approximately when that window of opportunity is? There is not a lot of time.
FROMAN: Well, I think Leader McConnell of the Senate has made clear publicly that he doesn’t want to see a vote before the election. So that really means—from the Senate perspective, anyway—in the lame-duck period. But to even do this in the lame duck, you want to do as much of the preparatory work as possible under trade promotion authority beforehand, and that’s what we’re working on now.
JANOW: Other questions. Yes.
Q: Tim Ferguson with Forbes. So both major candidates are pledging to rework the agreement in some way once they are elected, once he or she is elected. What kind of wiggle room is there actually to do that reworking without renegotiating, if that is the event?
FROMAN: This is a much more complicated agreement than I think anything we tried before. You know, as Merit mentioned, half the countries we already have FTAs with, and—so you’re not trading market access for agreement to a set of rules; you’re just building support for those rules. This wasn’t an agreement where eight or nine countries agreed on everything and it was just a process of pulling the other three countries over the time. This was an agreement where every single provision had a different set of parties who were in favor or against it and you had to build consensus issue by issue. And as a result, it’s a very—every country feels like it found the right balance, and it has to justify that balance at home politically as well. And so pulling the thread on one issue I’m very concerned will lead to the unraveling across several other issues. So I do not think this is an agreement that can be easily renegotiated or re-opened.
That doesn’t mean that in the process of implementation—and we have a robust process of making sure countries are meeting their obligations; we work with Congress on that—that there aren’t things that we can do to give reassurance that we’re addressing issues with the countries and with Congress. But I think opening up the Pandora’s Box of renegotiation I think will ultimately lead to it unraveling itself.
JANOW: Professor Fox.
Q: Hello. Eleanor Fox, New York University.
I want to push further on Dean Janow’s question to you about opposition to free trade agreements. And it’s more than TPP, but it’s focused on TPP a lot right now. You seem rather sanguine when you say people should just look at the agreement and see the benefits. And we’ve talked to all the stakeholders. And all they have to do is look and see the benefits. And yet, isn’t there a sense that they have looked—that is, for example, our candidates for president—that they have looked and they don’t see the benefits? Why is that? What is this gap of populist opposition?
Is it, in part, a concern that people lose their jobs here and now, even though labor wins, but particular people lose. And perhaps they feel not enough is done to compensate them? I think, actually, it goes deeper and more philosophically and would like to know what you think. But specifically, are the losers going to be helped in some way that will satisfy them? And then generally, is there yet a bigger gap of just philosophical opposition to freer trade on a thought and belief that our country is worse off?
FROMAN: So it’s a very good question, and a very timely one. If you ask most economists—well, if you look at the economic situation in our country, we’ve seen a lot of improvement over the last six or seven years in terms of unemployment has been cut in half, we’ve had, what is it, 75 months in a row of private sector job creation and we’re growing 2 and 3 percent. We created 14 million new jobs. All that’s very good. At the same time, we’ve seen wage stagnation for the last 15 years or so. This is only beginning to turn up. I think it’s gone up—wages have gone up about 2 ½ percent last year. And they’re on the same track again this year. We’ve seen widening income inequality. And I think those have contributed very significantly to the populist feeling that you cite.
Now, if you talk to most economists, they’ll tell you, if you look at the changing nature of the workforce, it’s more automation than globalization, but certainly globalization plays a role. You don’t get to vote on automation. Nobody gets to vote on the next generation or computers, or on the next generation of robots that might affect the workforce. You don’t really get to vote on globalization. Globalization is a force. It’s the product of the containerization of shipping, the spread of broadband, the integration of economies like China and Eastern Europe that used to be closed to the world and are now part of the global economy. You do get to vote on trade agreements.
And so trade agreements become the proxy, become the vessel into which people pour, I think, their quite legitimate concerns about the changing nature of the workforce and their concerns about wages and income inequality. Now, our perspective is while you don’t get to vote on globalization, trade agreements is now you shape globalization. Without trade agreements, we are an open economy already. We have very little protection here. Our averaged applied tariff is 1.4 percent. We don’t use regulations as a disguised barrier to trade. So when we grow, we bring in imports from all over the world. We compete right now with low wage countries around the world.
With trade agreements, we have the opportunity of removing barriers to those markets so that we can increase our exports. And we have the opportunity to raise standards in those countries so there’s a more level playing field. And that’s really what’s been driving behind the TPP. It’s a recognition that we do live in a global economy, that we can’t put that genie back in the bottle. But through trade agreements, we can take action that reflects our interests, reflects our values, and shape the global economy in a way that’s more to the benefit of our workers.
JANOW: May I ask one follow-up question? You know, in other periods of fashioning a coalition around international trade, you know, the administration arguably had more tools than you do at this point in an administration, in the current environment, whether it was trade adjustment assistance or other kinds of tools to kind of buttress support or benefit even constituencies in certain states or whatever to reach the political compromises necessary. Do you have such tools?
FROMAN: Well, when we secured trade promotion authority last year from Congress, we were actually able to get a renewal of trade adjustment assistance. I’m sorry I didn’t answer that part of your question. So we had a six-year renewal of the trade adjustment assistance program. It was expanded to cover not just manufacturing workers but service workers, and not just workers who might be displaced by a trade agreement but workers displaced by anything happening in the global economy. So whether it’s coming from China or India, where we don’t have trade agreements, or whether it’s coming from an FTA partner.
But to the professor’s point, there’s always more that can and should be done. And whether it’s investing in education, and skills building, and infrastructure, and all the things that we know are important to building a highly productive economy here, there is more—there is more to be done. It’s something that we’ve always advocated for. And I think it’s something that’s getting a lot of attention, properly, in the current debate.
JANOW: Thank you. Sir.
Q: Thank you. Earl Carr, representing Momentum Advisors.
I was at a meeting with one of the key negotiators for TPP. And she mentioned that Malaysia and Vietnam would be best positioned to gain the most economic value from this agreement. Would you agree with that assessment?
FROMAN: I think the Peterson Institute was probably the most in-depth report on TPP, says on a percentage base—as a percentage of their economy in terms of GDP growth or growth in exports, those two economies are likely to benefit the most. We benefit the most in absolute terms, but of course we’re the largest economy in the world. They benefit the most in percentage terms. It’s not particularly surprising, because the countries that benefit the most are those who are eliminating the most barriers. They’re the ones that are most protected now and will be having to liberalize their economy, and they’ll get the greatest gains from that liberalization.
JANOW: Mmm hmm. Professor Feldstein.
I thought one of the most significant things you said is there really isn’t scope for renegotiation of the agreement. So whatever the agreement is has to be voted eventually up or down. Secretary Clinton has expressed her lack of support for the agreement in its current form. So it sounds like you can’t change the agreement after she becomes elected, if she gets elected, in order to get her support. So does that mean that the strategy for getting her to say, well, taken as a whole I like this deal, is in some of these collateral things—changes in manpower programs or other things—since you can’t change the basic agreement?
FROMAN: Well, I won’t comment on any particular candidate, and I certainly can’t speak for Secretary Clinton and what the perspective—what her perspective might be going forward. What I can say is that this is the highest standard agreement ever negotiated, again, across these various provisions; that I do believe because of the complexities of the agreement, the number of countries, the number of issues, the dynamics of the negotiation themselves that renegotiation’s not an option. And by the way, these countries have their own politics around these issues. And they’re all going through their own ratification procedures. And we need to take that into account as well as they move forward, even as we’re encouraging our Congress to do so as well.
I do think there are things that can be done outside the agreement, as you mentioned, that will address the broader concerns about how to make sure the American workforce is prepared to compete in the global economy and in the TPP—in a TPP world. And I also believe that through the implementation process we can work with Congress, with stakeholders, with our trading partners to make sure that, as we’re interpreting elements of the agreement, as countries are bringing their systems into compliance with the agreement, that we’re doing everything necessary to ensure that those issues are addressed.
JANOW: Mmm hmm. In the far back, please.
Q: Hi. Mario—
JANOW: Is the microphone—
Q: Oh, thank you. Sorry. I’m Mario Calvo-Platero, Sole 24 Ore.
I just wanted to hear whether there is any progress on TTIP, on the transatlantic agreement, and whether there is a chance to do something before the administration will go out. Thank you.
FROMAN: There has been progress—actually, quite a bit of progress—over the last eight months, I would say. And there is a chance to get it done this year. And that is our objective, is to try—it won’t go through Congress, but to get it agreed to over the course of this administration. To do that, it’s going to require continued progress along the same kind of accelerated pace that we’ve seen over the last few months. It’s also going to require some creative and pragmatic and non-ideological approaches to resolving what inevitably are the hardest outstanding issues. We’ve got the political will.
And the president, when he was in Hanover a couple of months ago, and then again at the G-7, made very clear that the U.S. is fully committed to doing everything we can do to try and reach an agreement this year. We hope that the Europeans are similarly focused. They have a lot on their plate at the moment, and a lot of concerns and countervailing forces, whether it’s Brexit vote this week, or the migrant crisis, or the hangover of the Greek crisis, or the rise of populism, or the spread of referenda, or the euro-skepticism that are very much affecting their day-to-day lives. We hope that they’ve got the necessary focus to get—and the political will to get this done as well.
JANOW: Mmm hmm. In the front, David Sandalow.
Q: Hi. David Sandalow. Columbia School of International and Public Affairs.
Assume that TPP does enter into force, how do you see China relating to the agreement over time?
FROMAN: Well, our view has always been this is not directed against China. It’s not about containing China. It’s about setting high standards. But as other countries adopt these high standard—whether it’s Vietnam, Malaysia, or others, I think I mentioned that there’s another dozen-or-so countries who have indicated they’d like to potentially join TPP as well—it’s going to require China to up its game as well to be competitive. You know, when neighboring countries are offering better intellectual property rights protection, protection against trade secret theft, real dispute settlement—recourse to real dispute settlement, new stable labor and environmental environments to operate in, that’s going to require a race to—that’s going to lead to a race to the top for the region. That’s our goal. And that will require China to up its game as well. And I think that’s all—that’s in all of our interests.
JANOW: One follow-up question about China. I think the administration has now had something like 23 or 24 rounds of negotiations on the investment—bilateral investment agreement. And I wonder where you think that stands and how it intersects with a broader trade agreement. Some argue, you know, that it can be viewed as a stepping stone. Is that your view or do you think that’s a Chinese view? Or do you think on its own is what’s the driver of its completion?
FROMAN: Well, I think a high-standard bilateral investment treaty would require some very significant reforms of the Chinese economic system. And that—we’re having that dialogue with them. Just last week they were in Washington again, and gave us a revised—let’s call it a negative list, which is the list of sectors where they’re not committing to openness. So we want to keep that list as narrow and as short as possible. And we’re in the process of assessing that proposal. And we’ll be further engaging with them actively over the course of the summer and into the fall.
I think if we can achieve a high-standard agreement you’re moving from a world in which everything is prohibited unless it’s expressly approved to one where everything’s approved unless expressly regulated or prohibited. And that’s a significant change in terms of getting the government out of the business of managing the economy. I think separate from TPP it really is a data point or indication of China’s commitment to reform. And that’s the kind of dialogue we’re having with them, is how far they’re willing to go to demonstrate that they are serious about allowing market forces to play a dispositive effect on decision making in their system.
JANOW: Mmm hmm. Do you see that agreement as offering some protections or a better context for Chinese investment in the U.S., from a U.S. perspective?
FROMAN: Oh, it’s a bilateral agreement. We already have a very open investment regime. We don’t have any—very few kinds of restrictions that we face in other countries. And obviously in China we face enormous numbers of restrictions. You know, our CFIUS procedure, the Committee on Foreign Investment in the United States, reviews mergers and acquisitions from a very specific national security perspective. So we already—China investment in the U.S. has grown dramatically over the last several years. They’ve had little problem investing in assets here. And I think the BIT will help institutionalize that. But we’re already a very open economy when it comes to investment. And we encourage investment from foreign investors in the United States.
JANOW: Mmm hmm. I was thinking, though, in terms of offering a vehicle for structured conversations around problems when they arise, whether they’re perceived as arising in China or arising here, and whether the BIT is really a vehicle that helps you get there.
FROMAN: We have a series of vehicles. And we just came back from the Strategic and Economic Dialogue in Beijing a couple weeks ago. And investment issues were on that agenda. And we always share perspectives, our concerns about problems that our investors are having in their market, and they raise concerns about our market as well. And so I think it is important that we continue to have that dialogue and address those issues.
JANOW: Mmm hmm. Thank you. Over here, please.
Q: My name is Masazumi Nakayama, Citigroup.
I have a question about ISDS growth. And some countries’ public opinion expressed a fear of ISDS growth because a country thinks the U.S. always wins in the international dispute. How can we help them feel more comfortable about ISDS growth?
FROMAN: Well, first, I think—ISDS is investor-state dispute settlement. It’s the mechanism of mutual international arbitration where investors are able to protect themselves from expropriation or other discriminatory actions in a foreign market. Our perspective on it, first, is we provide under our Constitution, the fifth amendment, the Takings Clause protection to all domestic and foreign investors against expropriation without compensation. And what ISDS is really about is making sure that our investors, when they’re operating abroad, have a similar level of basic protection.
But we share a number of the concerns that have been raised about ISDS over the years. And in fact, since 2000, in each of our subsequent agreements we have been working to reform ISDS, whether it’s raising the standards and tightening them up, adding various procedural and substantive safeguards, increasing transparency of the proceedings, closing loopholes that we found in other countries’ agreements, all of those have been part of our agenda really for the last 15, 16 years.
In the 30-plus years we’ve had agreements with ISDS, and we have 51 agreements to which we’re a party with ISDS, we’ve had a sum total of 17 cases brought against the United States—13 cases to conclusion, and the government has never lost a case. We’ve had no cases brought in the last six years. And so while ISDS use generally may be going up around the world, we’re not seeing a big influx of cases in the United States against U.S. government action or U.S. regulation. And I think that’s, in part, because we focus so much in our agreements on raising the standards and adding these safeguards, and closing these loopholes. Whereas, you know, there are 3,200 agreements around the world that have ISDS, and they have varying standards.
Our approach to TPP has been let’s use TPP, again, as a way of raising the standards for ISDS. And if TPP doesn’t move forward, then you’re stuck with the existing standards. So if you don’t like the current agreements with ISDS, you should want to move forward with TPP because it actually tightens it and reforms it further. But little things, like—lots of little things. An investor’s expectations of profits alone cannot be a basis of a suit. That’s a reform in TPP.
An investor’s expectations that regulations won’t change, alone, cannot be the basis of a suit. The governments have a right to regulate. That’s in TPP. Those are the kinds of reforms that we’ve been able to negotiate with our trading partners that we think overall makes ISDS a mechanism that appropriately protects investors while ensuring that governments can take the actions they need to take in a bona fide way for regulation.
JANOW: I, myself, have arbitrated a number of these, as you know. And at least under NAFTA, you know, they’ve been open hearings where, you know, anyone can show up. And I think some allow for amicus curiae submissions by interested parties and so on. So, you know, they’re not the kind of secret forum that is often said.
FROMAN: In TPP, we’ve agreed to webcast them.
JANOW: Yeah, that was—
FROMAN: That makes them more transparent than the U.S. Supreme Court.
JANOW: Mmm hmm, yeah. Well, there are reasons as a judge I would say why a webcast is not a wonderful—(laughter).
Q: Leila Heckman from Lebenthal.
The candidate Hillary says she’s going to—she would renegotiate TPP. What aspects of TPP do you think she’s referring to?
FROMAN: Again, I can’t speak for her. I think she has flagged a couple of issues in particular, including the currency issue that Merit mentioned, including ISDS, although it’s unclear what part of it she’d want to renegotiate. She has cited pharmaceutical provisions. She feels we did too much in the agreement to protect pharmaceuticals. And she’s flagged the rules of origin issue. Those are the four that I’m aware of.
JANOW: Can I just ask a political question further? You know, first term of the Obama administration, obviously you’re dealing with the global financial crisis, domestic issues; trade was not that visible. But the second administration has been so focused on trade under your leadership. As you look ahead, and if TPP does not go forward, or even if it does, imagine how any administration, do you see that it would just languish for a full term? Or how do you imagine that this might unfold for a new administration?
FROMAN: Well, look, I think there is a certain urgency to getting it done—to getting it done this year. As you said, we really turned to doing Korea/Colombia/Panama about three years into the administration, and trade was not as prominent a campaign issue in 2008 as it is in 2016. Right now, you’ve got a president, a majority leader of the Senate, and a speaker of the House who are all pro trade and who’ve all been involved in pursuing this agenda. And, you know, that could well be different a year from now. And so I think that really does put a focus on doing everything we can to get this done this year.
There’s a question here. Yeah.
Q: Hi. Julien Tizorin from UniCredit.
Little question regarding the energy sector. What does—TPP will provide for the energy sector in the U.S., especially given that now, you know, exporting crude oil is starting just a little bit—there’s been a lot of investment in terms of exporting energy and especially to countries where—you know, which are related to the TPP? We’ve also seen the U.S. production capacity to be very flexible in terms of the collapse of the oil price over the past few months. What would TPP really allow? And how much is it going to drive some of the U.S. exports, as well?
FROMAN: TPP itself does not have an energy chapter or deal with energy issues itself. I think under our U.S. law, for example, the Natural Gas Act, exports of natural gas to FTA partners, who also give us access to their market, is presumed to be in the—in the national interest or the public interest. And so there’s a separate track of licensing FTA partners for export from non-FTA partners for export. And the Department of Energy—David knows this much better than I do—has a process for evaluating those licenses accordingly. But the trade agreement itself does not actually deal with energy trade.
Q: Good morning.
Away from TPP, but to take advantage of your presence here with us, would you share with us your thoughts and insights into the consequences of Brexit, should the vote go that way—what the consequences for the U.K. and for the EU might be?
JANOW: And if you can bring that to TPP, that would be even better. (Laughter.)
FROMAN: Maybe to TTIP. (Laughter.)
I mean, look, this is obviously a decision that the British people themselves need to make. But we’ve made clear—the president made clear when he was in London that we believe a strong U.K. and a strong and unified European Union is in everybody’s interest: in the interest of the U.K., in the interest of Europe, and in our interest. We want a strong Europe that is outwardly focused and capable of being a partner of ours in dealing with a whole range of global issues. And that remains—that remains our position, but it is for the British people to decide. And as I sort of alluded to in our—in the TTIP question earlier, we want to make sure that Europe has the ability to engage in a broad set of issues going forward, and do have concerns about how Brexit might play into that.
JANOW: So is that—as a point of departure, imagine we have TPP and TTIP in existence. How do you see these rule frameworks interacting with each other? The argument used to be made that these would escalate into something else over time. I don’t think we’ve seen any evidence of that, but we’ve seen other ways in which they can be reinforcing. So how do you see these rule frameworks? Because they’re not identical, either in the coverage or in structure.
FROMAN: They may not be—end up being identical, but they—our goal is for them both to advance the goal of raising standards around the world. And if we can do it with TPP and TTIP, that’s two-thirds of the global economy. Then you’ve got the countries who’ve already indicated that they want to join TPP, and even some who’ve said they want to join TTIP once it gets completed, so you can see that growing above two-thirds.
When you’ve got two-thirds or more of the global economy saying, here’s a good framework for the digital economy, for intellectual property rights, for state-owned enterprise disciplines, for science-based rulemaking, it makes it much easier, then, to multilaterlize that. Those countries have already gone through the challenges of getting to those positions domestically. They brought their stakeholders along. And then it makes it easier and easier to make that a multilateral role.
And that’s ultimately—our objective is—I mean, the highest and best form of trade liberalization is the multilateral system. We’ve seen it stymied over the last 15 years for a variety of reasons in the Doha Round, but we now feel that the WTO is at a moment in time when it can actually look at new approaches to old issues and new issues it can take on. And as these mega-regional agreements are put in place, we think that helps sort of create building blocks that ultimately might help strengthen the multilateral system as well.
JANOW: Mmm hmm.
Sir, last question.
Q: Jeff Glueck from Foursquare. Hi, Mike. Good to see you again.
FROMAN: Good to see you.
Q: And a salute, by the way, unrelated, to your Kids v. Cancer work. I’m a big fan of all that you and your wife have done on that.
You alluded to the science-based regulation, and a lot of the criticism of TPP has been around usurping sort of democratic and sovereign and evolving scientific debates about genetically modified organisms or synthetic biology and all that. Could you comment on, you know, your answer to concerns that this would impede things like GMO labeling if voters wanted it, things like that?
FROMAN: Right. There’s nothing in there that would impede any of that. I mean, our fundamental focus is—whether it’s in TPP or in TTIP—is to underscore the importance of science-based and risk-based decision-making, which is already established in the WTO. These countries have all agreed to that 22 years ago or so, and we want to make sure that we’re implementing that.
We trust science. Whether they’re European scientists, or Japanese scientists, or wherever the science is done, we trust science because we think it’s a very sound basis on which to make these decisions. Our challenge has oftentimes been in countries where the scientists say something is safe, but the politicians then vote on safety and decide whether they think it’s safe or not. And that, I think, is challenge to the rules-based system that we all agreed to in the WTO.
And so, as—you know, with—this an issue, certainly a significant issue in TTIP, and you allude to it in TPP as well. We’re not trying to force anybody to eat anything, but we do think the decisions about what is safe ought to made by science, not by politics and not by protectionism. And that’s our position in both agreements.
JANOW: And that’s been true, as you say, since pre-Uruguay Round, so.
Well, with that, it’s wonderful to have you here. Please come back. Please join me in thanking Ambassador Froman. (Applause.)