Despite rhetoric on the campaign trail about the U.S. being “ripped off” in its trading relationships, the top American officials in charge of trade and commerce said Friday that trade rules are being enforced more stringently than ever.
And beyond that, trade deals are a way to adjust global trading rules that can sometimes work to the disadvantage of U.S. firms, especially the smaller ones that don’t have big legal teams, the officials said.
“We’ve been cracking down on companies and countries that don’t play by the rules in record numbers,” Commerce Secretary Penny Pritzker said in a conference call extolling the 12-nation Trans-Pacific Partnership.
She said the U.S. International Trade Administration is considering slapping retributive taxes on foreign countries in some 350 cases spanning a variety of industries, a 15-year high for countervailing duty investigations.
Recent wins for U.S. producers include a 200 percent proposed tax on Chinese-made ammonium and hefty duties on cases involving steel pipe used in solar projects with government funding, along with plastic netting for road construction. (The latter complaint was initiated by Georgia-based Tensar Corp.)
Ms. Pritzker’s comments came amid a backdrop of antipathy toward trade in politics, with Republican hopeful Donald J. Trump building momentum for his candidacy largely on protectionist rhetoric.
Democrat Hillary Clinton, who formerly supported TPP, has reversed course on the deal and has said in debates she will appoint a “trade prosecutor” to ensure the U.S. is being treated fairly in its dealings with trade partners.
Ms. Pritzker said that will be the case with TPP, a sweeping 12-nation deal that has been opposed by activist groups but is largely backed by corporate interests and industry associations. It has yet to be passed by Congress. After that, it must be ratified by 11 other partners’ legislatures before coming into force.
“Once TPP is implemented, we intend to strongly enforce the new trade rules as well, just as we have with past trade agreements,” Ms. Pritzker said on the call sponsored by Business Forward, a trade group that has consistently supported the deal.
And it’s small companies that need these enforcement mechanisms most, as they are most impacted by many of the issues TPP addresses, the commerce secretary added.
Small businesses face “disproportionate challenges” dealing with red tape, corruption, underdeveloped logistics networks, customs delays and the other nuts and bolts of global business.
“Fortune 500 companies can dedicate huge teams of lawyers to figure out how to do business in other countries despite these challenges, but you as small businesses — and I know this from my own background — we can’t,” Ms. Pritzker said, conceding that a “trade deal is really only as good as its enforcement.”
Some on the call took issue with her assessment. Also, the Government Accountability Office said in a recent report that some $2.3 billion in countervailing duties remain uncollected and may never be collected at all.
Foreign companies, from China and elsewhere, often trans-ship goods through FTA partner countries like Mexico and Peru, even setting up locally owned outposts these locales to avoid U.S. duties, maneuvers that show how the enforcement game is shifting.
TenCate Geosynthetics International, a Georgia-based subsidiary of a Dutch company, has expressed concern about enforcement in the TPP after it said a Mexican state government bypassed the company to buy a knockoff product made outside the NAFTA region, circumventing its own bid requirements.
What’s more, the “geotube”, a massive, sewn-together plastic cylinder that acts as a giant sandbag to protect coastlines from waves and mitigate erosion, was purchase from a Chinese company that TenCate says infringed on its patent.
“The public bid required that all suppliers, all members of the value chain for the project, had to be countries that were party to an agreement with Mexico, and China clearly is not,” Dan Trope, the company’s director of government affairs, told Global Atlanta last September as negotiators prepped for their final talks on TPP in Atlanta. “They took our tube — just not produced by us.”
Mr. Trope said the TPP sounded worrisome considering the fact that such a problem arose within one of the U.S.’s closest trading partners.
“When you’re looking at 40 percent of the world economy, that causes you to raise an eyebrow for a second,” Mr. Trope said at the time, as TenCate had two suits pending: One against the Mexican government, and another against Alvarga, a construction company.
Michael Froman, the U.S. trade representative, said on the call with Ms. Pritzker that the TPP has safeguards against intellectual property infringement and other unfair practices, as well as labor and environmental standards and chapters on small business, the digital economy, data movement and other unprecedented sectors.
He also hinted that concerns on the other side of the spectrum — that companies will use the threat of lawsuits to prevent governments from regulating in the public interest — are overblown.
Investor-state dispute settlement, which allows companies from one party country to sue the government from another, is standard in bilateral investment treaties, the pacts that lay out cross-border investment rules. Mr. Froman said critics’ visions of corporations using TPP to sidestep or undermine democratic institutions are invalid.
If TPP fails, so-called ISDS will still be in some 3,200 agreements without the benefit of measures the trade agreement has added to respond to concerns about frivolous lawsuits and to reasonably ensure governments that they won’t be sued over regulatory issues. (Read more: Does TPP Create ‘Secret Courts’?)
“If TPP passes, then we establish a new and higher standard that can help raise the bar overall,” Mr. Froman said, noting that the deal “represents a reformed version of international arbitration.”
And all this is not to mention tariffs, which will go to zero for 98 percent of goods, or 18,000 product categories. Automakers facing a 70 percent tax in Vietnam would see it disappear. Other beneficiaries would include machine makers selling to Malaysia (a 59 percent tariff) and poultry producers like those in North Georgia (40 percent) selling to Japan.
Regional Importance Stressed
Both Mr. Froman and Ms. Pritzker highlighted TPP as a counterweight to China’s growing influence in Asia, reciting the oft-repeated argument that it has both strategic and economic components.
They warned of the global economy moving on with new trade momentum while the U.S. sits complacently.
“We don’t live in a static world. The rest of the world is not waiting on the sidelines. They’re moving ahead with their own agreements,” most notably the 16-nation Regional Comprehensive Economic Partnership led by China, said Mr. Froman.
He said America’s allies in the region seek reassurance of its commitment to Asian security at a time when China is testing boundaries and reshaping alliances.
“They’re executing on their regional strategy, and our allies and partners want to know that we’re going to execute on ours,” he said.
Mr. Froman and Ms. Pritzker are part of an all-out blitz by the Obama administration to get the deal through Congress, though its prospects are murky at best given the current climate.
They both were optimistic that the lame-duck session after the election would be the right time, and Mr. Froman said there is plenty of time under the Trade Promotion Authority rules granted by Congress to President Obama to get it passed within the next few months, before it’s potentially caught in the limbo of a new and possibly hostile administration.
“There’s a real premium on acting now to get it done,” he said.