Peru Snubs Trade Deal with U.S.

One of President Obama’s big selling points for the Trans-Pacific Partnership trade agreement is the claim that it will stop foreign governments from gaining competitive advantages by repressing worker rights (and wages) and green-lighting pollution.

So it can’t be good news for America’s president that it may be letting Peru, a TPP signatory, get away with breaking the labor rights commitments it made in its 2007 bilateral trade deal with the U.S.

The president is plainly counting on support from lawmakers who are retiring or who have lost elections.

The short-term politics are almost certainly unfavorable — possibly unfavorable enough to kill any chances of TPP’s passage this year. Even more important could be the longer run implications, as this Peru dust-up makes clearer than ever that even diligently enforced efforts to use trade policy to raise labor — as well as environmental — standards in developing countries are a fool’s errand.

Reports that Peru is letting some employers ditch workers for their labor union links, and that Washington is responding sluggishly, could further cloud Mr. Obama’s chances of winning final TPP victory in a lame-duck Congress. It’s true that most congressional leaders in both parties either oppose the agreement or view it as a sure loser. But the president is plainly counting on support from lawmakers who are retiring or who have lost elections (and therefore are no longer accountable to voters) — and from legislators who believe that constituents will forget their support for this unpopular deal when their next election rolls around.

The news reinforces charges that the Obama administration has been coddling labor rights violators in deed — despite its impressive words.

These lawmakers may not care much about news suggesting that American trade partners could flout TPP provisions as easily as they’re ignoring commitments in existing trade deals. That may also be true for most other Democrats — since they’re firmly opposed to current trade strategies anyway. But the Peru revelations could trouble fence-sitting Democrats by preventing them from portraying TPP as a win-win for the American workers. The news reinforces charges that the Obama administration has been coddling labor rights violators in deed — despite its impressive words. That relatively small group could spell the difference between victory and defeat.

All the same, the Peru revelations are sending the same message to American leaders and voters that they’ve been getting from ongoing labor provisions violations in U.S. trade partners like Mexico, Colombia, Guatemala, and Honduras — they mock TPP backers’ promises that the agreement will turn signatories like Vietnam and Malaysia (as well as Peru) into workers’ paradises. Specifically, the realities of even smallish foreign economies and the terms of the TPP and its predecessor deals simply render their labor and environmental measures unenforceable.

Two main reasons explain why. First, the sheer number of factories in these countries has always been big enough to simply overwhelm the numbers of inspectors the United States can reasonably hope to station to ensure they’re abiding by trade deal provisions.

Look at it this way. The World Bank says a smallish TPP economy like Vietnam boasted 50,000 manufacturing companies (a figure not identical to number of factories, but closely related) as of 2013. Moreover, this number had roughly quintupled since 2000 and has surely soared since. Mexico is a much bigger TPP country. Its government judges that its manufacturing sector consisted of nearly 605,000 factories in 2014.

Now look at the number of investigators employed by the U.S. Department of Labor’s Wage and Hours Division that year. It was about 1,000. In 2013, the entire U.S. Environmental Protection Agency workforce totaled just under 16,000 — but that included everyone from senior administrators to secretaries. They’re supposed to cover the nearly 255,000 manufacturing establishments in the United States, but even the leaders of these agencies admit that they often fall way short of the challenge.

Does anyone seriously believe that Congress is going to appropriate the money to pay for the tens of thousands of new inspectors that will need to run around these or other TPP countries — on an ongoing basis — to make sure that treaty provisions are being respected?

The second big obstacle that will continue frustrating trade treaty enforcement is the nature of the dispute-resolution procedures they set up — and which served as the model for the TPP. The United States is invariably the biggest economy involved in these trade arrangements, and its market is therefore the biggest prize by far. Even when it comes to the 12-country TPP, the United States accounts for nearly two-thirds of the future trading zone.

But to resolve disputes that arise in connection with these deals, Washington has just as invariably agreed to procedures that completely neutralize the leverage its size should create. Instead, the United States is treated legally as just another member.

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And because keeping the U.S. market much wider open to their exports than vice versa is the overriding shared priority of America’s trade deal partners — for the United States is “where the money is” — dispute-resolution proceedings inevitably turn into anti-American kangaroo courts. Their main objective is ensuring that no major verdicts are handed down, and no major precedents set, that would produce even roughly balanced trade flows. And they have the collective influence to keep U.S. plaintiffs or defendants a minority of one.

Trade critics are right to demand that trade agreements prevent worker exploitation and environmental pollution from being used to take jobs and business away from American workers and domestic producers. But the standard approach of counting on treaty texts and international tribunals to achieve this goal needs to be scrapped. Rather, the United States should unilaterally set the standards the trade partners need to meet to do business in America; serve as judge, jury, and court of appeals for any complaints; and recognize that its still-predominant market power will ensure that most countries take this deal rather than leave it.

In other words, geopolitics isn’t the only realm in which America can and must start acting like a superpower again. It’s at least equally important in trade and economics.

Alan Tonelson, who blogs on economic and security policy at RealityChek, is the author of “The Race to the Bottom” (Westview Press, 2002).