The Trouble with TPP

El Salvador is a tiny country about the size of Massachusetts. During its 12 year civil war, the United States sent $1.4 million of the tax-payers money to this Central American country each day to support the right wing Salvadoran government and its armed forces. Oscar Romero asked President Jimmy Carter in 1980 to stop sending military aid to El Salvador because “it is being used to kill our people.” Peace finally came to El Salvador in 1992. Neither side won. The United Nations termed it “a negotiated revolution.”

It would be fair to say that the United States had and continues to have a significant investment in peace in El Salvador. Two million Salvadorans now reside in the United States.

After the war, perpetrators of human rights abuses were reined in, a civil police force was developed and judicial and electoral reforms were put in place. Insufficient attention was paid to economic development despite the fact that economic injustice was at the heart of the war. One industry that was developed was the textile trades. You could buy a shirt at J.C. Penney that was assembled in El Salvador. Jobs in the textile trade were not particularly good jobs, but for those with no economic prospects, the industry provided a means to feed a family.

The Salvadoran government under Mauricio Funes became concerned about the impact of Trans-Pacific Partnership (TPP), a huge trade agreement. His narrow concern was the inclusion of Vietnam among the participating nations. The Obama Administration wanted Vietnam included in the TPP as a way of keeping Vietnam out of the Chinese economic orbit. The Funes Administration feared that unfair competition from Vietnam would damage the Salvadoran textile industry. The textile industry in the United States felt likewise.

Under a trade agreement like the TPP, foreign countries can sell their products in the US market free of tariffs. In turn, foreign markets are opened for US products. If the US wants to prevent China from setting the terms of trade in the Pacific Rim countries, it enters into free trade agreements with Asian countries. Signatory countries within the trade agreements can trade with other signatory countries under the terms of the agreement.

However, in the case of textiles, Vietnam wants to benefit from the TPP but not acquire its yarn from other signatory countries but rather from China, a country not part of the agreement. This would be a violation of what is known as the yarn forward rule. Allowing Vietnam to do this will have a negative impact on the US textile industry and that of other countries such as El Salvador.

Trade agreements are secretive in nature. The Office of the US Trade Representative negotiates the terms of the agreement with foreign countries who want to talk with only one central trading partner. Vietnam for example does not want to enter into an agreement that is subject to Congressional review lest they make an agreement only to find the terms changed by our Congress. The trade agreement process is not democratic with a small “d.”

El Salvador is a small country and in no position to oppose the TPP. Their position in textiles only has influence to the extent that the US textile industry has the means to amend the TPP. Now that fast track authority has been approved by the Congress, there will only be one vote on the entire TPP agreement. A Senator from North Carolina, where much of the US textile industry is located, might want to vote no on the treaty except for the fact that other parts of North Carolina might benefit.

According to a reliable source, when El Salvador’s President Mauricio Funes expressed his concern about the impact of the TPP on Salvadoran textiles, he was told by President Obama to concentrate his attention on positive applications of the Central American Free Trade Agreement (CAFTA). Does the US have the right to tell another country how to run its economy and what to be concerned about?

The impact of international trade agreements is nothing new to El Salvador. A Canadian company, Pacific Rim, invested in a mining project in El Salvador. The people in the area to be mined objected. They maintained that the jobs created would not go to the people of the area and their environment would be harmed. Many protests were held that eventually led to the government of El Salvador opposing the project. Subsequently, the Canadian company sued El Salvador under the terms of an international trade agreement. A panel in Washington will decide the case. Why does a panel of judges in Washington get to change what the people of El Salvador have already decided?

Welcome to the world of globalization.

Soon, the Congress will vote up or down on the entire Trans-Pacific Partnership. There will be no amendments. A sector of the economy harmed by the agreement will have no means of pleading its case. The only way those anticipating harm from the TPP could impact the agreement was to deny the President fast track authority. Fast track authority has now been granted to President Obama and subsequent presidents despite substantial opposition from the President’s own party in the Congress. It is broadly conceded that there will be winners and losers under the TPP. Those who work in the textile industry have reason to fear for their jobs. They expect their Members of Congress to protect their jobs. That is why so many Democrats voted no on the fast track measure. At this point in the proceedings, a little country like El Salvador and its textile industry, essential to an impoverished land, can only wait to see the final terms of the TPP and experience its impact.

As of November 7, 2015 the final details of the TPP agreement are now available. Various sectors of the US economy including textiles are studying the final product. At first look, it appears that the yarn forward rule applies and Vietnam would not be able to get its yarn from China. However, the agreement is quite long and detailed so it would be best to wait until the trade press confirms this superficial understanding.

There are companies and sectors of the US economy who will not support the final TPP product. The Congress needs to vote up or down on the trade agreement. Will it have enough support to pass? At the moment, the answer is unclear.