RUTHFULLY YOURS

Although many people still labor under the delusion that TPP is a free trade agreement, the 5,544 page TPP regulates trade, the environment, immigration, patents, copyrights, and labor laws among the 12 countries that are participants and the additional countries that are expected to join. Consequently, in a post-TPP world, U.S. presidents could force almost any alteration in U.S. law simply by achieving support in the TPP commission for a U.S. specific modification to the TPP. Case in point today, Obama’s climate ambitions.

Environmentalists are not happy. Republicans are not happy. Only Obama seems happy. Why is he the only one happy with the climate change agreement that he is currently negotiating in Paris? Because that agreement, when combined with the already-negotiated Trans Pacific Partnership (TPP), would complete his fundamental transformation of U.S. politics and the U.S. economy.

We don’t yet know the terms of the climate change agreement, but we do know that each country will be held to different carbon emission standards. President Obama released the likely U.S. and Chinese standards in a November 11, 2014, White House press release:

The United States intends to achieve an economy-wide target of reducing its emissions by 26%-28% below its 2005 level in 2025 and to make best efforts to reduce its emissions by 28%. China intends to achieve the peaking of CO2 emissions around 2030….

Apparently, less developed countries, including China, the world’s largest carbon emitter, will be allowed unlimited increases in their carbon emissions, while developed countries, including the United States, will be subjected to draconian reductions. Obviously, the deal will do little to reduce worldwide carbon emissions. It will mainly move carbon-emitting factories from the developed countries to the developing countries.

To add insult to injury, the developed countries will be required to pay about $1 trillion in reparations to the underdeveloped countries. The amount of these reparations is still being negotiated, but we know that they will be immense.

How will the developed countries pay immense reparations at the same time that they are losing exporting industries? The last agreement to impose this burden was the Versailles Treaty after World War I, which doomed Germany to hyperinflation and political instability, as economist John Maynard Keynes predicted in his 1919 book The Economic Consequences of the Peace (pdf).

Why Are Environmentalists Upset?

Environmentalists are upset by the combined terms of TPP and the climate change agreement. The combination will cause factories to move to undeveloped countries, including Vietnam and Malaysia, where they will emit more carbon dioxide than they would in the energy-efficient United States. According to a Sierra Club report (pdf):

The TPP would force U.S. manufacturers to compete directly with firms in low-wage countries, like Vietnam and Malaysia. The resulting offshoring of U.S. manufacturing would spur not only U.S. job loss, but also increased climate-disrupting emissions, as production in Vietnam is more than four times as carbon-intensive, and production in Malaysia is twice as carbon-intensive, as U.S. production. (p. 3)

They are also upset that the carbon emission reductions being negotiated in Paris are voluntary, not mandatory. However, they have missed the fact that there will be at least one exception to the “voluntary” rule. The Paris agreement won’t be voluntary for the U.S. — if TPP passes!

Why Are Republicans Upset?

It is just now dawning on Republicans leaders in Washington that, if they vote to pass TPP, the carbon emission reductions and reparations that Obama agrees to in Paris won’t be voluntary for the United States. They didn’t see this coming last spring when they gave Obama fast-track power to negotiate TPP.

But now it has become obvious that Obama plans to sign a climate agreement in Paris without ever bringing it before Congress for ratification. Rick Manning of Americans for Limited Government is on the story. In a December 1 commentary that appears in The Hill (Obama’s Paris Climate Treaty Spells Doom for TPP), he begins by asking, “Why is the lame-duck Obama emboldened to flout the Constitution on this landmark treaty?” Then he answers his own question:

The answer lies in Congress’s attempt to force the president to bring his Iran deal to the Senate for ratification. When Republicans decided to “assert their authority” by passing legislation requiring that Obama submit the nuclear deal to Congress in a form that could only be rejected if a two-thirds majority in both chambers were willing to override his veto, the seeds were sown for Obama’s complete disregard for constitutional treaty powers.

Republicans are now beginning to realize that Obama will use TPP to enforce his climate agreement. Manning continues:

There can be little doubt that Obama plans on using the Trans-Pacific Partnership governance as the means to enforce whatever he agrees to in Paris on the U.S. all the while our trade partners will ignore it, with the threat of international trade sanctions imposed against the United States should Congress or a future president roll back his agenda.

Obama’s Strategy

In retrospect, Obama’s strategy was obvious. It first appeared in a January 2014 press release from the U.S. Trade Representative’s office which stated:

The United States’ position on the environment in the Trans-Pacific Partnership negotiations is this: environmental stewardship is a core American value, and we will insist on a robust, fully enforceable environment chapter in the TPP or we will not come to agreement. [emphasis added]

Our proposals in the TPP are centered around the enforcement of environmental laws, including those implementing multilateral environmental agreements (MEAs) in TPP partner countries…

It was explained more fully in a 2014 paper (pdf) by Joshua P. Meltzer, Fellow in Global Economy and Development at the Brookings Institution. Meltzer wrote:

As a twenty-first-century trade agreement, the Trans-Pacific Partnership Agreement (TPP) presents an important opportunity to address a range of environmental issues, from illegal logging to climate change and to craft rules that strike an appropriate balance between supporting open trade and ensuring governments can respond to pressing environmental issues.

It became obvious when the text of TPP was revealed at the beginning of November. Article 20.4 specifies that TPP will implement relevant multilateral environment agreements:

1. The Parties recognise that multilateral environmental agreements to which they are party play an important role, globally and domestically, in protecting the environment and that their respective implementation of these agreements is critical to achieving the environmental objectives of these agreements. Accordingly, each Party affirms its commitment to implement the multilateral environmental agreements to which it is a party.

2. The Parties emphasise the need to enhance the mutual supportiveness between trade and environmental law and policies, through dialogue between the Parties on trade and environmental issues of mutual interest, particularly with respect to the negotiation and implementation of relevant multilateral environmental agreements and trade agreements.

There are already two such multilateral environmental agreements that have been incorporated into TPP’s Chapter 20. Article 20.5 implements the Montreal Protocol on Substances that Deplete the Ozone Layer while Article 20.6 implements the International Convention for the Prevention of Pollution from Ships.

Article 20.5 provides the template for how the Paris climate agreement would be implemented. It begins:

The Parties recognise that emissions of certain substances can significantly deplete and otherwise modify the ozone layer in a manner that is likely to result in adverse effects on human health and the environment. Accordingly, each Party shall take measures to control the production and consumption of, and trade in, such substances.

But the key provisions are specified in two footnotes. Footnote 3 on page 20-4 refers specifically to the Montreal Protocol. It reads:

For greater certainty, for each Party, this provision pertains to substances controlled by the Montreal Protocol on Substances that Deplete the Ozone Layer, done at Montreal, 16 September 1987 (Montreal Protocol), including any future amendments thereto, as applicable to it.

And Footnote 4 on page 20-4 specifies that each party is bound to the specific provisions that it committed to in Montreal:

A Party shall be deemed in compliance with this provision if it maintains the measure or measures listed in Annex 20-A implementing its obligations under the Montreal Protocol or any subsequent measure or measures that provide an equivalent or higher level of environmental protection as the measure or measures listed.

When Will the Climate Agreement be Added to TPP?

The Paris climate agreement has not yet been negotiated, so it couldn’t be added to TPP ahead of time. But TPP is a “living agreement” which means that its terms can be changed simply by votes of its governing body. The Trans-Pacific Partnership Commission has been given almost unlimited powers. Article 27.2, Functions of the Commission, states:

The Commission shall:… (c) consider any proposal to amend or modify this Agreement… (h) take such other action as the Parties may agree….

Most likely, the terms of the climate agreement will be added to TPP at the first meeting of the Trans-Pacific Partnership Commission. According to Article 27.4, Rules of Procedure of the Commission, that meeting will take place within a year after TPP goes into effect, most likely while Obama is still president. Specifically:

The Commission shall meet within one year of entry into force of this Agreement and thereafter as the Parties may decide, including as necessary to fulfil its functions.

But first the House and the Senate would have to vote to approve TPP by the required up-or-down votes, and TPP is so unpopular with voters that the dates of those votes keep getting put off.  According to DTN Washington Insider, Republican supporters of TPP are planning to postpone the House vote at least until after the primaries, and possibly until after the general election:

The timing of a vote on the TPP deal is ultimately up to House leadership, which may be reluctant to bring such a hot-button issue to a floor vote in an election year. A vote is not expected until after the ITC report is released on May 18, and is likely to occur much later than that.

If both the House and Senate approve TPP, neither body will have any say over how the U.S. votes when the climate agreement comes up before the Commission. Article 27.1 specifies:

The Parties hereby establish a Trans-Pacific Partnership Commission (Commission) which shall meet at the level of Ministers or senior officials, as mutually determined by the Parties. Each Party shall be responsible for the composition of its delegation….

How Would the Climate Agreement Be Enforced?

Once the Commission incorporates the climate agreement into TPP, its terms would be enforced by TPP’s arbitration panels. Any country that is party of the agreement could charge any other country with violating the agreement. After evidence is presented to the panel and after due deliberations, the panel would issue a final report which would determine whether the charged country was out of compliance. Article 28.18 specifies:

If in its final report the panel determines that:  (a) a measure at issue is inconsistent with a Party’s obligations under this Agreement; (b) a Party has otherwise failed to carry out its obligations under this Agreement; or (c) a Party’s measure is causing nullification or impairment in the sense of Article 28.3(c) (Scope); the responding Party shall, whenever possible, eliminate the non-conformity or the nullification or impairment.

If the charged party fails to come into compliance with TPP, Article 28.19 specifies that the panel can levy fines. Specifically:

If a monetary assessment is to be paid to the complaining Party, then it shall be paid in U.S. currency, or in an equivalent amount of the currency of the responding Party or in another currency agreed to by the disputing Parties in equal, quarterly installments…

We know from other agreements that fines levied by arbitration panels can be multi-billions of dollars. For example, Ecuador was ordered by a panel to pay a fine of $2.3 billion to Occidental Petroleum and Venezuela was ordered by a panel to pay a $1.6 billion fine to Exxon Mobil.

The agreements that assessed those fines only let businesses sue governments. In contrast, TPP lets governments sue each other. The U.S. would not have the option of ignoring the fines, as it is one of the 140 countries that have agreed to abide by the terms of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958.

TPP adds a whole new supra-national level of regulation to the American economy. American businesses already must comply with the rules of their state EPAs and those of the federal EPA. TPP adds a third level. Under the threat of massive fines, Congress would have no choice but to subject American businesses to the rules of the new international EPA, known as TPP.

Fortunately, even if Congress passes TPP, there would still be an out for the United States. TPP contains one excellent provision. A country can pull out of TPP, simply by giving six months notice.

The Richmans co-authored the 2014 book Balanced Trade: Ending the Unbearable Costs of America’s Trade Deficits, published by Lexington Books, and the 2008 book Trading Away Our Future, published by Ideal Taxes Association.