US Midterms 2104: Could Elections Derail TTIP and TPP?

Americans head to the polls today for the midterm elections, which are likely to see the Republican Party regain control of the US Senate.

The vote comes at a crucial time in US trade policy and the results could have a huge bearing on the US's ability to negotiate and secure favourable deals in their discussions with the Pacific nations and the European Union.

Negotiations over the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) are well under way and, while the actual negotiations unlikely to be directly impacted by the elections, analysts agree the ability to secure closure in both agreements depends on the margin of the Republican victory and the ability of President Barack Obama to convince the most liberal elements of the Democrat Party to fall into line in support of free trade.

At the crux of the issue is the trade promotion authority (TPA – also referred to as the fast-track negotiating authority for trade agreements) – a tenet of US law that expired for new agreements in July 2007 and which stopped being effective for those under negotiations in 2011.

Essentially, the TPA allows the president to negotiate the details of a free-trade agreement, using a list of negotiating objectives that have been agreed on by Congress. Once it has been agreed and signed with the US's trading partners, Congress can vote for or against it but it cannot amend it or filibuster.

TPA needs 60 votes but what if that does not happen?

The general view from experts in the US is that in order for the TPA to pass, it will require 60 votes in the Senate, which will have to come from a combination of Republicans and Democrats. And what if it doesn't pass?

"There are two problems," Scott Lincicome, an international trade attorney at law firm White & Case, told IBTimes UK. "The US will have a much more difficult time completing TPP or TTIP. It's well understood that certain trading partners, such as Japan, are using the lack of TPA as an excuse not to offer their best deal. For example, agricultural market access.

"Some of it is gamesmanship, but some is good sense. Why put forward your best deal if you have no guarantee that the deal that's put before Congress is the deal that gets approved? If you're Japan and you give a lot of ground on rice but in return you get a lot on automobile market access in the US, then Congress comes along and eviscerates the automobile market access, you're stuck."

Despite the belligerence of some more extreme members of the Republican Party (often those in industrial states along the Rust Belt, or those "extreme free marketers" in the mould of Ron Paul, who believe the US should drop all trade barriers and that free trade agreements are unconstitutional), it is likely that up to 90% of Republicans would vote in favour of TPA.

The problem for those hoping to get these big trade deals over the line any time soon (which most agree is unlikely to happen) comes with the lack of support among Democrats, many of which are looking to run for the 2016 Presidential Elections on anti-outsourcing, import competition tickets.

"One of the problems President Obama will have will be in his own party. The traditional issues are environment and labour," said Frank Samolis, Co-Chair of the International Trade Group at US law firm Squire Patton Boggs.

"The liberal wing of the Democrat Party wants to make sure there's protection for labour rights and that the environment is protected. In the case of US-EU agreement, that's the one area where our standards are lower than our trading partners, so that won't be an issue. But it will be with TPP, where the standards in the US are much higher than those in many of the Pacific countries."

Democrats under pressure from lobby groups

The early signs of a TPA being passed without difficulty weren't good. In January the Democrat Senate Majority Leader Harry Reid of Nevada shot down the motion to hand President Obama the right to fast-track free trade agreements without amendment from House members.

And while since then, there have been more amicable moves to compromise from the bipartisan Senate Finance Committee, many Democrats are under pressure from lobby groups to shy away from supporting something that's perceived to be lacking in democracy and transparency.

In September, an extensive list of lobby groups – more than 500 in total – co-signed a letter to Senator Ron Wyden, the Democrat Chairman of the Finance Committee, voicing their opposition to TPA.

The letter read: "On behalf of our millions of members and supporters, we write to share our objectives regarding 21st-century trade agreements and the enhanced congressional oversight needed to ensure that US trade pacts deliver benefits for most Americans, promote broadly shared prosperity, and safeguard the environment and public health.

"Our organisations oppose the fast track model of trade authority and believe that it must be replaced with a new system for negotiating and implementing trade agreements that provides for more congressional and public accountability."

Dr Robert Shapiro, the Chairman of consultancy firm Sonecon and former Undersecretary of Commerce for Economic Affairs to President Clinton, told IBTimes UK that the TPA will "absolutely prove contentious".

He said: "It will be very difficult to get through. It really matters if you believe the likelihood of concluding a major free trade agreement is high, otherwise it doesn't matter. There would be extensive negotiations over fast-track, if it were tied to either TPP or TTIP it would all be one set of negotiations."

What now for free trade negotiations?

Democrats hell-bent on interrupting the passage of the fast-track could insist on onerous conditions to be inserted into the free trade agreements currently under discussion, the most poisonous of which would be enforceable obligations on currency manipulation, which would penalise those on the other side of the agreement for intervention in foreign exchange markets in order to influence trade flows.

"The lack of TPA could be a nail in the coffin for TPP. Much less so for TTIP. Without TPA you might see TPP become like the Doha Round [the WTO free trade negotiations which have failed to result in a global deal] unfortunately. There's a 50-50 chance of that," said Lincicome.

Other analysts believe the TPA will get over the line sooner rather than later but, given the early focus on the 2016 elections, there's a feeling that both TTIP and TPP will drag their heels before being finalised, with a new administration likely to demand changes to what has already been negotiated, as happened in the free trade agreement between the US and South Korea.

There has been intense monitoring of free trade negotiations over the past 12 months both from a public and official point of view. Those in the loop, then, would be wise to keep an eye on the outcome of the US midterms, which could help steer the course of free trade for the next few years.