Congressman Mike Michaud, Chairman of the House Trade Working Group, has sent a letter to President Barack Obama urging him to advocate for the inclusion of specific provisions that boost domestic supply chains and minimize U.S. job loss as negotiations over the Trans-Pacific Partnership (TPP) continue. The provisions Michaud is advocating to include address currency manipulation, state-owned enterprises, rules of origin, outward processing zones, tariffs, and trade remedies.
"The American manufacturing sector and its supply chain are critical to the country's economic recovery and U.S. global competitiveness," wrote Michaud. "Every job in the manufacturing sector supports two and a half other jobs indirectly, and the sector is responsible for the vast majority of research and development conducted in this country. Because of its expansive size and growing membership, TPP has the potential to benefit foreign companies at the devastating expense of U.S. producers and is likely to deny American manufacturers the opportunity to compete on a level playing field. Although other chapters of the agreement may also affect the competitiveness of U.S. companies, including these provisions will take steps to ensure that the agreement prioritizes U.S. manufacturing, maximizes the U.S. supply chain, and leads to more goods stamped 'Made in America.'"
The full text of the letter.
July 26, 2012
President Barack Obama
The White House
Washington, D.C. 20500
Dear President Obama:
As negotiations continue on the Trans-Pacific Partnership (TPP), I urge you to advocate for the inclusion of specific provisions that boost domestic supply chains and production lines and reduce the number of American jobs sent overseas. Prioritizing domestic production of goods and services in the agreement is consistent with your Administration's push to have more goods stamped with "Made in America" and is critical to the long-term sustainability and viability of the U.S. manufacturing sector.
The downward decline of U.S. manufacturing in the last 10 years is well-documented; manufacturing employment shrank by more than 30 percent nationwide, and more than 56,000 factories closed their doors. The U.S. share of global exports of merchandise goods recently has fallen by almost one-third from 12 percent in 2000 to 8.5 percent in 2010. In addition, our trade deficit in manufactured goods jumped from $317 billion in 2000 to $558 billion in 2007, an increase of 76 percent. The economic downturn has reduced this trade gap slightly, but only temporarily; between 2009 and 2011 our trade deficit in manufactured goods increased by 40 percent. TPP could exacerbate this decline unless the following provisions critical to leveling the playing field for U.S. companies are included in the agreement.
Currency Manipulation: I urge you to include provisions in TPP text that prohibit the manipulation of exchange rates for the purpose of export promotion. Vietnam's dong is estimated to be at least 8.5 percent undervalued and does not float freely. Other currencies in the region are manipulated as well, in large part because China controls its currency. Failing to address currency manipulation in TPP will disadvantage U.S. producers who are forced to compete with companies in countries (current or future TPP parties) whose governments use currency policy to boost exports of their own goods.
State-Owned Enterprises: It is critical to include strong provisions regarding the treatment of state-owned enterprises (SOEs). State-controlled companies do not compete in a free market and often receive cash infusions, below-cost loans, and other illegal subsidies. TPP must include strong and enforceable disciplines so that SOEs operating in the U.S. will not be able to receive benefits from their home government that are not otherwise available in the market.
Rules of Origin: The agreement's rules of origin will determine whether supply chains are preserved in TPP countries or whether they are relocated to third party countries that benefit from the agreement by producing inputs for goods covered by the FTA. Strong domestic content standards mean a minimum of 50 percent, and in many cases higher, regional content value requirements. I urge you to include domestic content requirements that are particularly strong in sectors where U.S.-based supply chains are major economic drivers, are important for national security, or support import-sensitive U.S. industries. For the auto industry, for example, the rule of origin should at a minimum be the 62.5 percent regional content value standard included in NAFTA.
Outward Processing Zones: Goods and components made in Outward Processing Zones (OPZs) should not be eligible for TPP benefits. Some existing bilateral agreements among TPP party countries cover goods or inputs from OPZs, but those provisions should not be incorporated in the agreement. In addition, the FTA should not create any new OPZs or establish a committee to review the issue. OPZs, particularly those located in China, present a direct threat to the U.S. manufacturing supply chain and would confer TPP benefits on third-party countries, despite the already large scope of the agreement.
Tariffs: Tariffs level the playing field for U.S. industries whose foreign competitors do not play by the rules or who have competitive advantages due to low labor and environmental standards. For some domestic industries such as the U.S. footwear sector, these duties allow American businesses to compete against state-owned enterprises that benefit from currency manipulation and other unfair advantages. Tariff reductions in TPP should not undermine import-sensitive sectors that continue to make goods here at home and should not lead to additional off-shoring of American jobs.
Trade Remedies: U.S. anti-dumping and countervailing duty laws are paramount tools for U.S. manufacturers facing foreign competitors' trade violations. I urge you to include language in TPP that explicitly states that nothing in the agreement should be interpreted as changing or weakening these laws. Moreover, the expansion of the negotiations to include Canada and Mexico provides an opportunity to address the failures of NAFTA Chapter 19 and reassert the importance and standing of U.S. trade enforcement laws. Strong safeguards also should be included in the agreement to allow U.S. sectors to respond to surges of foreign imports as a result of TPP.
The American manufacturing sector and its supply chain are critical to the country's economic recovery and U.S. global competitiveness. Every job in the manufacturing sector supports two and a half other jobs indirectly, and the sector is responsible for the vast majority of research and development conducted in this country. Manufacturers also file the most patent applications and purchase more new technology in the U.S. Simply put, a stronger manufacturing sector means a quicker recovery and a healthier economy that can compete globally.
Because of its expansive size and growing membership, TPP has the potential to benefit foreign companies at the devastating expense of U.S. producers and is likely to deny American manufacturers the opportunity to compete on a level playing field. Although other chapters of the agreement may also affect the competitiveness of U.S. companies, including the provisions outlined above will take steps to ensure that the agreement prioritizes U.S. manufacturing, maximizes the U.S. supply chain, and leads to more goods stamped "Made in America."
Chairman, House Trade Working Group