Senate Finance Questions IPEF Robustness, Asia Trade Strategy

The IPEF, as described by the administration, will not lower tariffs on Asian exports or seek lower tariffs in Asia for American exports, and will not be the kind of arrangement that would require congressional approval. The Japan mini-deal, a partial replacement for the abandoned Trans-Pacific Partnership, lowered tariffs on some Japanese imports, but by small enough amounts that it didn't require a vote in Congress.

Ranking member Mike Crapo, R-Idaho, asked the witness he invited, Kelly Ann Shaw, what vehicle would be best for the U.S. to engage on trade with Asian countries. In his opening statement, he said it made no sense to leave out market access issues in IPEF.

Shaw, who served in the Trump administration, previously served as a House Ways and Means Committee trade counsel, and was a negotiator as a civil service employee at the Office of the U.S. Trade Representative. She said, "If IPEF is a modest step forward, then joining TPP would be a giant leap." But Shaw said that still would not be enough to counter China's economic power with its neighbors.

In her opening remarks, she said, "It is difficult to imagine IPEF having a meaningful impact on long-term U.S. economic interests without enforceable commitments on market access, rules of origin, technical barriers to trade (TBT), services, intellectual property, investment, or state-owned enterprises to name a few. A trade pillar focused exclusively on digital trade, forced labor, or trade facilitation is not enough to extract meaningful concessions from our trading partners or shape the region moving forward. Congress should push the Administration to broaden its ambition so that we are setting rules, not merely making suggestions."

In responding to Crapo, Shaw said TPP was flawed. "There is a reason why we didn’t have the votes in Congress, there is a reason why both major [presidential] candidates came out against it" in the 2016 election, she said. "But it's fixable." She said that the telecommunications and services chapters are solid, but that members need to offer more market access and go further in agriculture. "But we need to do so quickly before the opportunity closes," she said.

Senate Foreign Relations Committee Chairman Sen. Bob Menendez, D-N.J., who also serves on Finance, told the witnesses that when he met with Association of Southeast Asian Nations ambassadors about IPEF, they said "this is nice, but if you really want to have a presence here, we’re looking for a more robust, aspirational measure."

Sen. John Cornyn, R-Texas, also suggested that IPEF is not adequate, and asked Shaw if passing fast track legislation, also known as Trade Promotion Authority, should be Congress's next step.

She said, "Clearly to be effective in the region, we are going to need to negotiate the types of commitments that require congressional authority." But, she added, "I guess my question is: If you were to give the administration Trade Promotion Authority, is it something they’d be willing to use, and I’m not sure the answer is yes."

Sen. Ron Wyden, D-Ore., said at the conclusion of the hearing that maybe a less structured approach, such as the administration describes for the IPEF, could allow the U.S. and its trading partners to get at the climate issue, and said that the key to getting anything done in trade in Asia is having more discussions across the aisle.

Shaw had said in her opening statement, "Trade is a difficult issue for any democracy, but rather than take the lead in defining a new approach for today’s challenges -- one that strengthens U.S. manufacturing, unleashes innovation, protects our workers, and advances our values abroad -- the United States has given up saying anything at all. We’ve become mired in our own domestic politics. Today, the United States has no meaningful offensive trade strategy."

Cornyn, who has publicly advocated for returning to the TPP, asked Mike Wessel, staff chair of the labor advisory committee at the Office of the U.S. Trade Representative, what it would take to get labor on board with TPP.

Wessel said the state-owned enterprise chapter is deficient, since it grandfathers past subsidies. He said that the injury test requires injury to domestic industry to be continuous for a year or more, which ignores how spot markets work and the seasonal issues in agriculture. He said the labor rights are insufficient, and that the auto rule of origin would allow an auto assembled in one of the TPP countries to qualify for tariff benefits even if Chinese components made up two-thirds of the value.

"The substantive problems were varied," he said.

Sen. Rob Portman, R-Ohio, said that while he, too, is disappointed that the IPEF doesn't include an ambition to lower tariffs for American exports, he didn't understand why the hearing kept coming back to the TPP. He said it would have hurt American manufacturing. "We have to remember that it wasn't very popular, on a bipartisan basis," he said. Instead, Portman said, the administration should prioritize a comprehensive trade deal with Japan, which is the largest economy in the TPP.

Proving Portman's point, Sen. Elizabeth Warren, D-Mass., said she questions the modular design of IPEF, where a country could sign onto a digital trade pillar, for instance, and not a labor rights pillar.

She asked Wessel, "Should we be locking ourselves into overseas supply chains in places that use forced labor and suppress unions without any guardrails to improve their labor standards?" She added, "It would be a huge mistake to listen to corporate lobbyists and negotiate a new trade deal that mimics TPP."

Sen. Todd Young, R-Ind., said the fact that China is trying to join the TPP and its new Regional Comprehensive Economic Partnership should show the administration that it should have urgency to negotiate in Asia.

Shaw replied, "To be frank, we should be negotiating right now. Six months from now, we will still have an opportunity to engage. Three years from now we won’t. The time is now." He said he agreed, and added: "I don’t see the same degree of urgency from the administration."