Earlier this month Sen. Elizabeth Warren (D-Mass.) suggested that the Trade Promotion Authority (TPA) bill currently before Congress could make it easier, in the future, to roll back Dodd-Frank financial reforms. The reaction from the Obama administration was an immediate rebuttal, including from the president himself.
And a number of commentators joined the president’s side of the argument, claiming that Warren’s concerns were hypothetical or far-fetched.
On this issue, however, Warren is entirely correct, and President Obama and his supporters appear to have completely misunderstood the risks of passing TPA, dubbed fast-track, in its current form—which after some snags appears to be close to a vote in the Senate.
What TPA Means
The Trade Promotion Authority is a procedure for passing trade agreement-implementing legislation through Congress.
Under TPA, Congress agrees in advance to consider implementing legislation—such as the Trans-Pacific Partnership (TPP)—on an up-or-down basis. Members can vote for or against, but they cannot offer amendments.
In the House of Representatives, this amounts to promising to adopt a particular rule for implementing legislation when proposed. In practice, however, those rules are controlled by the House leadership—and they can always decide that a particular piece of legislation will be considered without amendments being allowed.
When the House leadership wants a trade agreement—as the Republicans want the TPP—then fast track does not have much impact on the House side for free trade agreement-implementing legislation.
The real impact is on the Senate side. Here TPA would commit the Senate to vote on TPP—and any future trade agreements while TPA is in effect—without allowing any potential filibuster. So the support of only 50 senators would be needed (as the vice president can break a tie) rather than 60.
Dodd-Frank at Risk
Dodd-Frank financial reform and regulation issues are not central, as far as we know, to the Trans-Pacific Partnership, but they are absolutely on the table in the upcoming free trade agreement with the European Union, known as the Transatlantic Trade and Investment Partnership (TTIP).
TTIP is still being negotiated, but the Europeans have said publicly and repeatedly—including recently—that they would like to include a great deal about financial regulation in this agreement. And important parts of the U.S. and European financial sector lobby are egging them on.
The current Treasury Department is adamantly opposed to including such issues, precisely because it would impede the working of financial regulation in general and implementation of Dodd-Frank in particular. (For more details, see a Policy Brief that I wrote with Jeffrey J. Schott, my colleague at the Peterson Institute for International Economics.)
But the term of the TPA, as currently proposed, is six years. (To be precise, it is for three years, renewable for another three, but the terms of renewal are almost automatic. And as long as the Republicans control the House of Representatives in 2017–2018, it will be renewed.)
If the next president agreed to amend Dodd-Frank as part of TTIP, he or she would include those changes in the bill that implements it, with no congressional amendments allowed to strip out the financial changes.
Any direct Dodd-Frank repeal attempt in 2017 or later would presumably be subject to potential filibuster in the Senate—and as long as Democrats can control at least 41 seats, they can block it. But TPA would allow TTIP to pass the Senate with a simple majority.
The GOP’s Back Door
If a Republican is elected president in November 2016, it is likely the Republicans will control the House and have a majority in the Senate—but not 60 votes. So a Dodd-Frank rollback through TTIP would be entirely feasible and easier to implement (for a Republican president in that scenario) than any kind of direct attack on the law.
The odds of this scenario are roughly the same as that of a Republican being elected president in 2016. (The latest polls show the two parties are neck-and-neck to win the White House.)
To be clear, the TPP and TTIP agreements will involve and require changes to U.S. law, assuming specific tariffs are reduced or eliminated (and the same goes for many changes to nontariff barriers). If a trade agreement didn’t require such changes, we wouldn’t need an implementing bill.
Politicians are often criticized for not looking sufficiently far ahead. Ironically, Warren is being criticized for doing just that, applying the logic of the Obama Treasury (in not wanting financial regulation included in TTIP) and pointing out that the TPA would greatly increase the probability of exactly what the president claims he does not want: a significant or substantial legislative repeal of Dodd-Frank on any number of dimensions.
In addition, TTIP could have a chilling effect on regulation and even the supervision of finance. This is precisely why big banks are so keen to get financial regulation into TTIP.
Was It a Mistake?
Why doesn’t the White House simply thank Warren for pointing out this potential problem—and move to limit the term of TPA? The Republicans want TPP and soon; they would vote for a TPA that expires at the end of 2016.
Obama said that he would do nothing to facilitate the rollback of Dodd-Frank. But his administration did exactly that with the repeal of Section 716 in December (Section 716 limited the ability of big banks to bet heavily on derivatives).
Warren and others on Capitol Hill fought hard against that repeal, wanting to keep this sensible restriction on big banks. But at the decisive moments the White House pushed strongly in the other direction.
Has the White House made a simple and perhaps embarrassing mistake by seeking TPA that runs for six years? Or does the Obama administration know exactly what it is doing when it opens the backdoor to undermining its own signature Dodd-Frank legislation? The latter, unfortunately, seems more likely.
Simon Johnson is professor of global economics and management at the MIT Sloan School of Management. This article was previously published on The Conversation (theconversation.com).
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.