Episode 635: Trade Deal Confidential : Planet Money Trade deals like the Trans-Pacific Partnership are often negotiated in secret. On today's show, negotiators tell us what happened when they were locked in a hotel for days and told to hash out a deal.
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Episode 635: Trade Deal Confidential

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Episode 635: Trade Deal Confidential

Episode 635: Trade Deal Confidential

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ROBERT SMITH, HOST:

In Washington, D.C., they love secrecy. But even by Washington standards, this amazed me. In the basement of the U.S. Capitol, there is a room - a locked, soundproof room - and the only people allowed inside this room are U.S. senators. And they can't bring their assistants with them. They can't bring their phones. They're not allowed to take notes inside the room. This room is only for them. So of course, our NPR reporter colleague, Ailsa Chang, had to try and get into the room.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED MAN: You're not supposed to be in here.

AILSA CHANG, BYLINE: Yeah, I got - I went in through those doors.

UNIDENTIFIED MAN: You're not supposed to be in this area.

CHANG: Let me show you - this is something. Yeah, OK. I'm leaving. I'm leaving.

UNIDENTIFIED MAN: Hold on.

CHANG: But I want to show you how I got in here (laughter).

UNIDENTIFIED MAN: No, no. That's fine. It's this way. Right through here.

CHANG: OK. I'm leaving now.

SMITH: So inside this room is not the codes for our nuclear weapons. It is not CIA files. It is not the documents that tell us that an alien spacecraft landed in Roswell - although I do believe those are somewhere in the Capitol. No, inside of this room is the text of a trade deal. Maybe you've heard about it because everyone's been fighting about this recently - the Trans-Pacific Partnership, the TPP.

STACEY VANEK SMITH, HOST:

Yes, the TPP. There are all these other acronyms around it - the TPA and the TAA. The TPP is a free trade agreement between 12 countries including the U.S., Japan and Vietnam. And the reason that it is kept in this locked room under all of this security and secrecy so Ailsa can't get to it is not because of any crazy revelation inside the agreement - at least, not that we know of. In fact, the parts of the agreement that have been leaked to the press are really boring. Robert, you've got a section there about cosmetics?

SMITH: Yeah. (Reading) If a party requires marketing authorization for a cosmetic product, that party shall provide the cosmetic product marketing authorization applicant with its determination regarding marketing authorization within a reasonable period of time.

VANEK SMITH: What does that even mean?

SMITH: You are not supposed to know...

VANEK SMITH: (Laughter).

SMITH: ...What that means. Because part of the point of doing a trade negotiation is to make it sound boring to the outside world, but inside those sentences are winners and losers. There are factories that might open somewhere or close someplace else because of words like that. Entire lipstick empires will rise or fall based on the language in the TPP.

VANEK SMITH: And we wanted to go behind the scenes of a trade deal and see how this language gets written and how these deals get done. And why all the secrecy?

(SOUNDBITE OF QUEENS OF THE STONE AGE SONG, "THE LOST ART OF KEEPING A SECRET")

VANEK SMITH: Hello and welcome to PLANET MONEY. I'm Stacey Vanek Smith.

SMITH: And I'm Robert Smith. Today on the show, trade deal confidential. (Whispering) Trade deal confidential. Makes you laugh every time. Makes her laugh every time - I love it. We found out exactly what goes on behind closed doors during a trade talk.

VANEK SMITH: We don't know that much about the TPP yet, but we can go behind the scenes of another set of talks, where a few hundred people were locked in a building, hashing out one of the biggest trade deals of all time.

(SOUNDBITE OF THE PHARAOS SONG, "INVESTIGATION")

UNIDENTIFIED WOMAN: Support for this podcast comes from Scion. Scion has teamed up with the founders of Kickstarter, Threadless, Sprinkles Cupcakes and more for the Scion Motivatour, a program dedicated to entrepreneurs. Episodes and event information can be found on scion.com/motivatour. That's M-O-T-I-V-A-T-O-U-R.

(SOUNDBITE OF THE PHARAOS SONG, "INVESTIGATION")

SMITH: Imagine a bat signal for trade negotiators, some light that shines into the sky and says, assemble, lawyers and policy wonks and negotiators, ambassadors - all come. The world needs you.

VANEK SMITH: That is what happened in August of 1992. The trade deal known as NAFTA was on the ropes and the U.S. said, OK everyone, Mexico, Canada, let's give this one last try. Come to Washington, D.C. in August...

SMITH: August - ah.

VANEK SMITH: ...Don't worry, this will only take a couple days. You can pack light.

SMITH: And so suits were buttoned, ties were tied, briefcases were locked and at the ready.

VANEK SMITH: What were you like back then in '92?

RON SORINI: Oh, I was as good-looking as I am today.

(LAUGHTER)

SORINI: I mean, I had the rank of ambassador, and I was the U.S. chief textile negotiator at the office of the U.S. Trade Representative.

VANEK SMITH: Ron Sorini was the big textile guy for the U.S. He was 30 years old. He loved tennis, he loved spy novels, and this was his big moment. Of course, there was also an automobile guy and an agriculture guy. A lot of guys like Ron were having their big moment.

SMITH: The goal of NAFTA was pretty simple, right? It opened up these long borders between Mexico and the U.S. and Canada, let more products and goods flow back and forth without hassle and extra taxes. And the negotiators thought, look, we just need to lock ourselves in a bunch of rooms for a couple days and get it done.

VANEK SMITH: They picked one of the nicest hotels in Washington, D.C. - the Watergate.

SMITH: The Watergate. Who knew?

VANEK SMITH: A few hundred NAFTA negotiators basically descended on the Watergate Hotel. Andy Shoyer was one of the lawyers for the U.S.

ANDY SHOYER: We just took over many, many hotel rooms.

VANEK SMITH: With a bed and a desk and stuff?

SHOYER: The hotel just pulled out all the furniture, and then they just brought in desks, and so we would be negotiating in those rooms. In other rooms, I remember just, like, a circle of chairs. You could walk down a hallway and there are negotiations going on, really, in each room.

SMITH: So it was like the entire economy of the Western Hemisphere was divided-up along that hallway in the Watergate. Imagine, like, room 214 - guys arguing about sugar. Room 237 was all automobile parts. Room 242, that's Ron's room - textiles.

VANEK SMITH: Ron doesn't actually remember what the room number was, but he does remember one of the most sensitive issues that he had to discuss going into the Watergate Hotel, wool suits from Canada.

Why were wool suits such a big deal? Like, Canadian wool suits? I've never thought of Canada (laughter) as a big suit maker.

SORINI: There was a company in Canada, Peerless. They were starting to compete very intensely with all the major suit manufacturers in the United States.

SMITH: I know you think that Americans and Canadians love each other and live in peace. I'm a Canadian myself. I always thought this. But apparently, when it comes to suits, America and Canada were like sworn enemies.

VANEK SMITH: OK. So let me explain this. I'll start with American suits. So American suits are made with wool from Italy - the nicer suits. In order to get that wool from Italy, American suit makers have to pay a really high tax, a tariff. So they import the wool from Italy. They make the suit and they sell the suit. And because of that tax, it's expensive. The suits are expensive.

SMITH: Yeah, but Canadians, those Canadians didn't charge the same tariff on Italian wool. They didn't have to pay those taxes. So basically, the wool in Canada to make Canadian suits is pretty cheap - relatively cheap. So the Canadians could make a beautiful suit look just like an American suit, but then drive it across the border in the U.S. and charge a lot less. It was like Canadian suits were always on sale.

VANEK SMITH: Canadians were taking over the American suit market.

SMITH: This was what Ron Sorini had to defeat. He says he would wake up at 6 a.m. there in the Watergate Hotel, he would put on his American-made suit, and he would go into battle against the invasive Canadian suits. He says they'd pull all their chairs into a circle, drink coffee and go through the latest draft of the deal. The weapon of choice in this battle? The bracket. You know, the bracket - those little square parentheses you put in a document.

SORINI: As you start moving on in the issues, you'll have a text which will have a bracket saying, U.S. and our position, Mexico, their position, Canada, their position. And so that as you're going through the text, you have right in front of you what the three positions are, and that becomes the basis to try to harmonize that particular provision.

VANEK SMITH: You bracket me? I'm going to bracket you.

SMITH: Oh, yeah? I'm going to bracket you back.

VANEK SMITH: Your Canadian suits are basically a way to smuggle wool in from Italy in suit form. So take this bracket - we are going to tax Canadian suits until they are just as expensive as American suits.

SMITH: And we're going to put in brackets that we're going to get back at you somehow in order to get our suits into your country.

VANEK SMITH: This is what needed to be harmonized, which is a nice way of saying, let's bang our heads together until somebody gives up. And Ron would play all of these mind games with the Canadian negotiators to try to get the upper hand.

SORINI: I played a lot of poker (laughter), so I think that helped. One, you're trying to read the other guy, right? You're trying to think, OK what does he have in his hand? And sometimes to get to what you want, you've got to run a bluff.

VANEK SMITH: One of Ron's favorite go-to bluffs? OK, Canadian negotiator, why don't you go talk to your boss about that?

SORINI: That puts a little pressure on you to be reasonable because you too, as the negotiator, reporting to the ministers, you don't want to bring everything to your minister.

VANEK SMITH: Oh, it's like saying, can I please speak with your supervisor?

SORINI: Exactly. Right.

SMITH: Ron Sorini was one crafty negotiator. In his spare time, he would even call textile makers and retailers and union reps in Mexico and in Canada. He would basically go around the negotiators, talk to the interests on the other side, and say, like, hey, what do you really want? What are you saying to your negotiator? So that when he faced them in the room, he knew as much as they did.

VANEK SMITH: And there was a lot of pressure on Ron, and this is one of the reasons they say that negotiations happen behind closed doors because they're trying to cut all of these deals and meanwhile, there is pressure coming at them from companies, from politicians, from unions. And they were literally crowding outside of the room where Ron was doing the negotiations at the Watergate Hotel.

SORINI: There would be congressional staff that were waiting outside to be briefed, hovering over us. There were several union lobbyists at the time representing yarn spinners or various fabric makers, household furnishings. You know, the whole range of textile products.

VANEK SMITH: Just, like, hanging out outside of the room?

SORINI: Right.

VANEK SMITH: I have this image of you coming out of the negotiating room and being, like, when Britney Spears comes out of a restaurant. Is that what...

SORINI: I'm not quite like that. Usually, my shirttails were hanging out, and I'm sure I looked pretty ragged.

SMITH: Except for that nice American suit, of course.

VANEK SMITH: Of course.

SMITH: But, you know, we've been joking about the suits thing, but really, at the time, especially in 1992, there was so much riding on this. The textile industry in the United States was huge. It employed 2 million people. Sewing and fabric-making were starting to move overseas. Unions were worried that free trade would mean textile production would move to Mexico where labor was much cheaper.

VANEK SMITH: That giant sucking sound.

SMITH: The classic quote about NAFTA from Ross Perot, the giant sucking sound. And the only person who could basically calm all of these people down was Ron Sorini. He's the only one who knew really what was going on. And so all of these big-shot labor guys and heavy-weight politicians are suddenly jockeying to get time with him. And you can tell even now, even years and years later, he delights in name dropping all those people waiting for him outside that door.

SORINI: I'm dealing with almost on a daily basis Sen. Strom Thurmond, Sen. Jesse Helms. They were saying to me, be very careful, be very cautious, you know, we know we need to protect the jobs here.

VANEK SMITH: Were they, like, turning the screws on you?

SORINI: Oh, absolutely. Yeah, big time.

VANEK SMITH: And after he got out from under the screws of Strom Thurmond and Jesse Helms, there with the clothing companies.

SORINI: Don Fisher, the founder of The Gap was coming in to see me. Les Wexner, the founder of The Limited, Liz Claiborne and her husband Art Ortenberg.

VANEK SMITH: When Liz Claiborne came to visit you, did she wear a power suit?

SORINI: You know, I'm so unsophisticated when it comes to fashion, I couldn't tell you what - I can't even tell you what I'm wearing right now. But I can tell you the country of origin.

VANEK SMITH: What the clothing companies wanted - The Gap, The Limited and all those guys - they wanted to be able to make their clothes overseas where labor was cheaper. And this is part of why Ron's job was so hard because one part of the industry, the labor unions, wanted exactly the opposite of what the other part of the industry, the clothing companies, wanted. Ron had to make the call, and somebody was going to be really unhappy.

SMITH: So when they say that there's a U.S. negotiating point of view, I mean, that ended up being super complicated. And sometimes these different rooms in the Watergate would get pitted against each other. One industry would have to take the short straw while another industry benefited. And they'd have to say sorry sugarbeet farmers, we are giving away what you wanted because we need a really good deal for the auto industry.

VANEK SMITH: And this wasn't just an American thing. The Canadian negotiators were feeling exactly the same pressure. They also had labor guys and company representatives waiting outside their doors to grill them on what was going on inside the room. Michael Wilson was the head negotiator for Canada. H was the guy calling the shots.

What would happen if the process was totally transparent?

MICHAEL WILSON: It makes it very, very difficult for the negotiator because then - the spokesman for the industry - so they raise all hell in the media, and the media loves it. They do all sorts of stories saying the widget industry in Wisconsin will never be the same.

SMITH: Oh, I miss the heyday of the widget industry in Wisconsin.

VANEK SMITH: I know. It was very sad.

SMITH: There is, of course, a price to this kind of secrecy we see in trade negotiations, and that is rumors. So even back then, rumors were rampant around what was really going on in these rooms, what is really in the text of NAFTA. There was this one rumor that the border between Canada, the U.S. and Mexico would be dissolved and a huge super highway would be constructed.

VANEK SMITH: There was another rumor that the currencies of all three countries would be discontinued, and we would have one unified currency called the Amero.

SMITH: Another big rumor said that all wool suits would be required to have one American leg and one Canadian leg sewn together.

VANEK SMITH: That's not true.

SMITH: No, I just made that up.

VANEK SMITH: (Laughter).

SMITH: But it's - they're rumors. They're rumors. You can make up any rumor you want. The point was that there was all of this chaos outside the room. And Ron Sorini's inside the room feeling the pressure. They had said it was only going to take couple of days, but it was taking longer. Day after day after day, they would work out these brackets, they would hand things over to the lawyers, like Andy Shoyer. He was on the U.S. team.

VANEK SMITH: Andy Shoyer says there's an art to writing up a trade deal once the negotiation is finished. And basically, the more sensitive the issue, the vaguer the language gets like that passage that you read about cosmetics.

SMITH: I totally understood it.

VANEK SMITH: (Laughter) But that's on purpose actually because they write the language so that each country kind of might be able to interpret it as them getting what they want. And Andy said in some cases it gets so extreme that even the lawyers don't really understand what it says.

SHOYER: At one point, the U.S. negotiator came in and said sort of sotto voce - I mean, in a whisper that everybody could hear - said, listen, we just finished up the negotiations, and I have gotten such a great deal. The Canadian negotiator, he doesn't know what hit him. And so he went out. And then the Canadian negotiator came in, and he says almost exactly the same thing. Listen, we just finished the negotiations, and I got the U.S. negotiator to agree to this great deal. He doesn't know what he agreed to. He doesn't understand it at all. But don't do anything to the language. And then he went out. It's like - we just - we cracked up.

SMITH: They were going a little stir crazy at the Watergate Hotel NAFTA negotiations. Those promised two days turned into a week, and a week turned into two weeks.

VANEK SMITH: Yeah. I talked to the Canadian ambassador, Michael Wilson, and he had only packed one suit 'cause he thought they were only going to be there for two days.

SMITH: He brought his nice Canadian suit I assume.

VANEK SMITH: He did, and he ran out of clothes. He had to start washing his shirt and socks in the sink. And eventually, he broke down and bought a suit. And I sort of found this sweet and diplomatic. He bought an American suit. He went to Brooks Brothers.

SMITH: Oh, now they wanted their American suits. The pressure was starting to be on these people's shoulders. President Bush had said he wanted to announce NAFTA at the Republican National Convention, which, at this point, was just a week away. The U.S. really needed to make a deal. And so they stayed awake for 48 hours straight, they tell us, knocking out issue after issue after issue.

VANEK SMITH: Until there was only one issue left.

SMITH: Surprise.

VANEK SMITH: Wool suits.

SMITH: The wool suits.

VANEK SMITH: That was the last issue.

SMITH: And Ron Sorini gets the call from his boss Carla Hills, the main negotiator. And then there's the main negotiator for Canada, Michael Wilson, and Jaime Serra from Mexico. Basically the three biggest names in trade negotiation say hey, Ron, there's only one thing left. It's suits. Get over here.

VANEK SMITH: Ron walks into this big conference room, and the head negotiators are there at these long tables that have been pushed together into a triangle. And he sits down next to his boss, Carla Hills.

SORINI: The minister from Canada turned to me and said, OK, so, Ron, what can we do on this issue? And Carla leaned over and whispered in my ear, I'm not feeling very generous. Be very careful here. I said, I better not screw this up.

SMITH: 'Cause he was 30 years old, and this multitrillion dollar trade deal, the desires of the president of the United States are on him. And he had to open negotiation with how many Canadian suits would be let over the border?

VANEK SMITH: So there's Ron next to Carla Hills in his untucked shirt, and he decides he's going to make his poker play. Now the Americans had decided that they would give the Canadians what they want. They would let 3 million Canadian suits into the U.S. tax free because the U.S. really needed a deal. But Ron decides he is going to bluff. Ron says, you know, the best we can do - 1.4 million suits. That's all I got.

SORINI: I said I'm sorry. That's all - you know, it's up to Ambassador Hills obviously, but that's all the room I think that we can - you know, that we have to maneuver. And Carla said that's right, that's it, Mr. Minister, and we settled.

SMITH: Suckers. The Canadians accepted the deal, and that was it. NAFTA was done, goes into the history books.

VANEK SMITH: Ron Sorini rushed out of the room to make a bunch of phone calls, and Carla Hills and the other head negotiators posed for a photo op.

CARLA HILLS: We stood up. We smiled. We shook hands and had a hug. And we got a photographer in to show - and you've probably seen that photo, of the three of us crossing hands and shaking hands. I called the president to say I think we have a deal.

SMITH: The American negotiators left the talks thinking they'd won; they'd done pretty well, at least on suits. They had not given up as much as the Canadians wanted.

VANEK SMITH: But here is where trade deals hit the real world. The 1.4 million suits, it wasn't as much as Canada wanted, but that's still a lot of suits. And year after year, the Canadian sent 1.4 million suits to the U.S. Americans gobbled them up, and Peerless got bigger and bigger and bigger.

SMITH: It's now one of the biggest suit makers in the world. It makes the suits for Calvin Klein, DKNY, Hugo Boss, Ralph Lauren. It makes my Canadian heart proud.

VANEK SMITH: The American suit companies did not fare so well. Their suits were more expensive. President Obama did wear an American-made Hart Schaffner Marx suit at his inauguration, and then a few weeks later, the company declared bankruptcy. They eventually got purchased by Peerless.

SMITH: The Canadian company.

VANEK SMITH: The Canadian company.

SMITH: So these days, you go into an average suit store, department store, and you will see Canadian suits from beginning to end.

VANEK SMITH: Yeah. Pretty much. Those union guys who were standing around in the hallway outside Ron's door, they were right to be worried. Since 1992, the textile industry has basically become a shadow of its former self. Those 2 million jobs became 200,000. Ninety percent of the textile jobs in the U.S. went away. And a lot of that was because of free trade deals like NAFTA. Clothing companies pushed to make more of their clothes overseas where labor was cheaper. And a lot of production moved to places like Mexico and Asia.

SMITH: But there was an upside. There is always both sides in a trade deal because clothes here got cheaper. Basically, I could probably buy a suit cheaper than what I could before when there was all these tariffs on it. And other U.S. companies flourished. The Gap, The Limited, they became some of the biggest clothing companies in the world because they could make their clothes cheaper. Exports increased by $100 billion a year.

VANEK SMITH: So what does NAFTA tell us that we can apply to this current trade deal being negotiated now - the TPP? Negotiators would say this shows us exactly why these deals need to be done in secret because otherwise, all of these special interest groups like suit makers will see the deals as they're getting done, they'll make so much noise, they'll cost so much disruption that the trade deals will never get done. We will never have free trade agreements if all these special interest groups get to see what's going on.

SMITH: Yeah. Of course, if you are a member of one of those interest groups - whether it be a trade union or environmental activist or even a company - you would say, look, one of the lessons from NAFTA is that a tiny line in there - 1.4 million suits - that seems like a victory can devastate an entire industry. And if that's going to happen, that's a major public policy change. And perhaps, we all do need to debate it. Yeah, it'll slow things down, but maybe we actually need to debate it and especially with the TPP, which we should say is not just tariffs on products. That's an old-style trade deal. But it also includes things like services and how those are treated in different countries and intellectual property and whether companies can sue governments; big things that go beyond simply like how much tax are you going to put on a product.

VANEK SMITH: But this is all probably moot for the TPP because the House and the Senate just passed something called fast-track authority. Same thing happened with NAFTA. And what that means is that these negotiations happen behind closed doors, in secret and nobody sees the language of the agreement until the whole thing is a done deal. And at that point, Congress votes the whole thing up or down. No specific issues get addressed.

SMITH: And so for the next few months, negotiators will pack their bags, arrive at some swanky hotel in some Asian country, pull the furniture out of the rooms, put the chairs in a circle and hash it all out.

VANEK SMITH: And the rest of us, we'll just have to wait outside.

(SOUNDBITE OF SONG, "SUIT AND TIE")

JUSTIN TIMBERLAKE: (Singing) Hey, oh.

SMITH: Let us know how we did. We're planetmoney@npr.org, or you can tweet us @PlanetMoney.

VANEK SMITH: And I would like to thank Maxwell Cameron, author of "The Making Of NAFTA." He was the one who told me about the wool suits and everybody getting locked into the Watergate Hotel.

SMITH: And now that the show is over, maybe you have a few more minutes left on your run or commute and you need another podcast, you're feeling the need inside for another podcast. May I suggest Snap Judgment from NPR. Our friends over at Snap Judgment feature real people, real stories. It's always worth your while. It's called Snap Judgment. You can find it at npr.org/podcasts or wherever you get your favorite podcasts. Our show today was produced by Frances Harlow, Nadia Wilson and Nick Fountain. I'm Robert Smith.

VANEK SMITH: And I'm Stacy Vanek Smith. Thanks for listening.

(SOUNDBITE OF SONG, "SUIT AND TIE")

TIMBERLAKE: (Singing) And as long as I've got my suit and tie, I'ma leave it all on the floor tonight. And you got fixed up to the nines. Let me show you a few things. Let me show you a few things. All dressed up in black and white, and you're dressed in that dress I like. Both fists swinging in the air tonight. Let me show you a few things. Show you a few things. Let me show you a few. Show you a few things about love.

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