What’s Really Going On With The Trans-Pacific Partnership?

By Devika Dutt

On October 5, leaders from 12 countries- Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, and the United States- reached agreement on the Trans-Pacific Partnership (TPP), which had been in the works since 2008. The TPP, like other agreements for trade liberalization, seeks to lower tariff and non-tariff barriers to trade between countries. Reports suggest that the agreement includes the elimination of more than 18,000 taxes. Understandably, the agreement on the TPP has been welcomed in several quarters of the business press. Negotiations in trade deals can go on forever, indeed the Doha round of WTO trade negotiations that began in 2001 has still not been concluded! So it is no small feat that a deal has been passed that is expected to boost trade in goods and services between the signatory countries, which can provide an impetus to the anemic recovery from the financial crisis.

However, is there really much to celebrate? Due to several trade agreements in the first decade of the century, tariffs are already at an all-time low. A study by David Rosnick at the Center for Economic Policy Research showed that the impact on the US GDP as a result of the TPP is likely to be very small: 0.13 percent of the GDP by 2025.  Several other studies have shown that, at best, trade would increase by 0.4 percent of the GDP of the 12 countries over several years: hardly something to write home about.

It also not the case that free trade is beneficial to all parties involved. Faith in free trade is like believing that free markets are a panacea to all that ails the world. In both these cases, faith is heavily misplaced. One is better off believing in Sherlock Holmes or the tooth fairy as the solution to unemployment, inequality, poverty, poor health outcomes, crime and whatnot (well,  at least Sherlock Holmes has got crime covered). However, slowly, steadily, but increasingly, the economics profession is acknowledging the free trade of goods and services does not benefit everyone involved. Gains from trade are contingent on history, increasing returns to scale, the sophistication of the things being traded, and state support. Additionally, free trade in services is definitely not a good thing. Unregulated movement in financial capital has created instability and crisis in the world economy time and again. Even the IMF, which in the 1990s ‘encouraged’ (read arm-twisted) several countries to liberalize their capital accounts and deregulate their financial sectors, now acknowledges that it is bad for the economy.

Given that trade and tariff barriers have already been mostly eliminated from the world economy, what exactly is this hullabaloo around the TPP about? The TPP is about making governments commit to changes in certain regulations in their economies, including very problematic changes to regulations regarding development of drugs and intellectual property. The basic thrust of US negotiations has been to extend its rules for patent protection and drug development to other countries as well. As our own Jonathan Jenner noted, the US system is clearly broken, and extending it to other parts of the world cannot be a good idea. But reports suggest that some kind of compromise has been reached. For instance, it is apparently the case that the signatories are required to introduce some form of market exclusivity for new forms and uses of old medicines. The provisions requires either three years of exclusivity for new clinical information of even off-patent drugs or five years of exclusivity if a known product were combined with a different chemical entity. In the early 2000s, a combination of two compounds, lopinavir and ritonavir, was sold as HIV medication. Ritonavir was originally sold on its own, but was later combined with Lopinavir and received approval for marketing in the United States again. Basically, incremental changes which may or may not really be changes can receive patent protection.

Additionally, TPP proposes far reaching changes to other aspects of intellectual property, such as copyrights, as well. There is also a proposed Investor-State Disputes Settlement Mechanism in the TPP that will allow firms to challenge national laws of signatory governments in front of an international panel of arbitrators. Elizabeth Warren has argued that this mechanism can allow firms to challenge financial regulation in the United States. And she is raising a very real specter as such provisions have previously been a part of Bilateral Investment Treaties, often to disastrous effect, as was the case in Bolivia and India.

But the elephant in the room is the strict secrecy the TPP has been negotiated under. The largely democratically elected governments of the nations that were negotiating the trade deal refused to reveal the contents of the deal to the people that elected the governments, despite the claim that the negotiations could bring far-reaching changes in their lives. Whatever we do know about the agreement has been leaked by organizations such as Wikileaks. Additionally, 500 trade advisors, largely representing the interests of big business and some labor unions, know the details of the agreement. The elephant in the room is now wearing neon pink and a top hat and doing a tap dance in the room. What is it in this agreement that governments can share with these advisors but not with their own citizens? Despite negotiations being over, the details of the TPP are still not publicly available. The already unconvincing arguments in defense of this secrecy have been blown out of the water by the continued secrecy.

That leaders want to implement this without any public scrutiny, at least in the United States, is clear from the fact that Congress and the Senate gave President Obama fast-track authority to expedite the negotiation of the deal. The final draft of the TPP can still be rejected, but Congress will not be able to block or amend the text. Additionally, it only requires a simple majority to be passed and be signed into law.

In all the strident horn-tooting in the United States about it, let us also not forget that the citizens of the other signatory countries have also not been able to see the text of the deal, even though it has been more than two weeks since it was finally negotiated. In the time in which the deal was being negotiated, several countries, included New Zealand, Peru, and Chile have had general elections. The citizenry effectively voted their governments into power without having an important piece of information about how the deal is going to affect them.

Therefore, in several respects, this trade agreement has been an egregious miscarriage of democracy and justice. At this point one can only hope that the legislatures of the signatory countries will scuttle the implementation. One must also hope that the Trans-Atlantic Trade and Investment Partnership (TTIP) which is also being negotiated under similar conditions, goes the way of Doha round.