Questions about the transparency of the TPP
By Kyle Lindgren
By Joseph Phileo
According to the World Trade Organization, last year more than $18,400,000,000 in merchandise was exported. Trade is what drives the global economy, and many countries are dependent on importing goods that are vital to their society. Since trade is crucial to the global economy, it must be regulated with tariffs and laws that outline how countries are allowed to trade with one another. Due to the variance in laws regarding trade, many trade partnerships are created, the most recent and prevalent one being the Trans Pacific Partnership. Various respected officials, including President Obama, are in favor of increasing global trade. The public sentiment parallels that of President Obama; according to a Gallup poll conducted in February, 58% of Americans see trade as more of an opportunity than a threat. Despite popular belief, the TPP (in its current state) is not an acceptable trade agreement due to the power that it grants to corporations, its strong patent and copyright restrictions and questionable clauses regarding internet freedom.
The TPP is a trade agreement among 12 Pacific Rim countries, including Australia, Canada and Vietnam, which account for more than 40% of the global GDP. Essentially, the TPP creates basic standards and rules, removing tariffs and other barriers that restrict global trade, and according to Peter A. Petri, this would result in the GDP of the United States growing by $14 billion by 2025. While free trade is generally accepted as beneficial since it promotes competition and offers dual benefits to both the consumer and producer, the TPP may actually be harmful.
One of the major issues with the TPP is the fact that it was drafted in private, which allowed corporations and special interest groups to have disproportionate input. Prior to the final version being released last year, the only information that the public had of the deal were leaked documents. Of the various sections, one of the most questionable relates to the Investor-State Dispute Settlement or ISDS. In this section, the TPP outlines the rights of a corporation, stating that if a law or regulation is detrimental to its future profits, the corporation is allowed to sue that government in an international panel of arbitrators. While this policy seems to be safeguarding investments in countries with unstable governments or legal systems, it is not necessary for the TPP as the member countries all have strong and respected legal systems. The ISDS clause also states that once a ruling has been made, it cannot be challenged in the court system of that country, essentially granting corporate interest veto power over sovereign nations' domestic economic policy. This allows corporations to create supranational courts and to override national laws.
Another issue with the TPP is the standardization of copyright and patent laws in participating countries. This clause of the TPP would mean that states offering public healthcare could face lawsuits from pharmaceutical and healthcare companies, who argue that universal healthcare restricts investment opportunities and cuts into profits. Furthermore, the patent and copyright restrictions do not allow for generic drug manufacturing, which will undermine generic drugs and increase healthcare costs in nations that are desperately in need of access to affordable healthcare, allowing pharmaceutical and healthcare corporations to monopolize the inelastic drug industry.
Despite the many questionable clauses highlighted above, the TPP is not entirely bad; in fact, there are many great clauses which standardize environmental and labor regulations. The TPP also promotes free trade, which benefits open markets and the global economy in general, and aims to minimize China’s capacity to manipulate global trade. However, in its current state, the TPP gives exorbitant power to large companies, and has many questionable sections regarding the standardization of copyright restrictions, which affect internet freedom. For these reasons, I personally believe that it is a bad idea to “fast track” the TPP to be ratified, as there is no expiration date or separation clause (making it permanent) and due to the fact that it essentially inoculates corporate profits from the checks and balances of democracy.
Though it has been over 200 years since David Ricardo and Adam Smith eloquently demonstrated the positive net benefits of free trade, many in our modern society, on all sides of the political spectrum, still believe that tariffs, quotas, and other protectionist policies are the solution to our nation’s ails. The argument, as it often goes, is that foreign products produced by cheap foreign labor will outcompete domestic products produced by relatively expensive domestic workers and that without trade barriers, domestic firms will outsource or shut down.
Though simplistic, to some extent, this argument rings true. International trade creates a competitive environment that, in certain instances, will drive inefficient domestic firms out of business and inefficient domestic workers into temporary unemployment. One particularly pronounced example is how the Japanese and German automotive industries outcompeted Detroit in the 70s and 80s, leading to the near bankruptcy of Chrysler and the weakening of Ford and GM. However, this negative viewpoint represents only half of the free trade story.
The other half is how millions of people benefit from buying foreign-produced goods and services. All else being equal, when consumers and domestic firms choose to buy foreign-produced goods and services through international trade, they are doing so because it is in their best interests. For example, if I have $1.00 to spend on bananas and I can either purchase 5 bananas grown in Ecuador or 2 bananas grown in the US, I, like any rational actor, will choose to purchase the greater quantity of bananas from Ecuador. The same is true for businesses trying to buy oil, wood, or tractors.
As we see, by buying the most efficiently produced goods and services, domestic consumers can consume more and domestic producers can produce more. Greater consumption and production at no greater cost are the hallmarks of economic growth and are fundamentally good things.
Furthermore, when international trade allows domestic firms and laborers to be driven out of business by more efficient foreign competitors, previously-used resources are then available to be allocated into more productive ventures. For instance, if the US’s steel industry becomes fully supplanted by China’s, the US would temporarily have thousands of employees and billions of dollars in capital sitting idly. These employees can then be retrained and this capital redeployed to more profitable ventures such as building rockets, programming computers, constructing skyscrapers, etc.
Yes, in the short term, the competition fostered by free trade can harm some domestic workers and firms; however, in the long term, access to cheaper goods and services and the efficient redeployment of economic resources ensures that society benefits from free trade, specialization, and comparative advantage. It is for these reasons that any policy which moves toward free trade – reductions to tariffs, quotas, nontariff barriers, etc. – should be pursued.
With this in mind, the relevant and controversial debate over whether Congress should pass the Trans-Pacific Partnership (TPP), a trade agreement among twelve Pacific Rim countries, becomes quite simple. While loaded and incremental, the TPP “contains measures to lower both non-tariff and tariff barriers to trade, and establish an investor-state dispute settlement mechanism,” and thus represents a step in the right direction. Instead of denying basic economics or holding out for something better – something the famous French philosopher, Voltaire, warned against when he noted that “the perfect is the enemy of the good,” –, Congress ought to immediately sign the TPP into law.