The Transpacific Partnership (TPP) text was finally released in the US for the mandatory 60-day Congressional review, plus the added 30-days before the legislation can be signed into Law. Almost immediately, proponents started chastising opponents for reintegrating their past criticism of assumptions made about the secret free trade agreement before they were able to review the 6,000-page document. Although these proponents are correct when it comes to criticizing the details of the TPP agreement before a proper analysis can be done, which it is equally inappropriate to prematurely parade around the assumed benefits of TPP, criticism targeting the structure of the agreement is valid.
The simple truth is that the length of the TPP agreement makes the task of reading it a time-consuming challenge. Meanwhile, it is the policy implications of the agreement that truly matter. Understanding how the language of the text will affect new trade policies is necessary before the Peoples of TPP countries can accept the agreement. Skimming over the actual text, TPP reads more like a revision to the weak World Trade Organization (WTO) that attempts to sneak free trade into the global economy as a standard. Relying on policy commitments and pledges, TPP is far from the detailed contract it needs to be. Nearly six thousand pages may appear to be a lot, but not when it comes to coordinating trade between 12 very different economies.
Given TPP addresses the trade policies of 12 very different countries, seeks to liberalize trade along geopolitical borders, instead of focusing on the treatment of industrial sectors across the globe, affects over 800 million people, and impacts about 40% of the world’s economy, the Peoples and governments of TPP nations need time to fully review, comprehend, and adjust their parts of the deal based on what their Peoples are willing to accept.
Where poorer countries like Vietnam, Indonesia, South Korea, Philippines, Thailand, and Taiwan stand to lose the most if they reject TPP, the US, Japan, and Canada are the three countries with the freedom to improve upon TPP. For countries that fear rising Chinese aggression, however, TPP fails to help, because China can simply shift production over to countries like Vietnam, i.e. act like the world’s largest corporation, in order to gain tax benefits. In doing so, China is able to gain added political and economic leverage over its own People, thus TPP becomes beneficial to China instead of harmful.
Learning the wrong lessons from the Obamacare struggle, the Obama Administration has sought to keep the free trade agreement from public scrutiny. In doing so, the Democratic Administration repeated the Clinton Administration’s approach to healthcare reform by writing a piece of legislation then expecting the American People to simply accept it. Unlike the Affordable Care Act where the prototype of the bill had been scrutinized since the mid-90s and adapted over a year-long debate that devolved when Republicans politicized the healthcare reform effort, the Obama Administration is truly using TPP to cram free trade and other flawed trade policies down the throats of the American People without proper review.
Focusing solely on the free trade aspects of TPP, TPP continues to suffer from the same structural flaws of NAFTA. The simple fact is that free trade deleverages workers, businesses, and entire industries in poor and rich countries alike.
1. Although TPP attempts to address labor rights issues like collective bargaining, minimum wage, work conditions, forced labor, and child labor, it does so by setting diplomatic goals. Given efforts like the Universal Declaration of Human Rights have already failed to eliminate many of these issues, more commitments, even if they come with economic incentives, are likely to be just as limited in their success.
Even if successful, the simple fact is that improved labor conditions in developing countries will not trump economic realities. Poorer countries have lower standards of living, so their workers are paid than less than their American counterparts, which means workers in wealthier countries will still be at a sharp disadvantage. This means workers are deleveraged in poor and rich countries alike when seeking to improve their wages and standards of living.
2. Beyond the distorting effects of wages and standards of living, the massive number of exemptions in the TPP agreement defeats the entire purpose behind using free trade as a basis for improve trade.
In addition, apparent preservation of certain import quotas, which are actual trade barriers, undermines the very reason for eliminating trade. If anything, quotas do far more to distort and inhibit trade than tariffs, which help balance the cost of doing business in wealthier countries and limit the distorting effects of economic disparities.
Free Trade is a model used to eliminate the distorting effects government policies have on economies and trade; however, TPP cannot address the distorting effects of economic disparity between countries. Meanwhile, governments will always have interests in asserting their will on their economies, so government will always distort their economies. As such, free trade is a not a real world policy to be pursued.
That said, the truth is that these expectations are probably what the TPP negotiations should have focused on. Unlike Mexico and Vietnam, the US demands very few exemptions from the overall provisions of free trade. In doing so, the US fails to address its own economic interests and sets free trade up for long-term failure once again.
Quite frankly, the world needs more trade, but not necessarily more free trade.
In accordance, free trade provisions of the TPP agreement should be negotiated bilaterally and attempt to balance the trade interests of both partner nations. Because diplomatic interests change with time, TPP needs to develop the diplomatic infrastructure needed for countries to continually evaluate and reassess their bilateral trade agreements.
3. The simple fact is that every dollar of tariff eliminated is a dollar advantage to foreign competitors, because they do not need to pay domestic taxes, obey regulations, and pay prevailing wages. Where “lack of tariffs” is the basis for free trade agreements, the necessary costs of doing business in countries like the US demands tariffs should be equal to domestic tax rates.
The cold economic truth is that American businesses have to pay taxes to support the US government and the services it provides the US economy as well as global economy in the case of the US subsidized global security. Because this tax burden is higher in countries like the US, as well as countries like India thanks to their high social welfare costs, not taxing foreign competitors the same amount as domestic businesses displaces those costs onto American business and consumers.
4. Trade barriers often exist to address an issue. The Obama Administration argues TPP will open foreign markets to US agriculture, yet US agriculture is subsidized via tax cuts to help lower prices for American consumers.
Because commodities like oil and grains are already priced based on global supply and demand when their contracts are traded on the commodities markets, greater access to foreign markets means American supplies will prices on global demand. Because global demand is practically limitless and production of capacity agricultural goods is very limited, food prices can only be expected to go up. Those in poorer countries will eventually be unable to buy American agricultural goods, yet others will be able to sell their grains to the US. Because costs will have to be cut, outsourcing means American farmers will be hurt in the long-run. Just as the world has seen steep prices shifts in oil prices, the fragile globalized economy is easily disrupted.
Trade barriers help to counteract the fragility of a global economy and the economic disparities between countries.
5. Furthermore, TPP is about more than free trade. Unfortunately, free trade is the central goal of TPP; whereas, other trade performance enhancing measures seem to take a back seat in terms of their significance. Instead easing trade barriers by making commerce more efficient and raising standards on regulations, TPP basically outlines aspirations for improved cooperation.
6. Meanwhile, intellectual property, for example, is poorly addressed. Instead of developing a universal patent process to balance the need to protect intellectual property and open the world to innovation, the Obama Administration has extracted some concessions and pledges. Mainly, it gives various parties the ability to challenge patent claims in all TPP Nations, thus creating an opportunity to tangle patent litigation across the globe. Not only will this add costs to the patent process and make it effectively impossible to enforce patent claims, it will allow big companies to further suppress patent claims of small innovators.
7. At the same time, the TPP threatens the economic sovereignty of member nations. For example, foreign investors would be given the opportunity to sue governments over policies that harm their interests. In essence, it opens governments up to never-ending litigation and neuters the ability of governments to pursue the public good over special interests.
Although TPP also undermines the sovereignty of nations by dictating policy on matters like immigration, the text ends with a laundry list of vague statements that basically dissolve governments of following provisions they do not like and can justify. As a sponsor of TPP, the US will try to follow the provisions, but others will cheat while the US will be accused of cheating. Given it took 7-years to finalize the TPP agreement, trade complaints are unlikely to be resolved in a timely manner. In essence, TPP simply adds another lay of bureaucracy to the trade issues TPP members already face.
8. Finally, TPP fails to address the fundamentals behind currency manipulation. What this means is that benefits of TPP cannot be realized, because the TPP nations will simply be trading one set of trade barriers for another.
Moreover, TPP is flawed, because it is written too broadly and too vaguely to be used as an actual trade agreement while it does not address any of the contentious problems that actually need addressed between trade partners. The 7-years worth of work that the Obama Administration did, however, is not necessarily wasted. There are critical issues with the WTO and already existing trade policies that need addressed. After some recalibrations, this TPP agreement, minus the free-trade provisions, could be used as a template for building better trade relationships on a global scale.
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