The Trans-Pacific Free-Trade Charade
NEW
YORK – As negotiators and ministers from the United States and 11 other
Pacific Rim countries meet in Atlanta in an effort to finalize the
details of the sweeping new Trans-Pacific Partnership (TPP), some sober analysis is warranted. The biggest regional trade and investment agreement in history is not what it seems.
You will hear much about the importance of the TPP for “free trade.” The reality is that this is an agreement to manage
its members’ trade and investment relations – and to do so on behalf of
each country’s most powerful business lobbies. Make no mistake: It is
evident from the main outstanding issues, over which negotiators are
still haggling, that the TPP is not about “free” trade.
New Zealand has
threatened to walk away from the agreement over the way Canada and the
US manage trade in dairy products. Australia is not happy with how the
US and Mexico manage trade in sugar. And the US is not happy with how
Japan manages trade in rice. These industries are backed by significant
voting blocs in their respective countries. And they represent just the
tip of the iceberg in terms of how the TPP would advance an agenda that
actually runs counter to free trade.
For starters,
consider what the agreement would do to expand intellectual property
rights for big pharmaceutical companies, as we learned from leaked
versions of the negotiating text. Economic research
clearly shows the argument that such intellectual property rights
promote research to be weak at best. In fact, there is evidence to the
contrary: When the Supreme Court invalidated Myriad’s patent on the BRCA
gene, it led to a burst of innovation that resulted in better tests at
lower costs. Indeed, provisions in the TPP would restrain open
competition and raise prices for consumers in the US and around the
world – anathema to free trade.
The TPP would manage
trade in pharmaceuticals through a variety of seemingly arcane rule
changes on issues such as “patent linkage,” “data exclusivity,” and
“biologics.” The upshot is that pharmaceutical companies would
effectively be allowed to extend – sometimes almost indefinitely – their
monopolies on patented medicines, keep cheaper generics off the market,
and block “biosimilar” competitors from introducing new medicines for
years. That is how the TPP will manage trade for the pharmaceutical
industry if the US gets its way.
Similarly, consider
how the US hopes to use the TPP to manage trade for the tobacco
industry. For decades, US-based tobacco companies have used foreign
investor adjudication mechanisms created by agreements like the TPP to
fight regulations intended to curb the public-health scourge of smoking.
Under these investor-state dispute settlement (ISDS) systems, foreign
investors gain new rights to sue national governments in binding private arbitration for regulations they see as diminishing the expected profitability of their investments.
International
corporate interests tout ISDS as necessary to protect property rights
where the rule of law and credible courts are lacking. But that argument
is nonsense. The US is seeking the same mechanism in a similar
mega-deal with the European Union, the Transatlantic Trade and Investment Partnership, even though there is little question about the quality of Europe’s legal and judicial systems.
To be sure, investors
– wherever they call home – deserve protection from expropriation or
discriminatory regulations. But ISDS goes much further: The obligation
to compensate investors for losses of expected profits can and has been
applied even where rules are nondiscriminatory and profits are made from
causing public harm.
The corporation
formerly known as Philip Morris is currently prosecuting such cases
against Australia and Uruguay (not a TPP partner) for requiring
cigarettes to carry warning labels. Canada, under threat of a similar
suit, backed down from introducing a similarly effective warning label a
few years back.
Given the veil of
secrecy surrounding the TPP negotiations, it is not clear whether
tobacco will be excluded from some aspects of ISDS. Either way, the
broader issue remains: Such provisions make it hard for governments to
conduct their basic functions – protecting their citizens’ health and
safety, ensuring economic stability, and safeguarding the environment.
Imagine what would
have happened if these provisions had been in place when the lethal
effects of asbestos were discovered. Rather than shutting down
manufacturers and forcing them to compensate those who had been harmed,
under ISDS, governments would have had to pay the manufacturers not to
kill their citizens. Taxpayers would have been hit twice – first to pay
for the health damage caused by asbestos, and then to compensate
manufacturers for their lost profits when the government stepped in to
regulate a dangerous product.
It should surprise no
one that America’s international agreements produce managed rather than
free trade. That is what happens when the policymaking process is
closed to non-business stakeholders – not to mention the people’s
elected representatives in Congress.
Joseph E. Stiglitz, a Nobel laureate in
economics and University Professor at Columbia University, was Chairman
of President Bill Clinton’s Council of Economic Advisers and served as
Senior Vice President and Chief Economist of the World Bank.
Adam S. Hersh is Senior Economist at the
Roosevelt Institute and Visiting Scholar at Columbia University’s
Initiative for Policy Dialogue.
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