Yves here. Although we’ve written regularly on the corporate-looting-exercise-in-the-making known as the TransPacific Partnership and its evil twin, the Transatlantic Trade and Investment Partnership, we’ve tended to go deep into the weeds of their many nation-state-undermining features or the state of the negotiations. This post, by contrast, gives a good high level overview of what is wrong with these proposed pacts, both as supposed “trade deals” as well as for their “investor protections”. The bills are coming up for fast track approval in Congress, and I hope you’ll circulate this article to encourage friends and colleagues to contact their Congressmen and tell them they expect them to firmly oppose these agreements.
By Kevin Gallagher, Associate Professor of International Relations at Boston University. Originally published at Triple Crisis
In his State of the Union speech, President Obama said he would submit a bill to Congress that would grant him the fast track authority to finalize the TransPacific Partnership (TPP)—a trade pact with Pacific Rim countries such as Japan, Malaysia, Peru, and Chile. While free trade has brought benefits in the past, tariffs in the world economy are at an all time low and new deals like the TPP offer few new gains in terms of growth and jobs for the American people.
Moreover, deals like the TPP now come with very high risks. Given that tariffs on goods are so low, these sorts of agreements have rebranded bona fide economic regulations as “barriers to trade,” blurring the distinction between protectionism and measures to protect the well-being of the middle class.
According to the most optimistic economic models, the TPP would only boost U.S. GDP between one and three tenths of one percent by 2025. This essentially amounts to a rounding error of just over one hundredth of a percent per year over the next ten years. Even these tiny gains are likely overestimates, given that they assume full employment for the U.S. and all trading partners.
Alongside these small gains, the TPP comes with high costs. The negotiations are conducted in a highly secretive manner, but leaked text on foreign investment and financial services reveals that the TPP rebrands regulations to protect workers and the general public from financial crisis as unfair barriers to trade. When signing on to “market access” provisions—a cornerstone of the TPP–nations must “liberalize” regulations that are seen as lessening the profits of Wall Street.
The TPP would also enshrine the ability of Wall Street to move funds in and out of the United States at its whim. This “financial liberalization” greatly exposes the U.S. to financial instability across the world, while at the same time barring our trading partners from regulating financial flows that are causing financial instability in their countries. It is problematic, given that the International Monetary Fund (IMF) has now taken to recommending and requiring that nations regulate cross-border capital flows. And it is dangerous since the growing interconnectedness of the global financial sector is the channel from which crises become contagious.
Moreover, the TPP elevates the right of powerful corporations to directly sue the U.S. federal, state, or local governments and the governments of our trading partners for not deregulating. Such a dispute mechanism—referred to as investor-state-dispute resolution—stands in stark contrast with the World Trade Organization (WTO), where disputes are settled among nation-states and regulators.
These are not theoretical possibilities, it has already happened: the Czech Republic recently had to dole out $260 million because the Czech government did not bail out a non-Czech bank after their financial crisis. Imagine the United States getting sued by Credit Suisse, Deutsche Bank, Société Générale, HSBC, and the rest for not bailing them out, too.
One of our TPP partners, Malaysia, had a case filed against it for emergency measures it took to react to the impacts of the Asian Financial Crisis in that country.
Main Street and the middle class will be the hardest hit from another crisis in the United States. During the 2008 crisis, banks took large losses and credit froze for Main Street, throwing millions out of work and reducing the earnings of those workers that were able to keep their jobs. The evaporation of pension funds due to the crash was the nail in the coffin for many workers and families who had worked hard all their lives. The decrease in public services from fiscal consolidation and the bailout of the financial sector gave households fewer safeguards to turn to at a time of the deepest need.
Borrowing from an analogy from my colleague Anton Korinek, in a new paper in the Journal of Monetary Economics, financial deregulation is similar to relaxing safety rules on nuclear power plants: such a relaxation may reduce costs and increase profit for the nuclear industry, and may even reduce electricity rates. However, it comes at a heightened risk of a nuclear meltdown. Financial deregulation acts in the same way, it increases the profits of the financial sector at great risk and expense to the rest of society.
The U.S. should be making sure that our trade deals grant all parties all the tools necessary to prevent and mitigate a crisis, not the so called “minimum standard of treatment” that the U.S. is seeking to forge in the TPP.
U.S. trade policy has taken a wrong turn. As much as I support President Obama, it seems dangerous that a swath of regulations to protect the middle class gets relegated to a yes or no vote. The benefits are too low, the potential cost are too high.
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Seems to me that these ‘trade agreements’ are essentially designed to allow corporations to eliminate the right of the people to have any sort of say in the (often unique) issues that their countries and communities are confronted with. While this is something the corporations have long been getting away with in their own respective countries, this will embolden them and permanently allow these unelected ‘people’ to shape important laws/regulations of any participating nation to whatever benefits them most at the time. Of course, this will be done with their typical one-size-fits-all, subtlety of a sledge-hammer approach.
Just to be clear, I don’t think the present system in western countries particularly caters to the proletariat’s interests, but the TTP and TTIP deals are just flat-out egregious. I also expect that if it goes through, the politicians who ram this down the public’s throats will end up being handsomely rewarded by the corporations who benefit.
All that said, I still have some hope this won’t get through, or will be significantly neutered in the secret negotiations. From the details I’ve heard, I just can’t see how it could truly be in any nation’s long-term best interests to agree to these terms. Nothing suprises me these days, though.
Do you believe Royal Dutch Shell, Apple, Citigroup, etc. act on behalf of any nations best interest?
Of course not. Did I give the impression that I did? Or was that a rhetorical question?
Just this line:
If we agree that the decisions made and bills passed are done so on behalf of the money that financed this or that representative, then the ‘nation’ is in fact those special interests, Citigroup, Apple, etc. No?
While I can certainly understand what you are trying to say, you should remember that not every ‘nation’ is as far down the slippery slope of all-encompassing corruption as the US is.
It’s hard not to see TPP & TTIP as the coup de grace. Neolib economics and policies seem to have been heading inexorably towards this point for 35 years, and what stands in it’s way? Certainly not an informed public, has released it’s World Press Freedom Index 2015, the US is placed 49th and the UK not much better at 34th, omission rather than outright lie seems to be the main tactic and of course the beneficiaries of these pacts own the media that rarely makes any reference to them. That reminds me of a poll of Fox News viewers done a couple of years ago were something like 60% believed Saddam was responsible for 9/11.
So, if not an informed public then it must be the political class that will make the right choices when the time comes, as representatives of the people they can be counted on to do what’s right for everyone, not just a group of oligarchs right? It behoves them to act in our interest or they won’t get re-elected, isn’t this the paragon that is democracy.
Question, would the TPP or it’s ilk allow electric utilities to circumvent EPA restrictions on coal plants due to “economic harm”? Or are only local and state laws subjugated by these treaties?
I would love to be proven wrong, however my impression is it would be possible.
The environment would pay for ‘free trade’
It’s hard not to see TPP & TTIP as the coup de grace. Neolib economics and policies seem to have been heading inexorably towards this point for 35 years, and what stands in it’s way? Certainly not an informed public, Reporters Sans Frontiers has released it’s World Press Freedom Index 2015, the US is placed 49th and the UK not much better at 34th, omission rather than outright lie seems to be the main tactic and of course the beneficiaries of these pacts own the media that rarely makes any reference to them. That reminds me of a poll of Fox News viewers done a couple of years ago were something like 60% believed Saddam was responsible for 9/11.
So, if not an informed public then it must be the political class that will make the right choices when the time comes, as representatives of the people they can be counted on to do what’s right for everyone, not just a group of oligarchs right? It behoves them to act in our interest or they won’t get re-elected, isn’t this the paragon that is democracy.
I recently read that Eli Lilly is suing Canada for “stealing” it’s intellectual property. The Canadian government is arguing that Lilly is filing patents that are based on no data and simply intended to protect markets for Lilly drugs. The Canadian government is right to assert that a drug patent with no clinical data to back it is worthless. But Lilly is suing for $500 million in damages.
http://www.cbc.ca/news/business/eli-lilly-files-500m-nafta-suit-against-canada-over-drug-patents-1.1829854
We can look forward to corporations becoming full time lawsuit filing machines across the globe. If you can’t actually sell something non-harmful to make your quarterly profit targets, might as well sue to grab revenue.
Lawsuits for damages will be so lucrative that corporations will stop producing trade products and just go to court on robo papers. They’ll slam on their brakes every chance they get just to get a minor case of whiplash. To give corporations/investors the status of a “state” in a world that is already saturated with their questionable products, their cutthroat competition and their dirty money is the only thing left for them to do to exploit civilization. Use the justice system to bring justice down. Clever.
I wish we could get into the habit of replacing govt with people, as in:
Using the term govt makes it sound like a dispute between two organisations, when in reality its the populations money that Lilly is trying to extort, and who knows, if people were more aware of a companies efforts to bleed their funds they might be less inclined to buy its products.
Just a thought, not an attack on your post.
Perhaps Professor Gallagher should re-consider his support of President Obama.
Perhaps. But let’s not be hasty!/
Is it the longshoremen and the teamsters together doing the Port of Long Beach? What would this time-honored tactic of democracy be able to contribute to a world run by the import-export nazis the prison-for-profit industry? I hear it’s gridlock all across the Pacific. In more ways than one.
“As much as I support President Obama,” – are you an idiot?
He was doing so well up to that point. Since Clinton sold the Democratic Party to the highest bidders, “free trade” agreements have been the way Democrats take back everything they supposedly stand for, but behind the arras. Or in deepest secrecy, as with Obama, the “transparency president.”
With that phrase, Gallagher exemplifies everything that’s wrong with out politics: most of us, even liberals, simply cannot learn the lesson or live in the real world. Probably they can’t face it. But a politics of cowardice ultimately brings us exactly where we are. This is why we’re all following Syriza and Yannis Varoufakis’ adventures so avidly: they’re a rare dose of fed-up spine in our political world.
Long Live Greece!
“As much as I support President Obama,” – are you an idiot?
He was doing so well up to that point. Since Clinton sold the Democratic Party to the highest bidders, “free trade” agreements have been the way Democrats take back everything they supposedly stand for, but behind the arras. Or in deepest secrecy, as with Obama, the “transparency president.”
With that phrase, Gallagher exemplifies everything that’s wrong with our politics: most of us, even liberals, simply cannot learn the lesson or live in the real world. Probably they can’t face it. But a politics of cowardice ultimately brings us exactly where we are. This is why we’re all following Syriza and Yannis Varoufakis’ adventures so avidly: they’re a rare dose of fed-up spine in our political world.
Long Live Greece!
I know, this unnecessary ritual salute drives me nuts. This is another example of what Lambert calls “authoritarian followership”. The way to make leaders respond to the will of the people is to give them hell when they do venal stuff. The left lost all its muscle when the labor movement quit operating outside the party system and became a decoration for the Democrats.
Oh, boy! The President just sent this cool video on the TPP out!
“A new trade deal called the Trans-Pacific Partnership is the most progressive in history — and a huge opportunity for American businesses, workers, and families to get ahead in the 21st century economy. Watch this video to find out why, then pass it on.”
So I’m passing it on, since it’s good for *families and workers*, see?
(Thanks for keeping on this, Yves.)
IF the TPP passes, it will be the signal that corporate political power has, in a fundamental way, eclipsed the political power of nation states and then I would only expect that trend to gain more momentum. If left unchecked, corporate political power would ultimately result in the enslavement of the human race I believe.