Today we are fortunate to have a guest contribution written by Jeffrey Frankel, Harpel Professor of Capital Formation and Growth at Harvard University, and former Member of the Council of Economic Advisers, 1997-99. A shorter version appeared at Project Syndicate.
The text of the TPP (Trans Pacific Partnership) that was finally agreed among trade negotiators of 12 Pacific countries on October 5 came as a triumph over long odds. Tremendous political obstacles, domestic and international, had to be overcome over the last five years. Now each country has to decide whether to ratify the agreement.
Many of the issues are commonly framed as “Left” versus “Right” in US politics. The unremitting hostility to the negotiations up until now from the Left – often in protest at being kept in the dark regarding the text of the agreement — has carried two dangers. One danger was that opponents would succeed in blocking negotiations altogether. Indeed, when Democrats in Congress voted against giving President Obama the necessary authority in June, the entire negotiations were widely declared to be dead. This would have been a shame — at least in the view of most economists — because the resulting trade liberalization was very likely in the end to turn out beneficial overall.
The second danger was that the Administration would be forced at the margin to move to the “Right” in order to pick up votes from Congressmen who said they would support the outcome if (and only if) it contained provisions that were sufficiently generous to American corporations. Those concerned about labor and the environment risked hurting their own cause by seeming to say that they would oppose the agreement no matter how well it did at including provisions to their liking, which could have undermined the White House incentive to pursue their issues.
In this light, this month’s outcome is a pleasant surprise. In the first place, the agreement gives the pharmaceutical firms, tobacco companies, and other corporations substantially less than they had asked for — so much so that Senator Orrin Hatch (Utah) and some other Republicans now threaten to oppose ratification in the final up-or-down vote. In the second place, the agreement gives the environmentalists more than most of them had bothered to ask for. I don’t know the extent to which these outcomes were the result of hard bargaining by other trading partners such as Australia. Regardless, it is a good outcome. The domestic critics might consider now taking a fresh look with an open mind.
The issues that are the most controversial in the US are sometimes classified as “deep integration,” because they go beyond the traditional negotiated liberalization in trade tariffs and quotas. Two categories are of positive interest to the Left: labor and the environment. Two categories are of “negative interest” to the Left in the sense that it has feared excessive benefits for corporations: protection of the intellectual property of pharmaceutical and other corporations and mechanisms to settle disputes between investors and states.
Now that the long-delayed agreement is completed, what turns out to be in it? Two good things in the TPP’s environment chapter are especially noteworthy. First, it takes substantial steps to enforce prohibition of trade in endangered wildlife — banned under CITES (Convention on International Trade in Endangered Species) but insufficiently enforced. Second, it also takes substantial steps to limit subsidies for fishing fleets — which in many countries waste taxpayer money in pursuit of the overfishing of our oceans. For the first time, apparently, these environmental measures will be backed up by trade sanctions.
I wish that certain environmental groups had spent half as much time ascertaining the specific possibility of good outcomes like these as they spent in sweeping condemnations of the process. The agreement on fishing subsidies was reached in Maui in July; but critics were too busy to take notice. Fortunately it is not too late for them to climb on board now.
Some NGOs might still worry that these provisions will not be enforced strongly enough. But trade penalties are among the most powerful tools for enforcement of international agreements that exist; for that reason environmental groups in the past have asked that such measures be placed in the service of environmental goals. There is no denying that the TPP provisions on endangered species and fishing are steps forward.
A variety of provisions in the area of labor practices, particularly in Southeast Asia, should also be of interest. They include steps to promote union rights in Vietnam and steps to crack down on human trafficking in Malaysia.
The greatest uncertainties were over the extent to which big US corporations would get what they wanted in the areas of investor-government dispute settlement and intellectual property protection. On the one hand, critics often neglected to acknowledge that international dispute settlement mechanisms could ever serve a valid useful purpose. Similarly, they often neglected to acknowledge that some degree of patent protection is indeed needed if pharmaceutical companies are to have an adequate incentive to invest in research and development of new drugs. But, on the other hand, there was indeed a possible danger that such protections for corporations could have gone too far.
The dispute settlement provisions might have interfered unreasonably with member countries’ anti-smoking campaigns, for example. In the end, the tobacco companies did not get what they had been demanding. Australia is now free to ban brand name logos on cigarette packets. TPP sets a number of other new safeguards against misuse of the investor-state dispute settlement (ISDS) mechanism as well. For example there is a provision for rapid dismissal of frivolous suits. The rest of the details are publically available in clear bullet point form, from USTR, if one takes the trouble to read them.
The intellectual property protections might have extended to other TPP member markets a 12-year period of protection for the data that US pharmaceutical and bio-technology companies compile on new drugs (biologic medical products, in particular), and might have made it too hard for generics to eventually bring the benefits to the public at lower costs. In the end, these companies too did not get much of what they had wanted. The TPP agreement assures protection of their data for only 8 years in some places and 5 years in others and instead relies on the latter countries to use other measures to constrain the appropriation of the firms’ intellectual property.
The focus on new areas of deep integration should not obscure the old-fashioned free-trade benefits that are also part of TPP: reducing thousands of existing tariff and non-tariff barriers that inhibit trade. Many of these reductions benefit US exports. (Most US barriers against imports were already very low.) Liberalization in manufacturing includes the auto industry, for example. Liberalization in services includes the internet.
The liberalization of agriculture is noteworthy; this sector has long been a stubborn holdout in international trade negotiations. Countries like Japan have agreed to let in more sugar, beef, pork, rice and dairy products, from more efficient producer countries like Australia and New Zealand. In all these areas and more, traditional textbook arguments about the gains from trade apply: new export opportunities, higher wages, and a lower cost of living.
Many citizens and politicians made up their minds about TPP some time ago, based on having read seemingly devastating critiques of what was feared would emerge from the trade negotiations. When the text of the agreement is released is the time for the critics to read the specifics that they have so long hungered to see and to decide whether they can support it after all. They just might discover that their nighttime fears are much diminished by the light of day.
This post written by Jeffrey Frankel.