On one side of the issue are the Sierra Club and most environmental organizations, the left-leaning consumer group Public Citizen, organized labor and the majority of Democrats in Congress. On the other side are the Chamber of Commerce, most of organized business and most Congressional Republicans. Knowing only that much, you might think you could confidently predict which side the Obama administration would be on, might you not? But you would be wrong. The issue is the Trans Pacific Partnership (TPP), which is likely to come up for a vote in Congress in the next few weeks and is certain to reveal an unusual set of bi-partisanship alignments.
The TPP is a “free trade agreement” (more on those scare quotes in a bit) that would link the United States with eleven Asian and Pacific countries in a wide-ranging treaty regulating international business investment. It would also knock down some of the few remaining barriers to international trade across the Pacific. Free trade agreements are supposed to unlock export opportunities for American businesses, generating increased employment and wage growth in our own country.
So why the controversy–what’s not to like? Everyone knows that free trade is good for all concerned, right?
The first thing to understand about the TPP is that, like other “free trade agreements” (FTAs) that preceded it, it is not mainly about trade. The contents of the provisional agreement, still being negotiated, are secret, but from what has been leaked out, we know that only 5 of 29 chapters directly concern the trade of goods and services among nations. But “free trade” is basically apple pie—no one wants to admit that they’re against it—so it’s politically smart as well as conveniently simple to label something “free trade” when it’s about much more. I use the scare quotes as a constant reminder of the much more. As I will explain, FTAs are highly protectionist, although not in the way “protectionism” is usually understood.
The immediate political issue regarding the TPP is whether Congress should grant the administration “fast-track” authority, that is, the authority to negotiate a complete agreement that Congress will have to approve or reject in a simple up or down vote, with no possibilities for amendments. The justification for fast track lies in the complexity and comprehensiveness of the subject matter and the delicacy of negotiating a multi-lateral accord among twelve countries. It is arguably impractical to allow Congress to pick and choose provisions to alter or reject, requiring potentially endless iterations of the negotiating process. But opponents of fast-track are unwilling to allow the administration to present Congress with a fait accompli, especially given the secrecy that has enveloped the negotiations. Most opponents have been critical of previous “free trade agreements” like NAFTA (North American Free Trade Agreement) and CAFTA (Central American Free Trade Agreement) and, partly based on leaks about the current agreement, assume the TPP will have broadly similar provisions. That is a reasonable assumption.
The Obama administration has made only modest claims of economic benefits to come to the US from the TPP, and even these claims are poorly supported. A major complaint about past “free trade agreements” is that they have caused job loss in the United States by encouraging American companies to move facilities overseas where production costs, especially labor, are cheaper. This complaint seems well-founded, as does the concern that outsourcing may depress wages and increase inequality. Moreover, rosy forecasts of large-scale job creation as a result of FTA-generated exports have turned out to be chimerical. (President Obama himself has acknowledged that past trade deals haven’t been good for American workers.) On the positive side, outsourcing makes possible the import of inexpensive merchandise—a boon to lower income Americans. And, job loss in this country often means employment opportunities for the poor in less developed countries. So, from a global perspective and in strictly economic terms, it is difficult to assess the net impact of FTAs.
But there are important, worrisome public policy consequences of FTAs that aren’t readily measurable quantitatively. The TPP, like previous FTAs, is being negotiated by government officials relying heavily on the inputs of a small army of representatives—in effect, lobbyists—of the wide array of industries to be affected by the agreements. That seems reasonable, since who understands issues of international investment and trade better than the companies doing the investing and trading? But it practically ensures an agreement that puts special business interests ahead of broader public concerns.
One great beneficiary of the TPP, for example, would be the US pharmaceutical industry. Leaked provisions of the agreement would greatly expand patent rights for big pharmaceutical companies. One of these provisions would allow companies to extend their patents beyond the original twenty years, preventing other companies from bringing the medicine onto the generic market, where costs are 30-80 percent lower. Effectively, then, the TPP would enable drug companies to price life-saving drugs out of the capabilities of developing countries, which tend to rely heavily on affordable generic drugs. It is very likely that people will die as a result. Other beneficiaries of the TPP, unsurprisingly, will be on Wall Street. The TPP is expected to tightly limit governments’ abilities to restrict international capital flows. That will help a few big banks and hedge funds, but will undermine the ability of countries like Brazil and South Korea to protect themselves from destabilizing financial flows.
A centerpiece of practically all FTAs, including the TPP, is an investor-state dispute settlement (ISDS) system that enables foreign corporations to challenge environmental, labor, health and consumer protections that are part of domestic law but that can arguably interfere with “free trade.” The challenges are pursued through special extrajudicial tribunals that bypass a country’s normal judicial system. Foreign investors can sue their host governments to block or compensate for domestic laws that threaten companies’ “expected future profits.”
Public Citizen has compiled an impressive inventory of such suits. For example, Ethyl Corporation, a US chemical company, successfully sued the Canadian government under NAFTA for its ban on MMT, a gasoline additive believed to pose a variety of health and environmental risks. Under the terms of a settlement, Canada was required to reverse the ban on MMT, post advertising saying MMT is safe, and pay Ethyl damages and legal fees. One can argue about whether MMT is or isn’t safe (the EPA restricts its use in the US), but the Canadian government should presumably have the sovereign right to make that decision for itself. NAFTA effectively abrogated that right.
On the other hand, no one can argue about the harmfulness of tobacco; yet a bilateral FTA between Australia and Hong Kong enabled Philip Morris to challenge a landmark anti-smoking law. A Philip Morris Hong Kong subsidiary launched an investor–state suit claiming that the law, which requires cigarettes to be sold in packages dominated by health warnings, could cost the company billions in profits. That suit is pending. Philip Morris is also using ISDS to challenge Uruguayan policies aimed at discouraging smoking. Still another ISDS suit pits the Chevron Corporation against Ecuador. For over a quarter century the oil company performed oil operations in Ecuador, dumping billions of gallons of toxic water and digging hundreds of open-air oil sludge pits. When Ecuador’s highest court ordered the American oil company to pay $9.5 billion in compensation for massive environmental degradation, Chevron challenged the decision through an investor-state tribunal. This suit is pending, but the tribunal’s preliminary findings have favored Chevron.
US exposure to the ISDS system thus far has been relatively small, but it would likely increase with passage of the TPP, especially if the TPP were followed by another FTA now being negotiated, the Transatlantic Trade and Investment Partnership.
So, “free trade agreements” are protectionist, though not in the traditional sense of protecting against foreign imports. FTAs serve as investor protection agreements: they shield foreign investors from government regulation. The ostensible objective of this de-regulatory thrust is to harmonize conditions for investment and trade across countries. In practice, harmonizing has generally meant setting a relatively low ceiling on regulation. All indications are that the TPP, like preceding FTAs, will limit government policies in a wide range of issue areas, from financial services to the environment to food safety. As Nobel prize-winning economist Joseph Stiglitz has explained,
Huge multinational corporations complain that inconsistent regulations make business costly. But most of the regulations, even if they are imperfect, are there for a reason: to protect workers, consumers, the economy and the environment.
What’s more, those regulations were often put in place by governments responding to the democratic demands of their citizens. Trade agreements’ new boosters euphemistically claim that they are simply after regulatory harmonization, a clean-sounding phrase that implies an innocent plan to promote efficiency. One could, of course, get regulatory harmonization by strengthening regulations to the highest standards everywhere. But when corporations call for harmonization, what they really mean is a race to the bottom.
“Free trade agreements” in general and the TPP in particular have won the practically unanimous support of the US business community and of most of their loyal servants in the Republican Party. (A minority of Republicans, reflexively hostile to anything proposed by Obama and/or suspicious of international treaties, will oppose fast track.) They undoubtedly share with progressive groups the understanding that the TPP, like its predecessors, will provide a large grab-bag of goodies for business interests.
The Republicans’ enthusiasm for TPP is understandable, but why is the Obama administration on their side? A simple answer to that question is that corporate America is a dominating force in US politics today, and the Obama administration is not immune to its influence. Besides, government solicitude for US business opportunities overseas reflects a long tradition among US foreign policy makers—stretching back at least to the late 19th Century—that views the international expansion of American business as critical to the health and vibrancy of the US economy. The persistent pursuit of FTAs follows in that perspective, despite FTAs’ spotty track record.
No less importantly, agreements like the TPP serve the broader objective of maintaining US global leadership, an objective that has been central to American foreign policy since World War II. The US has led the world in the creation and management of instruments of global economic governance, like the International Monetary Fund (IMF), the World Bank, the General Agreement on Tariffs and Trade (GATT), and the World Trade Organization. The promotion of FTAs signals the US intention to stay on top of the world economic order. The TPP in particular eyes the Chinese challenge to US primacy. As President Obama has put it,
As we speak, China wants to write the rules for the world’s fastest-growing region,” Obama said during his State of the Union address last month. “That would put our workers and our businesses at a disadvantage. Why would we let that happen? We should write those rules.
The Obama administration has been less eager than its predecessor to aggressively assert American supremacy through military means, but it continues in a long tradition of American policy that seeks to strengthen America’s position in the world by expanding the reach of US economic power. That objective coincides with the interests of American corporations in maximizing the hospitality they can expect in their search for investment opportunities abroad. But the pursuit of American global primacy is costly. The most familiar costs are a huge “defense” budget and a propensity to get involved in unnecessary wars. Less familiar is the threat to progressive public policy, in this country and abroad, posed by FTAs that weaken the ability of governments to regulate business activity in the public interest. There is no reason to believe that the TPP will yield such great benefits to the US or to its partners as to justify that cost. Fast track should be opposed.