Overrated: The Trans Pacific Partnership

“You’re selling off your rights to have your own economic policy. Our government wants to please America now, but I think if you sign the TPP that will destroy our freedom. Khazanah is dead against the TPP, but the government wants to please their friends.”

INTRODUCING TRADE AND THE TPP

Those are the words of Malaysia’s fourth Prime Minister in a dialogue session and Malaysians should pay attention. For context, trade agreements aim to liberalize the flow of goods and services between nations, and the Trans Pacific Partnership (TPP) is “the cornerstone of the Obama Administration’s economic policy in the Asia Pacific”. In plain English, it is the most substantial trade agreement in the Asia-Pacific region; the 12 participating countries including Malaysia, Mexico, Japan, and the U.S, represent almost 40 percent of global output and 25 percent of global exports.

Classical economists such as Adam Smith and David Ricardo argued that countries trading what they were most efficient at producing could boost economic growth for all – it is not a zero sum game. “Free trade is good,” said all Economics textbooks used in universities. However, what is rarely brought up is that tariff and non-tariff barriers can make all the difference in how a country reaps the gains from free trade, which is the reason negotiations take a long time and require the consideration of many stakeholders, including employees, investors and governments.

POWER TO THE CORPORATIONS

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The former Prime Minister’s concerns lie deeply in how trade agreements like the TPP can force countries to surrender their sovereignty to corporations. He referred to the example of Phillip Morris International, the tobacco behemoth and maker of Marlboro, who has sued countries that tried to limit smoking for the wellbeing of their citizens.

In 2011, the company sued the Australian Government because of plain packaging laws that were implemented by parliament which they said breached a bilateral investment treaty. In 2014, Uruguay suffered the same fate for increasing the size of health warnings. The process that makes this possible is called Investor-State Dispute Settlements, which grants corporations the right to sue a foreign government. It also represents a provision in the TPP.

PAYING TO GOVERN

Legal disputes can translate into hefty costs where governments have to pay. Philip Morris International also once threatened to sue Togo, one of the ten poorest countries in the world with a GDP of $7 billion compared to the company’s net income of $80 billion. Togo backed down and surrendered control of how it wanted its cigarette health warnings to be displayed. Is it not ironic for a government to pay for their own freedom to govern its country?

New Zealand’s Trade Minister once called any opposition to the TPP “completely extreme”. It’sOurFutureNZ, a New Zealand-based activist group, argued that the TPP might exacerbate the public’s abuse of tobacco and alcohol. Consider that the New Zealand’s government will need to pay hefty legal fees in order to control regulation over a proven deadly product. Who is in control here? Is that not “completely extreme”?

BUT TRADE DEALS ARE QUITE GOOD, RIGHT?

Trade agreements have a long record of benefits that outweigh costs to society, and an even longer record of potential. In 1993, the North American Free Trade Agreement (NAFTA) was signed and trade between America and Mexico has since increased by 506%. This has translated to surging FDI and productivity gains. The lowering of tariff and non-tariff barriers in ASEAN are said to have benefited businesses with a regional outreach (with even rosier predictions when the ASEAN Economic Community is complete). The Peterson Institute of International Economics estimates that the TPP might yield income gains of $295 billion.

Although the downfall of local industries, social inequality, and environmental costs all represent issues of opening up trade, it is common for governments to pursue trade agreements based on positive statistics despite the unknown fact of whether the gains will be distributed in society in ways that will benefit the poor and the rich justly – caution is imperative.

THE COSTS BEHIND THE STATISTICS

Automobile imports from Japan into the U.S aggravated job losses in Detroit, a city that was once a global automotive hub but now suffers from “urban decay” and recently declared itself bankrupt. What was then a city with job opportunities and skilled industries was reduced to a city plagued with crime and poverty for the sole reason of not being more competitive than Japanese imports. Classical economists would at this point argue that the gains reaped by Americans in Detroit as a whole would always be positive. The skills of Japanese manufacturers will “trickle down” to communities, the labour force would adapt, and more jobs would be available. But after thirty years this is hardly convincing for a city still suffering from “urban decay”.

Philippines’-based think-tank, Ibon Foundation, argued that the ASEAN Economic Community (AEC) would be detrimental to ordinary people while it facilitates the “aggressive foreign corporate takeovers of the region’s resources”. So, while profit-maximization makes economic sense, environmental costs should not be disregarded. Poor working conditions of workers, oil spills and the thinning ozone layer can attest to that.

Furthermore, Cambridge-based economist Ha-Joon Chang noted that open trade is not a “one-size fits all” solution for growth, as protectionism in the form of high tariffs once allowed American industries to prosper as they were protected from outside competition after World War II. Some argue in today’s context protectionism will cause countries to lose more than gain. But if Australia, a major dairy producer, gets into a trade agreement with China and makes it easier for dairy products to be imported, there is no assurance of how long it will take for the 140, 000 employees in the dairy industry to adjust.

WHOEVER BENEFITS THE MOST, PUSHES FOR TRADE (HINT:NOT YOU)

Predictions, forecasts, and estimates of trade agreement benefits can advance the interests of stakeholders who have the most to gain, including investors, corporations, consumers (who are also producers). However, if the destruction of local industries cannot be reversed, and if the benefits of foreign multinationals do not “trickle down”, and if the environment is exploited for profit, it is clear that the effects of trade agreements are not as rosy as the statistics suggest.

The TPP is in many ways now being cast under a negative light. The ascension of Malaysia into Tier 2 in the U.S Trafficking in Persons report and general secrecy of the negotiations have made the trade deal all the more suspicious to the public eye.

tpp mahaNo matter how anti-West Tun Dr. Mahathir is (remember his “Look East” and “Buy British Last” policies and how he dislikes the International Monetary Fund) his point remains valid, Malaysia’s sovereignty is at stake. No matter what the potential of these trade deals is, the costs rarely get the attention they deserve and are typically oversimplified to stress how uncompetitive and unproductive local industries are. The lasting effects of wealth and social inequality on society need to be scrutinized. Free trade is not always good.

We need to look at things for what they are instead of what they seem to be. Should we sign on to this trade agreement? Its benefits for Malaysia will be highlighted in figures, but whether this data translates into the improved wellbeing of the people, the government and the country is an issue that puts the entire nation at risk. “Free trade is good,” university textbooks suggest.

It’s overrated, and Tun Dr. Mahathir knows it.

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