The Trans-Pa­cific free-trade cha­rade

Financial Mirror (Cyprus) - - FRONT PAGE -

As ne­go­tia­tors and min­is­ters from the United States and 11 other Pa­cific Rim coun­tries met in At­lanta in an ef­fort to fi­nalise 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, USbased 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.

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.

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