Trans-Pacific Partnership: Corporate Power Unbound

By John Miller | July/August 2015

This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org

This article is from the
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The Trans-Pacific Partnership (TPP) sounds more like an international consortium of corporate law firms than a trade deal. That’s for good reason. TPP is less about trade than about corporate-dominated globalization.

But that’s all a mystery to Froma Harrop, liberal columnist, business writer, and robotic Obama supporter. (Obama has pushed hard for the TPP.) Why should the AFL-CIO, with so few members in manufacturing, oppose this trade deal, Harrop asks? And what is so wrong with protecting corporate profits by enforcing intellectual property rights, as the TPP would? The answer is: plenty. And that’s especially true now that the Obama administration and both Republicans and corporate Democrats in Congress have engineered the passage of the “fast-track authority,” guaranteeing an up or down vote for the TPP.

The TPP Is Not About Trade

The TPP is surely marketed as a trade deal. And economist after economist supporting TPP has touted it as a giant step toward free trade that will bestow benefits on all nations in just the way every student learns it will in introductory economics. But what economists have to say about the virtues of free trade, as flawed as that may be, has little to do with the TPP. The TPP is not about free trade or even principally about the gains from trade.

The TPP would be the largest regional “trade” agreement ever. It involves 12 countries: the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Those dozen countries collectively produce 40% of global output (GDP).

But if trade is the hype, it is not the substance of the deal. To begin with, the TPP would do little to reduce barriers to trade in these countries, which are already quite low. The average tariff level in each of the 12 countries is lower than the world average (6.8% in 2012) and far lower than global tariff rates two decades ago. In addition, Australia, Canada, Chile, Mexico, Peru, and Singapore are already members of other free trade agreements with the United States. In 2014, nearly three-quarters (74%) of U.S. goods traded with the TPP group was with those six nations.

As tariff levels have dropped, so have potential gains from further lowering tariffs, as envisioned by those who have drunk the free trade Kool-Aid served up by economists. For instance, the Peterson Institute for International Economics, a Washington-based pro-free trade thinktank, estimates that the TPP would add $77.5 billion of income to the U.S. economy by 2025, a figure the Obama administration uses to make the case for the TPP. That number might sound impressive, but those gains would add just 0.38% to U.S. GDP over the next ten years. And it is undoubtedly an overestimate, for it relies on the assumption that the U.S. economy and the economies of its trading partners will be at full employment during those years.

The Obama Administration claims that the TPP would create 650,000 new jobs in the next decade. They get that number by dividing the $77.5 billion income gain from the TPP in the Peterson report by the average cost to a company when it hires an additional worker. But nowhere in its report does the Peterson Institute project that the TTP would create jobs. Rather, the position of the Peterson Institute, according to Fred Bergsten, its founder, is that “a trade agreement does not on balance, create, or destroy jobs, it alters the composition of the workforce.”

Nor would the meager income gains produced by the TPP be widely shared. In a Center for Economic and Policy Research (CEPR) report, economist David Rosnick estimates that just the top 10% of U.S. workers would see real wage gains, if the Trans-Pacific Partnership were enacted. Worse yet, the real wages of a broad swath of middle-income U.S. workers (from the 35th percentile to the 80th percentile) would fall, even under Rosnick’s most conservative assumptions about the likely effect of the TPP on inequality

Losses from trade agreements have been visited upon the same groups, especially manufacturing workers, time and time again. For instance, labor economists Avraham Ebenstein, Ann Harrison, Margot McMillan, and Shannon Phillips have found that, between 1983 and 2002, globalization forced U.S. workers out of manufacturing into lower-paying jobs, reducing their real wage by 12% to 17%.

TPP Is About Corporate Power

Why would the labor movement go all out to defeat the TPP with so few of its members in manufacturing, and with lost manufacturing jobs unlikely to return to the United States? Economic journalist Robert Kuttner gave perhaps the best answer: “The labor movement is not motivated just by the loss of factory jobs but by the entire ideological assault on the security of ordinary wage earners and consumers.” That’s also what lies behind the complaints about how the TPP would protect corporate profits in what Nobel Prize winning economist Joseph Stiglitz calls a “secret corporate takeover.”

At the heart of the TPP is an Investor-State Dispute Settlement (ISDS) process that would give corporations yet more power to make the economic rules that govern our lives. The settlement process would allow investors who think that a country’s laws have reduced their profits to take their case before a “tribunal” of three private attorneys; that is, to sidestep the country’s own legal system. Unlike national courts, which can order corporations to be compensated for losses of actual assets, ISDS tribunals would be empowered to order taxpayers to compensate corporation for losses of expected profits—even those projected decades into the future.

These are not just hypothetical concerns. In other free trade agreements, the ISDS process has enabled:

• Phillip Morris to sue Australia and Uruguay, arguing that warnings required on cigarette packages are cutting their profits. Nuclear power operator Vattenfall to sue Germany for $3.7 billion in lost future profits over the German government’s decision to phase out nuclear power after the Fukushima nuclear disaster.
• The oil and gas company Lone Pine Resources Inc. to sue the Province of Quebec for $250 million (in Canadian dollars) after Quebec imposed a fracking moratorium.
• Veolia, French waste management company, to sue Egypt because the country raised the minimum wage, increasing Veolia’s costs.
• A Dutch subsidiary of a Japanese bank to sue the Czech Republic, arguing that the country had violated its rights by extending bailouts only to “too big to fail” banks.

Defenders of the ISDS process maintain that it will have little effect in the United States with its corporate-friendly legal system that they call the “good rule of law.” The U.S. government, they hasten to point out, has not lost an ISDS case. And President Obama, as Harrop emphasizes, has vehemently denied that he would ever sign an agreement that would threaten the Dodd-Frank financial reforms. But Obama’s assurances are nearly meaningless. While he would have control over appointments to the ISDS tribunals, he would not be able to control what decisions his appointees reach, or who the presidents who follow him appoint to the tribunals. And the “good rule of law” has not prevented Canada from having to pay out six ISDS claims brought by corporations. But whatever the ramifications for the United States, ISDS provisions shrink the “policy space” for other countries less inclined to have their governments constrained by what would pass muster with an ISDS tribunal.

Other TPP provisions would actually limit trade, not prompt it. Its provisions to enforce “intellectual property rights,” which Harrop praises, would strengthen patents restricting the availability of prescription drugs. While a boon to big phrama, those provisions would drive up the cost of already expensive drugs to fight cancer and other diseases. Public health researchers Hazel Moir, Brigitte Tenni, Deborah Gleeson, and Ruth Lopert estimate that it would cut in half the share of Vietnam’s AIDS patients who have access to life-saving antiretroviral drugs.

Not for Industry Alone

Just before the passage of fast track in June, Senator Elizabeth Warren (D-Mass.)—who led the fight against TPP in the Senate—warned against enacting more “trade agreements that offer gold-plated enforcement for giant corporations and meaningless promises for everyone else.”

But TPP surely would do just that. Worse yet, it would exacerbate inequality and compromise democracy, as it exempts corporations from environmental and labor standards, or whatever laws interfere with their accumulation of profits.

Now that’s not about the “good rule of law.” It’s about corporations using their power to evade the rule of law.

JOHN MILLER is a professor of economics at Wheaton College and a member of the Dollars & Sense collective.

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