, , , , ,

By Adam Stromme

The Trans-Pacific Partnership, a massive free trade agreement (FTA) encompassing 12 countries accounting for 40% of the world’s GDP, was just shot down on the floor owing to intense controversy.

Haven’t heard of it? That’s largely the problem.

The product of 10 years of negotiations and intense secrecy, the agreement has come under fire from a wide range of interests, from trade unions, to prominent economists, to a vast majority of the Democratic party. All had a vested interest in causing a stink, even as the President made his final rounds trying to whip up support from his apathetic-at-best party base, making him and the congressional Republican majority unlikely bedfellows on the issue.Screen Shot 2015-06-16 at 12.19.26 AM

To globalization-minded cosmopolitans, such reservations on the part of Democrats would appear strange. The opportunity to lower tariffs, expand American business opportunities, and make a visible political stake in the fastest growing region in the world seems to be a no brainer. The TPP has been seen by many as being the 21st century trade agreement–to borrow London’s ever FTA bullish Economist’s expression– because of its ability to expand and interlink with other future regional trade agreements in light of the failure of the WTO to create a global trade agreement framework.

Regarding the critics, the lay observer is likely wondering: what’s the big deal about the TPP? Isn’t freer trade always a good thing?

In order to answer this, its important to keep in mind that all too often in economics, highly polarizing discussions on things like free trade (versus, presumably, unfree trade) are placed in absurd contexts. Rhetoric obscures what provisions are actually being agreed upon. With a juxtaposition of phrases like free trade versus protectionism, it becomes remarkably easy to turn the entire complex subject of trade policy into a Manichean struggle of free versus unfree, good versus evil, Yoda versus Darth Vader…

What’s the big deal about the TPP? Isn’t freer trade always a good thing?

Also implicit in the conventional narrative is that continuing to expand trade more and more will reap greater and greater gains, and that free trade agreements are necessary in order to facilitate the internationalization of trade. These claims are dubious at best, and FTAs are usually more about foreign policy than sound economics. In fact, solid estimates predict that the TPP will produce at most a .1% increase in US national income. This is because when producers are able to undercut previously existing markets, as was the case of China– easily the example that is most commonly burned into the American psyche– these structural adjustments can do more harm than good. More importantly, they will largely occur regardless of trade policy.

On the other hand, using trade agreements in order to expedite this process or needlessly open otherwise secure industries to unfair, unethical, or unsustainable forms of competition is largely self defeating. While multinationals and their respective home countries– if they even need one— always vouch for these agreements in order to reap short term profits, the long term damages and dislocations are incalculable. And historically,  labour and environmental interests’ rights are never protected under such agreements. That’s why people like John Conyers, the House member representing Detroit, are writing scathing articles about how trade agreements have exacerbated the problems of globalization, often needlessly.


But the economics profession suffers from an intractable need to profess the virtues of free trade– as is increasingly distinct from fair trade. Paul Krugman, the Nobel prize-winning economist, described this phenomenon with his characteristic lucidity when he wrote about the TPP back in March:

“There’s an odd dynamic involving the role of international trade in the history of economics. Comparative advantage was an early, classic example of how economic reasoning can lead to results that are true but not obvious; naturally, economists have always wanted this intellectual victory to be important in the real world too. This leads to the odd dynamic: comparative advantage says “yay free trade”, but also suggests that once trade is already fairly open, the gains from opening it further are small. But because economists want to keep shouting yay free trade, they look for reasons why those gains might be larger – even though the stories they then end up telling are inconsistent with the competitive model that was the basis for free-trade advocacy in the first place.”

Screen Shot 2015-06-16 at 12.26.18 AM

This leads us to another critical problem with the recent spate of so called Free Trade Agreements: they don’t have a lot to do with free trade. In fact, of the 29 clauses of the TPP, only five even contain subject matter that pertains to trade. Again, much of this has to do with the fact that US and global tariffs and trade barriers are already at some of the lowest levels in history.

So what are they about then?

The answer: intellectual property and investor rights.

Now we are beginning to see how the necessity and logic of so called FTAs unravel. The former should be seen as the exact opposite of promoting free trade: after all, patents by definition enable the producer to have a legal monopoly. And far from being the necessary sacrifice to induce research and development, much of the technology that becomes patented is actually created in public research programs and universities. As detractors of this current regime– who clearly favor free trade more than FTA proponents themselves– have been quick to point out, the availability of revolutionary inventions for immediate public use is one of the most important parts of ensuring equitable global economic growth.

This leads us to another critical problem with the recent spate of so called Free Trade Agreements: they don’t have a lot to do with free trade.

As for investor rights, massive enforcement mechanisms already in place— manifesting in the form of the General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO)– are largely without any historical precedent, and already present onerous challenges to countries that are not equipped to properly defend themselves in international tribunals.

Perhaps most perversely is the so called Investor State Dispute Mechanism, or ISDS. An ISDS is an international legal body largely staffed by corporate lawyers who are able to present evidence and rulings in secret courts, without any right to appeal from the country in question. The only necessary violation for a country to be brought in front of one? Passing legislation that can be shown to threaten corporate profits. Beyond being a flagrant violation of national sovereignty, ISDS tribunals spit in the face of the democratic wishes of signatory countries.

What are FTAs about? intellectual property and investor rights

Take Germany, who after witnessing the disaster at Fukushima decided that over reliance upon nuclear energy is unsafe for future generations. They are now being sued in court for €4.7 billion ($6 billion) for threatening the profits of the Swedish company Vattenfall, which supplies them with fuel. Or El Salvador, which has threatened the profits of Canadian Gold conglomerate Pacific Rim Cayman for passing environmental regulation in order to curb the abuses of gold mining, a process which commonly uses water laced with cyanide– a deadly toxin and carcinogen– that has often leaked into the surrounding ecosystem. El Salvador is now being sued for $300 million despite having an economy smaller than the state of Wyoming.

All of these lawsuits– flagrant violations of national sovereignty that they are– continue to be litigated in international tribunals, against the wishes of the governments in question. They are often carried out for years, and for the express purpose of wearing down smaller governments or forcing them to reject popular mandates in order to appease the plaintiffs. And the one thing they all have in common? They would be much more difficult– and carried out on much more equal footing– if TFAs did not grease the skids for these assaults on the democratic process.

Clearly, the prevalence of FTAs ought be resisted at all costs. They are costly, illogical, unnecessary, and antithetical even to the very spirit of free trade that they propose to represent. Worse still, they beg the question as to who exactly our legislators are working for. But to those that think the troubles of abusive FTA legislation has died with TPP, they had best think again.

Lets not forget, there will be another vote next week.