Debate in the US on Trans Pacific Partnership: issues and warnings
In what has been called “a remarkable blow” to their own president*, 144 Democratic members of the United States House of Representatives joined opposition Republicans on 12 June to defeat legislation, the so-called “fast track”.
This legislation would authorise President Obama to conclude the negotiation of the Trans Pacific Partnership (TPP) and submit it to Congress for approval without the possibility of amendment. President Obama has made the TPP (a 12-country trade deal which I discussed in a blog last year) a top priority for his second administration, and the fast track was regarded as essential for its success.
The House's decision, not yet final, follows a long and tortuous process in the Senate which revealed strong opposition to the TPP both among Democratic politicians and among trade unionists, commentators and academics who are otherwise sympathetic to the Obama government.
Some of the concerns are around specifically American issues, in particular the possibility of the TPP resulting in the transfer of jobs from the US to other member countries that have lower wages and environmental standards. Other worries, however, are more general and raise important questions for the future of the global trading system as well as providing an object lesson on the political economy of international trade policy making and on the involvement of private business in it.
Paramount among these is the issue of the expansion of the scope of trade disciplines to cover “behind-border” areas. The aim is to progressively create a unified global economic space with common rules that would facilitate the expansion and penetration of transnational capital. Two such areas -intellectual property rights and Investor/state dispute settlement (ISDS) - were discussed in my aforementioned blog** and have featured prominently in the current debate in the US.
In a recent New York Times article Economics Nobel laureate Paul Krugman (generally a supporter of the Obama Administration) singles out ISDS and IP rights as major potential flaws in the TPP.
“Patents and copyrights”, Krugman writes, “are how we reward innovation. But do we need to increase those rewards at consumers’ expense? Big Pharma and Hollywood think so, but you can also see why, for example, Doctors Without Borders is worried that the deal would make medicines unaffordable in developing countries.”
And on ISDS:
“the deal would create a system under which multinational corporations could sue governments over alleged violations of the agreement, and have the cases judged by partially privatized tribunals … these tribunals could, for example, be used to attack and undermine financial reform.”
A point forcefully echoed in the Washington Post by Democratic Senator Elizabeth Warren:
"Progressives should oppose ISDS because it would allow big multinationals to weaken labor and environmental rules [including in the United States, my addition]."
The stakes have been raised further on this front by a move, this time from big business and right-wing Republican politicians, to add yet another non-trade area to those covered by the TPP. Multinationals are complaining that some of the TPP members, notably Japan, use exchange rate manipulation in order to make their export more competitive, and are pressing for the introduction of penalties for countries engaged in such practices.
This has been labelled "toxic" by the White House as it would impinge on the ability of central bankers to manage their economies***. An amendment to this effect was defeated in the Senate by a narrow majority (51:48) but major companies have announced they will continue to fight in the House to have it adopted. Ford Motor Co Vice President Ziad Ojakli used euphemistic but clear language when he stated that the company will "work with lawmakers to address this critical issue as TPA moves through the legislative process" (ibid). By contrast, banks and financial companies have been lobbying against the amendment.
The saga is therefore not yet over. Developing countries – both those involved in the TPP and all others - would do well to carefully monitor subsequent developments in Congress, and identify ways to help prevent the free trade argument from being used to limit the policy space of their governments to manage their economies and promote development.
* Jonathan Weisman, “House Rejects Trade Measure, Rebuffing Obama’s Dramatic Appeal”, The New York Times, June 12, 2015
** I also discussed ISDS in another blog last year
*** Richard Cowan and Jason Lange, “Senate votes to grant Obama fast-track power on trade deals”. Reuters, May 22, 2015
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“the deal would create a system under which multinational corporations could sue governments over alleged violations of the agreement, and have the cases judged by partially privatized tribunals … these tribunals could, for example, be used to attack and undermine financial reform.” Tweet
"Progressives should oppose ISDS because it would allow big multinationals to weaken labor and environmental rules [including in the United States, my addition]." Tweet