Trans-Pacific Partnership: Increasing economic gains while empowering a few?

No doubt, the TPP is appealing for its member countries for many reasons. It seeks to eventually completely eliminate tariffs between some of the world’s largest producers and existing trading partners with the destination goal being that which follows our trade models, Ricardo, H-O, etc, that is, to supply the global economy with more goods for the same or less global cost. While breaking trade barriers between trade partners so that market forces surpass geographic boundaries, there are some byproduct trade-offs being created by negotiators, in the interest of their governments.

Originally, the TPP was known as the P4, an agreement formed in 2005 between Brunei, Chile, New Zealand, and Singapore. Lately, the US has decided to take the lead in the new negotiations between itself, Australia, Canada, Mexico, Peru, Vietnam, Malaysia, and Japan. According to many news articles, many question the interests of the US at the negotiating table. Idealistic differences within largely private negotiations has left the public and members of governments, including the US Congress, left wondering the specifics of the TPP. Several drafts of the agreement were leaked to Wikileaks, so far the only source of information about the TPP. Many find this puzzling, that a trade agreement which seeks to lower tariffs and increase the welfare of all members is not ironed-out in the public domain, but only at the hands of a select few individuals whose actions are motivated by lobbies, heads of state and those with political power. Indeed, some issues have been raised that might merit a closer examination of the interests of leading parties, notably the U.S. and the Obama Administration.

While the agreement largely should provide economic gains to most, if not all countries, it has a bit of a dark side, which is driven largely by U.S. corporate lobbies. The U.S. is vying for “intellectual property” protections, which are broad categorical protections that intend to enforce illegal media sharing with possible jail time. These restrictions also might limit New Zealander’s access to prescription drugs as American pharmaceutical companies could demand higher royalty payment for generic drug production in other countries. Vietnam and other developing nations could also loose such ability in prescription distribution as it would become unaffordable on a national level. Also, in Japan, a large part of the entertainment industry includes manga comics and cosplay character dress-up, which could be targeted as copyright infringing industries. Such new laws could hurt Japan socially and economically. President Obama has been trying to “fast-track” the passing of the TPP in the U.S., as to bypass Congressional scrutiny by seeking a simple yes or no vote that would disallow any amendment to the bill, all the while such suspicions exist.

Clearly, the TPP offers huge economic gains that would be hard to pass up. But there are also issues of seemingly equal importance that could be fatal to overlook, such as access to affordable medicine in the developing and developed TPP member states. Both the simple factor and Ricardian trade models emphasize gains our countries could have. But the question arises: can such a developed country as the U.S., really stand to gain so much more than it already receives from existing free trade agreements, such as that with South Korea? If, indeed, the U.S. gains from trade by theoretical means are less than those of the other TPP members, it appears the U.S. would have an incentive to make up for such a loss. Ricardian theory says little for such scenarios, as it assumes balanced trade, labor as the only factor of production and fixed endowments. Clearly, the U.S. specializes in the production of capital intensive goods whereas Vietnam would specialize in more labor intensive goods. Initially this follows our theory and would support trade as the two countries would make more of what they specialize in; however, as the U.S. holds more patents in medicine and technology than any of the other TPP members or potential
members, the labor theory of value would not hold in the TPP as the U.S. negotiates for vast intellectual property compensation. Clearly, this is a situation where the developed country can try to make up for what would be its otherwise smaller gains from trade, compared to developing countries.

The question now is whether such methods of supplementing gains from trade and thus using legal leverage in an agreement which is supposed to equitably contribute to the socioeconomic welfare of all countries is something that should be part of the TPP. To answer this, there are several economic institutes which conduct econometric studies, such as the Peterson Institute of Washington D.C., to predict the balance of trade and the resulting gains from trade for TPP parties. Forecasts show encouraging numbers, around an increase of $5.16B for the New Zealand economy. However, as New Zealand would be at highest risk for its nationally subsidized prescription coverage program, TPP partners, such as the U.S. should be focusing more on how to prevent such intellectual property protections from impacting social welfare instead of worrying how social welfare could negatively impact corporate profits. Indeed, such $5.16B gain from trade could be minor compared to the increased royalty costs the New Zealand government would be compelled to pay to American companies. Granted, there must be incentive and some protection for corporations, however such shrouded negotiations, such corporate funded lobbies, and such “fast-track” decision making must all be questioned before anything is signed in order to ensure the most efficient and transparent free trade agreement. If this is not followed, such an agreement might not end up being much more valuable, if at all, than the current standing. Perhaps other countries would be better off without the U.S. party to the TPP.

Click below for Noam Chomsky’s take on the TPP.

Sources, News Articles and Links

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