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In something of a joke, President Barack Obama says Americans should actually read the Transpacific Partnership Agreement. The agreement itself consists of 30 chapters, with 144 annexes (43 of which are imbedded into specific chapters). Assuming the average American reads 200 pages a day, it would take a month. The length and complexity of the TPP Agreement signals that it is not fundamentally a free trade agreement, but is rather a managed trade agreement. As Obama has said, “I know that if you take a look at what’s actually in the TPP, you will see that this is, in fact, a new type of trade deal.”
The United States is a party two types of preferential trade agreements, in addition to being a member of the World Trade Organization. The first type is the FTA. The FTA is a bilateral or multilateral agreement providing for free trade among the member nations, defined as the elimination of tariffs and point of origin regulations, at least after a period of phasing-out and phasing-in. In these FTAs, each member is expected to regulate its own domestic market and prohibited from discriminating against businesses of other member countries. For example, in NAFTA, Mexico regulates its domestic market so as to protect labor, the environment and the consumer, and whatever are these regulations they pertain to Americans and Canadians doing business in Mexico. The second type is a concessionary or one-way trade agreement extended to certain poor countries.
The TPP is indeed a new type of deal. It is not an FTA, nor is it the kind of customs union we see in the European Union. The TPP is best thought of as a managed trade agreement. While the general rule might appear to be like the FTA rule, there are so many exceptions to the rule providing for quotas and such, that the rule of free trade looks like the exception. Of particular concern to the United States is the permanent exemption of agricultural goods from free trade. The farmers and ranchers of this country got the short-end of the stick in the bargains that were struck.
There are other concerns for the reach of this agreement into fair use of copyrighted material, invasion of privacy, and restrictions on free speech with respect to the internet. Obviously, corporate interests regarding intellectual property were well represented in the bargaining. The agreement has language dealing with state enterprises as a particular member to this agreement has an economic that is mostly socialistic, and other countries without market-oriented economies may be added later. We already have real problems in the WTO enforcing anti-dumping prohibitions because cost is difficult to ascertain in non-market oriented economies.
Folded into this agreement on trade are commitments to global environmental concerns that are beyond the reach of even this group of trade partners, most importantly; a commitment to low emission of carbon dioxide, but also concerns expressed for the ozone and for marine biology. Independent of the merits of these concerns, it doesn’t matter what the countries to this agreement do. Global agreements would have to be hammered out. There is no place of origin stamp on carbon dioxide. Economic theory indicates that all that will result from local caps on emissions is a shift of industrial activity to where there are no caps. We have seen this occur since the Kyoto process got underway. If it were possible to amend this agreement, it should be that the countries to the agreement commit themselves to global agreements on the named global environmental concerns.
Part of the detail of the agreement concerns the fact that several non-democratic nations are included in it. With FTAs, we can have some confidence in each of the parties regulating its own domestic market, balancing the often conflicting interests in economic development with consumer, labor and environmental protection. But, no such confidence can attach when the government is not democratic. The non-democratic countries included in this agreement are Brunei, a country with an absolute monarch, and Viet Nam, a communist country that has made some market-oriented reforms. International agreements have actually done a lot of good in Brunei, and we generally support constructive engagement. But, entering into a trade partnership with non-democratic countries is another thing. A troubling aspect of this agreement is that once approved, a commission consisting of Minister-level officials is authorized to accept new members. This removes ascension to this trade partnership from Congress. This is the so-called back-door for China some commentators have mentioned.
Finally, there is a natural alternative to the TPP. It is for Congress to approve the already negotiated bilateral FTA with Malaysia, to signal a willingness to join into bilateral FTAs with Japan with the quid pro quos in this agreement, and to signal a willingness to liberalize trade with Brunei and Viet Nam as they institute democratic reforms. We already have FTAs with the members of the TPP.