The Trans-Pacific Partnership (TPP) Agreement should be dead and buried after President Trump announced US withdrawal immediately after his inauguration in January 2017. After all, most major US presidential candidates in the last election, including Hillary Clinton, had opposed the TPP.
Encircling China with trade pact
However, the Japanese, Australian and Singaporean governments have kept the TPP alive, first by mooting TPP11, i.e., minus the USA, later pretentiously relabelled the Comprehensive and Progressive TPP (CPTPP), with the hope that the US will rejoin later.
Other governments have remained 'on board' for various reasons, mainly foreign policy considerations, rather than with serious expectations of economic benefits, while ignoring the dangers and risks.
Last week, yet another ministerial meeting reiterated pious claims of steady progress as CPTPP boosters try to remain relevant despite the fast declining appetite for regional trade deals.
The CPTPP did not even get rid of the most onerous TPP provisions, but only suspended some intellectual property (IP) and other provisions, mainly of interest to the USA. These can easily be reincluded to bring the USA back in after the November election.
However, other onerous aspects, such as investor-state dispute settlement (ISDS) provisions, remain. In the wake of COVID-19, lawyers are already advising foreign investors how to use extraordinary coping measures to sue governments, which will cost them even if they win.
If re-elected, the Trump administration's opposition to ISDS can easily be accommodated to bring the US back on board as it seeks new measures to isolate and weaken China. Biden will also revive a TPP avatar, having supported it before as Obama's loyal Vice-President.
But reselling the TPP in the USA will not be easy. Already, many US manufacturing jobs have been lost due to corporations automating and relocating abroad. Trump has changed US public discourse so much that most Americans now blame globalization, immigration, China and foreigners for the problems they face.
False claims for trade deal
Various studies have shown that supposed trade gains from the TPP claimed by its advocates were greatly exaggerated and misleading. This should come as no surprise.
The US already has free trade agreements with six of the other 11 TPP countries. Trade barriers with the other five were already low in most cases, so there was little scope for further trade liberalization, except for US post-Vietnam war legislation.
All twelve also belong to the World Trade Organization (WTO) which concluded the 'single largest trade agreement ever' over a quarter century ago. For trade liberalization guru Jagdish Bhagwati, both bilateral and plurilateral FTAs undermine trade liberalization welfare arguments.
For the Peterson Institute of International Economics (PIIE), the principal TPP advocate, gains mainly come from additional foreign direct investment (FDI), due to more investor rights, implying greater concessions from, and less gains for host economies.
But the official US International Trade Commission doubted PIIE claims of significant growth benefits in mid-2016, well before Trump was elected. Supposed gains were either dubious or paltry over the long-term time horizon involved.
Investor-friendly rules?
Rather than promoting trade, the TPP really sought more transnational corporation (TNC)-friendly rules. After all, the 6350-page deal had been negotiated by various working groups including hundreds of major US corporate representatives. But by involving lobbyists, US negotiators may well have locked themselves into a deal of little interest to most other businesses.
Doubts also remain over whether most TNCs really value the CPTPP's enhanced investor rights. The World Bank has found that investment treaties rank far below other considerations such as infrastructure, natural resource endowments, market size and growth potential.
Also, rules favoring foreign investors do not necessarily improve investment flows to host countries, let alone ensure development benefits without good national industrial policies in place.
Enriching rentiers
There is no evidence that stronger IP rights increase innovation, research and development. Strengthening IP monopolies for powerful TNCs, such as pharmaceutical firms, would raise the value of trade through higher prices, not more goods and services.
Extending IP protection would raise the prices of pharmaceutical drugs, including 'biologics', significantly increasing health costs. For Médecins Sans Frontières, the TPP would go down in history as the worst "cause of needless suffering and death" in developing countries.
US laws cannot protect consumers anywhere. Martin Shkreli infamously raised the price of a drug whose patent he had bought by 6000%, from USD12.50 to USD750! As 'price-gouging' is not unlawful in the US, he was convicted for unrelated financial fraud.
Meanwhile, powerful pharmaceutical TNCs have made clear their intention to charge high prices for new vaccines despite enjoying government subsidies. Whereas vaccines for smallpox, polio, tuberculosis and other communicable diseases were available at cost, higher costs, due to enhanced IPRs, will impose heavy human and economic tolls.
Enabling foreign corporate bullying
FDI was expected to go up, thanks to enhanced TPP investor protection. Foreign companies could then sue TPP governments for ostensible loss of profits due to policy changes, even if in the national or public interest, e.g., to contain COVID-19 contagion.
ISDS is arbitered by private tribunals. This extrajudicial system supersedes national laws and judiciaries, with secret rulings not bound by precedent or subject to appeal.
All who have seriously studied TPP impacts concede that it offers little additional growth. Even the modest trade growth claims are premised on US market access, no longer on offer with the CPTPP, which incredibly, now claims even more growth benefits.
Without the USA, the CPTPP will mainly strengthen Japanese TNCs. With greater rights for foreign investors, domestic investments may even relocate abroad, e.g., to CPTPP tax havens. Declining foreign investment in recent years could thus accelerate with the CPTPP.
From the frying pan into the fire
The COVID-19 pandemic has precipitated severe recessions, which threaten to become depressions, as many governments had to impose nationwide 'stay in shelter' lockdowns with physical distancing and other preventive requirements disrupting economic life.
It is now clear that the CPTPP has not slowed growing trade protectionism. Instead, transborder supply chains have been disrupted, sometimes deliberately, with the US and Japan demanding 'onshoring', urging TNCs to withdraw investments and outsourcing from China, also hurting suppliers, many from Southeast Asia.
This article was originally published on KSJomo.org.
{Jomo Kwame Sundaram, a prominent Malaysian economist, is Senior Adviser at Khazanah Research Institute, Visiting Fellow at the Initiative for Policy Dialogue, Columbia University, and Adjunct Professor at the International Islamic University.）
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