Trans-Pacific Partnership Agreement: Singapore Ministerial Outcome and Background

Current state of the Trans Pacific Partnership Agreement negotiationsThe four-day ministerial summit in Singapore from December 7 to the 11th, failed to secure the final Trans Pacific Partnership Agreement by the proposed 2013 deadline. As the meetings are held in complete secrecy except for hundreds of corporate representatives, it is difficult for the public or even for legislators to know what is happening. However, leaked documents have revealed that there is still wide disagreement mostly between the United States on one side (with some developed countries on some issues) and the developing countries on the other. TPPA expert Professor Jane Kelsey from the University of Auckland predicts that TPPA negotiators are likely to meet early this year and attempt to finalize by the April APEC trade ministers’ meeting.

The biggest barrier concluding a TPPA deal was related to the US Trade Promotion Authority (TPA). Previously called the Fast Track Authority, the Trade Promotion Authority grants the head of the executive, the president, the authority to negotiate an agreement and force the legislative to either pass or reject the agreement with limited time for discussion, without the ability to make any modifications, and solely based on the merits of the agreement. The TPA was first introduced under the Nixon Administration with the coming into force of the Trade Act of 1974 with a time limit of five years. It was subsequently extended six times (1979, 1984, 1988, 1993, 2002) before it expired in 2007. Through the use of TPA authority, multilateral agreements (such as the Tokyo and Uruguay rounds of the General Agreement on Tariffs and Trade) and bilateral agreements (such as the KORUS FTA) were successfully concluded. Now with the TPPA negotiations reaching their final stages, the Obama Administration is strongly demanding the re-establishment of the TPA. Given the majority Democratic House of Representatives voicing their opposition to re-establishing the TPA, it appears that resurrecting the TPA faces difficulties. However, it has been reported that Senator Max Baucus (chairman of the finance committee) and Orrin Hatch (an influential Republican within the committee), and Representative David Camp (chair of the House Ways and Means Committee) have reached agreement on introducing the TPA and are expected to introduce it as the first bill of 2014.

History of the TPPAThe Trans-Pacific Partnership Agreement (TPP) was signed in 2005 and implemented in 2006 between Singapore, New Zealand, Chile, and Brunei. These four countries are referred to as the P4. When the P4 restarted negotiations to deepen their agreement, the United States joined in 2008. Negotiations are happening in two ways: creating a single set of rules on services, investment, government procurement, quarantine, sanitary and phytosanitary measures, technical barriers to trade, and intellectual property; and bilateral and multilateral approachesto market access to goods.

Geo-political significance of the TPPAThe TPP is much more than a treaty to liberalize trade. It is a vehicle for the US to strengthen its influence in Asia through economic means. This strategy is important because in blocking China’s ascent and the West to East shift of the world’s economy. This strategy – referred to as the Asia Pivot – is built upon six pillars: strengthening bilateral security alliances; deepening working relationships with emerging powers, including China; engaging with regional multilateral institutions; expanding trade and investment; forging a broad-based military presence; and advancing “democracy and human rights.”

The US strategy for the TPPA is to create a multi-national agreement with Asian and Pacific countries modeled after its own strategic interests. This economic architecture would force China to remain isolated or to conform to a pro-US economic agreement if it wants to join. In short, the TPPA is a way of forcing China to play by rules that the US sets down.

Controversial provisions within the TPPA While the TPPA has become a way for the US to entice Asian and Pacific countries into its sphere of influence, many of the provisions under negotiation are highly detrimental to development and democracy for the participating countries and their peoples. The provisions have often been referred to as “toxic” given their detrimental impact on democratic governance and a state’s sovereignty. Some provisions currently under consideration and negotiation are:

  1. Deregulation and corporate protections at the expense of national sovereignty: Under “regulatory coherence,” TPP countries have to change their regulations and bureaucratic structure to be more compatible with each other. Ostensibly this would facilitate trade between countries by eliminating non-tariff barriers. However, the need for regulatory and bureaucratic coherence across multiple countries would limit a country’s ability to write regulations or run government in accordance with the democratic desires of its people. In addition, opening up regulations and the government would allow stronger nations to influence the regulations and governments of the weaker ones. Coupled with other pro-corporate investor provisions, regulatory coherence can only mean coherence towards a weaker regulatory pro-corporate profit structure influenced by the stronger nations at the expense of both democratic control and society’s well-being.
  2. Creation of a pro-investor extrajudicial body to challenge domestic regulations and policy: Leaked documents revealed the presence of an investor-state dispute settlement (ISDS) system in the TPPA. In short, the ISDS is a special court system outside the law [made up of a tribunal of three arbitrators (legal professionals that negotiate on your behalf)] where investors can sue host governments, but governments cannot sue investors. The ISDS allows an investor to sue a host government through an arbitration tribunal (the special court system outside the law) for actions or policies that hurt the investor’s present or future profits. This means that if a policy changed the business environment such that it resulted in decreased expected profits than the investor can sue the government for compensation. Worse, the tribunal that decides the outcome is not only outside the domestic and international legal system, it is also biased towards investors, and possesses great discretionary powers. When coupled with TPP transparency provisions (where governments have to notify corporations before writing a new regulation or law), the ISDS gives foreign corporations (and domestic ones with foreign shareholders) the space and the tool to intervene in government regulations. Even threatening an ISDS claim can result in “regulatory chill” where the government avoids implementing legitimate laws and regulations for fear of ISDS claims leveled against it.
  3. Strengthening of intellectual property rights at the expense of public health: The TPP would strengthen intellectual property rights to exceed even those of the WTO’s TRIPS. One particularly toxic set of proposals pushed by the US regarding medicine makes it easier to extend patents by: allowing re-patenting of a drug for a different use (e.g. headaches instead of high blood pressure) or a different method of using it (e.g. a change in doses); prevents the use of clinical trial data for generic drugs until five years after marketing approval of the original drug (even if the chemical formula for the generic drug is exactly the same as the original one, the generic drug producer would either have to wait 5 years or they would have to do all of the tests again); forces a host government to notify a patent holder if there is a drug similar to it which allows the patent holder an opportunity to file frivolous lawsuits and prevent the entry of the other drug during litigation (in addition, it burdens developing countries with the creation of such specialty and infrastructure). As a result, affordable generic medicines are kept out of the market; money is snatched from the public and fed into the coffers of billion dollar pharmaceutical companies without any real innovation offered in return.
  4. Attack on state-owned enterprises: TPP would neutralize any advantage that a government gives to domestic state-owned enterprises over the private sector. State owned-enterprises, due to their public nature, have the potential to fulfill larger societal goals such as universal access, affordable prices for goods and services, the creation of good paying jobs, and implementation of a state’s industrial development. Even if a state owned enterprise were less economically competitive than a private one driven just by profit considerations, preferential treatment and government subsidies could be justified due to these greater social benefits. “Competitive neutrality” would neutralize subsidies and preferential treatment given to state-owned companies, so that foreign companies would not be at a competitive disadvantage.
  5. No performance requirements on investments: This prevents the government from placing conditions on investments to ensure benefits to the country. For example performance requirements such as technology transfers, local management of enterprises, and local hiring which facilitate the transfer of technical knowledge and support for the local economy are barred. The lack of such performance requirements strips foreign investment of all these beneficial elements and calls into question the economic rationale of foreign investment as a vehicle for development.
  6. Attack on government procurement: Government contracts for products and services would be opened to foreign companies. In other words, contracts above a certain monetary value would be open for bidding by foreign companies. As Martin Khor from the Third World Network states a large part of a developing country’s income is made up of the spending of its federal government. Therefore, government procurement is important as a policy tool in fighting recessions through government spending in local production and services. Preventing a government from giving preferential treatment to domestic companies would create a “leakage” in the implementation of policies to boost an economy, since some portion of this increased spending would “leak” out of the domestic economy through contracts to foreign companies. Let’s say a government wanted to pump money into the economy by spending a thousand dollars. If it spent 600 dollars on local production and spent 400 dollars on a foreign company (due to limitations in government procurement), and the foreign company transferred 200 dollars of its profits abroad rather than re-investing it (it is allowed this because of the free flow of capital and the lack of performance requirements), then that 200 dollars would be leaked out rather than re-inserted into the economy.
  7. Removal of restrictions on capital flows: The leaked investment document on the TPP contains provisions that prevent restrictions on the flow of capital in and out of a country. Even during a balance of payments emergency, such as the 1997 IMF crisis, a government would be helpless to prevent the flight of capital. Coupled with the lack of “performance requirements” on investments, governments would not be able to block the entry of speculative capital that with its quick entry and exit disrupts the economy and contributes little to economic development. In addition, the free mobility of capital allows investors greater leverage against a government’s policy it deems unfavorable by threatening capital flight.
  8. Entry of toxic financial “innovations” such as the ones “at the centre of the global financial crisis”: Financial “innovations” such as the subprime mortgage loan derivatives and “credit default swaps” that created the speculative bubbles that destabilized the global financial system and created the current economic crisis would be allowed.
  9. Sensitive products might be re-opened and re-negotiated as part of a larger multilateral tariff schedule: As has been mentioned above, the TPPA is taking a hybrid approach to tariff schedules on goods. There is the possibility that if the TPPA took the multilateral approach by re-opening the current negotiated tariff schedules and if new countries joined the TPPA that sensitive products may be re-opened. For example, US rice producers may want to revisit the Korea FTA if South Korea were to join the TPPA talks.
  10. The elimination of protective tariffs, like with all free trade agreements, will drive small farmers and peasants off their land, while destroying biodiversity and the environment: The immediate result of a decrease in the price of farm products due to the elimination of tariffs from the TPP, will be driving off poor debt ridden peasants from their lands. Furthermore, as the amount of profit attainable per hectare of land decreases, the minimum amount of land required to financially support a family will increase. As a result of both these dynamics, land ownership will accumulate into fewer larger farmers. Ultimately, the propensity of these larger farms to mechanize and to plant monocultures will have devastating effects on rural communities, biodiversity, and the environment.
  11. Global re-organization of food production and consumption will lead to greater Multinational Corporation’s control over food production: When local production and consumption is replaced with mass production for export, it is inevitable that biodiversity will be replaced with monoculture: Walmart and MacDonald’s don’t want 50 varieties of potatoes; they just want one uniform variety set to their specifications.
  12. Harmonization of sanitary and phytosanitary (SPS) measures erodes national sovereignty: The current P4 agreement between New Zealand, Chile, Brunei, and Singapore allows a lot of flexibility for each country to determine its own SPS measures and give it the freedom to change it in the future. The forced harmonization of SPS measures towards “US techniques and standards” would violate the sovereign right of people to determine their food preferences and the acceptable levels of risk in their food. One controversial point has been the labeling of genetically modified organism (GMO), which the US considers a non-tariff technical barrier and wants to eliminate. The elimination of such labeling would not only have great potential impacts on health, but it would also violate the rights of consumers to choose what product they buy.

    Transatlantic Trade and Investment Partnership Many of the toxic provisions (greater intellectual property rights, elimination of all tariffs and the reduction of tariff barriers, greater regulatory coherence, and restriction of subsidies to state-owned enterprises) under discussion in the TPPA negotiations are also included in the Transatlantic Trade and Investment Partnership negotiations between the United States and the European Union. On December 16th, on the occasion of talks between the US and European trade representative in D.C., more than 100 civil society groups issued an open letter to the trade representatives outlining their concerns with the TTIP. In particular, NGOs, social movements, consumer groups, labor unions, environmental groups, and civil society organizations voiced their opposition to the Investor State Dispute component of the TTIP.

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