A Tipping Point For The TPP

By Morris Pearl, Chairperson of the Patriotic Millionaires for Fiscal Strength

The purpose of the Trans-Pacific Partnership (TPP) is to help people (using the term “people” broadly to include companies, etc.) make more of a profit from international trade. Most economists believe that more trade between countries will either directly or indirectly help everyone.

Think quickly- are you trying to sell something in a foreign country and frustrated by government regulations? If so, the TPP might be able to help you. If not, you are part of the majority of those who will not see immediate benefits. The hope is that some of the benefits will “trickle down” to you, though as we know, that hope tends to fall short.

Trade

Trade policy seems simple — who doesn’t want to do more trading? American companies could sell more airplanes in Asia and buy more avocados from Mexican farmers, but it becomes more complicated than that. In that example, it would be great for workers in Seattle who make a living building airplanes, and amazing for all of the guacamole lovers of America, but terrible for the farmers in California who make a living selling avocados. The economists defend the TPP  by saying that the gains in Seattle overwhelm the losses in California, and that we can give a small portion of those gains to the California avocado growers, ergo everyone will be better off.

While that may be true in theory, there are some complications with that approach:

• We have no mechanism to transfer gains to the losers.
• The only mechanisms we have specifically for the issue of job loss due to loss of profit from trade is the “Transitional Adjustment Assistance” which involves training those who lost these jobs for employment in a different career and/or supplemental cash payments for a year or so after their unemployment benefits run out.
• The owners of the avocado farms will experience a loss of their investment.

In short, it may very well be true that the gains to the people in Seattle outweigh the losses to the people in California, but knowing that does little to help the people in California.

Now obviously I am just using this one scenario as an example. The United States economy includes thousands of components and as always, some people will do better, and some will do worse. Proponents of the TPP could even be correct in their assumptions that the amount by which the rich get richer will be greater than the aggregate amount (in dollars) than the poor getting poorer. Unfortunately, people don’t actually pay rent and buy food for their family on the national income.

Please note that I am not really disagreeing with the economists about any part of their analysis — I am simply saying that I prefer not to institute policies that lower the income of many people, even if those policies increase the income of others by an even greater amount.

Disputes between multinational companies and local governments

Another issue with the TPP is the Investor-State Dispute Settlement (ISDS) mechanism.  The basic idea of which is (to quote from the Trade Representative’s web site):

U.S. businesses and investors operating abroad often face a heightened risk of bias and discrimination. Investor-state dispute settlement (ISDS) is a mechanism that provides neutral international arbitration to ensure that Americans doing business abroad receive the same kinds of protections – such as protection from discrimination and expropriation without compensation – that are available to companies and investors doing business in the United States under U.S. law.

Now, let’s think for a minute about what an investor-state dispute actually means. For arguments sake, let’s pretend that you want to raise chickens on your land and make a living supplying the local restaurants with all natural chicken meat. However, your neighbors say that chickens make noise, smell bad, and make a big mess when you butcher them. They don’t want you to able to carry out your career in the chicken supply business as long as you live next door to them. In most places in the United States, there are rules and regulations for this kind of scenario. In my neighborhood, we have zoning rules and a chicken farm would not be allowed.  While we all might live in different ways, the point is that the decisions are made in each community by their elected representatives. Under the TPP however, an investor from another country comes along, that investor will have the right to invoke investor-state dispute resolution and bypass the democratic process.

That means that a panel of international trade lawyers will hear their case, and while I would assume that a group of international trade lawyers might know a little something about international trade, I wouldn’t bet they know much about your community’s rules and regulations. The panel will not be able to require a change to the rules, however they would have the power to order a government to pay the company for what they believe to be all of their lost profits due to their rules. That could have the effect of preventing local government from enacting rules to protect their local citizens from a multinational corporation’s wishes.

While TPP increases trade, I personally don’t advocate for trade at the cost of a community’s self-governance.

Intellectual Property

I’m sure it holds constant that people who produce movies want to prevent piracy of their films, as well as people who write want to prevent piracy of their novels. The negotiators of the TPP wanted to make sure that copyrights (and patents) on American works are respected — and of course that America would respect the rights of others. The agreement also contains provisions somewhat standardizing terms of intellectual property rights between the countries. The agreement goes a long way to increasing the amount of protection given to certain businesses.

Many of the protections granted in the TPP are designed to solidify the largest corporations dominance their respective markets. For example, when a major pharmaceutical company invents and patents a new drug, they are able to block the selling of the generic version of that drug for a certain period of time. The purpose of this is to incentivize the pharmaceutical companies to incur the associated research and development costs. While this is important for encouraging medical discoveries, it walks a fine line. As the only producer of the drug for a specific disease on the market, manufacturers have full autonomy over pricing, leaving insurance companies and patients subject to high costs. The TPP makes this line even thinner. With the approval of the TPP, traditional drug manufacturers will receive even stronger legal protections in blocking generic drugs from being sold legally and at an international scope.

My fear is that the Trade Representative has made significant policy decisions on important matters, like generic drugs versus brand name drugs, without consulting the American people. These decisions deserve and require the robust debate, not to be enacted quietly as part of a thousand page trade agreement.

Conclusion

It is in my opinion that these changes will indeed increase the profits of companies engaged in international trade, so in that narrow scope, the TPP will be effective.

And while I am certainly in favor of more trade, I am not in favor of the TPP as it stands today. Many of the provisions that I believe to be dangerous are there specifically for the benefit of the United States, therefore I believe it would be possible to negotiate an agreement with far less negative effects on the American workforce than the TPP as it stands today.

 

Morris Pearl is the Chairperson of the Patriotic Millionaires and former Managing Director for BlackRock Inc. You can find out more at www.patrioticmillionaires.org and follow the group on Facebook, Twitter, and YouTube.