The true cost of free trade and the TPP

Posted on 8 Jan 2015 by Tim Brown

US president Barack Obama and Australian Prime Minister Tony Abbott have constantly spouted the benefits of free trade. But what is it about the planned Trans Pacific Partnership (TPP) which has so many people up in arms?

The first free trade agreement was signed in 1985 between Israel and the US. In the 3 decades since, it is safe to say, particularly with the continuing advance of technology, that economists and world leaders are still finding their feet when it comes to designing the ‘perfect’ free trade arrangement.

Conceptually, for the countries involved, free trade agreements should help to realise the comparative advantages present in each region such as natural resources, skills, climate, location. Then, based on those advantages, eventually assist to identify economic and industrial specialisms on which each region should focus.

And it is the theory, or more correctly the ideal, of comparative advantage upon which free trade is truly based.

The TPP, while technically still based on that ideal, is far more complex. Rather than strictly assisting to develop regional specialisms for individual countries, the TPP has been designed to provide business (and most likely large corporations) with a more stable investment environment in the planned signatory countries (Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam).

While on the surface, that plan would appear to make considerable sense, it is the protections afforded to corporations which are causing the greatest concern. Specifically, it is the particular arrangement called the investor state dispute settlement, or ISDS, which has consumer rights groups, environmentalists and activists most concerned.

An image of the anti-TPP rally which took part in Leesburg, Virginia and included groups such as the Sierra Club, Communications Workers of America, Friends of the Earth and Occupy Wall Street - image courtesy of Global Trade Watch.
An anti-TPP rally which took part in Leesburg, Virginia and included groups such as the Sierra Club, Communications Workers of America, Friends of the Earth and Occupy Wall Street – image courtesy of Global Trade Watch.

ISDS enables foreign investors from TPP states to sue the governments signed up to the TPP if those governments act in a way that harms the investor or invetors’ interests. Most businesses would agree that due to the difference in time between political cycles and longterm investment return realisation, clarity and stability from governments is needed in order to make risky investment decisions. And some of those risky investments which have been held due to political instability include many which could indeed be socially beneficial such as renewable energy, infrastructure or experimental medicine.

But the ISDS could provide a dangerous precedent and not only provide previously unheard of powers to corporations but also threaten national sovereignty and democratic process.

Similar ISDS arrangements were included in the North American Free Trade Agreement (Nafta) which was signed by the US, Mexico and Canada in 1994. Since then investment disputes, launched under NAFTA’s Chapter 11 protections, have resulted in hundreds of millions of dollars in fines and settlements including well documented cases such as US$77.3m claim by US companies Cargill and Corn Products International against the Mexican government for its 20% tax imposed on any drink which used High Fructose Corn Syrup (HFCS) as a sweetener.

The Australian Labour government banned ISDS from future trade agreements in 2011 but under the Abbott government, the arrangement is back on the table and included in the TPP. And surely each individual investment would need to be agreed by the relevant federal government before it came under ISDS protection, otherwise we could be looking at a free-for-all of government litigation. Sadly that doesn’t appear to be the case with the TPP in its current form – at least as far as we know.

In an interview with the ABC, Toby Landau, a leading arbitration lawyer who works with ISDS said that he believed that provision had expanded “well beyond the contemplation of those who originally designed it. The kinds of cases are expanding in terms of scope. They are covering all forms of governmental activity wherever that activity might have an adverse impact on a foreign investment, for example cigarette packaging, regulation of carbon emissions, nuclear policy and taxation.”

Listen below to an excerpt from Australian Broadcasting Commission’s Radio National program.

Beyond the ISDS, there are a number of other arrangements including the Intellectual Property chapter which have also raised alarms. But it is the fact that the TPP has been discussed largely in secret which has led to groups such as the Australian consumer group Choice calling for its undisclosed release.

Choice is currently campaigning against the secrecy surrounding the TPP and has lodged a petition, signed by over 14,000 Australians, calling on the government to release the contents of the TPP.

The Australian government has released a statement regarding the secrecy of the negotiations which read: ‘The countries in the TPP negotiations have agreed to keep the negotiating documents confidential, but we do provide regular public briefings on the status of the negotiations. This is normal practice in international negotiations. In the case of the TPP, this confidentiality safeguards our negotiating positions and strategies, which cover sensitive national interests in relation to market access and Australia’s trade and commerce more broadly.’

But it is not just in Australia that the secrecy of the trade documents has caused alarm. In 2012 United States Senator Ron Wyden said: “The majority of Congress is being kept in the dark as to the substance of the TPP negotiations, while representatives of US corporations—like Halliburton, Chevron, PHRMA, Comcast, and the Motion Picture Association of America—are being consulted and made privy to details of the agreement…. More than two months after receiving the proper security credentials, my staff is still barred from viewing the details of the proposals that USTR is advancing. We hear that the process by which TPP is being negotiated has been a model of transparency. I disagree with that statement.”

Although many thought the TPP might be signed into existence in late last year, the Wikileaks’ exposure of the Intellectual Property Rights and Environmental chapters of the TPP revealed ‘just how far apart the US is from the other nations involved in the treaty, with 19 points of disagreement in the area of intellectual property alone’. And another sticking point lies with Japan’s reluctance to open up its agricultural markets.

Political difficulties, particularly those related to the passage of a Trade Promotion Authority (TPA) by US Congress present another cause of delay for the TPP negotiations.

It is not entirely clear how many of the sticking points, such as those listed above, have been rectified but as negotiations continue and despite the secrecy, this is a topic that will surely continue to be hotly debated in 2015.