Trading Games in Washington

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The Obama administration is beginning its big push to get Congress to approve the Trans-Pacific Partnership (TPP). As is standard practice in debates over trade policy in Washington, this means that the rules of logic and economics are thrown out the door. The administration and its allies are prepared to do whatever is necessary to get the TPP approved by Congress.


First of all, there is an interesting point to be made about the timing of any congressional vote. The president must formally submit the trade pact at least 90 days before Congress brings it to a vote. At this point, the 90 day requirement would mean that a vote could not take place until at least the middle of the summer. That is likely too close to the fall elections for many members of Congress to avoid losing votes in the election if they support the deal.


The conventional wisdom is that if the TPP comes to a vote before President Obama leaves office, it will be in a lame duck session after the November election. This will allow many members of Congress to vote for an unpopular trade pact and hope that people will have forgotten by the time they next have to face the voters.


That's the politics of the trade deal, but is important to understand the economics. As the debate heats up, there will be endless stories about the benefits of trade and arguments against turning to protectionism. Most of the claims about trade and protectionism will be true, trade generally promotes prosperity and protectionism usually slows growth, but they will also have nothing to do with the TPP.


The United States already has a huge amount of trade with the eleven other countries in the TPP. In fact, it already has trade agreements with six of them. This trade will not stop and these agreements will not be abrogated if the TPP is not approved. The TPP will have little effect in reducing formal trade barriers, such as tariffs or quotas – with few exceptions, these barriers are already very low or have been eliminated altogether.


Rather than being about trade, the TPP is about locking in a corporate friendly structure of regulation. This was a deal largely negotiated with major industry groups sitting directly at the table. The Obama administration had special working groups that included banks and financial corporations, telecommunications companies, software companies, and the fossil fuel industry.


These groups had direct input into the construction of the trade deal. Naturally, they pushed for a pact that served in their best interest. In addition to the specific industry-friendly provisions inserted into the TPP, they also managed to get themselves a special extra-judicial structure (Investor-State Dispute Settlement) that overrides courts, both in the other TPP countries and the United States.


The "investor-state dispute settlement" (ISDS) tribunals established by the TPP work completely outside the judicial framework of the countries in the pact. They are only open to foreign investors or foreign subsidiaries of U.S. corporations. They are one-way legal mechanisms; individuals or governments cannot use the ISDS to sanction foreign investors. Their rulings are not bound by precedent, nor are they subject to appeal.


The most pernicious of the industry-specific provisions in the TPP come from the pharmaceutical industry. They inserted language requiring stronger and longer patent and related protections. Not only do these provisions strengthen the protections already in place, they make it more difficult for countries to switch to more modern mechanisms for financing the development of new drugs.


This means, for example, that if the countries in the TPP wanted to follow the route recently proposed by GlaxoSmithKline CEO Andrew Witty, and directly fund the development of new drugs rather than rely on patent monopolies, drug companies could use the ISDS to keep the patent system in place. In addition to denying people access to drugs, this system costs patients and the U.S. government more than $350 billion annually in higher drug prices.


The sharp gap between the patent protected price and free market prices is routinely ignored in the models projecting the gains from TPP. Their models also ignore the enormous harm to patients that is caused by drug companies providing misinformation for the purpose of pushing their drugs.


In keeping with this fun and games approach to the trade deals, the Commerce Department projects job gains from exports, but never calculate the job losses associated with an increase in imports, acting as though no worker ever loses a job due to imports of goods or services. Incredibly, this gap in providing information is then used by the media to attack politicians who try to impute the job loss implied by the trade deficit based on the Commerce Department's export calculation.


But the best part of the story is that when all the economic arguments fail to achieve their goal, we are told that Congress has to approve the TPP to preserve the United States credibility. The argument is that somehow the United States will be less credible in the region and the world if an ill-designed trade deal dies on the vine.


This brings back memories of Vietnam. When it became clear that the government in South Vietnam was hopelessly corrupt, altogether lacking in popular support, and could never stand on its own, politicians supporting the war justified its continuation by saying it was necessary to preserve U.S. credibility. The current crew has just as good a case as in Vietnam.


- Dean Baker, CEPR, Washington


-This article was originally published by The Hankyoreh [] on April 25, 2016
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