Trade Agreements - 2016
"A free trade agreement would be very easy to write; you could write it in about three pages: we have no tariffs, they have no tariffs; we have no non-tariff barriers, they have no non-tariff barriers; we have no subsidies, they have no subsidies. It would be a couple of pages."
- Joseph Stiglitz, 2001 Nobel Prize in Economics Recipient
This page was significantly updated with the TPP's release. To see the original version, please click here.
Trade agreements- sometimes called "free trade agreements"- are those political-economic tools that rarely get spoken of yet possess incredible power. Such international deals focus on what should be mutually beneficial arrangements for two or more countries. Why would a company export goods and services if they can make more money locally? They wouldn't, thus trade becomes a matter of tariffs and subsidies, changes in ratios to allow for all parties to enjoy greater economic growth. Trade agreements, like Joseph Stiglitz mentions, should be concise and to the point.1 So why aren't they?
Because that's not how our capitalism works.
Businesses seek to maximize profit, especially when their domestic growth and market reach begins to peak. Looking outside the country is a natural next step in divining new revenue streams. This concept was important decades ago before technology and the internet emerged, back when labor laws and foreign wages were low enough to make sweat shops both desirable and profitable. Why pay American workers fair wage and benefits when you could get poor foreigners to do the same work for a fraction of the cost? To maximize shareholder value, it would be a travesty not to.
But now the world has changed. Countries like China have grown into economic powerhouses which, in turn, has led to increased wages. The internet also played a role, shedding light on international travesty and inhumane conditions- at least, those conditions we'd consider inhumane. Sweat shops are in decline, costs are going up around the world, and thus businesses need new avenues for making money. They need an option which gives them an opportunity for income while also preventing the foreign country from screwing them over. What they need... is a trade agreement.
Unlike treaties, trade agreements have real consequences. Thanks to the World Trade Organization (WTO) and its Dispute Settlement Body (DSB), countries that take part in trade agreements can be forced into compliance. This is vastly different than, say, the Kyoto Protocol where countries can, theoretically, exit anytime they please.2 If a country violated a provision in a trade agreement, a State of corporation could go to the WTO and seek to have the offending laws or policies of the country changed. In extreme cases, should the offending country not wish to change their policy, the WTO allows the "prevailing" country or corporation to impose sanctions, injunctions, and more upwards of hundreds of millions or even billions of dollars. The United States, for example, imposed a steel tariff in the early 2000's to combat a perceived surge in steel imports. The EU and many other nations filed suit with the DSB, won, and sought to impose a $2+ billion sanction on US imports if then President Bush didn't remove the tariffs in question.3 He did.
From the State's perspective, trade agreements should be fairly straight forward as Stiglitz said. They seek to remove tariffs and subsidies, ensure equal treatment between Parties, and establish dispute mechanisms to ensure compliance with agreement obligations. What makes trade agreements worse than they should be are the specifics lobbied for by corporations. Unfortunately, they are the ones with the expertise in the economic areas in question. Negotiating trade deals for medicine requires drug companies, negotiating for drilling rights requires oil companies with knowledge of drilling, etc. Our politicians are (typically) not experts in these fields. Thus they trust the corporations to work out these trade agreements in favorable terms to the U.S- as expected of an American company.
The results can ruin trade agreements. Consider the trade agreements of 2015: the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP), the encompassing Transatlantic Free Trade Area (TAFTA), and the Trade in Services Agreement (TISA). All of these are interrelated, yet different. They involve the United States working out free trade agreements to enhance the global economy and, of course, our role therein. In the ways that Stiglitz says- that is, through removal of tariffs and trade barriers, ensuring equal treatment, etc.- this is a worthwhile goal. But the desire of corporations to further their interests outside of those areas screws things up. When safety, fair treatment, and anything else that could adversely affects profits come into play, multinational businesses tend to frown upon such intrusions. If a company could save $10 million by dumping toxic waste in an area where it could contaminate underground streams and water sources, they would.4 It's the same reason companies "leave" the US or accept buyout from foreign owners- to pay less in taxes and make more money.
The Trans-Pacific Partnership
President Obama pushed hard for the TPP. He's still pushing for it. And with the release of the full, final text in November 2015, we can now objectively look at it from a wholistic perspective. Within hours of the text's release, media outlets and politicians were railing against it, calling the whole thing terrible. I looked at each chapter on the day of release for length and determined that no one could have read for themselves the entire agreement in a single day, let alone a couple hours. The misinformation bugged me to the point where I made it my goal to go through the text for myself.
I spent a month of my life reading, summarizing, and putting some thought to the TPP. It was a dull, boring, horrible read. But now I can comment on it more intelligently from a place of expanded awareness. I'd encourage you to do the same or, at the very least, skim what I put together and judge for yourself. Unlike other sites, I reference each part of a chapter that I summarize. You may not even be able to call what I did "summarizing" because some of the summaries are quite lengthy. It's a necessary precaution to ensure important details are not left out.
I still do not support the TPP as a whole because of the numerous bad provisions it contains. However, I do support the idea of it overall just like I support any free trade agreement that seeks to reduce tariffs and eliminate barriers. The problem with the TPP is that specifics outside of those necessary adjustments ruin the rest of it. How President Obama, the USTR, and especially Congress have handled this whole affair is a disgrace to what America stands for, in my opinion. In the America I know and love, corporations should not be wielding power that can change governments through these non-tariff/non-barrier provisions. And this is precisely what the TPP, TTIP, etc. are allowing. They are putting corporate interests ahead of state interests, ahead of consumer interest, ahead of our unalienable Rights. The only interest that matters is profit. The market, apparently, is God here. It is the American Delusion all over again.
I understand this sounds very hyperbolic. Even now that the full TPP text has been released, I stand by those words. The focus on intellectual property, pharmaceutical products, and medical devices coupled with weaker-than-they-should-be provisions in the realm of development, the environment, sanitary/phytosanitary measures, and more show us what a letdown the non-public, corporate driven agreement is.
I will say this: the final version of the TPP is better than what leaked chapters had us believe. The liability for ISP's was removed and IP rights were tweaks slightly. Still, the overall verdict is that the agreement should not be signed off on by Congress and certainly not by President Obama.
One plus side to the TPP that keeps get mis-reported is how ISDS is handled. Under NAFTA's ISDS provisions, corporations could sue for "lost profits." The TPP removes that. Monetary awards must be based on actual, proven loss as a results of measures taken by a Party to the agreement. This is a good thing. However, Article 1.2 of the TPP states that there is not any inconsistency with agreements Parties may currently be part of. Thus, we come to the next big problem with FTA's: what trumps what?
According to the TPP, Parties should work out any inconsistencies between themselves. I don't foresee that happening. It may be possible that a corporation will have the option of using the ISDS provision of NAFTA or the TPP or the CETA or any other agreement because of this. The lack of distinct clarification poses problems for the future of these agreements and enforcement.
Is it worth it?
Could the trade-offs in these agreements be worth it? Could the good outweigh the bad, as President Obama seems to think? We're being told that the TPP, TTIP, etc. will create jobs and raise incomes for everyone. Is this really true? If such agreements create millions of new jobs and bring in hundreds of billions in new revenue that goes towards raising wages of all Americans- from those in poverty to those in the 1%- maybe these trade-offs would be worth it.
Europe offers us some insight on the matter, at least with the TTIP. Several studies have been conducted related to the TTIP and their possible effect on the European Union.5 Most of them claim that participating nations will see a greater GDP increase through the removal of non-tariff boundaries like patent enforcement restrictions. They also claim real per capita income (ie, what you and I would make at our jobs) rise upwards of 13% in some measurements.6 And unemployment would decline as well because 2 million new jobs are possible under the conditions that have been dissected in the TTIP.7 Doesn't sound too shabby, does it? A 13% raise and more people working around the world. Pretty good, no?
When you look at the studies and see how they arrive at those numbers, it brings up serious doubts. It also ignores the other problems it causes in the rest of the world. In all of the studies referenced earlier, third world countries and developing nations suffer. Because the benefit to the US and EU is so great, countries in Africa or elsewhere in the world would see higher unemployment, lower wages, and lower GDP.8 "That doesn't concern me," you might say. Except that increased poverty and struggle is what leads to malignant culture where violence and terrorism is born out of the need to survive.9 Growing the middle class in Africa and around the world is incredibly important as a foreign policy issue. The TTIP and other agreements seem to stomp on that in favor of immediate profits.
It also is impossible to say how those profits will be distributed. The studies in question seem to use an averaging mechanic, meaning a relatively equal distribution of money brought in to all parties. America, we should know better than the believe that. How many times has a CEO taken a multi-million dollar bonus instead of giving all works a raise or bonus? Thinking that a US corporation making an extra $100 million a year will distribute even 25% to their labor force is wishful thinking. Furthermore, when we look at the possible revenue sources, the TPP, TTIP, etc focus heavily on intellectual property, which means additional revenue without needing more jobs. The growth of the labor force thus remains purely speculative.
Finally, we need to consider what it means to remove non-tariff barriers in the US. In 2009, Congress passed the American Recovery and Reinvestment Act which included a provision for "buying American;" public buildings and public work projects funded with the stimulus money were required to use iron, steel, etc produced in the US. Well, the US and Canada after Canada complained that "buy American" was too protectionist.10 Now, the TTIP wants to incentivize companies to not buy American; public procurement that seeks "Made in America" would be free to use "Made in Europe" resources and materials instead.11 "Made in America" and "Made in Europe" become somewhat equivalent from a legislative and material requirement standpoint. This matters because if raw materials like iron, steel, etc can be purchased cheaper from a non-American country, the TTIP et al. will allow it, even with American taxpayer dollars. Provisions in the TPP do a similar thing, but have distinct formulas for calculating origination of goods.
What it all boils down to, America, is whether we value the profits of these corporations above our country's needs. There is no way drug costs will be lowered under the TPP which means the ever increasing costs of healthcare will continue to strain our budgets. No one wants to cut programs because we have to pay for expensive medicine resulting from piss poor government foresight (a very real problem). GDP may rise but studies show that the income inequality problem would likely worsen not just here in America but all over the world. Corporations cannot be the most powerful and important thing in the United States of America. The people are. All people.
Thus, I wholeheartedly oppose these agreements. Instead of wasting millions (or billions?) more of taxpayer money on this and other poorly crafted agreements, best to take the loss and start from scratch. Clearly the corporate agenda is pushing FTA's in the wrong direction.
- See Making Globalization Work for a transcription of the Carnegie Council event Stiglitz spoke at.
- See Canada under fire over Kyoto protocol exit. The Kyoto Protocol was a treaty designed to reduces carbon emissions (amongst other things) in an attempt to fight global warming.
- See US Tariffs on Steel Are Illegal, World Trade Organization Says.
- Ibid. In the case of Metalclad v. Mexico, a US company bought a Mexican company, Coterin, and sought to expand a hazardous waste transfer station into a toxic waste processing plant and landfill back in 1993. Coterin- prior to being bought- was denied permits by the Mexican local authority because of the potential for sinkholes coupled with underground water sources that could be contaminated. When Metalclad bought them and was denied, it invoked NAFTA dispute settlement seeking $90 million. The NAFTA tribunal ruled in their favor of Metalclad saying the Mexican federal government misled the company, going so far as to say they were required to hand-hold Metalclad through all levels of government, ie asking the federal government to meddle in the affairs of state and local.
- In no particular order:
- The Trans-Atlantic Trade and Investment Partnership – A Challenge for the European Union?
- Transatlantic Trade and Investment Partnership - Who Benefits from a Free Trade Deal?
- Macroeconomic Potentials of Transatlantic Free Trade: A High
Resolution Perspective for Europe and the World
- The Trans-Atlantic Trade and Investment Partnership: European Disintegration, Unemployment and
- See The Trans-Atlantic Trade and Investment Partnership – A Challenge for the European Union?.
- See Transatlantic Trade and Investment Partnership - Who Benefits from a Free Trade Deal?.
- Ibid. Our existing NAFTA partners, Canada and Mexico, are posed to see 7-9% drops in real per capita income based on the TTIP analysis. See chart below, taken from the study. This is very important from a culture standpoint, especially with Mexico. The current thinking today is that gangs and drugs in Mexico are a real problem. They are, but why are they? Because of the money they bring in compared to other means of making a living. Mexico's economy doesn't need to face such adversity. If household income dropped 7%, people already just barely getting by could seek out more malicious means of survival, including drug trade/trafficking/production. Cartel membership as a source of income could be more tempting. Countries in Africa suffer the same dilemma as family members may embark on less "legitimate" avenues in order to provide for their loved ones. Understanding the impact of economy on culture is very important.
- See Canada-US Agreement on Buy American.
- See The Trans-Atlantic Trade and Investment Partnership – A Challenge for the European Union?.