[CTC] 9 Ways the TPP Is Bad for Developing Countries

[Rick Rowden]

9 Ways the TPP Is Bad for Developing Countries
<http://foreignpolicy.com/2015/07/07/9-ways-the-tpp-is-bad-for-developing-countries/>

The TPP is supposed to create a level playing field for trade. Instead, it
unfairly shackles developing economies.
By Rick Rowden <http://foreignpolicy.com/author/rick-rowden>   July 7, 2015
- 12:58 pm

The Trans-Pacific Partnership (TPP) — a major new trade agreement
<http://www.nytimes.com/2015/05/12/business/unpacking-the-trans-pacific-partnership-trade-deal.html?_r=0>
under negotiation among 12 countries in the Asia-Pacific region — received
a shot in the arm in the United States at the end of June when Congress
voted to grant President Barack Obama “fast-track” authority to negotiate
it. The TPP has fueled considerable dispute
<http://infojustice.org/archives/34556#more-34556>. Reasons for this
include the secrecy with which talks have been conducted, the
agreement’s potential
effects <http://www.citizen.org/tpp> on U.S. jobs and growth, and its
geopolitical implications. But one issue that has received comparatively
little attention is how the TPP is likely to impact the developing
countries slated to join.

The United Nations
<http://www.un.org/en/development/desa/policy/wesp/wesp_current/2012country_class.pdf>
designates six of the 12 TPP members — Brunei, Chile, Malaysia, Mexico,
Peru, and Vietnam — as “developing countries.” If enacted, the TPP could
block these countries from successfully industrializing and joining the
developed world. What would this mean in practice? Blocking
industrialization would mean locking these countries into low-end
agricultural and extractive industries, preventing tens of millions from
accessing higher-paying jobs in the manufacturing and service sectors.
Domestic tax bases would stay too low to adequately finance social
protection, investment in health, and education. High levels of poverty
would remain. And the cost in human potential would be all but incalculable.

All of this because of a trade deal? Yes, the TPP really is that bad. Here
are nine major ways the agreement would stunt the national economic
development of its developing-country members:

   1. *The TPP forces equal rules on unequal partners.*

We don’t let professional NFL teams play football against toddlers, but
this basic truism is tossed out when it comes to economies in the TPP. The
TPP members that are already rich and industrialized (Canada, the United
States, Japan, Australia, and New Zealand) are aggressively seeking uniform
tax and financial policies and low levels of regulation around the world in
order to reduce operating costs for their multinational corporations —
which had a hand in drafting the text of the agreement. They claim that in
today’s globalizing economy, trade agreements must be based on “fairness”
and “a level playing field” — premised on the idea that a government’s tax,
financial, or trade policies should not provide preferential support for
domestic companies.

But though the TPP’s six developing-country members are each at very
different stages of economic development, what they all have in common is
that their domestic firms are far less advanced and competitive than those
from the more advanced economies. Correspondingly, each of these countries
needs to support its domestic industries with its own unique mix of
subsidies; long-term, low-interest subsidized credit; supportive technology
policy; and research and development. The TPP would forbid many of these
policies in the name of “fairness,” ignoring the fact that its developing
and developed members are at different stages of economic development and,
therefore, have diverging needs.

   1. *The TPP forbids using trade policy to protect domestic industries.*

Going further than current World Trade Organization rules, the TPP seeks
deep cuts in quotas, tariffs, and other protective trade policies, ensuring
that nascent manufacturing industries in its developing members will face
massive competition from far more competitive foreign firms. The TPP would
also prohibit levying taxes on the export of raw materials — a policy that
encourages such resources to stay at home and be available for use by
domestic manufacturers. But this demand that all should play by the same
rules and lower their levels of trade protection in equal measure is
especially egregious because it defies the historical record and its key
lessons about what developing countries must do to industrialize
successfully. In fact, today’s rich countries developed their manufacturing
sectors with high levels of trade protection
<http://www.amazon.com/Kicking-Away-Ladder-Development-Perspective/dp/1843310279/ref=sr_1_1?ie=UTF8&qid=1429860744&sr=8-1&keywords=Kicking+Away+the+Ladder>
and other state support, often for decades at a time, until they were
finally able to compete in world markets. They realized
<http://www.amazon.in/How-Rich-Countries-Poor-Stay/dp/1586486683>, through
trial and error, that trade should be liberalized only after domestic firms
become competitive internationally — not before.

   1. *The TPP bans using government procurement to assist domestic firms.*

The rich countries in the TPP negotiations are demanding that foreign
corporations be allowed to compete with domestic companies for government
procurement contracts. But historically, countries have used procurement as
an explicit form of assistance for their domestic firms. This has led the
Malay Economic Action Council to warn that “if Malaysian Government
procurement was conducted on a level playing field, many Malaysian
companies would go under.”

   1. *The TPP limits regulation of foreign investors too much.*

The TPP proposes that no special regulations be allowed to apply to foreign
investors, meaning they must be treated no differently from domestic
companies. But this is another example of hypocrisy — most industrialized
countries long used “local content” rules and other regulations to ensure
that foreign investment transferred technology and purchased local goods
and services to boost domestic sectors. However, according to a leaked
draft of the TPP’s Investment chapter
<https://wikileaks.org/tpp-investment/>, any policies that favor local
ownership would be considered “discriminatory” and prohibited.

   1. *The TPP undermines the sovereignty of national courts and scares
   countries from adopting new regulations.*

To enforce the TPP’s new deregulated standards, it also proposes to
radically extend the traditional definition of “unfair expropriation or
nationalization” of a foreign investment to include “the expectation of
gain or profit.” Thus, it allows a corporation to sue a signatory nation
for enacting new regulations or laws — even those that address
public-interest concerns like labor and environmental rights — if it
believes these would deprive it of “expected profits.” According to this
investor-to-state dispute settlement (ISDS) mechanism, already found in
many recent trade and investment agreements, if a new law or regulation
ends up costing foreign investors “lost planned profits,” they can sue the
government to either get rid of the law or pay up to hundreds of millions
of dollars in fines and penalties to the investors. The ISDS feature takes
disputes out of domestic courts
<http://www.nytimes.com/2004/04/18/us/review-of-us-rulings-by-nafta-tribunals-stirs-worries.html>
to secretive international tribunals that have the power to overturn
judgments of national courts and offer no chance for appeal. For example,
the tobacco giant Philip Morris is presently suing Uruguay
<http://www.independent.co.uk/news/business/analysis-and-features/big-tobacco-puts-countries-on-trial-as-concerns-over-ttip-deals-mount-9807478.html>
because the latter’s public health regulations on cigarette advertising are
hurting the sales it had “expected” there.

While rich-country trade negotiators say that such assurances for investors
are needed to attract foreign investment, Nobel laureate and economist Joseph
Stiglitz
<http://www.theguardian.com/business/2013/nov/08/trade-agreements-developing-countries-joseph-stiglitz>
notes that many multinational corporations already have investment
insurance through either their own governments or the World Bank’s MIGA
<https://www.miga.org/> and that the real reason for ISDS is political: to
create “a chilling effect” in the less advanced TPP countries, in which the
threat of lengthy, multimillion-dollar lawsuits is enough to make
governments reluctant to adopt laws or regulations that may offend foreign
investors. In so doing, foreign corporations seek to achieve by stealth —
through secretly negotiated trade agreements — what they could not attain
in an open political process. Although a growing number of developing
countries around the world (Brazil, India, South Africa) refuse to allow
ISDS clauses in future agreements, the TPP apparently still includes the
provision.

   1. *The TPP makes countries more vulnerable to financial crises.*

The TPP goes against new thinking on best practices
<http://prospect.org/article/exporting-financial-instability> regarding
capital controls — restrictions on the ability of investors to bring in or
take out vast amounts of capital from countries overnight. Even the IMF
reversed <http://www.imf.org/external/pubs/ft/survey/so/2012/POL120312A.htm>
its long-standing opposition to capital controls in 2012, finally agreeing
with mounting research showing that capital controls may be useful in
ensuring financial stability in a crisis by stemming sudden outflows or
disruptive inflows. Yet despite this new conventional wisdom, the TPP would
block developing countries from using capital controls.

As if nothing was learned from the 2008 financial crisis, the TPP also
calls for a whole range of financial liberalization rules that would block
countries from regulating speculative financial activities and would
further deregulate the financial services sector. Economist Anton Korinek
of Johns Hopkins University explained
<https://ideas.repec.org/a/eee/moneco/v68y2014isps55-s67.html> that such
excessive financial deregulation is similar to relaxing safety rules on
nuclear power plants: It may reduce costs and increase profits for the
nuclear industry, and may even reduce electricity rates — while increasing
the risk of a nuclear meltdown. Similarly, financial deregulation increases
the profits of the financial sector at great risk to the rest of society,
and it threatens the financial stability of developing and developed TPP
members alike.

   1. *The TPP undermines public health.*

Many health groups such as Doctors Without Borders
<http://www.msfaccess.org/content/tpp-still-terrible-deal-poor-peoples-health>
have campaigned against the TPP because its rules on intellectual property
rights (IPR) would keep cheaper generic drugs out of reach for millions of
poor people in developing countries. According to a leaked draft
<https://wikileaks.org/tpp-ip2/> of the IPR chapter, the TPP would greatly
extend existing patents and copyrights on essential drugs and expand the
scope of patents and copyrights beyond finished products to include
coverage of many components of finished goods. If enacted, such rules would
considerably undermine developing countries’ ability to address public
health <https://www.aei.org/wp-content/uploads/2011/10/IEO-2011-02-g.pdf>
needs — meaning that more people would die.

   1. *The TPP blocks companies from acquiring needed technology.*

The IPR chapter would also significantly stunt the development of
manufacturing firms in developing countries because it would considerably
raise the costs of and create new barriers to accessing needed
manufacturing technologies, thereby hampering
<http://www.citizen.org/documents/NZleakedIPpaper-1.pdf> firms’ ability to
engage in reverse-engineering — a key step in the learning-by-doing
process used
by all rich countries <http://www.dime-eu.org/files/active/0/MaySell.pdf>
when they were first developing.

   1. *The TPP undermines state-owned companies.*

The TPP proposes breaking up state-owned enterprises (SOEs), which have
been cornerstones of East Asia’s successful industrialization strategy for
many decades. Not only would the proposed reforms significantly curtail
state support for such firms, but they would also commercialize current
SOEs in Malaysia, Vietnam, and Singapore. These countries would be locked
into such constraints going forward and would be prevented from offering
state support to any new or future SOEs. Once again, this blocks developing
countries from using strategies that rich countries used themselves. As
rich countries learned long ago, when private investors are unable or
unwilling to invest in strategic sectors, the state needs to step in and
play the role of “entrepreneur of last resort.”

Some developing-country policymakers in TPP countries may be agreeing to
these rules in the belief that accepting them is necessary to attract
foreign investment and secure participation in global value chains. Others,
it is widely believed, think that signing onto the TPP will give them some
added protection from China’s growing influence in the region. If so, such
shortsighted strategies may come at the high price of forgoing successful
long-term national economic development.



*In the photo, activists hold anti-TPP placards during U.S. President
Barack Obama’s visit on April 26, 2014, to Kuala Lumpur, Malaysia.* * Photo
credit: Rahman Roslan/Getty Images*
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