<div dir="ltr"><br><br><h1 class=""><a href="http://foreignpolicy.com/2015/07/07/9-ways-the-tpp-is-bad-for-developing-countries/">9 Ways the TPP Is Bad for Developing Countries</a></h1>
<p class="">The TPP is supposed to create a level playing field for trade. Instead, it unfairly shackles developing economies.</p>By <span><span class=""><a href="http://foreignpolicy.com/author/rick-rowden" class="" title="Rick Rowden">Rick Rowden</a><span class=""><span class=""></span></span></span></span> July 7, 2015 - 12:58 pm<span><span class=""><span class=""></span></span></span>
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<p>The Trans-Pacific Partnership (TPP) — a major <a href="http://www.nytimes.com/2015/05/12/business/unpacking-the-trans-pacific-partnership-trade-deal.html?_r=0" target="_blank">new trade agreement</a>
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 <a href="http://infojustice.org/archives/34556#more-34556" target="_blank">dispute</a>. Reasons for this include the secrecy with which talks have been conducted, the agreement’s <a href="http://www.citizen.org/tpp" target="_blank">potential effects</a>
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.</p>
<p>The <a href="http://www.un.org/en/development/desa/policy/wesp/wesp_current/2012country_class.pdf" target="_blank">United Nations</a>
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.</p>
<p>All of this because of a trade deal? <span class="">Yes, the TPP really is that bad.</span> Here are nine major ways the agreement would stunt the national economic development of its developing-country members:</p>
<ol><li><strong>The TPP forces equal rules on unequal partners.</strong></li></ol>
<p>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.</p>
<p>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.</p>
<ol start="2"><li><strong>The TPP forbids using trade policy to protect domestic industries.</strong></li></ol>
<p>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 <a href="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" target="_blank">high levels of trade protection</a> and other state support, often for decades at a time, until they were finally able to compete in world markets. They <a href="http://www.amazon.in/How-Rich-Countries-Poor-Stay/dp/1586486683" target="_blank">realized</a>,
through trial and error, that trade should be liberalized only after
domestic firms become competitive internationally — not before.</p>
<ol start="3"><li><strong>The TPP bans using government procurement to assist domestic firms.</strong></li></ol>
<p>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.”</p>
<ol start="4"><li><strong>The TPP limits regulation of foreign investors too much.</strong></li></ol>
<p>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 <a href="https://wikileaks.org/tpp-investment/" target="_blank">leaked draft of the TPP’s Investment chapter</a>, any policies that favor local ownership would be considered “discriminatory” and prohibited.</p>
<ol start="5"><li><strong>The TPP undermines the sovereignty of national courts and scares countries from adopting new regulations.</strong></li></ol>
<p>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 <a href="http://www.nytimes.com/2004/04/18/us/review-of-us-rulings-by-nafta-tribunals-stirs-worries.html" target="_blank">out of domestic courts</a>
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 <a href="http://www.independent.co.uk/news/business/analysis-and-features/big-tobacco-puts-countries-on-trial-as-concerns-over-ttip-deals-mount-9807478.html" target="_blank">suing Uruguay</a> because the latter’s public health regulations on cigarette advertising are hurting the sales it had “expected” there.</p>
<p>While rich-country trade negotiators say that such assurances for
investors are needed to attract foreign investment, Nobel laureate and
economist <a href="http://www.theguardian.com/business/2013/nov/08/trade-agreements-developing-countries-joseph-stiglitz" target="_blank">Joseph Stiglitz</a>
notes that many multinational corporations already have investment
insurance through either their own governments or the World Bank’s <a href="https://www.miga.org/" target="_blank">MIGA</a>
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.</p>
<ol start="6"><li><strong>The TPP makes countries more vulnerable to financial crises.</strong></li></ol>
<p>The TPP goes against new thinking on <a href="http://prospect.org/article/exporting-financial-instability" target="_blank">best practices</a>
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 <a href="http://www.imf.org/external/pubs/ft/survey/so/2012/POL120312A.htm" target="_blank">reversed</a>
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.</p>
<p>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 <a href="https://ideas.repec.org/a/eee/moneco/v68y2014isps55-s67.html" target="_blank">explained</a>
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.</p>
<ol start="7"><li><strong>The TPP undermines public health.</strong></li></ol>
<p>Many health groups such as <a href="http://www.msfaccess.org/content/tpp-still-terrible-deal-poor-peoples-health" target="_blank">Doctors Without Borders</a>
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 <a href="https://wikileaks.org/tpp-ip2/" target="_blank">leaked draft</a>
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’ <a href="https://www.aei.org/wp-content/uploads/2011/10/IEO-2011-02-g.pdf" target="_blank">ability to address public health</a> needs — meaning that more people would die.</p>
<ol start="8"><li><strong>The TPP blocks companies from acquiring needed technology.</strong></li></ol>
<p>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 <a href="http://www.citizen.org/documents/NZleakedIPpaper-1.pdf" target="_blank">hampering</a> firms’ ability to engage in reverse-engineering — a key step in the learning-by-doing process <a href="http://www.dime-eu.org/files/active/0/MaySell.pdf" target="_blank">used by all rich countries</a> when they were first developing.</p>
<ol start="9"><li><strong>The TPP undermines state-owned companies.</strong></li></ol>
<p>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.”</p>
<p class="">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.</p>
<p><span class=""><br></span></p><p><i><span class="">In the photo, activists hold anti-TPP
placards during U.S. President Barack Obama’s visit on April 26, 2014,
to Kuala Lumpur, Malaysia.</span><br></i>
<i><span class=""> Photo credit: Rahman Roslan/Getty Images</span></i></p><br></div>