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Why the Trans Pacific Partnership (TPP) is overrated

September 23, 2015

Dr Mahathir would argue that trade agreements such as the TPP destroy our freedom to pursue our own economic policy

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By Shaun Liew

Trade agreements aim to liberalize the flow of goods and services between nations, and the Trans Pacific Partnership (TPP) is “the cornerstone of the Obama Administration’s economic policy in the Asia Pacific”. It is the most substantial trade agreement in the Asia-Pacific region involving 12 countries including Malaysia, Mexico, Japan, and the U.S, and representing almost 40 percent of global output and 25 percent of global exports.

“Free trade is good,” say all economics textbooks used in universities. However, what is rarely brought up is that tariff and non-tariff barriers can make all the difference in how a country reaps the gains from free trade.

Malaysia’s fourth Prime Minister, however, is well aware of the traps inherent in trade agreements. In Dr. Mahathir’s words

“You’re selling off your rights to have your own economic policy. Our government wants to please America now, but I think if you sign the TPP that will destroy our freedom. Khazanah is dead against the TPP, but the government wants to please their friends.”

The former Prime Minister’s concerns pertain to how trade agreements like the TPP can force countries to surrender their sovereignty to corporations. The process that makes this possible is a provision in the TPP called Investor-State Dispute Settlements, which grants corporations the right to sue a foreign government.

Dr. Mahathir referred to the example of Phillip Morris International, the tobacco behemoth and maker of Marlboro, who has sued countries that tried to limit smoking for the well-being of their citizens.

  • In 2011, Phillip Morris sued the Australian Government. They argued that plain packaging laws introduced by parliament breached a bilateral investment treaty.
  • In 2014, Uruguay suffered the same fate for increasing the size of health warnings.

Legal disputes can translate into hefty costs for the governments at the centre of them.

  • Philip Morris International also once threatened to sue Togo, one of the ten poorest countries in the world with a GDP of $7 billion compared to the company’s net income of $80 billion. Togo backed down and surrendered control of how it wanted its cigarette health warnings to be displayed. Is it not ironic for a government to have to pay for the freedom to govern its own country in the way it chooses?
  • It’sOurFutureNZ, a New Zealand-based activist group, argued that the TPP might exacerbate the public’s abuse of tobacco and alcohol. We have to wonder who would be in control here considering that New Zealand’s government will need to pay hefty legal fees in order to control regulation over a proven deadly product.

It is common for governments to pursue trade agreements based on the fact that trade agreements have a long record of benefits that outweigh costs to society, and an even longer record of potential.

  • For example in 1993, the North American Free Trade Agreement (NAFTA) was signed between America and Mexico. Since then, trade has increased by 506%. This has translated to surging FDI and productivity gains.
  • The lowering of tariff and non-tariff barriers in ASEAN are said to have benefited businesses with a regional outreach (with even rosier predictions when the ASEAN Economic Community is complete). The Peterson Institute of International Economics estimates that the TPP might yield income gains of $295 billion.

Despite these positive statistics what is unknown is whether the gains of trade agreements will be distributed in society in ways that will benefit the poor and the rich justly. Predictions of benefits often advance the interests of stakeholders who have the most to gain, including investors, corporations, consumers (who are also producers).

However, if the destruction of local industries cannot be reversed; if the benefits of foreign multinationals do not “trickle down”; and if the environment is exploited for profit, it is clear that the effects of trade agreements may not be as rosy as the statistics suggest.

No matter how anti-West Tun Dr. Mahathir is (remember his “Look East” and “Buy British Last” policies and how he dislikes the International Monetary Fund) his point remains valid, Malaysia’s sovereignty is at stake.

The truth is the costs associated with trade deals rarely get the attention they deserve and are typically oversimplified. We need to look at things for what they are instead of what they seem to be.

Should we sign on to this trade agreement? Its benefits for Malaysia will be highlighted in figures, but whether this data translates into the improved wellbeing of the people, the government and the country is an issue that puts the entire nation at risk.

Despite what the university textbooks say, free trade is not always good. In fact, it’s overrated, and Tun Dr. Mahathir knows it!

Shaun Liew is a student of Economics and Finance at the University of Leeds

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