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TPP dream now a nightmare

November 20, 2017

Trans-Pacific Partnership offered very little gain to Malaysia, more so now with access to US market off the table.

COMMENT

jomo-tppaBy Jomo Kwame Sundaram

Under normal circumstances, the TPPA would be dead and buried by now after United States President Donald Trump announced the US’ withdrawal immediately after his inauguration early in January.

After all, all major US presidential candidates last year had opposed the TPPA before the election.

TPPA not about trade gains

Ostensible trade gains from the TPPA were derived using dubious techniques and assumptions.

Supposed gains were miniscule, especially over the long-term horizon involved.

Even pro-TPPA economists conceded that it offered little growth due to trade liberalisation, contrary to the political and media hype.

To be sure, the original TPPA had little to do with trade liberalisation.

Claims of gains from trade liberalisation were disputed by most analysts, including US government bodies such as the Department of Agriculture’s Economic Research Service and the International Trade Commission (ITC).

The TPPA’s main US cheerleader, the private Peterson Institute of International Economics (PIIE) conceded that most purported gains would come from “non-trade issues” such as additional foreign direct investment (FDI) due to enhanced investor rights.

TPP11: TPPA in drag

In fact, there is no legal basis for proceeding with the TPPA as its original terms killed it if either the US or Japan pulled out.

However, since January, the Japanese and Australian governments have pushed for TPP11, misleadingly presenting it as “TPPA minus USA” while implying that a post-Trump administration would rush to join.

Most major TPPA provisions are expected to remain despite their changed significance without the USA as a party to the trade pact.

But renegotiating the deal will require much more than deleting provisions for the US throughout as the agreement involved a complex tangle of bilateral and other compromises.

Various TPP11 governments have remained “on board” for reasons of their own.

Peer pressure, led by Japan, and a last minute agreement to modify some onerous provisions on intellectual property rights (IPRs) has kept Canada on board, so far.

But this will further delay the process as Canada and Mexico sort out their North American Free Trade Area (Nafta) problems, while hoping that others less “gung-ho” (Chile, Peru, Vietnam, Malaysia, New Zealand) will join them in modifying other provisions.

The Japanese and Australian roles in stalling the Regional Comprehensive Economic Partnership (RCEP) negotiations have exposed their hand in frustrating others’ desire for more inclusive, less corporate-oriented regional economic agreements.

Higher prices for medicines

Strengthening intellectual property (IP) monopolies for powerful transnational corporations (TNCs), such as major pharmaceutical firms, or “Big Pharma”, would undoubtedly raise the value of trade through higher prices, not more goods and services.

Contrary to the claim that strengthened IPRs are needed to enhance research and development, research for new medicines has not increased in recent decades despite greatly enhanced IPRs.

Hence, Medecins Sans Frontieres argued that the TPPA would go down in history as the worst “cause of needless suffering and death” in developing countries.

The Malaysian health ministry recently announced that it had contracted to provide a 12-week Egyptian generic treatment for Hepatitis C for the nearly half million patients in the country.

The TPPA would have disallowed this, requiring Malaysians, including the government, to pay the full RM360,000 cost per US patented treatment instead of the ministry’s announced price of around RM1,300.

In 2015, Martin Shkreli raised the price of a drug he had bought the rights to by 6,000% from US$12.50 to US$750. As there is no US law against “price-gouging”, he could only be convicted recently for financial fraud.

Clearly, relying on US laws would not protect the interests of Malaysians.

Easing foreign takeover

FDI was also supposed to go up, thanks to the TPPA’s investor-state dispute settlement (ISDS) provisions.

Foreign companies would then be able to sue TPP governments for alleged losses, including for potential future profits, ascribed to policy changes, even if in the national or public interest.

Under ISDS, regulations, already favouring powerful TNCs, would be arbitered by supposedly independent tribunals.

This extrajudicial system would supercede national laws and judiciaries, with secret rulings not bound by precedent or subject to appeal.

Thus, rather than trade promotion, the main purpose of the TPPA was to promote more corporate-friendly rules for foreign investors.

After all, the 6,350-page deal was negotiated by various working groups where representatives of major US TNCs drove the agenda to advance their interests.

No rationale for joining CPATPP

Even the pro-TPPA reports commissioned by the government were mainly premised on access to the US market, which is no longer on offer.

However, onerous aspects, such as enhanced IPRs and ISDS, remain features of the CPATPP, threatening the national and public interest.

Thus, with nothing to gain in terms of market access to the US, TPP11 will mainly strengthen Japanese TNCs and other TPP11 foreign investors.

With greater rights for foreign investors, investors – both foreign and Malaysian – will be induced to relocate abroad, in Singapore and elsewhere.

Growth of foreign ownership of the Malaysian economy over the last decade will thus accelerate further with the CPATPP, further undermining prospects of economic transformation under national auspices.

Although the earlier government commissioned studies used to justify joining the TPPA are now irrelevant, Malaysian negotiators appear to have convinced the government that the country will benefit from joining the CPATPP without bothering to persuade parliament, let alone the public.

CPATPP step backward, not forward

Malaysian policymakers are under the illusion that the CPATPP provisions will become the new standard for future trade agreements when, in fact, the converse is likely to be true with growing criticisms of the naïve earlier advocacy of economic liberalisation and strengthened property rights.

Some economic reformers defended the TPPA as means to secure domestic economic reforms in Malaysia, but they should carefully reconsider what is now likely to happen instead.

In any case, reform by subterfuge is never a good proposition.

After securing some minor changes which the Obama administration had not agreed to, Malaysian Prime Minister Najib Razak now seems to be the sole CPATPP enthusiast despite greater caution expressed by the International Trade and Industry Minister Mustapa Mohamed.

The puzzle remains as to why the PM is so committed to a dubious deal with no benefits for the country or himself.

This is quite different from, say, the ECRL, where lucrative kickbacks and other “‘leakages” are widely rumoured to be major considerations.

Malaysians deserve better and pulling out of the CPATPP would be a good place to start.

Jomo Kwame Sundaram was an economics professor and Assistant Secretary General for Economic Development at the United Nations.

The views expressed are those of the author and do not necessarily reflect those of FMT.


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