MPs our last defence from TPPA own-goal
Online Publication Date: 21 January 2016
MPs our last defence from TPPA own-goal
Jomo Kwame Sundaram
Published 12 Jan 2016
Malaysia’s Parliament has a rare opportunity to
unite across party lines to protect the public interest for present as well as
For the Trans-Pacific Partnership Agreement (TPPA)
to come into effect, it must first be ratified by national legislatures.
Even advocates claim limited net economic benefits
from the TPPA, with the widely-cited Peterson Institute projections suggesting
modest additional GDP growth after 10 years.
A more realistic UN Global Policy Model (GPM)
incorporates effects on employment excluded by prior TPP modelling using
controversial computable general equilibrium (CGE) models.
Using existing CGE projections of TPPA trade
impacts, it offers more realistic macroeconomic projections, considering
changes in employment and inequality, and their impacts on economic growth.
Benefits to aggregate demand and economic growth
are even more limited than the Peterson Institute’s already modest claims, and
negative for some countries as the TPPA will likely lead to employment losses
and increased inequality.
The UN GPM finds that the TPPA will generate net
GDP losses in some countries, while economic gains will be negligible for other
participating countries – less than one percent over 10 years for developed
countries, and less than three percent for developing countries.
These projections are similar to the Peterson
Institute’s finding that TPPA gains will be small for many countries.
The TPPA will also lead to employment losses in all
TPPA countries, totalling 771,000 lost jobs, as well as greater inequality,
with a lower labour share of national income.
Furthermore, the TPPA will lead to losses in GDP
and employment in non-TPPA countries.
These projections are largely due to two changes
due to the TPPA.
First, production for export will partly replace
production for domestic markets, with negative consequences, as exports are
less labour-intensive and use more imported inputs than production for domestic
Second, businesses in participating countries will
strive to become more competitive by cutting labour costs, negatively affecting
income distribution, thus further weakening domestic demand.
More trade does not equal higher GDP
The TPPA is not mainly about ‘free trade’.
Both the USA and Malaysia are among the world’s
most open economies; there is little more to gain by further reducing tariffs.
The main remaining trade constraints are non-tariff
barriers which the TPPA does not address, for example, the campaign against
Similar CGE models have yielded very different
projections on economic gains.
One difference is due to whether trade growth
enhances economic growth. There is no evidence that trade expansion increases
GDP growth, let alone economic welfare improvements.
The Peterson Institute’s modest growth gains are
largely due to huge, but dubious projected increases in foreign direct
investment (FDI), rejected by the USDA’s Economic Research Service study.
To make matters worse, there is no strong evidence
that FDI reliably increases economic growth.
OECD countries with more competent trade
negotiating capacity – such as the US, NZ, Canada, Australia, Japan – had
delayed TPPA agreement in Honolulu in mid-2015 before the Atlanta deal in
The delay was due to squabbling over how best to
manage trade in particular areas, reflecting influential lobbies in their
countries; thus, the TPPA will likely advance interests contrary to freer
Foreign investors vs public interest
Instead, the TPPA is mainly about greatly
strengthening intellectual property and investor rights.
The evidence shows that stronger IPRs hardly promote
research, but actually impede innovation. This is besides undermining public
health and the common good by limiting competition and raising consumer prices.
The TPPA will strengthen IPRs for big
pharmaceutical, information technology, media and other companies, for example
by allowing pharmaceutical companies longer monopolies on patented medicines,
keeping cheaper generics off the market, and blocking the development and
availability of similar new medicines.
The recent prosecution of Martin Skrelly for a
Ponzi scheme instead of ‘price-gouging’ cases, exposes the limits of US IPR
The TPPA will also strengthen foreign investor
rights at the expense of local businesses and the public interest.
The TPPA’s investor-state dispute settlement (ISDS)
system will oblige governments to compensate foreign investors for losses of
expected profits in binding private arbitration!
ISDS will confer on private foreign investors the
right to sue national governments for regulatory or policy changes that, they
claim, diminish the expected profitability of their investments.
It has been and can be applied even where rules are
non-discriminatory, or profits are made by causing public harm.
Double whammy for taxpayers
Foreign corporate interests insist that ISDS is
necessary to protect property rights where the rule of law and credible courts
are lacking -- clearly displaying contempt for national courts.
Yet, the same is being sought by the US in the
Transatlantic Trade and Investment Partnership (TTIP) deal with the EU.
Recognising the scandalous way US tobacco companies
have used ISDS to resist curbs on smoking, tobacco can apparently be ‘carved
out’ from some aspects of ISDS.
But the basic problem remains: ISDS provisions make
it hard for governments to fulfil their basic obligations – to protect their
citizens’ health and safety, to ensure economic stability, and to safeguard the
The most popular herbicide sold in the world has
been declared by the WHO to be carcinogenic. By banning such toxic materials,
with the ISDS, the government would be liable to compensate the manufacturers
not to harm its own people, instead of forcing them to compensate those already
The taxpayer will be hit twice – first, to pay for
the health damage caused, and then to compensate the manufacturers for their
lost profits if the government bans it.
Thus, the ISDS may even deter the government from
banning the substance, putting the public at risk.
This brief review has not addressed many other
aspects of the TPPA.
However, suffice it to say that except where they
multi-lateralise existing bilateral and other commitments, most impose other
risks and potential liabilities for developing countries such as Malaysia.
For example, despite the bitter consequences of the
1997-98 Asian financial crisis as well as the 2008-09 financial meltdown and
ensuring protracted Great Recession, the liberalisation of financial services
will undermine national prudential regulation and expose economies to greater
vulnerabilities from abroad.
Also, many ostensible safeguards have asymmetric
For instance, the US federal government has much
less scope for discretionary spending compared to state governments which are,
in many instances, even larger than other TPPA economies, which means exempting
state governments from TPPA provisions, such as procurement, will have very
TPPA actually undermines multilateral trade
Multilateralism? Like many other recent bilateral
and plurilateral trade agreements, the TPPA has less to do with freeing trade,
but instead advances the interests of the powerful business interests involved.
As trade liberalisation guru Professor Jagdish
Bhagwati has shown, such agreements are not only sub-optimal, but also serve to
undermine trade multilateralism as well as multilateralism more generally.
The rush to conclude the TPPA before the
mid-December Nairobi World Trade Organization (WTO) ministerial meeting
undermined the Doha ‘Development’ Round of trade negotiations, which began with
the promise of rectifying the anti-development and food security outcomes of
the previous Uruguay Round (following the Seattle WTO ministerial fiasco).
By undermining the WTO multilateral trade
negotiations, such bilateral and plurilateral trade agreements undermine
multilateral trade liberalisation.
Asean members joining the TPPA also undermine
existing commitments, for example to the Asean Free Trade Area (Afta) and Asean
Economic Community (AEC).
Such political re-alignment abandons our late
second prime minister Abdul Razak Hussein’s commitment to make Asean a ‘zone of
peace, freedom and neutrality’ (ZOPFAN), an irony for the host of the last
It is no secret that the main US motivation for the
TPPA was to exclude China. Broad support for the Asian Infrastructure
Investment Bank (AIIB), even from traditional US allies, was a major
One can understand why Vietnam, an erstwhile US
enemy, was keen to join the TPPA, in order to strengthen its hand in its often
difficult bilateral relations with its giant neighbour.
But why is the Malaysian government so keen to
join, considering the dubious economic benefits as well as huge risks involved.
Najib’s Pivot to America
In response to US President Barack Obama’s ‘pivot
to Asia’, Prime Minister Najib Abdul Razak may want to signal his own ‘pivot to
Already, US allegations of human and labour rights
violations, which had previously disqualified Malaysia from consideration, were
dropped in time.
Now that the Najib administration’s political
preference has been clearly signalled, we must now turn to the long-term
welfare of Malaysians.
Hence, it would be appropriate for the TPPA
parliamentary vote to be a matter of conscience for all members of Parliament
without party whips being exercised.
After all, President Obama has more, albeit
shrinking support from Republicans, than from his own Democrats, for the TPPA.
Criticisms of the TPPA have been growing among US
politicians, not only among all Democrat presidential contenders, but also the
leading Republican presidential aspirants.
If the TPPA is simply a trade deal, there would be
less grounds for concern.
Unfortunately, its other provisions will undermine
the Malaysian public interest, with the ability for the government and the
public to set things right, irreversibly signed away.
Members of Parliament -- from the BN and the
Opposition -- have an opportunity to reject this threat to the Malaysian public
They are our last defence against a TPPA
JOMO KWAME SUNDARAM was an Assistant
Secretary-General responsible for analysis of economic development in the
United Nations system during 2005-2015, and received the 2007 Wassily Leontief
Prize for Advancing the Frontiers of Economic Thought.