Preoccupations

End of globalisation?

Print edition : September 16, 2016

THERE is much angst in the Northern financial media about how the era of globalisation led actively by the United States may well be coming to an end. This is said to be exemplified in the changed political attitudes to mega regional trade deals like the Trans-Pacific Partnership Agreement (TPP) that was signed (but has not yet been ratified) by the U.S. and 11 other countries in Latin America, Asia and Oceania; and the Trans-Atlantic Trade and Investment Partnership Agreement (TTIP) still being negotiated by the U.S. and the European Union (E.U.).

President Barack Obama has been a fervent supporter of both these deals, with the explicit aim of enhancing and securing U.S. power. “We have to make sure America writes the rules of the global economy. We should do it today while our economy is in the position of global strength.… We’ve got to harness it on our terms. If we don’t write the rules for trade around the world—guess what? China will!” he famously said in a speech to workers in a Nike factory in Oregon, U.S., in May 2015. But even though he has made the case for the TPP plainly enough, his only chance of pushing even the TPP through is in the “lame duck” session of Congress just before the November presidential election in the U.S.

However, the changing political currents in the U.S. are making that even more unlikely. Hardly anyone who is a candidate in the coming elections, whether for the presidency, the Senate or the House of Representatives, is willing to stick their necks out to back the deal.

Both presidential candidates in the U.S. (Donald Trump and Hillary Clinton) have openly come out against the TPP. In Hillary Clinton’s case this is a complete reversal of her earlier position when she had referred to the TPP as “the gold standard of trade deals”—and it has clearly been forced upon her by the insurgent movement in the Democratic Party led by Bernie Sanders. She is already being pushed by her rival candidate for not coming out more clearly in terms of a complete rejection of this deal. Given the significant trust deficit that she still has to deal with across a large swathe of U.S. voters, it will be hard if not impossible for her to backtrack on this once again (as her husband Bill Clinton did earlier with NAFTA, or North American Free Trade Agreement) even if she does achieve the presidency.

The official U.S. version, expressed on the website of the U.S. Trade Representative, is that the TPP “writes the rules for global trade—rules that will help increase Made-in-America exports, grow the American economy, support well-paying American jobs, and strengthen the American middle class”. This is mainly supposed to occur because of the tariff cuts over 18,000 items that have been written into the agreement, which in turn are supposed to lead to a significant expansion of trade volumes and values.

But this is accepted by fewer and fewer people in the U.S. Across the country, workers view such trade deals with great suspicion as causing shifts in employment to lower-paid workers, mostly in the global South. Even the only U.S. government study of the TPP’s likely impacts, by the International Trade Commission, could project at best only 1 per cent increase in exports due to the agreement up to 2032. A study by Jeronim Capaldo and Alex Izurieta with Jomo Kwame Sundaram (“Trading down: Unemployment, inequality and other risks of the Trans-Pacific Partnership Agreement”, Working Paper 16-01, Global Development and Environment Institute, January 2016) was even less optimistic, even for the U.S. It found that the benefits to exports and economic growth were likely to be relatively small for all member countries and would be negative in the U.S. and Japan because of losses to employment and increases in inequality. Wage shares of national income would decline in all the member countries.

But, in fact, the TPP and the TTIP are not really about trade liberalisation so much as other regulatory changes, so in any case it is hardly surprising that the positive effects on trade are likely to be so limited. What is more surprising is how the entire discussion around these agreements is still framed around the issues relating to trade liberalisation, when these are in fact the less important parts of these agreements, and it is the other elements that are likely to have more negative and even devastating effects on people living in the countries that sign up to them.

Three aspects of these agreements are particularly worrying: the intellectual property provisions, the restrictions on regulatory practices and the investor-state dispute settlement provisions. All of these would result in significant strengthening of the bargaining power of corporations vis-a-vis workers and citizens, would reduce the power of governments to bring in policies and regulations that affect the profits or curb the power of such corporations.

The TPP (and the TTIP) require more stringent enforcement requirements of intellectual property rights: reducing exemptions (for example, allowing compulsory licensing only for emergencies); preventing parallel imports; extending IPRs to areas such as life forms, counterfeiting and piracy; extending exclusive rights to test data (for instance, in pharmaceuticals); making IPR provisions more detailed and prescriptive. The scope of drug patents is extended to include minor changes to existing medications (a practice commonly employed by drug companies, known as “evergreening”). Patent linkages would make it more difficult for many generic drugs to enter markets.

This would strengthen, lengthen and broaden pharmaceutical monopolies on cancer, heart disease and HIV/AIDS (human immunodeficiency virus/acquired immune deficiency syndrome) drugs, and in general make even life-saving drugs more expensive and inaccessible in all the member countries. It would require further transformation of countries’ laws on patents and medical test data. It would reduce the scope of exemption in use of medical formulations through public procurement for public purposes. All this is likely to lead to reductions in access to drugs and medical procedures because of rising prices, and also impede innovation rather than encourage it, across member countries.

There are also very restrictive copyright protection rules that will affect Internet usage as Internet service providers are to be forced to adhere to them. There are further restrictions on branding that will reinforce the market power of established players.

The TPP and TTIP also contain restrictions on regulatory practices that greatly increase the power of corporations relative to states and can even prevent states from engaging in countercyclical measures designed to boost domestic demand. It has been pointed out by consumer groups in the U.S. that the powers of the Food and Drug Administration to regulate products that affect the health of citizens could be constrained and curtailed by this agreement. Similarly, macroeconomic stimulus packages that focus on boosting domestic demand for local production would be explicitly prohibited by such agreements.

All these are matters for concern because these agreements enable corporations to litigate against governments that are perceived to be flouting these provisions because of their own policy goals or to protect the rights of their citizens. The Investor-state dispute settlement mechanism enabled by these agreements is seen to be one of their most deadly features. Such litigation is then subject to supranational tribunals to which sovereign national courts are expected to defer, but which have no human rights safeguards and which do not see the rights of citizen as in any way superior to the “rights” of corporations to their profits.

These courts can conduct closed and secret hearings with secret evidence. They do not just interpret the rules but contribute to them through case law because of the relatively vague wording of the text, which can then be subject to different interpretations, and therefore are settled by case law. The experience thus far with such tribunals has been problematic. Since they are legally based on “equal” treatment of legal persons with no primacy for human rights, they have become known for their pro-investor bias, partly because the incentive structure for arbitrators and partly because the system is designed to provide supplementary guarantees to investors rather than making them respect host countries’ laws and regulations.

If all these features of the TPP and the TTIP were more widely known, it is likely that there would be even greater public resistance to them in the U.S. and in other countries. As it is, there is growing antagonism to the trade liberalisation that is seen to bring benefits to corporations rather than to workers, at a period in history when secure employment is seen to be the biggest prize of all. So, if such features of the U.S.-led globalisation are indeed under threat, that is probably a good thing for the people of the U.S. and for people in its trading partner countries that had signed up for such deals.

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