Rethinking free trade agreements in uncertain times | The Daily Star
12:00 AM, January 10, 2019 / LAST MODIFIED: 01:05 PM, January 10, 2019

Rethinking free trade agreements in uncertain times

After US President Donald Trump withdrew from Obama's Trans-Pacific Partnership (TPP), involving 12 countries on the Pacific rim, on his first day in office, Japan, Australia and their closest allies proposed and promoted the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) to draw the US back into the region to counter China's fast-growing power and influence.

Geostrategic deal to re-engage US in East Asia

The modest projected gains claimed by the most popularly used trade models are based on dubious methodologies. President Obama had explicitly promoted the TPP for geostrategic reasons even though both US government cost-benefit analyses found very modest gains from the free trade agreement (FTA).

With miniscule real trade gains from the original TPP, US withdrawal has made benefits from the regional agreement even more trivial. Without the US market, the TPP's supposed benefits largely disappeared with the CPTPP. Hence, while its proponents hope the CPTPP will re-engage the US as hegemon in the region, TPP advocates have become even more desperate for US participation.

The Peterson Institute for International Economics (PIIE), the main TPP and CPTPP advocate, claimed most (85 percent) growth gains from non-trade measures (NTMs), not trade liberalisation per se. Such claims were largely refuted by the 2016 US International Trade Council (ITC) report.

The World Bank used PIIE consultants to make even more exaggerated claims of TPP gains in early 2017, ignoring most costs and risks. CPTPP advocates have made even more extravagant claims about supposed benefits since.

To make matters worse, besides the meagre trade gains, enhanced intellectual property rights (IPRs) and investor-state dispute settlement (ISDS) provisions will fetter developing countries' “catch-up” economic prospects. Besides raising costs, e.g. for buying medicines and technologies, strengthened IPRs will further limit technology transfer.

ISDS will enable foreign investors to sue CPTPP governments, not in national courts, but rather, private arbitration tribunals. Besides undermining national judicial sovereignty, small country governments with limited legal resources will be disadvantaged. Ironically, Trump's US Trade Representative now rejects reciprocal ISDS for undermining US sovereignty!

From the frying pan into the fire

Informed analysts know that CPTPP losses, costs and risks are much greater than for the TPP while gains will be more trivial despite cheerleaders' claims to the contrary. More worryingly, very few developing country negotiators have actually scrutinised and understood the likely implications of the 6350-page TPP agreement.

Some minor changes were made to the TPP agreement for the CPTPP. Several onerous provisions were amended, and some others suspended, leaving most unchanged. Only a few CPTPP governments secured “side letters”, exempting them from some specific clauses.

Thus, most onerous TPP provisions remain. The CPTPP has committed Malaysia to further trade liberalisation, accelerating deindustrialisation, besides constraining the growth of modern services, development finance and “policy space”.

With the economic slowdown of the last decade wrongly attributed to the end of trade expansion since 2009, and the more recent “populist-nationalist” reversal of trade liberalisation, wishful thinking has emerged that the CPTPP will somehow magically enhance economic growth and progress.

Developmental, multilateral FTA needed

Increased market access for exports typically requires trade liberalisation by others, but trade liberalisation also undermines food and industrial production. Recognising such problems after the end of the Uruguay Round of trade talks led to the creation of the World Trade Organization (WTO) in the mid-1990s, and most developing country members have since sought to ensure that WTO rules are more development-friendly, launching a Development Round at its Doha biennial ministerial conference in late 2001.

As trade liberalisation advocate Jagdish Bhagwati has argued, bilateral and plurilateral FTAs have long undermined WTO-led trade multilateralism. At the national level, developing country governments should amend legislation and policy in line with their needs, especially for development, not at the behest of corporate lobbyists or geostrategic priorities.

Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.

Copyright: Inter Press Service

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