Friday, October 9, 2015

More on Trans Pacific Partnership (TPP)

So, a bit busy this week, but as promised here is a more specific, if short, discussion of the Trans Pacific Partnership. The agreement was reached this week, and now approval must be obtained in Congress, and my guess is that there is a decent chance that it will pass with bi-partisan support (after all fast track was approved and that is why the Obama administration could reach an agreement). My guess is that several people that seem less than supportive right now, will come around, like, for example, Orrin Hatch in the Republican camp, who has said he has reservations, or Hillary Clinton, whose PBS interview has been seen as a reversal of her pro-free trade views.

She actually does not say she is against, and only says after being prompted a second time that she is not in favor of TPP as it currently stands. She adds that she thinks the agreement might not live to her high standards, but she is very clearly for free trade agreements, the ones that bring high wages and more jobs to the US. Also known as unicorns. The fact is that on FTAs the establishment in both parties is basically in favor, as much as mainstream economists.

So, as I noted before (in my discussion of the Colombia FTA), FTAs are often not about 'free' movement of goods and services, but are also ways of protecting corporate interests. That's why what you should expect is not that one country wins and another looses with a trade agreement. Corporations and elites win, and workers (consumers) tend to be on the loosing end (that would be a better description of the effects of NAFTA, for example).

The two big issues being discussed are the protections for pharmaceutical patents, and the so-called currency manipulation, given the recent media comments. Note that the first issue is one of the main sticking points of the so far failed Doha Round of the World Trade Organization (WTO) negotiations, which include not only property rights, but also government procurement policies, and investment rules. All of these issues tend to limit the ability of developing countries to pursue the policies that promoted development in advanced economies. Basically FTAs reduce the policy space of developing countries, and the ability of governments in advanced economies to protect workers and consumers.In this specific case, TPP seems to extend the patent protection for pharmaceuticals, reducing the ability of governments to produce generic medications, with potentially large effects on public health.

On the second issue, the currency manipulation, which has been always tied to China (not in TPP, btw), which suggest that depreciation leads to a significant cost advantage, and that it should be banned. Here I'm not only skeptical about the supposedly fantastic price substitution effects of a devalued currency, but more importantly, as I have pointed out before, most developing countries in Asia (and certainly China) have had large increases in real wages, which means that their currencies have often appreciated in real terms. Besides, I can't see how a trade agreement would legislate on exchange rate policy.

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