220+ Law and Economics Professors Urge Congress to Reject TPP

Letter sent to Congress asks for rejection of the Trans-Pacific Partnership (TPP), in particular its Investor-State Dispute Settlement (ISDS) clause, which is the mechanism that gives power to corporations to challenge governments regulatory policies. It's important for society, here and in developing countries, to protect itself from the excessive power that Free Trade Agreements (FTAs) bestow on corporations.

Betrayed Again: TPP’s Unconvincing Economic and National Security Arguments

By Tom Palley

Voters of all stripes have recognized the Trans-Pacific Partnership (TPP) as another betrayal of working people, and they have resoundingly rejected it. Despite that, President Obama continues to push it, to the extent of possibly seeking passage in a “lame duck” session of Congress.

President Obama’s pushing of the TPP is recklessly irresponsible politics that benefits Donald Trump who is the outsider candidate. Hillary Clinton is the insider who has touted her links to President Obama, and she still lacks credibility regarding her TPP opposition because of her past endorsement.

In the current dangerous political climate there is no room for error. Yet, that is what we have. Clinton has refused to condemn the TPP in the Democratic Party platform, setting herself up for Trump. Not only does she risk handing the issue to Trump, giving him the economic high-ground, she also sets herself up as “crooked Hillary”. She was for the TPP, then she was against it, and now she is for it again? That plays into voters’ worst assessment of her character.

As for President Obama, he must be made to realize that every time he pushes the TPP, he might as well be campaigning for Donald Trump.

Read rest here.

Trading Up: A Critical Perspective on Jobs, Governance and Security in US Trade Policy

This Tuesday June 28, 2016, the AFL-CIO is holding a conference titled “Trading Up: A Critical Perspective on Jobs, Governance & Security in U.S. Trade Policy,” from 9:00 am to 5:00 pm in Washington, DC. The full program is here. Participants include Joseph Stiglitz, Dean Baker, Tom Palley, Rob Scott, Jeff Faux, among others.

You can join online for what should be an lively and insightful debate—especially given recent developments around the Brexit and the Trans-Pacific Partnership (TPP).

You can watch the conference here and join in the discussion online using #BetterTrade. Please tweet any questions for panelists to conference organizer Celeste Drake (@cdrakefairtrade).

Obama's Latin American Legacy

In 2009 I wrote that: "a progressive U.S. policy agenda toward Latin America should express support of and solidarity with the region’s left-of-center governments themselves." And central to that agenda was the need for: "would be reversing the corporate bias of the free trade agreements (FTAs) that have been signed over the past decade and a half." How well has Obama done in his almost 8 years by that yardstick, you ask. Not very well.

Obama never cozied up to the left of center governments in the region, even though they promoted an improvement in income inequality, which has no other parallel in the world in the 2000s, when inequality increased in almost every region. Worse it is very clear that his administration was close to several groups that tried undermine the left of center governments. His role in the 2009 coup in Honduras against democratically elected President Manuel Zelaya, for example, is now plaguing his ex-Secretary of State Hillary Clinton. As noted by Marc Weisbrot a while ago: "both under Clinton and Kerry, the State Department’s response to the violence and military and police impunity has largely been silence, along with continued U.S. aid to Honduran security forces." Which, by the way, makes any claims about human rights violations, including Obama's complaints, during his historic visit to Cuba, seem somewhat hollow.

There is obviously the opening up of relations with Cuba, certainly the highlight of his two terms regarding relations with Latin America. While Obama should be praised for at least not saying openly that the US seeks regime change in the island, it is hard not side with those in Cuba that are skeptical about American intentions. In particular, because the main guidance of American policy in the region remains the defense of the economic interests of its corporations, rather than the improvement of social conditions in the region, which should be a central concern, not just for the obvious humanitarian reasons, but also because in the long run socioeconomic conditions are central for immigration flows.

In fact, Obama, who had campaigned as a critic of the effects of NAFTA going so far as promising to revise it, signed two Free Trade Agreements (FTAs) with countries in the region, Colombia and Panama, and is pushing, with Republican support, the Trans Pacific Partnership (TPP), which includes Chile, Mexico and Peru. And Obama's visit to Argentina, which follows the one to Cuba and starts today, is basically about free trade, and perhaps opening up Mercosur (the regional bloc that includes Argentina, Brazil, Paraguay, Uruguay and Venezuela), and perhaps implementing a regional FTA. Latin America does not need a pro-corporate foreign policy, at least not from a Democratic president, which does not serve the region, or the working class in the US. However, a significant change in the relations with the region must wait for the next president.

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.

US Senate approves fast track authority, and Krugman doesn't

The Senate approved fast track for the Trans-Pacific Partnership (TPP), giving Obama authority to negotiate. It has to be approved by Congress still. On this topic, it is interesting that it is the first time Krugman came out (or here), as a closet 'protectionist', and was against a Free Trade Agreement (FTA). Note that the reason for his Sveriges Riksbank Prize (aka Nobel) was: "his analysis of trade patterns and location of economic activity."

His contribution to the analysis of trade patterns was essentially to introduce imperfect competition in the mainstream trade model. And actually what introducing imperfect competition in the mainstream Heckscher–Ohlin-Samuelson (HOS) model (the limitations of that model were discussed here before) did was to suggest that under certain circumstances trade management might be a good idea. He edited later a book, Strategic Trade Policy and the New International Economics, in which some more vocal defenders of trade intervention were present (I'm thinking of Laura d'Andrea Tyson, and John Zysman, at least at that time, in the early 1990s).

But he remained committed to free trade (he wanted the 'Nobel' badly, is my guess). The logic, presented in his paper "Is Free Trade Passé?" (subscription required) was that free trade was a simple rule, while trade management was too complicated, so even though policy might be required, Occam's Razor suggested that free trade was a better choice. So Free Trade was not passé after all. Note that this is a bogus argument, since trade, even with FTAs is always managed to some degree. Sanitary rules, defense preoccupations, and so on, imply that barriers to trade are usually imposed. The problem is not the complication of managing trade, is who benefits from the rules imposed (cui bono). FTAs favor corporations, mostly in advanced economies.

Now Krugman finally gets that. He suggests that:

"the Pacific trade deal isn’t really about trade. Some already low tariffs would come down, but the main thrust of the proposed deal involves strengthening intellectual property rights — things like drug patents and movie copyrights — and changing the way companies and countries settle disputes. And it’s by no means clear that either of those changes is good for America."

That is not new for those that understood the limitations of the theory behind free trade. A few years back I said on the FTA with Colombia:

"Rather than a 'free trade' agreement, the plan that will be sent to Congress should be understood as a corporate and financial liberalization agreement. Workers, in Colombia and the United States, have little to gain from it." (See also my response to Mankiw on TPP more recently here)

FTAs allow greater mobility to capital, provide all sorts of protection to corporations in terms of ownership and access to courts, at the same time that it limits the abilities of national governments to intervene. However, one of the central things that government should be able to affect is exactly was is locally produced, and what types of jobs are generated as a result of these interventions. Industrial policy is intrinsically tied to commercial policy.

On this Krugman remains as conventional as he can be. He avoids telling you that trade has negative distributive effects, and that it might negatively affect industrial employment, and potential growth. For him, the only reason that TPP might be bad is that it may reduce access to cheap medicines in developing countries and make financial reform more difficult in the US (both true, by the way). Why you ask free trade would not be bad otherwise? In his words: "because, whatever you may say about the benefits of free trade, most of those benefits have already been realized." So there you have, Free Trade already worked, and one would assume it has not been part of the forces that weakened labor bargaining power in the US, according to his views. Or if it was, it was fine, since overall free trade was beneficial. To whom is not a question.

And ask the people in Mexico, left with a pattern of specialization that only allows for the exports of people, directly through immigration or indirectly through maquilas, how much NAFTA has benefited them. The notion that free trade, free markets in general, produce somehow optimal outcomes is a crucial fetish of mainstream economics. And Krugman is very concerned with being taking seriously, and not violating the accepted totem of the profession. As he says it is possible for: "reasonable, well-intentioned people [to] have serious questions about what's going on [the TPP negotiations]." Yes, he still believes in free trade (is not passé and the benefits have been realized), he is 'reasonable, and well-intentioned,' and has 'serious questions.' Not like those dirty hippies that think free trade has no rigorous intellectual foundation.

Strange bedfellows on TPP

I had noted before that Obama was on the same side than some Republicans on the Trans Pacific Partnership (TPP), and on the role of Free Trade Agreements (FTAs) in general. Yesterday, Paul Ryan and Ted Cruz co-authored an op-ed in the Wall Street Journal in favor of fast track authority, which they avoid saying is giving power to Obama and strangely suggest it would empower Congress, and the TPP.

So not only is Obama for TPP, and he thinks that Elizabeth Warren is wrong in opposing it, but he agrees with Ryan and Cruz. By the way, Hillary is not much better on the free trade (and Bill signed NAFTA), even though it seems that she has not endorsed the TPP deal... yet. So mainstream Dems are on trade in bed with corporations, together with the GOP, which is pretty unified on this topic as far as I can tell. The recurrent problem is that there is no party for labor anymore. And not just in the US.

PS: For theoretical arguments against Free Trade go here and here.

Robert Reich on the Trans Pacific Partnership

I have posted on this topic here. For the problems of the conventional (mainstream) trade theory go here or the Ricardian here. For a discussion of alternative trade theories go here (and here).

Jeff Faux on Brad DeLong’s Defense of NAFTA

By Jeff Faux

Brad DeLong recently criticized an op-ed I wrote about the negative impact of the twenty-year-old North American Free Trade Agreement on American workers. The stakes here are higher and more immediate than the rehash of an old ideological dispute. This is not so much about the past as about the future. Corporate lobbyists are pushing President Obama and congressional Republicans to pass the NAFTA-like eleven-country Trans-Pacific Partnership” (TPP)—right after the November election. Since it took effect in 1994, NAFTA has been the template for the subsequent series of trade agreements that have accelerated the globalization of the U.S. economy. But its failure to deliver as promised has soured the public and many in Congress on so-called “free trade.” Getting lawmakers to swallow the TPP will be easier if its promoters can somehow make lemonade out of the NAFTA lemon. To start with, DeLong fails to tell the reader that he is evaluating a law he helped to produce. He worked on NAFTA when he was a deputy assistant secretary in Bill Clinton’s Treasury Department...

Read rest here.

G-24 Policy Brief: Capital Flow Management and the Trans-Pacific Partnership Agreement

A recent Global Economic Governance Initiative (GEGI) G-24 policy brief by Kevin P. Gallagher, Anna Maria Viterbo, and Sarah Anderson asses the degree to which the final draft of Obama's TPP (Trans-Pacific Partnership) deal must include significant safeguards to prevent and mitigate financial crises. The authors provide an alternative legal language that could be incorporated in future trade deals such that nations have the space and flexibility requisite to ensure financial stability. In my view, however, it is perhaps highly unlikely that the power brokers of TPP would even consider or critically reflect on the far-reaching proposals. From the Intro:

The Trans Pacific Partnership (TPP) being negotiated by 12 governments represents an important opportunity for a fresh approach to the treatment of capital flow management measures in trade agreements. Most regional and bilateral free trade agreements (FTAs) and bilateral investment treaties (BITs) enacted in the past two decades have encouraged capital account liberalization based on the view that this policy choice would facilitate more efficient international allocation of resources and spur foreign investment and growth in developing countries. In recent years, however, there has been a major re-thinking on the issue of capital account liberalization. In December 2012, the International Monetary Fund (IMF) issued a new “institutional view” that endorses the regulation of cross-border finance in some circumstances. The IMF also pointed out that many trade and investment treaties do not provide the appropriate level of policy space to regulate cross-border finance when needed. While the IMF’s new position was the outcome of many years of analysis, it was no doubt influenced by the 2008 financial crisis and the fact that a number of governments have used various forms of capital flow management measures (CFMs) in recent years to address financial volatility. The Trans-Pacific Partnership, as the first major trade negotiations since the 2008 crisis, presents an important arena to ensure coherence between current thinking on CFMs, including the IMF’s “new view," and trade and investment agreements.

Read rest here.

Want 'free trade'? Open the medical and drug industry to competition

By Dean Baker:

Free trade is like apple pie, everyone is supposed to like it. Economists have written thousands of books and articles showing how everyone can gain from reducing trade barriers. While there is much merit to this argument, little of it applies to the trade pacts that are sold as "free-trade" agreements. These deals are about structuring trade to redistribute income upward. In addition these agreements also provide a mechanism for over-riding the democratic process in the countries that are parties to the deals. They are a tool whereby corporate interests can block health, safety, and environmental regulations that might otherwise be implemented by democratically elected officials. This is the story with both the Trans-Pacific Partnership (TPP) now being negotiated by General Electric, Merck and other major corporations who have been invited to the table, as well as the EU-US trade agreement.

See rest here.

Yves Smith and Dean Baker on the Trans-Pacific Partnership Agreement

The Trans-Pacific Partnership Agreement (TPP) is a somewhat secretive Free Trade Agreement that the US and several Asian and Latin American countries are negotiating. In the short part below Yves Smith (from Naked Capitalism) talks about the restrictions on financial regulations and capital controls that the agreement would impose.

Watch the whole interview conducted by Bill Moyers here. A similar take by Kevin Gallagher here.

Gains from Trade? The Net Effect of the Trans-Pacific Partnership Agreement on U.S. Wages

By David Rosnick

Recent estimates of the U.S. economic gains that would result from the proposed Trans-Pacific Partnership (TPP) are very small — only 0.13 percent of GDP by 2025. Taking into account the un-equalizing effect of trade on wages, this paper finds the median wage earner will probably lose as a result of any such agreement. In fact, most workers are likely to lose — the exceptions being some of the bottom quarter or so whose earnings are determined by the minimum wage; and those with the highest wages who are more protected from international competition. Rather, many top incomes will rise as a result of TPP expansion of the terms and enforcement of copyrights and patents. The long-term losses, going forward over the same period (to 2025), from the failure to restore full employment to the United States have been some 25 times greater than the potential gains of the TPP, and more than five times as large as the possible gains resulting from a much broader trade agenda.

See rest here.