What you don’t know can hurt you. I think that’s a clear lesson of
some so-called trade agreements the United States has signed over the
last 20 years, and illustrated further by the few that have been
defeated, most notably the Multilateral Agreement on Investment,
negotiated by the Organization for Economic Cooperation and Development
from1995 to 1998, but then abandoned in the face of ever growing
protests.

Haven’t heard of the Trans Pacific
Partnership? That’s no surprise: while the negotiations are not really
being conducted in secret (the Office of the US Trade Representative
provides periodic updates here), the level of disclosure from the USTR office rarely ventures beyond bland statements like this:

On
November 12, 2011, the Leaders of the nine Trans-Pacific Partnership
Countries – Australia, Brunei Darussalam, Chile, Malaysia, New Zealand,
Peru, Singapore, Vietnam, and the United States – announced the
achievement of the broad outlines of an ambitious, 21st-century
Trans-Pacific Partnership (TPP) agreement that will enhance trade and
investment among the TPP partner countries, promote innovation, economic
growth, and development, and support the creation and retention of
jobs.
The USTR website continues by claiming that the
agreement will be “increasing American exports, supporting American
jobs.” This is all too similar to the Clinton administration’s reporting
on NAFTA, which would point out all the gains from increased exports
while omitting any mention of increased imports (Journal of Commerce, Nov. 18, 1994, via Nexis, subscription required) which quickly turned a small trade surplus with Mexico into a huge trade deficit. Recent evidence suggests this may already be happening with Korea (thanks to Daniel Becker in private correspondence).

How
do we evaluate the TPP? We have to see it as having at least three
major elements: a trade agreement, an investment agreement, and an
intellectual property agreement.

From the trade agreement alone, we can conclude that it is a bad deal for the middle class. As I explained last year,
the Stolper-Samuelson Theorem in economics tells us that more trade is
actually bad for labor in this country, because by global standards, the
U.S. is labor-scarce (low population density), meaning that we expect
trade to lead to more intense competition in labor-intensive goods,
putting downward pressure on wages. Alas, that isn’t the end of it.

There
is a lot of controversy about the investment side of the agreement. As
discussed here by Daniel Becker, the investment chapter was leaked and published by the Citizens Trade Campaign. Before I discuss the TPP investment provisions, a little context on investment agreements first.

According to the United Nations Conference on Trade and Development
(UNCTAD),at the end of 2011 there were 3190 international investment
agreements, of which 2860 were between two countries, usually known as
bilateral investment treaties or BITs. Investment agreements can also be
part of larger agreements, such as the investment chapter of NAFTA, the
WTO’s Agreement on Trade-Related Investment Measures (TRIMS), and
various regional trade agreements. Since the TRIMS agreement, in force
since 1995, applies to all WTO members, it is a global benchmark; thus,
people will refer to agreements with stronger provisions as “TRIMS+.”

The
purpose of investment agreements is to protect foreign investors, which
are by definition multinational corporations (MNCs). At the same time,
they place no corresponding duties on investors, only on the host
government. Most significantly, these agreements remove dispute
settlement from the host country’s court system to binding arbitration
in an outside body, most commonly the World Bank’s International Center
for the Settlement of Investment Disputes (ICSID). As with domestic arbitration clauses,
this removal from the courts favors the business interests involved. So
the investment agreement element of the TPP will tend to be bad for
host governments (the U.S. is host to more foreign investment than any
other potential TPP country) and by extension the middle class.

But
“how bad” is the question. This depends on what restrictions the
agreement puts on governments. Originally, MNCs wanted to be protected
against having their property nationalized (“expropriated”) by the host,
but more recent agreements such as NAFTA’s investment chapter (Chapter
11; text here)
have opened the way to defining “expropriation” in ways that include
regulatory actions that may reduce the value of the investment, even if
they are non-discriminatory among firms and taken in the public
interest. This is why I say above that investment agreements are bad for
the middle class, because it normally benefits from public interest
regulation.

For these reasons, there is in fact
significant pushback regarding the content of investment agreements.
Three good sources for this are UNCTAD, the Vale Columbia Center on Sustainable International Investment, and the International Institute for Sustainable Development.

So
what’s in the TPP investment chapter? As far as I can tell, nothing
that isn’t already in NAFTA, other U.S. free trade agreements, or a U.S.
bilateral investment treaty. The problem is, that’s bad enough. Under NAFTA,
for example, Metalclad won a dispute against Mexico over a local
government’s refusal to grant it a permit to open a hazardous waste
facility, and was awarded $16.7 million. Ethyl Corporation successfully
challenged a Canadian ban on the import of gasoline additive MMT,
leading Canada to withdraw the ban and pay the company $13 million in
compensation. To have unelected bodies that (in the words of Citizens
Trade Campaign) “would not meet standards of transparency, consistency
or due process common to TPP countries’ domestic legal systems”
overturning democratically adopted laws or regulations is profoundly
undemocratic.

At the same time, I think Becker reads a
little too much into some of the language. He quotes section 12-6bis
(Becker’s emphasis):

Notwithstanding Article 12.9.5(b)
(Non-Conforming Measures, subsidies and grants carveout), each Party shall accord to
investors of another Party, and to covered investments, non-discriminatory treatment with
respect to measures it adopts or maintains relating to losses suffered by investments in its
territory owing to armed conflict or civil strife.

Source: Angry Bear