Service on WTO and Trade Issues (Oct15/01)
Dear friends and colleagues
We are pleased to share with you an article by two distinguished economists, Joseph Stiglitz and Adam Hersh, warning of the pitfalls of the Trans-Pacific Partnership (TPP) agreement, which is currently in the final stages of negotiations. They caution that it is an agreement designed to lock in unequal trading relationships between advanced economy countries and developing countries like Peru.
The agreement will go far beyond cutting tariffs and quotas to mandate fundamental changes in each TPP country’s legal, judicial, and regulatory institutions. The article highlights in particular two areas of concern for developing countries – intellectual property and investor-state dispute settlement (ISDS).
The article was published in the Peruvian newspaper, La Republica, available at http://larepublica.pe/impresa/economia/707007-no-permitan-que-el-tpp-encierre-al-peru-en-relaciones-comerciales-desiguales. The English translation is included below.
Don’t let TPP lock Peru into unequal trade
By Joseph E. Stiglitz* and Adam S. Hersh**
TPP negotiators hope to finalize the agreement in the next few days. Political leaders will boast of promoting the well-being of their people and countries. But the reality is that special interests—in the United States and elsewhere—have been given far too much influence on the negotiations. Given past experience with U.S.-led trade agreements, and what we can glean from documents leaked from the confidential proceedings, it is clear that Peru’s negotiators are capitulating to the demands of advanced country businesses. The agreement will go far beyond just cutting tariffs and quotas to mandate fundamental changes in each country’s legal, judicial, and regulatory institutions—a sop to the moneyed lobbies who have had more access to the negotiation process than elected lawmakers or concerned citizens.
Typically, one thinks of negotiation as one side giving something in order to get something else in return. But Peru would gain little from the TPP. It already has free-trade agreements (FTAs) with the United States, its second largest trading partner, and five other TPP member countries. The simple question facing Peru is whether Peru would be better off with the TPP than it is today. Peru’s negotiators should be given that as the absolute bottom line. Unfortunately, from what we know from leaks, what Peru is likely to get will be worse.
While the benefits of the TPP are murky, the costs to Peru’s economy are clearly steep.
First, TPP would lock in the unequal advantages of advanced economy companies by raising intellectual property rights (IPR) protection in ways that raise profits for intellectual property owners at the expense of everyone else. We now know that what separates developed from developing countries is a gap in knowledge, and this agreement will make it more difficult to close that gap. The result will be that Peruvians will be sending ever big checks to the US every year, until the end of time, for using that knowledge—even if it is based on stealing genetic material from the Peruvian Amazon. In this area, the TPP demands far more of Peru than what it agreed to in the US-Peru FTA of 2009. Indeed, civil society groups and Congressional leaders in the US demanded that the USTR, America’s trade negotiator, use that agreement as the base of TPP; the USTR instead sided with the country’s big corporations.
The impact of more stringent IPR can be seen most clearly when it comes to how “Big Pharma” companies from the advanced economies are benefitting. Driven by industry lobbyists, U.S. negotiators are pressing TPP countries to accept protections that will boost their profits, not from innovating new life-saving medicines but by keeping potential competitors, such as generics, out of the market and charging consumers higher prices.
TPP accomplishes this through a variety of seemingly arcane rule changes—buried in jargon about “patent linkage” and “biologics”—which collectively would allow medicine companies to extend their monopolies for many more years than they currently can. This would be especially costly in Peru, whose current regulations are more encouraging of data-sharing and research. Mylan, a leading generic medicine manufacturer, has warned that the TPP may in effect shut their business out of participating countries—meaning not only that people in Peru will pay more for medicines, but also that some life-saving medicines may cease to be readily available at all.
Second, the TPP would restrict member countries’ governments—including Peru’s—from passing regulations to protect public health, safety, and the environment, or any other aspect of the public good. That’s because the TPP would create investor-state dispute settlement (ISDS) mechanisms that would allow foreigners to sue the government when they think a regulation will harm their profits. The arbitration would be private and binding, even if the outcome contradicts domestic laws. And the company could be compensated for the loss of its expected profits, not just for its past investments, even if its profits are generated by selling products that kill people and if there is no discrimination involved in the regulation.
These are not hypothetical threats—similar investment agreements already exist and have led to such suits. In fact, Peru is currently facing a US$800 million claim by U.S. investor Renco over whether Renco can continue to operate a lead smelter—ranked among the world’s 10 most polluted sites—and whether it can avoid paying compensation for the victims and to remediate the site. In another case, Australia is currently facing a suit over public health warning labels on cigarette packages intended to curb tobacco smoking, as is Uruguay (which is not a TPP partner). Canada, under threat of suit, backed down from similar proposed regulations. And Mexico has been forced to pay US$15 million after arbitrators found error with a state government decision shut down an unpermitted toxic waste dump found to be leaking into the groundwater.
These are just some of the hundreds of egregious cases that multinational investors have brought against regulations that serve the public interest. More often than not, arbitrators find in favor of investors, or national governments opt to settle to avoid the legal pressures.
The ISDS mechanism stands on its head the previous understanding of the rights and obligations of investors and states. Under the TPP, governments would effectively have to pay foreign investors for not polluting and not harming the public, rather than having the freedom to regulate businesses to ensure that they do not harm others. Existing ISDS mechanisms are bad enough. Their radical expansion under TPP would be disastrous.
This is especially important in Peru, where there has been a long history of corporate abuses of the environment and workers. Under the TPP, Peru could and be sued for any change in regulations designed to protect workers and the environment, no matter how reasonable, no matter how non-discriminatory, so long as it lowered corporate profits. It would make the struggle to elevate worker conditions and living standards and curb unsustainable exploitation of Peru’s environmental assets all the more difficult.
To be sure, greater trade and investment integration with the world promises a lot for Peru, but the TPP is not the way to accomplish it. There is no evidence that such investor protections and property rights will increase foreign investment or bring more innovation to Peru’s economy. What they will do is ensure that more of the wages of hard-working Peruvians end up in the pockets of global corporations and that Peru will be unable to rewrite the rules for its society in ways which better serve its citizens, protecting their health and safety, Peru’s environment and rich natural resources, and even the stability of its economy.
If President Humala wants to do right by the Peruvian people, he will instruct his trade minister Silva in Atlanta to demand no backsliding from the hard-fought terms of the Peru-US agreement, to ensure that its citizens continue to have access to generic medicines at affordable prices, and to reject a TPP that leaves Peru’s economic future in the hands of multinational investors.
September 29, 2015
Nobel laureate in economics, University Professor at Columbia University
and Chief Economist at the Roosevelt Institute.