Why TPP Counts

by Henry on December 13, 2013

Paul Krugman yesterday:

I’ve been getting a fair bit of correspondence wondering why I haven’t written about the negotiations for a Trans Pacific Partnership, which many of my correspondents and commenters regard as something both immense and sinister. The answer is that I’ve been having a hard time figuring out why this deal is especially important. … The big talk about TPP isn’t that silly. But my starting point for things like this is that most conventional barriers to trade — tariffs, import quotas, and so on — are already quite low, so that it’s hard to get big effects out of lowering them still further. The deal currently being negotiated involves only 12 countries, several of which already have free trade agreements with each other. It’s roughly, though not exactly, the TPP11 scenario analyzed by Petri et al (pdf). They’re pro-TPP, and in general pro-liberalization, yet even so they can’t get big estimates of gains from that scenario — only around 0.1 percent of GDP. And that’s with a model that includes a lot of non-standard effects.


The answer to why TPP counts is sort-of buried in Paul’s argument about why it doesn’t. He’s absolutely right that TPP doesn’t do much to liberalize trade. But the dirty secret about most trade negotiations today is that they aren’t really about “conventional barriers to trade” any more. ‘Non-tariff barriers,’ which get most of the attention in trade talks these days are a euphemism for differing national approaches to regulation. ‘Eliminating’ these non-tariff barriers involves regulatory changes that are often (a) highly politically controversial, and (b) devoid of obvious trade liberalization payoffs. Trade agreements also provide an opportunity for various business interest groups to get provisions that have nothing to do with trade onto the negotiation bandwagon.

One excellent example of this is the obscure seeming question of data exclusivity (I owe nearly everything I know on this topic to Gabriel Michael, who is working on this and other intellectual property issues for his Ph.D. dissertation, while doing great data visualization work on TPP in his spare time). The aim of data exclusivity is to give pharmaceutical companies exclusive control over test data that they have used to persuade regulators of the safety of particular drugs. This in turn makes it much easier for them to keep on fending off competition from manufacturers of generic drugs in countries with different approaches to patents.

There are no obvious trade benefits to data exclusivity. Yet this hasn’t stopped Senator Orrin Hatch from effectively threatening the deal if the US doesn’t shove it down the throats of other states.

The US should consider dropping countries from Trans Pacific Partnership trade talks if they fail to accept its demands on data protections for drugs and unrestricted cross-border data flows, a senior Republican senator has warned. Orrin Hatch, a veteran lawmaker from Utah and the top Republican on the Senate finance committee, sent a letter to Michael Froman, the US trade representative, urging the Obama administration to hold firm on tough intellectual property provisions in the negotiations, which are entering their final stage. Mr Hatch said he was “increasingly concerned” that some of the 12 countries in the negotiations – spanning Asia, Latin America and North America – may not be willing to “undertake the high level of ambition to conclude a high-standard agreement” and urged Mr Froman to only “move forward” with the countries that were on board.

“It is possible – and preferable – to conclude a strong agreement, rather than allowing a small number of countries to weaken the agreement for all,” Mr Hatch said. Mr Hatch has long insisted that the US pushes for 12 years of data exclusivity for biologic drugs, a position supported by pharmaceutical manufacturers but opposed by groups such as Médecins Sans Frontières who say it would restrict access to affordable medicine around the world.

More generally, as Gabe’s visualization work demonstrates, the US negotiating position on intellectual property issues is a relatively extreme one.

So, in one sense, Paul is absolutely right – the TPP’s actual effects on trade liberalization are likely to be very modest. But trade liberalization rhetoric is the packaging of the TPP, not the content. This hasn’t stopped the usual crowd of multilateralism zombies from arguing that TPP is teh awesome – but their support is a programmed reflex buried somewhere deep within the ruins of their cortexes; it certainly isn’t the result of serious analysis of the putative trade benefits.

Update: Looks like I’m inadvertently recapitulating Dean Baker.

Anyhow, Krugman is on the money in his assessment of the impact of the TPP on trade. But the point is that the TPP is not really about trade, it’s about changing the regulatory process in ways that would almost certainly be opposed by the people in most of the countries included in the deal.

{ 42 comments }

1

Bruce Wilder 12.13.13 at 3:27 pm

Yves Smith notes today that none of the first 60 commenters on the NYT website on Krugman’s piece was supportive.

I really hope TPP proves to be a bridge too far.

2

LFC 12.13.13 at 3:57 pm

The aim of data exclusivity is to give pharmaceutical companies exclusive control over test data that they have used to persuade regulators of the safety of particular drugs.

This is insane. For one thing, how can independent scientists in various countries (assuming there are such creatures left) verify that the drugs are safe if they can’t replicate the pharmaceutical companies’ studies, and how can they do the replication if they don’t have access to the test data? On a somewhat related point, in a recent conversation w a friend who knows something about this I was told that even a reputable journal — the New England Journal of Medicine — has published a study claiming that “drug X reduces morbidity and mortality” (that’s the title of the piece) when a close analysis of the data contained in the article shows in fact that the drug does nothing to reduce mortality (the authors get away w the misleading title b.c they have an aggregate measure called “morbidity and mortality” which misleadingly lumps everything together). Of course the research was financed by the pharmaceutical company that makes the drug in question.

Pharmaceutical companies, wrapping themselves in the mantle of “IP protection,” exercise, I’m sure, an undue influence on US govt positions in so-called trade negotiations, as G. Michael’s work suggests. The overemphasis on IP goes back at least to the TRIPs (so-called ‘trade-related aspects of intellectual property’) portion of the original WTO agreement. The US was a or the main backer of TRIPs and has spent the intervening years continually screaming about IP piracy by China, claiming that the US movie/music/publishing industries have lost millions — or is it billions? — of dollars b.c kids are selling ripoff DVDs on the streets of Chinese and Indian cities. This issue has become one of the main drivers of US policy in (so-called) trade liberalization talks.

Piracy is undesirable to the extent that it actually harms a writer, composer or other creator; but I can’t get too worked up about the profit margins of, e.g., 20th Century Fox, Warner Bros, etc. (I’m sure this may get pushback here but my time today for this thread is highly limited, unfortunately.)

3

Satan Mayo 12.13.13 at 3:57 pm

It certainly is unusual for commenters on a news website to be reflexively negative.

4

Henry 12.13.13 at 4:01 pm

LFC – have you read Susan Sell’s Private Power: Public Law. The standard account of how TRIPS came into being (Susan is Gabe’s dissertation advisor; I’m on his committee), with lots on PHrMA etc.

5

QS 12.13.13 at 4:34 pm

Bruce brings up the real import of TPP: it’s an opportunity for the left to politicize free trade, which most people on the street consider as noncontroversial as Mom and apple pie.

6

zerospinboson 12.13.13 at 4:35 pm

The aim of data exclusivity is to give pharmaceutical companies exclusive control over test data that they have used to persuade regulators of the safety of particular drugs. This in turn makes it much easier for them to keep on fending off competition from manufacturers of generic drugs in countries with different approaches to patents.

I’m afraid I don’t follow the train of thought here. As I understand medic(in)al patenting, the FDA sets really low standards for approval, while the ‘bar’ works in such a way that as soon as some number of confirmatory studies have been published, a. the fact that other studies disconfirm the results/don’t show the results is ignored as counterevidence, b. most nonsignificant results are never published anyway, even with the FDA, either because of corporate pressure, self-censorship by the scientists ‘who can’t do research without corporate funding’ (which really is an issue), or journal disinterest in publishing null results, and c. the FDA does not make any mention of the fact that (only) x/y studies were significant. Now, supposedly this keeping secret happens because of IP/trade secrets considerations, but I’ve never understood how or why; all I know is that it forms an immense boon to pharmaceutical companies, because there is no way to nuance the FDA approval. All of this seems — very obviously — in the private interest, but not so much in the public, which I’m sure is what you were referring to when you said you could not think of obvious benefits, Henry.
In any case, would anyone happen to know what the prima facie reasons the FDA itself gives for keeping the results secret, apart from the ubiquitous “trade secrets” argument that they so conveniently buy?

7

john c. halasz 12.13.13 at 4:37 pm

@2:

“This is insane.” But real. Not a logically impossible combination. Get used to it.

8

William Timberman 12.13.13 at 4:39 pm

Glad to see this, especially since Krugman’s overly modest view of his own mandate often seems to direct him away from saying anything meaningful about crucial issues. People may be ambivalent for all sorts of reasons about the erosion of the nation state’s prerogatives in favor of globalized economic interests, but like it or not, that seems to be where much of the real action is. Democratic deficit, what a deliciously insidious euphemism — by comparison, full-spectrum dominance seems almost embarrassingly frank. If you aren’t already lining up to pay, it’s only because your bank’s already got your signature on its automatic deduction plan….

9

Steve LaBonne 12.13.13 at 4:58 pm

Echoing what William Timberman just said, Krugman is generally not very useful when he strays outside the domain of macroeconomics into politics and broader policy issues. This is just the latest example.

10

zerospinboson 12.13.13 at 5:01 pm

@9 Shouldn’t he be plenty versed in the effects of artificial monopolies (IP), creating/extending the right for corporations to sue states for loss of “potential future profits”, etc? What is his excuse?

11

Barry 12.13.13 at 5:15 pm

Steve, I’d certainly like to see who was more accurate on the Bush/Cheney adminstration, as one metric.

12

liberal 12.13.13 at 5:45 pm

Agree with Barry.
K isn’t the best out there, but restricting to people with solid establishment credentials, he was great on the invasion of Iraq, a service which was off immense value.

13

Steve LaBonne 12.13.13 at 6:00 pm

Yes, I’ll definitely give him Iraq. He certainly strayed from the establishment line on that.

14

LFC 12.13.13 at 6:13 pm

Henry @4 –
I was going to mention yr colleague Susan Sell whose work I’m aware of but no, have not read.
IP is actually quite tangential to my ac. interests (such as they are — I have no research agenda and since I have no academic job I don’t have to have one) but in a previous existence (so to speak) I was forced to have some acquaintance w IP etc.

15

mud man 12.13.13 at 6:14 pm

16

Vladimir 12.13.13 at 6:46 pm

As with any policy initiative its purpose is explained differently by different people – a variation of the “where you sit is where you stand” argument. Notwithstanding that there are those officials who see trade liberalization as an unmitigated good that should be pursued for its own sake and the vested interests who see an opportunity to revisit issues omitted in existing free trade deals- recall that many of the parties to TPP negotiations already have FTAs e.g NAFTA- there is surely a strategic (read: military) objective complimenting these negotiations. For the Americans this is merely another means of increasing and deepening it’s interaction with states in the Pacific presumably bringing them closer in alignment with American policy preferences. If the US has had any longstanding interests in the region going back to when Perry opened trade to Japan it’s maintain access to the Pacific market for US exports. Another point is to watch how governments use trade negotiations to achieve domestic political reforms that they don’t feel they can achieve otherwise. The Canadian government is looking for ways to dismantle albeit gradually our country’s supply management system in the dairy industry. The first blow was struck in the recently completed FTA with the EU and presumably they will take the next step during the TPP negotiations.

17

Bruce Wilder 12.13.13 at 6:55 pm

thanks mud man — I hope Krugman reads the New York Times; maybe it will help him be better informed.

As is often the case with such articles, though, if he gets bored with all the he said, she said on the first webpage, he may well stop after having his complacency reinforced.

The issue is particularly urgent now as the United States completes talks on a major new trade treaty with 11 Pacific Rim countries that aims to be a model for the rules of international commerce. Administration officials say they want the new treaty to raise standards for public health. . . . . “Our goal in this agreement is to protect the legitimate health regulations that treaty countries want to pursue from efforts by tobacco companies to undermine them,” said Michael Froman, the United States trade representative, in a telephone interview. The language is not yet final, he said.

That would be unfortunate, because he would miss the juicy parts half way down the second webpage of the article.

many developing countries are at a disadvantage in investment cases because they do not have the specialized legal expertise or resources to fight. Uruguay has acknowledged that it would have had to drop its tobacco control law and settle with Philip Morris International if the foundation of the departing mayor of New York, Michael R. Bloomberg, had not paid to defend the law. . . .

The most closely watched legal battle is playing out in Australia, where the tobacco industry lost a case in domestic courts last year. Philip Morris International has filed suit under an investment treaty between Australia and Hong Kong, where the firm has a branch. The proceedings, which are not public, will be held in Singapore and decided by outside arbitrators, not judges.

Philip Morris International has dozens of subsidiaries, allowing the company “to play the treaty game much more adroitly,” . . . Companies are even paying for countries to make the industry’s case against other nations in the World Trade Organization. Ukraine filed a complaint with the organization against Australia’s packaging rule, even though the two countries barely trade. Mr. Cooper acknowledged that his company was helping Ukraine pay the legal bills, but said that was standard practice in W.T.O. disputes.

18

JW Mason 12.13.13 at 7:45 pm

Krugman is generally not very useful when he strays outside the domain of macroeconomics into politics and broader policy issues.

If anything it’s the other way round. Krugman’s instincts on politics and policy are generally good. But he can be surprisingly conservative on questions close to his professional work, like this one.

19

James Wimberley 12.13.13 at 8:17 pm

George Monbiot deserves a shout-out here for highlighting the very peculiar provisions in these agreements allowing corporations to sue governments for non-compliance with stuff they have got included well under the democratic radar.

20

BruceJ 12.13.13 at 8:30 pm

Data exclusivity allows them to utterly falsify their tests, something that pharmaceutical companies have already been caught doing. Essentially it defangs the FDA.

But don’t worry the invisible hand of the marketplace will deal with worthless, toxic drugs, just as it did in the 1890′s!

21

SoU 12.13.13 at 8:43 pm

agreed with @16. imho he is at his most blind when the issue at hand conflicts with the worldview one would expect from a mid-1970′s MIT econ guy.
not that that is anything surprising. as one of the high priests of the discipline, one can expect him to have his conservative moments.

22

ifthethunderdontgetya™³²®© 12.13.13 at 9:14 pm

But he can be surprisingly conservative on questions close to his professional work

Or when he’s carrying water for the Obama Administration, J.W.
~

23

Brett 12.13.13 at 9:54 pm

The IP stuff is pretty shitty, including a provision against “parallel importation” that was nuked in the US Supreme Court. But that’s expected in trade deals – Congress is super-pro-IP-extension anything, as seen in the SOPA debacle.

Speaking of which, going for the tariffs first then the Non-Tariff Barriers always seemed rather ass-backwards to me. The NTB stuff is way more distortionary and hidden than the tariffs, which are just flat rate costs that you can factor in. Moreover, getting rid of the tariffs deprives countries of tax revenue before they have the chance to set up much more in the way of effective tax systems.

24

Ed Herdman 12.13.13 at 11:53 pm

Just to introduce a very mildly contrarian perspective here: There certainly are some cases, particularly in high tech, but also in some other areas like food production where blatant copying is hurting incentives for research. At least some of this is down to “trade secret” practices (especially on the “low-tech” end), which naturally enough doesn’t get protected in the same way as most IP law. Some companies have better cases to make than others – what helps some companies might be blatantly abused in others.

But I do agree there’s a desperate scrambling after the last crumbs here, along with a heft spoonful of gritty filler to block up the guts of democracy.

25

John Quiggin 12.14.13 at 3:35 am

I was also surprised that Krugman missed the point on this. A couple of small updates

* The parties planned to wrap this up at the meeting in Singapore, but have just left without finality. Given the rising tide of opposition, there’s a good chance of stopping this

* Since the change of government in Oz, our government is now backing the US on things like investor protection. But they are already losing support, so they may not be able to push this through the Parliament

26

mookie 12.14.13 at 7:27 am

@19 – Thanks, my mind was aboggle that no one had yet mentioned the most egregious offense of the TPP: the investor-state dispute settlement clause under which corporations or interested parties can effectively overturn a nation/state/county/city law in an international court if said law limits their anticipated profits.

Leaked documents show that U.S. trade negotiators are pushing hard for the TPP to include so – called “investor – state” provisions that would grant transnational corporations the power to challenge virtually any environmental law, regulation or court decision that negatively affects their expectation of profits as a “regulatory taking” through international tribunals that circumvent domestic judicial systems. Consumer safety rules, banking regulations and a host of other public interest policies would also be subject to attack.
Within the World Trade Organization (WTO), portions of the Clean Air Act, endangered Species Act and Marine Mammal Protection Act have already been successfully rolled back under similar “trade” provisions that grant this type of power to foreign governments. The TPP would go beyond the WTO by giving individual corporations the power to challenge democratic policymaking through a tribunal system that takes precedent over domestic courts and legislatures. (Meanwhile, of course, these tribunals remain completely inaccessible and unaccountable to local businesses and ordinary citizens.)
Right now a number of smaller Free Trade Agreements and Bilateral Investment Treaties already grant corporations these special rights in certain countries — and those so – called “rights” are being used by transnational corporations to attack clean air rules in Peru, anti – mining laws in El Salvador and a court decision against the oil giant Chevron in Ecuador, among many other cases. That said, corporations have thus far primarily (although not exclusively) use “investor – state” to attack the laws, regulations and court decisions of developing countries. By extending this system throughout the Pacific Rim, the TPP would not only put the environmental protections of additional developing countries at risk, but could also extend these powers to corporations based in capital – exporting nations such as Japan, increasing the likelihood that more federal and state – based environmental rules will be challenged in the United States.

Citizens Trade Campaign – The TPP & the Environment (pdf)

27

Tim Worstall 12.14.13 at 11:00 am

On the investor-state thing. It’s not entirely as that quote puts it. The essential aim is that if a government takes something belonging to a foreign company then that foreign company can sue for compensation. And outside the courts controlled by that foreign government that has been doing the taking.

Seems fair enough to me. That a foreign investor should have access to an impartial court?

28

RosencrantzisDead 12.14.13 at 12:01 pm

@26

How effective will such an international court be? There is a potential that it may be treated as many other international courts are i.e. ignored whenever an adverse finding is made or acknowledged that they are wrong at the international level but do nothing to remedy this domestically.

@27

If an ordinary citizen of their country has their property seized by a government, they have the option of going to a domestic court and seeking compensation. These courts are impartial (insofar as you can call any court ‘impartial’). Why should this not suffice for a foreign investor?

29

Metatone 12.14.13 at 1:10 pm

@27

Weasel words there Tim.
In what ways does changing packaging laws “take something belonging to Philip Morris” away?

30

indiana guy 12.14.13 at 4:33 pm

no serious students of economic history believe free trade is good……

the history of economic development for the last millenia is basically a story of mercantilists crushing free trade economies.

the original mercantilists were the English (especially post 1689) and the ‘little Englands’ overseas: the US, Canada, New Zealand and Australia….

no county has ***ever**** developed but through a mix of protectionism and mercantilism that fostered import substitution industrialization. not in at least a thousand years and yet Western economic discourse now believes “free trade” is an unalloyed positive….. wtf?!?!?

31

The Raven 12.14.13 at 8:41 pm

My remarks to K’thug, on that post:

As you say, economically this is not that big of deal. Politically, though, in terms of overriding the democratic process of law-making, it’s huge. Not your lookout, I know. Still, I hate seeing the opposition relegated to the radicals, left and right. This process and, probably, the content of law is very destructive.

And, as you say, 1992 was…something of a disappointment. Maybe this time the USA will be in the role of Mexico.

I think people missed his point.

32

adam.smith 12.14.13 at 11:10 pm

to his credit, Krugman follows up:
http://krugman.blogs.nytimes.com/2013/12/14/tpp-and-ip-a-brief-note/
(I do think this is an uncharacteristic miss for Krugman. This argument had been out in the mainstream left for a good while – and as he rightly says, was the dominant theme of CAFTA protests as well)

33

greg 12.15.13 at 8:22 am

Not to worry. The TPP is in the long run irrelevant.

The international oligopolies are already “overfishing” the world economy, as the upward motion of the world’s wealth into the hands of the few demonstrates. When the 99% becomes impoverished, and the world’s governments collapse due to a lack of tax base, and chaos ensues, the wealthy will no longer be concerned with maintaining what are totally unnecessary, and indeed by then irrelevant and impotent, instruments for furthering their depredations. The basic skills of primitive survival, which skills they are probably neglecting, will become much more relevant to their daily experience, as they will already have become to the rest of the survivors.

Indeed, in the US, the wealthy already complain that they pay “all” the income tax. But who will pay to maintain the plutocrat’s system of plunder if the plutocrats will not, and rest cannot? The wealthy have abandoned Detroit, but they cannot abandon the world. There is no where else.

In the long run, which is really not so long, the oligarchs will strangle the goose that gives then their golden eggs. They can’t help themselves, and neither will they allow anyone else to help them.

Our government, and the governments of other nations, pursue activities like the TPP. The surrendering of power to outside tribunals and other such actions are destructive of and compromise those governments own power and influence. No self respecting institution would do this sort of thing if it were not already the captive of outside powers. With the governments their captive, there are no other checks on the collective greed of the oligarchs.

The TPP is a side show. The real circus is the increasing inequality of wealth and power that is starting to tear at our societies, orchestrated by those with inadequate self-restraint, who already have too much power for their own good, or the good of the rest of us.

34

LFC 12.15.13 at 2:14 pm

indiana guy @30

1) Many of the issues raised by the OP and comments have to do w the fact that many aspects of the TPP and other similar agreements are not really about trade at all. (As the OP notes, conventional tariff barriers are already quite low.) Hence your comment about the merits of free trade vs mercantilism/protectionism/ISI is somewhat not to the point.

2) Actually lots of students of ec. history believe in the theory of comparative advantage and think “free trade is good,” though it wd be tedious to document this.

3) Re your statement the original mercantilists were the English (especially post 1689):
The Spanish empire under e.g. Philip II was mercantilist. So was Louis XIV’s France. (Glance at the opening of the Wikipedia article “mercantilism”.)
British policy as the 19th cent. wore on turned to free trade in the lower-tariff-barriers sense; one item: the Cobden-Chevalier treaty. And the British practiced a version of free trade within the boundaries of the empire (in the 20th cent.: “imperial preference” in the early 30s). I imagine Gallagher and Robinson’s famous article “The Imperialism of Free Trade” is still worth reading, despite its age and (no doubt) the various subsequent historiographical controversies.

35

LFC 12.15.13 at 2:17 pm

p.s.
Oh yeah I forgot, re Britain:
Repeal of the Corn Laws: 1846
(I hope I’m remembering the date correctly)

36

LFC 12.15.13 at 3:10 pm

For some complications etc, see eg Hobsbawm, Age of Empire ch 2, and H. Lacher & J. Germann, “Before Hegemony: Britain, Free Trade, and Nineteenth-Century World Order Revisited,” Intl Studies Review, March 2012.

37

Tim Chambers 12.16.13 at 12:24 am

People I speak to in Japan are much more aware of TPP than most Americans are. There are anti-TPP posters everywhere I look. Most of the people I talk to here consider it anathema.

Interesting, isn’t it, how all the media attention is focused on the budget wars and the debt ceiling when the the real action in going on in the Trade Negotiator’s office. Reminds me of the Clinton years, when the focus was all on the bimbo eruptions, but the real action was Graham Leach Blilely.

38

Tim Chambers 12.16.13 at 12:41 am

@ Greg,

The TPP is far from irrelevant in the medium term, though I agree with you in the long term. I’ve believed for the last 20 years that we are headed for a terminal collapse that would end things for the super rich, and I thought 2008 was it, but the 18 trillion dollar rescue package created on a keyboard and monthly QE since then sadly proved me wrong.

I had a look at your blog, but the bright yellow background and hot pink links was off-putting. A more serious looking theme might enhance your content a little.

39

gluelicker 12.16.13 at 3:57 am

No one here has yet surmised that the TPP is by and large a geo-economic arrangement, to accompany the US’ “Asian pivot” geopolitical strategy? It is, in part, a defensive maneuver by the US to prevent East Asian/Pac Rim political economies from getting further sucked into the Chinese orbit — especially urgent now that the PRC is becoming a major exporter of capital and is beginning to take step to reduce currency controls and make the RMB convertible.

40

gluelicker 12.16.13 at 3:59 am

sorry for the formatting error…

41

Tim Chambers 12.16.13 at 11:17 am

@ gluelicker

To those of us on the pac rim, it goes without saying. the problem is the content of it. It seems to be all about easing regulation on transnational corporations.

42

LFC 12.16.13 at 3:29 pm

gluelicker @39:
No one here has yet surmised that the TPP is by and large a geo-economic arrangement, to accompany the US’ “Asian pivot” geopolitical strategy?

actually Vladimir @16 had said something along similar lines:
there is surely a strategic (read: military) objective complementing these negotiations etc.

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