One of the biggest, most secretive trade deals in history could become reality over the next few days.
If you’ve never heard of the Trans-Pacific Partnership (TPP) before, you’re not alone. Few people have. Of those that know about it, most understand it only at a basic level. Or they’ve confused it with the TTIP. Keeping up with all these acronyms isn’t easy.
All of this is by design, of course.
Free trade agreements (FTA) are guarded by nature. That’s because, more often than not, they’re bad news. Bad for national industry standards. Bad for domestic jobs. Bad for you.
The winners from FTAs are always the same. They’re the corporations that ride roughshod over national sovereignty once trade barriers ease. And the politicians that benefit from kickbacks to push them through parliament.
I’ve been talking about the TPP for months now. I’ve made reference to its inevitability on every single occasion. But I don’t need to anymore, because it’s mere hours from being finalised.
This morning, trade minister Andrew Robb announced that delegates were close to an agreement on the TPP. He said there was a 50% chance of negotiators reaching a decision today.
There’s only one snag holding it back. The Aussies and Americans aren’t seeing eye to eye on intellectual property rights. Neither can agree on IP protection rights for the drugs industry.
On the one hand, the US wants data exclusivity protection lengthened to eight years. Australia, however, won’t budge from five years.
The length of these exclusivity periods is important. It gives Big Pharma a timeframe for which it can use clinical data behind the approval of new drugs.
This jargon basically means one thing as far as you’re concerned. The longer the terms, the higher that state subsidised medical programs become. Or, the longer the terms, the costlier medication becomes for consumers.
Speaking on behalf of the Aussie delegation, Steve Ciobo explains:
‘We’re not going to jeapordise Australia’s national interest. We’re not going to put Australia’s national interest in terms of access to affordable medicines at risk’.
By pushing for five years, Australian negotiators are standing up for consumer rights. That’s always a relief when the future price of medication is concerned.
But the TPP will pass. If not today, then tomorrow. Or the day after that. It’s inevitable because policymakers are in favour of it.
All of which makes these negotiations over exclusivity periods a sideshow. Meanwhile, they’re happy to sign off on other grey areas that could affect you in equal measure. And that’s part of the problem. The TPP is too ambitious.
It wants broad based regulations between states that have no business sharing such frameworks. And it’s spanning this across economies of different sizes, and statures.
These regulations set the kind of agenda which carries one rule for all. A world in which strict Aussie regulations give way to laxer American ones.
This should worry you as it will impact your everyday life in a variety of ways. From the medicine you take, to the food you eat…the standards you have come to expect could be a thing of the past.
It’s no exaggeration then to say the TPP is one of most life changing FTAs in history.
But what little we hear of it from talking heads, it usually centres on the upsides.
When it passes, the TPP will create a single trading bloc making up roughly 40% of global GDP. One that spans 30% of global trade, potentially lifting economic output by US$300 billion every year. All of which sounds good…
But its negotiations have remained secretive for a reason.
Ask yourself what will happen to Aussie jobs? What will happen to our strict health and safety regulations?
No one knows 100%, which is part of the problem. We’ve been kept out of the loop. To the point where we can’t decide if the benefits of the TPP outweigh the disadvantages.
All we’ve had to rely on are drips of information. But what little we have heard should worry you deeply. Let’s see why.
The TPP backlash
In 2013, a leaked TPP chapter made headlines for all the wrong reasons.
It spoke about relations between states and corporations under the TPP. The most interesting section talked about ‘dispute resolution’.
In it, it outlined how corporations would have free reign to do as they pleased in Australia. And the government would have little say in this. In the TPP way of doing business, disputes aren’t really disputes. That’s because the TPP absolves corporations of any responsibility for their actions.
Take for example food safety standards.
American poultry exporters have a reputation for using harmful chemicals in treating their produce. Would you have a problem eating American poultry knowing that? If you’re like most health conscious Aussies, you’d have a big problem. But will you be able to do anything about it once the TPP passes? Not really.
Sure, you could limit what you eat. You could even avoid all things American made. But how long would it be before Aussie producers began doing the same? I imagine they’d catch on quickly. After all, high cost producers rarely prosper because they lack competitiveness. In the end, everyone sinks to the lowest common denominator. And it would be no different with food standards.
And what if you didn’t like this? Too bad, it’s signed into law.
That’s just one industry. Safety standards would fall across the board. Take the environment as another example.
According to the same chapter, there’s nothing stopping corporations from laying waste to the environment. If governments protested against this, they’d find themselves in court.
Corporations could sue any state protecting its environmental integrity. They’d be able to do so on the basis that states were obstructing their business. You couldn’t make this stuff up…
Are FTAs good or bad?
Some of you out there are probably saying, ‘but don’t FTAs boost economies?’ Well, yes, and no.
A free trade agreement is exactly what’s it name suggests. Barriers to trade get relaxed, freeing up the movement of goods. In theory, this should promote economic growth. When it works well, specific goods become cheaper for consumers.
But one of the big arguments in favour of FTAs is that they create jobs. Yet the evidence of that is flimsy.
Sure, it might create new jobs in certain industries. But other, typically larger, industries often see massive job cuts.
Take NAFTA for instance.
NAFTA is a free trade agreement between the US, Canada and Mexico. In the past few decades, NAFTA’s prised open the borders between these neighbours. Yet it’s come at the expense of a vast number of manufacturing and agriculture jobs.
In the US, over 1 million jobs disappeared as a result of low cost Mexican labour. At the same time, Mexico’s workforce saw similar losses. A million farmers got driven out of business too. This happened as American corporations took hold of Mexican agribusiness.
NAFTAs made it easier for rich conglomerates to gorge on Mexican industries. And it’s responsible for the loss of more than 2 million jobs. For what? Efficiency and profit. But those job losses end up as the fine print of free trade deals.
What about the TPP then? Would it be any different? All FTA’s are the same.
What the TPP could do to Australian manufacturing
Sure, the TPP could lead to more opportunities for large Australian companies. Doing business in nations like Japan would become easier. Aussie companies would find large new markets in which to compete for business.
Doing business with fewer restrictions has its obvious upsides. At a time of slowing economic growth in Australia, that’s important. But it would also open Australia to foreign multinationals. Aussie industries, that can’t compete with lower cost competitors, would face potential ruin.
The Aussie manufacturing sector employs close to a million people today. Victoria and NSW account for 50% of all manufacturing jobs. Across both states, the industry contributes to 10% of gross state product.
Food processing is the biggest subset of manufacturing. Alongside metals and machinery, it makes up 60% of the industry. Yet manufacturing is also the industry at most risk of decline with the TPP’s introduction.
Remember what happened to the textiles and car industries?
In the 1980’s Australia had a booming textiles industry. Then tariffs were steadily pared back, from 17.5% to as low as 5%. Eventually, it hollowed out the entire industry. Aussie companies now operate out of China too, taking advantage of low costs.
As for the car industry, you’ll know all about the plant closures. Only Holden, Ford and Toyota retain assembly lines today. But they’re on the way out too. Holden is closing its plants by 2017. Ford by 2016. Toyota announced last year it would shut down all production in Australia by 2017. A once proud industry is no longer with us.
There’s no telling then what the TPP could do to domestic jobs. Would our industries be any less averse to risks than the US or Mexico? Would the remaining industries fare any better than manufacturing? The answer to both is probably not. At least not in lower skilled industries where other nations could outcompete us on costs.
We’d have to find a niche where we can excel in. And what would that leave us with? An economy with nothing but a declining resource and services sector.
Cutting China out of the TPP loop
I’ve failed to mention up to now who the TPP negotiations include. Here’s the full list of member nations involved in the TPP negotiations: the US, Australia, Peru, Vietnam, Malaysia, Mexico, Canada, Japan, Chile, Singapore, New Zealand, and Brunei.
I’ve left this until the end for a reason. The TPP is telling not just because of whom it includes, but who it omits too.
One major Pacific economy not included in the negotiations is China. China’s omission is particularly interesting. Yet the reasons for this are political, not economic. And it all comes down to America’s wariness of China.
From this perspective, you could view the TPP as a means to contain China.
China’s growing influence in Asia Pacific is a worry for the US. The US has no intention of letting China dominate this space, economically or otherwise. Which is where free trade blocs like the TPP come in. By excluding China, the US hopes to maintain control over the region.
It’s not that the US doesn’t want to trade with China. They already do. Last year trade between the two nations was worth a staggering US$590 billion.
But not everyone sees this relationship in a positive light. The US trade deficit with China is almost US$350 billion. On top of that, many US politicians put political concerns above economic ones. They see a rising China as the biggest competitor to American influence. That’s true in the Asia Pacific as it is of the broader world too.
China has made lots of moves recently to expand its economic clout. It’s starting an ambitious project to reconnect Eurasia, dubbed the ‘New Silk Road’. It’s also recently launched the Asian Infrastructure Investment Bank (AIIB). The AIIB is China’s version of the IMF or World Bank.
So should Australia be concerned then about choosing sides? Not really.
Australia’s membership in the TPP won’t come at the expense of our relationship with China. Australia is a key member of the AIIB. And we’ve recently signed a free trade agreement with the Chinese too.
But I prefer seeing developments with the AIIB over free trade agreements. The AIIB will allow Australian companies to compete for more business in the region. That could open up Australia’s resource sector to new opportunities outside China itself.
The AIIB is preferable because it doesn’t change national laws. Ones which threaten our national sovereignty. The AIIB is strictly a financial relationship, which is how it should be.
AIIB investments in Asia are a big opportunity for Aussie businesses. Asia alone will be home to 60% of global infrastructure spending over the next decade. That partly explains why some remain bullish on China’s future, even with the recent downturn.
The Daily Reckoning’s Phillip J. Anderson is one such voice.
Phil disagrees with economists that argue China’s slowing growth suggests looming economic disaster. In fact, he thinks China’s boom is only beginning. And he says that it’s set to last another decade!
In a free report, Phil will show how you can profit from the mainstream’s ignorance. He’ll equip you with the right tools to invest in China. To find out how to download his report, ‘The Cassandra Syndrome: After This Report, You Won’t Worry About China Again for Another Decade’, click here.
Contributor, The Daily Reckoning