Former UN official says claimed TPP benefits ’bogus’

June 15, 2016: Former UN official Professor Jomo Kwame Sunderarm told ABC Radio National that the claimed economic benefits from the TPP were based on studies which ignored employment effects and other costs including the cost of increased medicine monopolies and the cost of foreign investor rights to sue governments.  

He also spoke at a successful public forum in Sydney on Tuesday, hosted by AFTINET. You can read Professor Sunderarm's opinion piece below.

 

The Bogus Case for the TPP

Jomo Kwame Sundaram

While the main US motivation for the Trans Pacific Partnership (TPP) has been to counter China’s influence in the region, it has also been used to undermine trade multilateralism. At the World Trade Organization (WTO) ministerial meeting in Nairobi last December, the TPP was touted as a ‘gold standard’ 21st century trade deal to replace the Doha ‘Development’ Round of trade negotiations. Heavily influenced by US corporate interests, it will not be accepted by most developing countries.

Modest trade gains

Despite claims that it will promote economic growth, US studies so far project negligible growth gains from TPP trade liberalisation. The May 2016 US International Trade Commission’s TPP report for the US Congress estimates very small 0.15 per cent economic growth gain for the US by 2032, almost 17 years from now.

TPP supporters cite economic modelling by the Peterson Institute of International Economics (PIIE). An updated version was used for a study published by the World Bank in January 2016. This produced a result of greater, but still modest additional US growth of 1.1 per cent after 15 years. But this was achieved by claiming huge gains from non-trade measures with no bases in economic theory, accepted methodology or evidence.

However, the study found much smaller economic growth gains for Australia of just 0.7 per cent by the year 2030 -- an annual boost to growth of less than half of a tenth of one per cent.

Dubious cost-benefit analyses

Gains should be compared against costs, but the PIIE-World Bank study understates costs and risks, while exaggerating benefits. Very diverse TPP provisions were fed into a trade model as cost reductions, with little consideration of downside risks and costs.

For example, provisions to strengthen, broaden and extend intellectual property rights on medicines and copyright become cost reductions that will increase the trade in services, ignoring costs to consumers and governments. Provisions allowing foreign investors to sue governments in private tribunals, and those undermining national regulations, become trade-promoting cost reductions, ignoring the costs and risks of bypassing national regulations and taxation.

Thus, the PIIE-World Bank study greatly overstates benefits from the TPP. But even these exaggerated gains remain modest, and will need to be revised downwards as many such projections have never been realized. While projected trade benefits will take time, major risks and costs will be more immediate.

Also, any contribution of the TPP to unemployment and workers’ incomes is precluded by assuming that all economies constantly have full employment while income distribution, trade and fiscal balances remain unchanged over time. If the modest TPP gains mainly go to a few big, often foreign businesses, with losses borne by others -- workers, consumers or tax payers -- the TPP would worsen inequality.

Net gain or loss?

A Tufts University study, which I co-authored, using a macroeconomic policy model with more realistic specifications, found more modest growth, net job losses, greater pressure on wages, declining labour shares of income and greater income inequality to be likely outcomes of the TPP. The projections for Australia after a decade included a modest economic growth gain of 0.87%, but the loss of 39,000 jobs.

The TPP redefines the role of government much more than needed to liberalise trade. TPP ‘disciplines’ will significantly constrain the policy space needed for governments to accelerate economic transformation and to protect the public and national interest.

The TPP’s investor state dispute settlement (ISDS) provisions will enable foreign investors to sue a government in an offshore tribunal by claiming that new policy or regulations reduce their expected future profits, even if such regulations are in the public interest. As Australia’s Productivity Commission has argued, foreign investors are well protected by other means, and ISDS provisions are unnecessary.

Far from being a regional free trade agreement, the TPP seeks to transform economic governance to favour powerful, often foreign corporate interests. Thus, the TPP, while offering very modest quantifiable benefits from trade liberalisation at best, is serving as the thin edge of a wedge, which will undermine the public interest.

 

Jomo Sundaram was a United Nations Assistant Secretary-General responsible for analysis of economics and development during 2005-2015, and received the 2007 Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.