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An FTA with the US, what are we really in for ?

by Preeti Nair

This article appeared in the Malaysian Malay Language papers
called "Berita Harian." This is the English version.

Regional and bilateral trade agreements have been around since the 1950’s. In the last decade however, there has been an increasing spurt of trade pacts being signed all over the world that pose challenges to the multilateral trading system. According to Joseph Stiglitz, the 2001 Nobel Laureate for economics, bilateral agreements particularly that involving large developed economies, notably the United States, represents a growing risk for the global economy.

Free and fair trade is supposed to create new opportunities and wealth for nations and their people. It is supposed to help unleash initiative and talent, create jobs and raise living standards. For consumers, this should translate to greater choice, better quality and lower prices. Unfortunately, the move towards freer trade has not been fair for poorer nations and their people. So why is this happening ?

The US is driven to adopt a “divide and rule” trade strategy, to achieve two imperatives. The first is to set standards for future trade and investment negotiations. Once countries are already committed to stricter trade and investment rules through bilateral and regional agreements, it will be more difficult for developing countries to unite and oppose US proposals at the World Trade Organisation (WTO). The second objective is to push through obligations, issues and standards through regional and bilateral agreements that the US had failed to have adopted at the WTO.

For example, in the area of Intellectual Property Rights (IPR), the US is taking the opportunity to ratchet up the standards already agreed at the multilateral level and is insisting that signatory countries adopt the higher US standards of IPR protection and enforcement. The FTAs US signed with Singapore and Chile are being used as a template for all other bilateral agreements now being negotiated. What this means for many countries is that they have to extend the 20-year patent protection for branded drugs, limit parallel imports and compulsory licensing thereby hampering the availability of affordable generic medicines.

In the Thai-USA FTA that is currently being negotiated, Thailand is faced with a dilemma. It must respect US patent law or risk jeopardising the US market for its products from jasmine rice to Thai silk. However, as a country hard-hit by AIDS, Thailand makes affordable generic drugs for patients who cannot pay US drug prices. But generic copies will not be permitted under the US trade pact.

Enforcement of IPR would also mean having to patent computer software and clamping down on piracy of popular consumer goods like digital products, clothing and music. Above everything else, copyright protection will be extended to educational material, which is a cause for concern for students, libraries and educational institutions.

Another contentious issue is that of services. Free trade in services will mean having to open up and liberalise the services sector for foreign investments. The concern is that indiscriminate liberalisation will serve to restrict a government’s ability to ensure affordable and adequate basic services for all its citizens.

Yet another area of particular concern is the promotion and protection of investments. Many developing country governments have sought to protect domestic investors and their investments. Transnational corporations (TNCs) of developed countries have argued that such laws interfere with the rights of business and create uncertainty for their investments. According to US law, any bilateral free trade agreement that the US negotiates, must include what is known as the “investor-state provisions”, which allow investors, i.e. the world’s largest corporations, to challenge the state. The US also wants privileges such as “national treatment” for its companies, which means that US businesses should be given the same rights and privileges as local companies.

In addition, the US seeks limits on the use of capital controls. A case in point is Chile. Prior to the Chile-US FTA, foreign investors deposited a portion of their investments in Chile’s central bank. This protected the Chilean economy from the fallout of the 1995 “peso” crisis in Mexico. Nevertheless, in the Chile-US FTA, the Chilean government has been prevented from implementing such controls except once an emergency has already begun. Even under those limited circumstances, foreign investors will have the right to sue for compensation a year after the measure’s implementation. This adds pressure on policymakers dealing with dire economic circumstances.

The US has signed a Trade and Investment Framework Agreement (TIFA) with Malaysia, which is a precursor to a bilateral free trade pact. The TIFA provides for the creation of a joint council to expand and liberalise trade and investment, including tackling trade barriers and other issues seen hampering free trade. Among areas that the two countries will look into under the trade agreement are intellectual property, trade in services, biotechnology policy, tourism and promotion and protection of investments.

Most FTAs have been criticised because negotiations are often conducted in secret and without consultation with the relevant stakeholders. Malaysia’s Minister of Trade and Industry, Datuk Seri Rafidah Aziz however has taken a different stand. In a recent dialogue session she had with business representatives and government officials, she called on industry groups to give their input and help the government in formulating free trade agreements. She stated that industry participation would safeguard its interests and ensure greater opportunities for local businesses.

FTAs can yield positive results. However, governments need to be vigilant as to the downsides of these trade pacts. Free-trade agreements are no longer just about lowering tariffs on goods and services. An FTA with the US, or any developed country for that matter, encompasses a whole gamut of issues that go beyond the traditional definition of trade. They will have not only economic consequences but also impact hugely on our political, legal and social framework. Many Non-Governmental Organisations (NGO’s) have done extensive research in this area. It makes good sense to incorporate their input to ensure the country’s overall interests are truly protected and promoted.