My Say: Dubious benefits for Malaysia in ratifying the CPTPP
The Edge Markets - 04 May 2022
My Say: Dubious benefits for Malaysia in ratifying the CPTPP
By Jomo Sundaram
Ratifying a dubious regional economic deal is being touted as offering a miraculous solution to Malaysia’s lacklustre economic performance of the last quarter century. This naïve advocacy is misleading at best, and downright irresponsible, even reckless, at worst.
Pivot to Asia
Under US-led international pressure, China agreed to renminbi appreciation after achieving nearly full employment. Ironically, China has since championed further trade liberalisation as the appetite for it declined in the West, following the 2008 global financial crisis.
Barack Obama’s “pivot to Asia” after his 2012 re-election as US president sought to check China’s sustained economic growth and technological progress. The economic centrepiece of the new US strategy was the Trans-Pacific Partnership (TPP).
The US already had free trade agreements with six of the other 11 TPP countries. As trade barriers with the other five were already low, little benefit from further trade liberalisation was expected. Vietnam stood to gain most from TPP trade “normalisation”, owing to punitive post-war US trade sanctions.
All 12 also belong to the World Trade Organization (WTO), which concluded the “single-largest trade agreement ever” in 1995. For trade liberalisation mahaguru Jagdish Bhagwati, both bilateral and plurilateral free-trade agreements (FTAs) — like the TPP — are termites undermining gains from multilateral free trade via WTO.
Bogus claims for trade deal
Various studies — including two by US government agencies — all found negligible trade gains from the TPP. Exaggerated claims by TPP advocates were considered grossly misleading. This came as no surprise, as the TPP was driven primarily by political considerations to “encircle” China.
Supposed gains come mainly from additional foreign direct investment (FDI) due to enhanced investor rights — not more trade. This implies even greater concessions from host economies, and correspondingly fewer gains for them.
The Peterson Institute of International Economics (PIIE) has been the principal TPP and Comprehensive and Progressive TPP (CPTPP) cheerleader in the West.
But the US International Trade Commission doubted PIIE claims of significant TPP growth benefits in mid-2016, well before former US president Donald Trump’s election. Its report found supposed TPP gains to be paltry over the long time horizon involved.
Rather than promote trade, the TPP prioritised more transnational corporation (TNC)-friendly rules. After all, the 6,350-page deal was hastily drafted by various working groups, including hundreds of representatives of major US TNCs — designated advisers to the US Trade Representative’s negotiating team.
Incredibly, the PIIE projections of benefits from the CPTPP — endorsed by the World Bank — claim even more gains than previous estimates of benefits from the TPP! This incredible forecast is all the more dubious, as the main TPP attraction was access to the US market — no longer a feature of the CPTPP.
Strengthening intellectual property
There is no evidence that stronger “intellectual property” (IP) rights increase innovation, research and development. Strengthening IP monopolies for powerful TNCs — such as pharmaceutical firms — would raise the value of trade through higher prices — not more goods and services.
Extending IP protection — as envisaged by the TPP — would raise the prices of more pharmaceutical drugs — significantly increasing health costs. For Médecins Sans Frontières, the TPP would go down in history as the worst “cause of needless suffering and death” in developing countries.
US laws do not protect consumers anywhere — not even in the US! After buying its patent, Martin Shkreli infamously raised the price of a drug by 6,000% — from US$12.50 to US$750! As “price-gouging” is not unlawful in the US, the Attorney-General could only get him convicted for unrelated financial fraud.
During the pandemic, pharmaceutical TNCs proved their intention to make as much as possible — even if they had enjoyed government subsidies. Higher prices due to enhanced IP rights will impose heavy human and economic costs.
As the world now knows, very few TNCs voluntarily contributed to the global response to contain Covid-19 by lowering their IP monopoly prices for tests, equipment, treatments, vaccines and other pandemic needs.
Empowering foreign investors
Other onerous TPP provisions — such as for investor-state dispute settlement (ISDS) — remain. This extrajudicial system supersedes national laws and judiciaries, with secret rulings by private tribunals not bound by precedent or subject to appeal.
Poorer small countries can rarely afford to fight powerful TNCs, or to incur huge legal costs, even when they win. After spending billions defending itself against US cigarette giant Philip Morris, the usually pro-US Australian government insisted on an ISDS “tobacco carve-out” in the TPP Agreement.
The Trump administration cited onerous ISDS provisions to justify US withdrawal from the TPP. But now, citizens of smaller, weaker and poorer nations are being asked to believe that ISDS does not pose any real threat to them.
FDI was expected to rise with the TPP — thanks to its ISDS provisions, augmenting existing investor rights. Unsurprisingly, lawyers have been advising TNCs on how they can sue host governments for resorting to Covid-19 measures since 2020.
After ratifying the CPTPP, TNCs can sue the governments concerned for ostensible loss of profits due to policy changes — even if in the national or public interest, for example, to contain the Covid-19 contagion or ensure food security.
TPP’s zombie after-life
The TPP was expected to be dead and buried after Trump announced US withdrawal immediately after his inauguration in January 2017. After all, most US presidential candidates in the November 2016 election — including Hillary Clinton — had opposed the TPP.
Although President Joe Biden was a loyal vice-president, he made no effort to revive the Obama administration’s TPP initiative during his campaign or since entering the White House. After all, selling the TPP is considered politically impossible in the US today.
Trump’s rhetoric has greatly transformed US public discourse. Already, many US manufacturing jobs have been lost to corporations automating and relocating abroad. Many Americans now blame globalisation, immigration and foreigners, especially China, for the problems they face.
Aligned with the US against China, recent Japanese, Australian and Singapore governments have kept the TPP alive. First, they mooted TPP11 — that is, without the US — and later relabelled the CPTPP, with no improved content to justify its “progressive” pretensions.
New Cold War Trojan horse
The CPTPP did not even eliminate the most onerous TPP provisions, but only suspended some IP and other provisions, mainly demanded by US TNCs. Suspension was favoured over deletion in the vain hope of inducing a future US regime to rejoin. But the pivot to Asia is explicitly military these days.
Governments have remained with the CPTPP for reasons of their own. As the new Cold War unfolds, foreign policy considerations — rather than serious expectations of significant economic benefit — have become more important.
Except for the PIIE, those who seriously studied it agreed the TPP offered little benefit. The modest gain expected was premised on US market access — now no longer on offer with the CPTPP. Contradicting the PIIE, UNCTAD staff research found that joining the CPTPP would significantly reduce Malaysia’s trade surplus.
Without the US, the CPTPP will mainly benefit Japanese TNCs, for example, selling cars for much less than others subject to higher import tariffs. Unsurprisingly, South Korea has decided to join so its TNCs do not lose out. The same is true of China.
But, of course, China wanting to join is also intended to ensure the CPTPP is not used against it — as originally intended. This was the case with the Soviet Union, which sought to join the North Atlantic Treaty Organization (NATO) in the 1950s before organising its Warsaw Pact. And Putin tried likewise after Russia dissolved its own security pact, following the first Cold War.
Unlike Northeast Asian countries, which have accelerated industrialisation, most Southeast Asian economies have sought foreign investments. With foreign investors favoured, domestic investors are encouraged to relocate abroad, for example, to tax havens within the CPTPP, with some returning as foreign investors.
From the frying pan into the fire?
The Covid-19 pandemic triggered recessions as many governments imposed nationwide “stay in shelter” lockdowns. Together with physical distancing and other preventive requirements, economic relations — including supply chains — have been disrupted.
Trade protectionism has grown since the 2008 global financial crisis while transborder supply chains have fallen victim to the pandemic. The US, Japan and others are demanding “onshoring” in the new Cold War, urging TNCs to stop investments in and outsourcing to China — thus also hurting Southeast Asians.
There are dubious gains from ratifying the CPTPP, especially in the light of its paltry benefits. As Professor Jeffrey Sachs notes, while trade liberalisation can benefit all, winners need to compensate losers — which the CPTPP does not do.
As Malaysians well know from bitter experience, most professional consultants can be relied upon to deliver whatever reports they are paid to do. Worse, there are major risks in indefinitely committing to a deal mainly drafted by US corporate lobbyists no longer party to the agreement.
In this ever-unfolding but unpredictable world and regional situation, Malaysia should remain “non-aligned” — albeit as appropriate for these new times. It should not take sides between the dominant West and its adversaries — led by China, the region’s major trading partner by far.
Jomo Kwame Sundaram, a former economics professor, was United Nations assistant secretary-general for economic development. He is the recipient of the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.
