INTERNATIONAL RELATIONS by Colin TeeseNews Weekly
All equally in the dark on Trans-Pacific Partnership
, June 6, 2015
A Trans-Pacific Partnership.
Any ordinary reader might ask, “What on earth is that?”
The strictly correct answer to that question is – “nobody really knows”. The entire negotiation of the TPP has been conducted in secret.
What can be said about it, based on rumours and leaks, is that it is some kind of agreement between the United States and a number of nation states in Asia, including Australia. Many seem to think it is a trade agreement or, if not that specifically, then something closely allied with trade and related matters.
It would, however, be a mistake to believe that the TPP will have much to do with trade liberalisation.
One of the rumours suggests that it will extend the length of patents. The purpose of any such rule is the opposite of free trade. Extending the life of a patent on any new product provides the patent owner with a longer period of exclusive right to produce a patented product without the threat of new production or a similar product at a lower price.
All of this is bad news for the consumer and for the entire concept of free trade.
The best practical example is in the pharmaceutical industry, where the application of this principle can, and has, already resulted in higher prices for pharmaceuticals in Australia. And this has been a consequence of similar provisions in the so-called free trade agreement between the United States and Australia.
(Incidentally, that trade pact – it can now be demonstrated – has, as to the flow of trade benefits arising from it, been seriously skewed in favour of the U.S.)
As to the TPP, the issue of longer-running patent protection, important though it may be, is nothing compared with one of the more sinister provisions said to be the centerpiece of the TPP. This is called Investor State Dispute Settlement (ISDS).
Keep that acronym in mind, since it confers special rights on foreign investors to sue the government signatories to the TPP, if those governments can be said, in any way, to harm a foreign investor’s commercial interests.
In who’s best interest?
Immediate questions arise. What specifically are the commercial interests that ISDS is intended to protect? Something fundamental, such as nationalisation of a business?
Well, yes, obviously. But what about less fundamental issues? Say a government decides to purchase from a local producer, for national interest reasons, something which it has previously purchased from the business of a foreign investor.
It would not be hard to imagine a judging panel with a particular mindset finding any act of government which changes existing commercial arrangements to constitute harm to the interest of a protesting foreign investor.
We already know how an ISDS-type system can be invoked in the most questionable of circumstances.
Philip Morris, the U.S.-owned cigarette manufacturer, has found a means of seeking compensation from Australia for lost profits from legislation passed by the former Labor government to force plain packaging on cigarettes sold in Australia. (This, despite the fact that the company concerned has publicly boasted that its sales – and therefore profits – have been unaffected by enforced plain packaging.)
It should also be noted that the company’s efforts to have the legislation declared unconstitutional by the High Court of Australia failed. Thus it cannot be maintained that the action of the then government was in any way outside the constitutional powers of the Australian government.
Yet a U.S.-owned tobacco company, which does not even manufacture in Australia, has found a means through a commercial agreement between Hong Kong and Australia to demand compensation for loss of profit.
To take matters a step further. Assume for purposes of debate that the High Court had deemed the tobacco legislation to be unconstitutional. Assume further that the government had called a referendum on the subject aimed at amending the constitution to allow the legislation. Suppose a majority of the people voted to endorse legislation requiring plain packaging of cigarettes. Should, in a genuine democracy, a foreign investor or any external tribunal enjoy the right to overturn the expressed will of a sovereign people?
Where, then, does this leave us? It would seem that whatever this new agreement might be called, its reach will be far in excess of mere commerce.
Some will say, perhaps it has already been said, that the TPP is merely a legitimate attempt to preserve the rights of private property – that is, of foreign investors. Also, there will be widespread agreement that, in a capitalist world, private ownership of property and assets should be protected in accordance with the laws enacted by democratically elected governments.
That surely is as far as we should be prepared to go – given that there cannot be any universal laws, or universally agreed interpretations of laws, while national sovereignty exists.
Beyond that, a TPP resting upon the idea that some international tribunal acting on behalf of a private foreign investor can overturn the actions of a democratically elected government affronts both the concept of democracy and of national sovereignty.
Democracy, it is widely accepted, should protect equally, private property rights, individual rights and community interests.
It is surely an improper exercise of a legitimately elected government’s powers to commit itself and its successors to loosely defined obligations in favour of private foreign investors. Yet this is precisely what we are apparently prepared to commit to in the TPP.
This commitment, it should be emphasised, is apparently bipartisan policy. TPP negotiations began during the period of the Gillard government. Presumably with that prime minister’s approval, Australia’s Ambassador to the United States, former Labor leader Kim Beasley, became and remains an enthusiastic supporter of TPP.
During his period in Washington (remember Beasley’s posting was extended by the Abbott Government) he has worked closely with U.S. President Barack Obama to help promote TPP, both in the U.S. and here in Australia.
It has been said by some that President Obama would have difficulty in selling the idea of TPP to the U.S. Congress. ‘Selling’, in this context has a special meaning.
President Obama, alone among the leaders of the negotiating countries, is unable to sign off on an outcome to the negotiations on behalf of his country. His powers are heavily circumscribed. Before the U.S. President can agree to anything he must have a “negotiating mandate” from Congress.
This mandate is an important step. It means the President has Congress on side. It does not, however, mean that Congress agrees, in advance, that it will approve the negotiated outcome. But it does mean that if the outcome the President negotiates follows the negotiating mandate, then Congress’ power is limited to approving or rejecting the completed TPP as a whole. Congress will not have the privilege of rejecting parts and accepting others.
At this moment President Obama is seeking a negotiating mandate from Congress for a document which he judges is acceptable to all the other parties.
Much conventional wisdom speculates that the President will be denied a mandate. Republicans are assumed to so dislike the President they are of a mind to deny him anything he asks. Democrats are deeply suspicious of the TPP, which they see as some kind of agreement promoting more free trade. They believe that the U.S. has been badly served by free trade agreements.
All of this might make sense if this were an agreement of mere commercial significance. That, however, is not the case.
The TPP by its very name is establishing some kind of partnership with a reach across the Pacific; and its partners appear to have been handpicked. By design, the most important economy in the area, China, has not been invited to join.
In this context it should be noted that the U.S. is in a diplomatic and strategic arm-wrestle with China about who is to be the dominant Pacific power. And the same could be said in regard to the fraught relationship between China and Japan, which stretches back to before World War II.
These issues are of huge importance to the U.S. China has now surpassed the U.S. in economic power, and is determined to see that power reflected in its influence in the region.
This writer believes that the TPP is more about strategic interests and rising and declining power positions than about commercial relationships. In any case, these are adequately dealt with in other commercial diplomatic instruments.
In which case it is possible, even likely, that the things that unite Republicans and Democrats will, in the end, be important enough to override their obvious animosities. For this reason I am fairly confident that President Obama will get his mandate and the TPP will come into effect.
If that happens, and if its existence becomes yet another element in the mounting hostility between China and the U.S., then Australia will have joined a partnership which is likely to create tensions with our largest trading partner. Just how that might play out is impossible to anticipate.
Neither can we say how, for example, it might influence the ongoing health of our somewhat beleaguered iron ore exporters.
It could result in a cooling of the important commercial relationship which has been developed with China over the last 20 or so years. Without that our economy would not have been able to generate the prosperity we have all enjoyed over that time.
Colin Teese is a former deputy secretary of the Department of Trade.