Stop Calling the TPP A Trade Agreement – It Isn’t

[eridani]

http://www.commondreams.org/views/2015/05/26/stop-calling-tpp-trade-agreement-it-isnt

This is a message to activists trying to fight the Trans-Pacific Partnership (TPP). Stop calling the TPP a “trade” agreement. TPP is a corporate/investor rights agreement, not a “trade” agreement. “Trade” is a good thing; TPP is not. Every time you use the word “trade” in association with the TPP, you are helping the other side.

“Trade” is a propaganda word. It short-circuits thinking. People hear “trade” and the brain stops working. People think, “Of course, trade is good.” And that ends the discussion.

Calling TPP a “trade” agreement lets the pro-TPP people argue that TPP is about trade instead of what it is really about. It diverts attention from the real problem. It enables advocates to say things like, “95 percent of the world lives outside the U.S.” as if that has anything to do with TPP. It lets them say, “We know that exports support American jobs” to sell a corporate rights agreement. It enables them to say nonsense like this about a corporate rights agreement designed to send American jobs to Vietnam so a few “investors” can pocket the wage difference: “Exports of U.S. goods and services supported an estimated 9.8 million American jobs, including 25 percent of all manufacturing jobs … and those export-supported jobs pay 13 to 18 percent higher than the national average wage.”

Trade is good. Opening up the border so you can get bananas and they can get fertilizer is trade because they have a climate that lets them grow bananas and you already have a fertilizer plant. Enabling companies to move $30/hour jobs to countries with $.60/hour wages so a few billionaires can pocket the difference is not trade.

[magical thyme]

1. agreed. "Corporate Rights" agreement. also "Corporate Welfare"

Since TPP guarantees profits to corporations, giving them the ability to sue governments and force "we the people" to pay unlimited fines if laws protecting *our* rights might potentially interfere with possible corporate profits isn't about trade either. It's about Corporate Welfare.

[Art_from_Ark]

3. It totally sucks

Here in Japan, there are concerns that TPP will lead to an American-style "health care" system in which private insurance companies can dictate the terms and payments for "health care".

[DanTex]

2. The big problem with this article is that it picks bad examples:

It enables them to say nonsense like this about a corporate rights agreement designed to send American jobs to Vietnam so a few “investors” can pocket the wage difference

Actually, reducing tariffs with Vietnam so that American companies can move production there is, in fact, free trade.

Trade is good. Opening up the border so you can get bananas and they can get fertilizer is trade because they have a climate that lets them grow bananas and you already have a fertilizer plant. Enabling companies to move $30/hour jobs to countries with $.60/hour wages so a few billionaires can pocket the difference is not trade.

Enabling companies to move $30/hour jobs to countries with $.60/hour wages is also free trade.

It is true that most of TPP is not about free trade. Most of it is about intellectual property, drug patents, piracy of music and movies, etc. But the IP provisions aren't what cause jobs to be transferred.

[rogerashton]

8. No, it is not.

Actually, reducing tariffs with Vietnam so that American companies can move production there is, in fact, free trade.

Enabling companies to move $30/hour jobs to countries with $.60/hour wages is also free trade.

These are instances of free movement of capital. The theory of comparative advantage, which justifies "trade is a good thing," refers to trade in products, and assumes there is no international movement of capital whatever. Once the simplifying assumptions of the theory of comparative advantage are dropped, there are many ways in which international economic integration can be a "bad thing" for at least one partner.

[DanTex]

9. First of all, no, those aren't examples of free movement of capital.

They are simply examples of production being moved to where it is cheapest. To that extent, whether Americans or Vietnamese people own the factories where production is outsourced to is irrelevant.

These two examples fit into the comparative advantage framework just as much as the "good" example from the OP, where one country is better at producing bananas, and the other is better at producing fertilizer. Because, in that example, banana workers in country A will end up losing their jobs, as will fertilizer plant workers in country B. And again, the people who own the fertilizer plants or banana plantations don't affect the argument.

Anytime one country has a comparative advantage, the only way this advantage will actually realize any benefits is if that country produces more goods in the advantageous category. Which necessarily means building more plants and hiring more people to produce those goods.

[rogerashton]

10. You said

"Allowing American companies to move" in both of your examples. That would be capital movement. Now you contradict yourself.

And the example you give that IS comparative advantage -- bananas and fertilizer -- shows the problem even with that result: the result is at best a potential increase in a country's welfare. That means: there are winners and losers in each country, but the winners gain enough (benefits) that they could compensate the losers (costs) and still be better off -- in dollar terms, benefits more than costs. But until the losers are in fact compensated (or get better jobs to replace the old ones) it is not possible to say -- except as a matter of personal opinion -- that either country is better off on account of trade, even when the trade is according to comparative advantage.

[DanTex]

12. I said "Allowing American companies to move jobs/production".

Moving jobs/production is not capital movement. Capital movement means
--direct investment, i.e. buying or building factories in a foreign country
--financial investment, i.e. buying securities (stocks, bonds, bank accounts) in a foreign country
Now, IF a country buys a factory in Vietnam and then builds their products in it, that would be capital movement. On the other hand, if they decide to move their production to a Vietnamese-owned factory which can produce their goods for less, that is not foreign investment.

But the larger point is, from the point of view of American workers who lose their jobs, the capital movement component of the transaction is entirely irrelevant. They lose their jobs no matter who owns the factory.

And the example you give that IS comparative advantage -- bananas and fertilizer -- shows the problem even with that result: the result is at best a potential increase in a country's welfare. That means: there are winners and losers in each country, but the winners gain enough (benefits) that they could compensate the losers (costs) and still be better off -- in dollar terms, benefits more than costs. But until the losers are in fact compensated (or get better jobs to replace the old ones) it is not possible to say -- except as a matter of personal opinion -- that either country is better off on account of trade, even when the trade is according to comparative advantage.

Yes, there are winners and losers in foreign trade. I don't think anyone except the most loony right-wingers would deny this. The banana farmers in country A would be losers, as would the fertilizer plant workers in country B. They have to go and find new jobs now, and these jobs will almost certainly pay less than their previous jobs, because the reason they were working in bananas/fertilizer in the first place is likely because that was the best way they could find to make a living.

Is it net beneficial to the economy? Like you say, that depends. It does end up raising the GDP of both nations, since they will both have more bananas and fertilizer than before. People who don't work in either bananas or fertilizer will benefit. But, no doubt, some people will be harmed.

The thing is, there are other factors that also help the economy as a whole but produce some losers. Robots and automation are commonly cited examples.

[rogerashton]

13. Keep fudging.

Actually, if the company "moves the jobs," since the company owns the facilities that employ the workers, capital movement is unavoidable. Only, exploitation is intensified.

But you say that is irrelevant. It is not. If there were no capital movement, the capital freed up by the movement of jobs to the low-wage country would remain in the high-wage country and shift to other industries to raise labor productivity in them. This is the Hecksher-Ohlin extension of Ricardian comparative advantage. But it is not so when the capital moves out of the country.

The thing is, there are other factors that also help the economy as a whole but produce some losers.

And your point is? When there are both losers and winners, how do you know that these factors "help the economy?" All you know is that they help the winners. You don't even know whether they "increase the GDP," unless you have dollar values of the gains and losses. All you have is your quasi-religous faith.

[DanTex]

15. How am I "fudging"?

First, like I said, you're dwelling on pointless details. "Moving jobs" and "moving production" can mean any of a number of things, including Nike-style outsourcing to contractors. Since I'm the one who actually used the term, a good person to ask about what I meant by it would be.... me.

And, yes, it is quite irrelevant who owns the factory, at least from the point of view of the workers. The only thing that matters is where the work is being done. The ownership of the factory only changes who gets the profits. If you think some kind of law preventing Americans from owning factories in Vietnam would do anything to stop jobs from moving there, you will be sorely disappointed.

In fact, what you are saying is not just false, it is closer to the opposite of the truth than anything. When the US buys goods made in Vietnam, what ends up happening is that Vietnamese people end up owning American capital in return. So the end result of a trade deficit to Vietnam is a surplus of Vietnamese-owned capital in America, versus American-owned capital in Vietnam. The "freed up capital" you are talking about will be in America, not in Vietnam.

Where does this capital go? Mostly into the financial markets: stocks and bonds. Which means, that, yes ultimately it does end up going into other industries.

And your point is?

My point is that the fact that free trade produces losers is no more of an valid argument against free trade than it is against new technologies.

[rogerashton]

18. In the theory of international trade,

the word "capital" refers to machines, structures, factories, etc. What you are calling "capital" here is not "capital" in the sense of the theory, but contractual claims on money payments. And yes, if the United States runs a deficit, then Viet-Nam builds up claims on payments from the United States. You assert that Viet-Nam would then buy shares in US corporations which would then be invested in the US. Now, that might happen, but there is no reason in theory to expect it to happen, and the evidence I know of points in the opposite direction. In any case, in the theory of comparative advantage, neither flows of capital -- direct investment -- nor flows of financial claims occur, because the theory assumes that trade is aways balanced.

My point is that the fact that free trade produces losers is no more of an valid argument against free trade than it is against new technologies.

If the new technology generates negative externalities such as pollution to the extent that the losers lose more in dollar terms than the beneficiaries gain, then this is a valid argument against the new technology -- costs greater than benefits. Of course, it is no more valid than any cost-benefit analysis; but there is nothing to justify "trade is good" except (incomplete) cost-benefit analyses.

[DanTex]

19. Yes, that's the macroeconomic definition of capital, and while it is used that way in

some international trade literature, the phrase "free movement of capital" in modern discussions of free trade refers to capital in the financial sense (money, securities, etc.). Which is logical since financial capital is the thing that actually moves around. Similarly, "capital controls" that some countries put in place to counter speculative capital flows aren't rules against picking up office buildings and carrying them across borders, they are regulations on the movement of money and financial instruments. Here is a definition of "capital movement" I googled up, and I don't think many economists would take issue with it:
http://ec.europa.eu/finance/capital/overview_en.htm

You assert that Viet-Nam would then buy shares in US corporations which would then be invested in the US. Now, that might happen, but there is no reason in theory to expect it to happen, and the evidence I know of points in the opposite direction.

I didn't assert that, what I asserted that they end up owning American capital, in the financial sense. They can do whatever they want with it, for example, and some people will just hold it in cash. What I did say is that most of it ends up in stocks and bonds, and this is not just a theoretical prediction, it can be verified by looking at international investment position tables, for example the spreadsheet linked to here:
http://www.bea.gov/newsreleases/international/intinv/intinvnewsrelease.htm

In any case, in the theory of comparative advantage, neither flows of capital -- direct investment -- nor flows of financial claims occur, because the theory assumes that trade is aways balanced.

The thing is, there isn't just one theory of comparative advantage. The Hecksher-Ohlin model that you referred to above does imply comparative advantage benefits disappear when capital can move freely, but that's only because it also assumes that the only vector of comparative advantage is the relative availability of labor and capital. The original Ricardo argument would actually not have the same implication because the comparative advantages are generally assumed to be intrinsic. In this case trade deficits end up being somewhat peripheral, and are functions of things like monetary policy and savings rates, but don't affect the underlying argument.

If the new technology generates negative externalities such as pollution to the extent that the losers lose more in dollar terms than the beneficiaries gain, then this is a valid argument against the new technology -- costs greater than benefits. Of course, it is no more valid than any cost-benefit analysis; but there is nothing to justify "trade is good" except (incomplete) cost-benefit analyses.

I'm not talking about externalities like pollution, I'm talking about things like robotics that replace workers, and yet are widely seen as being net beneficial to society, despite the fact that the people who lose their jobs to robots are certainly worse off because of it. Sure, if a new technology produces more pollution than the productivity benefits it yields, then it's bad. Also, if free trade produces some externality (say, pollution from shipping) that outweights the generally net efficiency benefits, than that specific kind of trade is also bad. But the fact that there are some people who are harmed by trade doesn't mean that it's net negative.

[rogerashton]

23. You are getting a little frantic, here.

Yes, that's the macroeconomic definition of capital,

No, it is the correct definition of capital -- in economics capital is a factor of production, not a payment claim. That is no less true in microeconomics.

Sure, if a new technology produces more pollution than the productivity benefits it yields, then it's bad. Also, if free trade produces some externality (say, pollution from shipping) that outweights the generally net efficiency benefits, than that specific kind of trade is also bad.

And that is the kind of "free trade" that the TTIP is about -- the kind that would strike down environmental regulations as barriers to trade.

http://www.democraticunderground.com/10026762830

[DanTex]

24. Frantic, what? This doesn't need to get personal, does it?

The word "capital" is used in multiple ways in economics. One is the one you described, which is a factor of production. But when discussing international trade, and particularly "movement of capital", the financial definition is much more common. If you talk to any economist, they will be familiar with the both meanings of "capital". For example "undercapitalized banks" aren't banks that don't have enough office buildings to house their employees, they are banks that don't have enough cash and liquid assets. "Capital controls" are controls on movement of cash and financial instruments, not on the movement of buildings and factories. Etc.

It's a bit surprising that this is the first time you've come across this usage of the term.

And that is the kind of "free trade" that the TTIP is about -- the kind that would strike down environmental regulations as barriers to trade.

This is debatable, but now you've completely changed the subject. The OP wasn't talking about environmental issues, it was claiming that allowing certain manufacturing industries to move production to countries where it is cheaper is not "free trade." Which is plainly false.

[99Forever]

4. K&R

[Cryptoad]

5. So you have read something that doesn't even exist yet? Seer?

[magical thyme]

6. 1. enough has been leaked for us to see it's no good. The ISDS chapter alone is enough.

2. some of those who have read it are starting to speak out against it. And the congresspeople speaking out against it happen to be congresspeople that I trust.

3. Who has read it and favors it? Largely the GOP, the corporations that helped write it, and some who appear to have switched sides and gone all corporate.

[jeff47]

11. 80% of the GDP covered by the TPP is already covered by "free trade" agreements.

12% of the remaining GDP is Japan. Their average tariff on US goods is 1.2%. That is utterly dwarfed by currency fluctuations, and thus can be considered de-facto free-trade.

It isn't a trade agreement because the countries involved already have free trade.

[Dont call me Shirley]

7. It's a transference of power from nation states to corporations.

[Rex]

14. Exactly, but those that worship money are blind to the harm it will do.

All they can see is money to be made by exploiting other countries resources and labor. Then again 'free trade' is a neoliberals wetdream...funny how many we have on DU. Well, pathetic and sad actually.

[Dont call me Shirley]

20. "Free trade" is actually privatize profits - socialize costs/losses...

And only a small select group get to "trade".

[d_legendary1]

16. Basically its the crowing of corporations

by transferring power from the people to the corporates.

[pampango]

17. Only in the sense that the EU Charter and the US Constitution were 'free trade agreements'.

They both introduced 'free trade' between states/colonies/countries which previously did not have it. Of course, both involved much, much more than just 'free trade' so the trade aspect was fairly minor compared to everything else. The backers of the Articles of Confederation were concerned with state sovereignty over trade and other matters, so we tried that before we adopted the Constitution with its 'free trade'. We don't think twice now about 'free trade' between Pennsylvania and Virginia but before the Constitution, it was a contentious issue.

One catch with the 'partnership agreements' like the EU and US is the enforcement mechanism for interstate/international disputes that goes with it. Some on the right are still fighting our own federal government when it enforces national legislation that some - usually conservative - states don't like. That was an even stronger argument in the early days of our country which is why we tried the Articles of Confederation first. The 'state sovereignty' was strong back in the day and it is an argument that will apparently never go away. Likewise in Europe, it is the right that is still fighting the role of the EU, preferring the good ol' days of supreme state sovereignty.

One question with the TPP is whether you can do today what the US did 225 years ago and what Europe did 50 years ago. Are corporations too strong? Are liberals too weak? Is international cooperation to deal with global problems - climate change, trade, repression, labor rights, human rights, refugees, etc. - a discredited mechanism in the eyes of the left and the right anymore? Maybe the FDR era of international organizations and agreements has waned and we have moved into more of a "You deal with your problems and we'll deal with our problems" frame of mind.

[Dont call me Shirley]

21. This works in the US because we Are ONE nation, tpp involves many sovereign nations with

many different laws. The corporations want to unify these nations laws to benefit the profits of the corporations. It is almost a constitution for a large corporate nation with smaller nation states following the corporate-created rules.

[pampango]

22. The EU is composed of many nations but it was created along "FDR" principles - strong unions,

high taxes, strong safety net, better regulation, etc.

Uniting many sovereign nations with different laws is not impossible. History (the EU) proves that. France and Germany have fought more wars against each other than the US has with any of the TPP countries. They get along better now than they have for decades and no Germans or French have been killed fighting on behalf of 'national sovereignty' as have in the past.

The question is how are countries united and is it beneficial. If the TPP does not meet a standard of a 'progressive partnership' because corporations are too strong and liberals are too weak, it will never be what the EU is.

We are one nation now. We weren't one nation in any meaningful way under the Articles of Confederation. States had many different laws and resisted subjugating their sovereignty to a larger national entity. With the coming of the Constitution, the states lost the ability to regulate interstate commerce (tariffs, quotas, regulatory standards), just as happened with European countries with the advent of the EU.

To me the loss of sovereignty - state sovereignty here 225 years ago, national sovereignty in Europe 50 years ago - is not as significant as who or what sets the new rules and how effective are they are respecting and protecting our rights and prosperity. Our government has not done a very good job of that in recent decades. The EU has done much better but none of them are perfect.

[Dont call me Shirley]

25. The EU generally lifted all boats. The TPP is created only to lift the yachts of the rich...

as for the rest of us, "to economic slavery hell with us".

[xfundy]

26. Do we export anything anymore?

Other than jobs and christianist hate, I mean. Almost anything we can buy is imported.

[Elwood P Dowd]

28. Bombs, guns, mortars, tanks, and factory equipment once used here

now run by slave labor overseas,

[Thinkingabout]

27. Accordling to Wikipedia the type is trade agreement

http://en.m.wikipedia.org/wiki/Trans-Pacific_Strategic_Economic_Partnership



Leaders of TPP member states and prospective member states at a TPP summit in 2010.


Type
Trade agreement

Drafted
3 June 2005[1][2]

Signed
18 July 2005[3][4][5]