20 July 2015

Perils Of Trans Pacific Partnership (And Other FTAs)

Why Free Trade
The total output of a group of countries is greatest when the output of each good is produced by the country that has the lowest opportunity cost (i.e., comparative advantage). Conversely, if a good is produced by a country that can be produced by another country at a lower opportunity cost, the first country is giving up more than necessary.

Even if any one country can produce more of every good with the same resources than the other countries (i.e., absolute advantage), all countries can still gain from reallocation of resources, specialisation and trade provided the relative cost of producing the goods differs among the countries.


Specialisation and freer trade are supposed to lead to lower prices and higher consumption.


So why has the World Trade Organisation not been able to conclude negotiations on the Doha Development Round after more than a decade? Nor 12 Asia-Pacific countries[1] on the Trans-Pacific Partnership ("TPP")?


Protectionism
Many countries want to protect their domestic agricultural sector for political or food security reasons. (Singapore seemingly ignores the perils of not producing enough food domestically, believing that diversifying its sources of food is good enough even in extreme shortage.)

Structural Unemployment

When countries reorganise production based on comparative advantage, workers are supposed to move from higher opportunity cost sectors to lower opportunity cost sectors. However, the reality is that displaced workers typically find it challenging, if not outright daunting, to gain employment in another sector in which their skills are not right and they cannot easily learn new skills.

Thus, in the debate over whether to give the US president "fast track approval" to negotiate the TPP and other FTAs, many Democrats in the US Congress wanted an extension of the Trade Adjustment Assistance programme so as to soften the impact on workers who may be displaced by the FTAs by providing them with income support and training.


FTA Winners And Losers

The main winners from FTAs are the large businesses and their shareholders.

The main losers from FTAs are the unskilled and lower skilled people. FTAs add to downward pressure on wages and exacerbate income inequality. This is why the AFL-CIO, the umbrella federation for US unions, is fiercely opposed to the TPP.


BEYOND TRADE

Recent FTAs have moved beyond the basic goal of increasing cross-border trade.

The TPP is being negotiated as a single undertaking that covers all key trade and trade-related areas. In addition to updating traditional approaches to issues covered by previous FTAs, it includes new and emerging trade issues and "cross-cutting" issues, according to the Office of the US Trade Representative[2].


Foreign Nationals = Citizens
Under the US-Singapore FTA, Singapore must accord the nationals of the US similar tax treatment as Singapore citizens when they purchase residential properties in Singapore.

Under the Singapore-European Free Trade Association FTA, Singapore must accord the nationals and permanent residents of Switzerland, Norway, Liechtenstein and Iceland similar tax treatment as Singapore citizens when they purchase residential properties in Singapore.


In the period from 8 Dec 2011 to 31 Jul 2013, 252 property transactions by foreign individuals were granted Additional Buyer Stamp Duty remission because of these FTAs, costing the Singapore Government $81.2 million.

Deputy Prime Minister and Minister for Finance Tharman Shanmugaratnum says that the Singapore Government "will continue to seek a balanced package in our FTA negotiations to ensure that the FTAs provide meaningful benefits for Singapore, while taking into account the costs"[1].

Why was it necessary for the Singapore Government to accord the nationals of the US, and the nationals and permanent residents of Switzerland, Norway, Liechtenstein and Iceland similar tax treatment as Singapore citizens in the purchase of residential properties in Singapore? Was it an oversight or a lack of foresight?

Singapore citizens and permanent residents who purchase residential properties in the US, Switzerland, Norway, Liechtenstein and Iceland would also benefit, but not the vast majority of Singaporeans.


It is unclear if there will be a similar provision in the TPP.


Helping SMEs

The Singapore Government has programmes such as the Productivity and Innovation Credit Scheme to help Singapore's small and medium-sized businesses.

However, businesses in FTA partner countries may allege that such programmes unfairly subsidise Singapore companies.


When this concern was raised in Parliament by Non-Constituency Member of Parliament Lina Chiam, Senior Minister of State for Finance Josephine Teo did not appear to address it[5].


Helping Singapore Companies

Singapore's obligations under the World Trade Organisation's Agreement on Government Procurement and various FTAs are legislated in the Government Procurement Act and its subsidiary legislation.

Any procurement by the Singapore Government that meets prescribed criteria is subject to these agreements and must be conducted in accordance with the Government Procurement Act and Regulations, which includes allowing foreign or domestic suppliers to compete freely.

Although the US is pushing for countries to limit their support for state-owned enterprises under the TPP, Singapore companies will likely not be put at much greater disadvantage because the Singapore Government already mostly procures goods and services through open tenders, even when the procurement is not covered by its international agreements.

Intellectual Property Protection
The US pharmaceutical industry is lobbying for strong intellectual property provisions to be included in the TPP. Such provisions could likely limit access to cheaper generic drugs in the TPP countries.

Companies Versus Governments

The TPP will likely allow companies in one country to sue governments of other countries if such governments violate TPP rules, and have the cases judged by partially privatised tribunals.

According to a New York Times report[6], the US tobacco lobby has requested the US Chamber of Commerce ("AmCham") for help in the face of mounting anti-smoking legislation, including a World Health Organization global treaty which mandates anti-smoking measures and seeks to curb the influence of the tobacco industry in policy making. The treaty has been ratified by 179 countries, but not the US.

Tobacco lobbying by AmCham has been visible in the TPP negotiations[7].

AmCham maintains that while it does not support tobacco use, it believes that foreign governments should uphold intellectual property rights, adhere to international commitments, and promulgate rules that are sensible and effective. Such concerns have been the focus of its advocacy efforts on behalf of the tobacco and other industries. Public health policy aimed at curbing smoking can yield positive results, while still upholding intellectual property protection, honouring international agreements, and not singling out any specific industry for discriminatory treatment or destruction of company brands[8].


In the light of the challenge to the Australian government's legislation on plain packaging for tobacco products, Member of Parliament Janil Puthucheary asked whether the TPP might place Singapore's tobacco control measures at risk. Minister for Trade and Industry Lim Hng Kiang answered[9]:

Singapore’s current tobacco control measures do not contain such plain packaging requirements.… [They] include a comprehensive ban on tobacco advertising and the prohibition of misleading labels … to protect public health and are in line with World Health Organization standards … [and] have been implemented with full consideration of our international obligations.

Australia is the first country in the world to introduce such plain packaging requirements which have been challenged by tobacco firms on grounds of trademark rights infringement.… Negotiations for the [TPP] are currently ongoing. As with all FTA negotiations, MTI will continue to consult closely with all relevant agencies to ensure that Singapore’s interests, including the protection of public health, are secure.


[C]urrently, tobacco does not feature significantly in the TPP negotiations. As with many of the FTAs with the high levels of ambition, one with as complete a coverage of products as possible, it is unlikely that tobacco will be excluded.

Dr Puthucheary raised his concerns again the following year[10]:

I am aware that, in many of these agreements, health is an exception. And then there is an exception to the exception which does not cover investments in intellectual property, and trade interests use that as a way of challenging these types of regulatory decisions made by governments.

Minister for Health Gan Kim Yong replied[11]:


We are very mindful of our international obligations with regards to our obligation to WTO as well as our bilateral trade agreements. In crafting these tobacco control measures [relating to the removal of retail display], we have also been very careful with regard to the legal implications. Even in our negotiations of bilateral agreements, we are mindful of our own internal interests to protect the health of our citizens. These are all taken into account. As we roll out this tobacco controls, we are quite confident that we are on strong grounds, to introduce these measures, particularly in the interest of population health.

Not quite reassuring, in my view.


Human Rights And Environment
According to the White House, the TPP "is one that is not only good for American workers, good for the American economy, but is one that includes the strongest, boldest human rights protections, labor protections and environmental protections we've seen in a trade deal."[12]

Can the Singapore Government stand up against US liberal activism?


Immigration

The US-Singapore FTA provides for the contracting parties to allow temporary entry to business visitors, traders and investors, intra-company transfers of managers, executives and specialists, and professionals, without requiring prior approval procedures, petitions, labour certification tests, etc. and generally without any numerical restriction.

It is not clear whether the TPP will have similar provisions.


According to the Office of the US Trade Representative, "TPP countries have substantially concluded the general provisions of the chapter [on Temporary Entry], which are designed to promote transparency and efficiency in the processing of applications for temporary entry, and ongoing technical cooperation between TPP authorities. Specific obligations related to individual categories of business person are under discussion."[13]


CONCLUSION
The US and Japan are the dominant nations — economically and politically — in the 12-member TPP. The remaining countries have little bargaining power when negotiating the TPP.

Japan's Minister for Economic and Fiscal Policy Akira Amari declared that a broad agreement on the TPP could be concluded at the ministerial-level meetings later this month; countries that were unwilling to reach an agreement (apparently Canada has not put forward any plans to lower its barriers to agricultural trade) could join the TPP later[13].


In the US-Singapore FTA negotiations, the Singapore Government capitulated after fierce lobbying by Wm Wrigley Jr Co and allowed the importation and sale of chewing gum with therapeutic value. Inasmuch as the value of chewing gum exports to Singapore was minuscule, it appears that the US simply wanted to make the point that it called the shots.

What has Singapore conceded in its desire to be part of the TPP?

What has Singapore conceded that it did not even know it has conceded in its desire to be part of the TPP?


Unfortunately, we will not know until it is too late.

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Notes

1. The 12 countries are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam.


2. OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE Outlines of TPP (viewed on 11 Jul 2015).


3. Broad TPP Deal 'Still Possible Without Unanimous Agreement' TODAY 15 Jul 2015.


4. SINGAPORE PARLIAMENT REPORTS (Hansard) 16 Sep 2013.


5. SINGAPORE PARLIAMENT REPORTS (Hansard) 21 Oct 2013.


6. DANNY HAKIM U.S. Chamber of Commerce Works Globally to Fight Antismoking Measures The New York Times 30 Jun 2015.


7. Ibid.


8. US CHAMBER OF COMMERCE Clearing The Smoke Around The Chamber's 'Tobacco Related' Advocacy 1 July 2015.


9. SINGAPORE PARLIAMENT REPORTS (Hansard) 9 Jan 2012.


10. SINGAPORE PARLIAMENT REPORTS (Hansard) 12 Mar 2013.


11. Ibid.


12. PETER BAKER As Obama Visits, Nike Links Trade Accord To New Hiring New York Times 8 May 2015.


13. OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE Outlines of TPP (viewed on 11 Jul 2015).

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