Not a Great Deal for Asia

The Trans-Pacific Partnership is best understood as President Barack Obama’s extension of the Bush-era doctrine of “competitive liberalization.” Frustrated with pushback at the World Trade Organization by nations like China, Brazil, India, and South Africa, the United States seeks a coalition of the willing to import a commercial framework that rewards private firms at the expense of the common good. That policy regime is ailing in the U.S. and gets worse when exported.

The Trans-Pacific Partnership (TPP) certainly isn’t about raising standards of living. The most ambitious estimates of the gains from the TPP suggest that participating nations will gain a mere one-tenth of 1 percent of the gross domestic product. Sixty percent of the projected gains go to Vietnam and the United States, and the other 20 percent goes to Malaysia—largely because the U.S. already has trade pacts with the other proposed big players in the TPP.

However, the proposed deal is far from popular in Asia. In exchange for the small portions of trade and growth that will go to some big exporters and foreign investors, each TPP nation will have to give up many of the policies they use to make trade and foreign investment work for employment, growth, and financial stability.

Two of the more strategic globalizers in recent years, the Vietnamese and Malaysian governments, played an important role in inserting their nations in the global economy and spreading the gains across their societies. Vietnam, a key destination for foreign firms to locate and re-export, has been able to translate that investment into employment and growth while also shielding itself from financial shocks. A major study by the Singapore-based Institute for South Asian Studies found that Vietnam’s attraction of foreign investment has increased both savings and capital formation, strongly contributing to the country’s China-like per-capita growth rates of well over 5 percent per year.

Unlike the United States, Vietnam has accomplished broadly distributed growth by such strategies as requiring joint ventures or local content standards that link food-processing industries to local farmers and connect global automotive and motorcycle industries with domestic providers of inputs. The institute’s analysis of foreign investment in Vietnam showed that these policies helped Vietnam’s rural society diversify into manufacturing and expanded employment and livelihoods.

Similar policies have helped fuel Malaysia’s industrial growth. Both Vietnam and Malaysia have prudently regulated cross-border financial flows to make sure investors don’t desert their nations with the whims of speculative global capital markets. In the wake of the East Asian financial crisis of the late 1990s, Malaysia put restrictions on transfers of capital out of the country. Though laissez-faire advocates attacked the controls at the time, these policies, according to the U.S. National Bureau of Economic Research, helped Malaysia recover from the crisis better than many other nations in the region. Standard & Poor’s found that similar measures in Vietnam helped cushion that country from the 2008 global financial crisis.

Vietnam and Malaysia, in sum, have a managed form of globalization that the TPP would undermine. Both countries have made themselves attractive to U.S. investors and exporters through government policies that have led them into global markets, spread the benefits of integration, and maintained financial stability. Yet the investment and financial-services provisions in the TPP would restrict the ability of these nations to use joint ventures, local content rules, and regulation of cross-border financial flows to spread benefits, stimulate local manufacturing, promote employment, and provide financial stability.

It may be difficult to grasp that the TPP could harm the broader economic interests of both the U.S. and smaller Asian nations. But if balanced development requires a managed form of capitalism, then a trade deal like the TPP, which strengthens investors and weakens governments, can harm Asians and Americans alike.

Look no further than Mexico, where the NAFTA agreement brought the opposite of what treaty-less Vietnam and Malaysia have achieved. As my own research with Tim Wise from Tufts University and Mexican economist Eduardo Zepeda has shown, that agreement has produced slow growth, weak domestic investment, anemic job creation, and increased economic vulnerability. All the while, foreign firms have been suing Mexico over government policies in the same private tribunals that are proposed under the TPP.

Before launching the TPP, the Obama administration named a panel of experts to report to the U.S. Department of State’s Advisory Committee on Economic Policy. We were to make recommendations to the administration regarding how to revamp the investment provisions in NAFTA–like deals. (I had the privilege of serving on the panel.) While the full panel could not agree on comprehensive recommendations, I joined a number of the experts to put together a document on changing U.S. trade agreements to enhance employment, democracy, and development. Among other things, we recommended that future deals replace the investor-led dispute system with the “state to state” process analogous to the rest of the treaty and the World Trade Organization’s procedures; strengthen provisions to ensure that treaties protect the environment and workers’ rights; and provide mechanisms to enable nations to regulate foreign capital.

In January 2011, more than 250 economists from across the globe told the Obama administration that trade deals that required nations to rip open their financial systems for footloose finance were out of step with economic research and a threat to financial stability both in the U.S. and in countries with which it trades. More than 100 economists exclusively from TPP countries echoed these concerns in a March 2012 letter urging TPP negotiators in Australia to leave nations with the policy space to deploy regulations on cross-border capital in the TPP.

In launching his Pacific initiative, President Obama promised to move away from the old model of U.S. trade deals toward one that “addresses new and emerging trade issues and 21st-century challenges.” Addressing employment generation, equitable growth, and financial stability should top the list of those challenges, but in the proposed TPP, the means don’t serve the proclaimed ends. The agreement grants too many rights to footloose firms and investors at the expense of the majority. ª

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