NS3040 Fall Term 2018 TPP: Arguments Against Federal Reserve Bank of Chicago, Strong Dollar Weak Dollar

Overview Jeffrey Sachs, The Truth About Trade, Boston Globe, October 17, 2016 Believes in expanded international trade, but is an opponent of TPP and TTIP – does not see a contradiction Reasons: Proposed treaties are more than trade agreements 1. Would also establish many important rules beyond trade Feels it would give too much power to large multinational companies 2. Trade policy should not be crafted in isolation from related budgetary matters that would ensure fairness of economic outcomes Largely allocations that would assist those displaced by the treaty

Trade Agreements I Scorecard on TPP, TTIP and other related policies need to track four components of international economics Trade in goods and services The movement of foreign capital – GM opening up a subsidiary to manufacture parts in Mexico The offshoring of jobs – Apple contracts Foxcomm to assemble iPhones in China Regulatory policies such as the terms of patents and copyrights Modern trade agreements are not just about trade, they include all four parts of the international economic system.

Trade Agreements II Two key aspects of trade 1. Efficiency – the size of the economic pie (GDP) 2. Distribution – how the pie is divided between capital and labor and among different groups of workers (those with college degrees versus the rest) Currently, expanding U.S. trade with lower wage countries does improve efficiency, but redistributes US economy pie Towards capital and highly educated workers away from less educated workers 2. For trade, the gains to the winners are usually large enough to compensate the losers Taxes on winners and transfers to losers would result in everyone being better off

Trade Agreements III Sachs complaint President Obama championed further expansion of trade to Asia and Europe without securing any fiscal agreement on further compensation of the losers. Same principle applies to gains and losses from foreign investment and offshoring –provision should be made to tax the winners and compensate the losers. Point: much of the controversy over TPP and TTIP has little to do with gains and losses of trade, foreign investment and offshoring Biggest controversies have to do with the regulatory framework that would be established by these trade agreements

Trade Agreements IV Some of the proposed clauses in TPP would strengthen intellectual property of the pharmaceutical industry Gives concerns that drug companies would have even greater monopoly power on their medicines Also protections to workers on labor standards and human rights may be too weak and insufficient. Main Problems however lie in Investor-State Dispute Settlement or ISDS Provisions establish right of foreign multinational companies to challenge the policies and regulations of host country governments Could recover large financial damages ISDS has given enormous, arbitrary and unfair power to multinational corporations

Trade Agreements IV ISDS procedures Foreign company’s complaint heard by an ad hoc, three-person tribunal Not bound by laws of host country or even precedents of ISDS tribunals No appeal Only foreign companies can use ISDS Domestic companies must go through the normal courts Trade unions and other groups have no protections under ISDS

Trade Agreements IV Original idea of ISDS was to prevent governments from expropriating foreign investments Now companies misusing ISDS to try to scare governments from making and enforcing environmental, public health, or labor regulations

Recommendations Recommendations Trade agreements should be voted up or down on their likely economic and distributional impacts – not on other factors such as national security As they stand, TPP and TTIP deserve to be voted down Should be: Reformulated to remove ISDS Combined with new tax and transfer mechanisms to bolster incomes of working class With these changes: economic pie could be enlarged with gains of trade shared more broadly across society public more likely to support agreements