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

2. 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

3. 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.

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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