Fix fundamental TPP flaws to fit 21st century

SCARSDALE, NEW YORK – The Trans-Pacific Partnership negotiations have been hijacked by lobbyists from America’s biggest manufacturing and agribusiness corporations, Silicon Valley high-tech firms and Wall Street’s “too-big-to-fail” banks.

Under the TPP, Wall Street will be able to circumvent the U.S. government regulations that discourage the fraudulent financial games that bankrupted more than 15 million Americans in 2008. The TPP will let large pharmaceutical firms and Silicon Valley IT firms prolong their patent monopoly profits. Manufacturing firms will more freely send their jobs abroad. Large agribusiness will fatten its profits and small family farmers in the U.S. and abroad will suffer.

In 1993, under the North American Free Trade Agreement (NAFTA), a precursor to the TPP, American supermarket chains rushed into Mexico and pulled in the produce of American big agribusiness. Mexico’s small farmers lost their domestic markets to American supermarkets’ imports of American agribusiness produce. Displaced Mexican peasants became undocumented migrant workers in the United States. U.S. manufacturing firms moved over 1 million jobs to Mexico, widening the income gaps between the top 1 percent and the rest of American households.

The Trade Adjustment Assistance (TAA) that was touted as a boon to American workers’ job retraining turned out to be a meager “burial insurance” for the abandoned workers. There were no new jobs available for the retrained workers. The “job protection rules” of the TPP are no better.

The TPP will have an international tribunal of private attorneys outside any sovereign nation’s legal system. This tribunal will compensate multinational firms for “unjust expropriation” of their foreign assets and profits deemed lost due to a sovereign host nation’s laws. Philip Morris is already claiming that Uruguay’s anti-smoking regulations have diminished its profits.

Under the TPP, global corporations will challenge any host government’s regulations and laws protecting consumers from unsafe products or unhealthy foods, investors from fraudulent securities or predatory lending, or the environment from toxic emissions.

The TPP promoters are using an obsolete 19th-century trade theory concocted by David Ricardo. He was a wealthy merchant in the British parliament and represented the rising industrialist class against the traditional landed gentry. Britain protected English wheat from cheaper French grains. The landed gentry wanted to continue the protectionism, but the industrialists wished to keep their wage payments low by importing cheaper French wheat.

To show the benefits of “free trade,” Ricardo argued, with an unrealistic numerical example, that even if Britain could produce both cotton and wine more cheaply than Portugal, both nations would benefit economically if Britain specialized in cotton and Portugal in wine and exchanged mutually their production surplus.

Immediately, an astute opponent replied, “Ricardo’s theory is relevant perhaps only to the man who was suddenly planted on a different planet where no ignorance, no restriction of trade, no taxes, no idle workers and no individual rivalry existed.”

In the 21st century, the three ingredients of a nation’s economic growth — namely capital, technology and information — travel around the globe at the speed of light. Wall Street’s financial economy is increasingly separated from the real economy and is destroying manufacturing jobs. Tax cuts to the wealthy and big business simply fuel their financial games. Import tariffs are already low. The international flows of manufacturing are determined by technological innovation, quality of labor, taxation systems, fluctuating rates of currencies, the natural environment, management attitude toward labor, labor laws and industrial policies, and quality of social infrastructure.

President Barack Obama says the TPP would help export U.S. cars to Japan. However, Japanese drivers are not buying American cars because of high tariffs or import quotas. Rather, they’re seen as too big for narrow Japanese roads and their quality and dealer services are considered inferior.

On the other hand, Obama’s rescue of Detroit was a resounding success only because Ford, GM and Chrysler emulated Toyota’s manufacturing skill and customer service. American import quotas on Japanese automobiles persuaded Japanese auto and parts manufacturers to make their products in the U.S. and train American labor to become just as productive and quality conscious as their Japanese counterparts. Japanese auto plants in America are exporting their products to Asia. Selective “protectionism” is necessary to protect labor, technological innovation and manufacturing skill of a nation’s strategic industry.

The emerging TPP is fundamentally flawed because its U.S. negotiation processes have excluded labor, environmentalist and citizens’ groups, and because its primary framework is the destructive private tribunal.

Furthermore, its hidden agenda is to contain China, the second largest economy of the world. But without China’s membership in the TPP, the trade and navigation route from the South China Sea to Northeast Asia — Japan, Taiwan and South Korea — will be exposed to China’s “saber-rattling.”

As shown by U.S.-China cooperation over global warming problems, the TPP must be built on the tripartite cooperation of the U.S., China and Japan. This framework would finally help Prime Minister Shinzo Abe acknowledge Imperial Japan’s wartime atrocities and reset its relations with China and South Korea. Then, the new TPP should be crafted to help the U.S. rebuild its manufacturing skill, employment and social infrastructure, and to help Japan modernize its agricultural sector.

Yoshi Tsurumi is a professor emeritus of international business at Baruch College, the City University of New York.