The fundamental idea of free trade agreements, reducing government barriers like tariffs – or taxes on trade – is undoubtedly a conservative, pro-growth concept. However, the 12 country Trans-Pacific Partnership (TPP) goes further than this, codifying a wide range of economic and regulatory rules.
While this means an opportunity to ensure the right rules are implemented in the global economy, TPP contains other rules that blatantly disregard important ideals, such as strong property right protections and equitable application of the rule of law. Before TPP can be passed, these problems must be addressed.
Last week, the administration took a step in addressing one issue with TPP by announcing a fix to the issue of data localization. Under the agreement, the financial services industry was excluded from rules protecting data, which would have drastically reduced their ability to safeguard vital, sensitive data, while imposing unnecessary costs on American business.
To address this, the administration says it will now include protections under the Trade in Services Agreement (TISA), an agreement currently being negotiated with 50 different partners. Admittedly this fix is not perfect as TISA does not include four members of TPP, Vietnam, Malaysia, Singapore and Brunei.
Even so, this change helps move TPP in a positive direction. But this must be considered step one. Before Congress can consider TPP, there are several other issues that must first be resolved.
Under TPP, the tobacco industry is explicitly excluded from the use of investor-state dispute settlement (ISDS), a “neutral, international arbitration procedure,” designed to act as a safeguard to ensure that countries do not skirt their responsibilities toward free, open trade.
Because the provision is self-executing, a country can impose protectionist regulations as long as it is somewhat related to production or consumption of the product. Including this carve-out sets the precedent that nation-states have the authority to selectively apply due process protections to certain industries. This must be fixed if TPP is to move forward.
Another problem with the agreement is its insufficient property rights protections. Under U.S. law biopharmaceuticals have access to 12 years of exclusivity, while TPP grants as little as five years.
The 12 year protection exists for a reason — it was legislated by Congress following careful consideration of the extensive development costs associated with medicines. On average, it costs researchers an average of $2.6 billion and more than ten years to take a new medicine through the pre-approval period. Once a medicine makes it through this long process, it is then subject to post-approval regulations, which collectively costs innovators over $20 billion each year.
Even though TPP contains a number of issues, it is important to stress that free trade is undoubtedly a positive force. TPP includes 18,000 tax cuts on American exports, and cuts $15 billion in tariffs over the next decade. A recent report by the International Trade Commission found that TPP will increase U.S. exports by $57.2 billion annually by 2032 and increase overall U.S. real income by $57.3 billion annually over the same period.
Clearly, there are real and strong economic benefits to pursuing this agreement. But before TPP is passed, it must be fixed to ensure that the rules set are fair, encourage innovation, and equally enforce rule of law.