EFN Asia 65, EFN panel at Jeju Forum 2017

The Economic Freedom Network (EFN) Asia participated once more at the annual Jeju Forum for Peace and Prosperity, a big international conference held at Jeju Island, S. Korea. I am reposting this report submitted to the organizers within an hour after the panel discussion. Originally posted at the EFN website.

I add two photos here, taken from EFN's fb page. From left: Wan, John, Razeen, Young-Han.

This is 3,200+ words, 7 pages, enjoy.
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Session Outline

Name of Session: Asia’s Contribution to the Global Open Market

Session Organizer: Friedrich Naumann Foundation for Freedom

Date: 1 June 2017, 14.50-16.20

Moderator: Dr. John Delury, Associate Professor, Graduate School of International Studies,

Yonsei University

Welcoming Remarks: Dr. Lars-André Richter, Head

Friedrich Naumann Foundation for Freedom Korea Office

Discussant(s)

Dr. Razeen Sally, Associate Professor,

Lee Kuan Yew School of Public Policy, National University of Singapore

Wan Saiful Wan Jan, Chief Executive

Institute for Democracy and Economic Affairs, Malaysia

Dr. Kim Young-Han, Professor,

Department of Economics, Sungkyunkwan University

Summary of Presenters & Discussants’ Remarks

Dr. Lars-Andre Richter

Friedrich Naumann Foundation (FNF) is a German non-profit organization, founded in 1958 post-war West Germany. The main goal at the time was to help re-establish democracy in West Germany. Shortly after, FNF opened offices abroad, including in Tunisia, India and Indonesia. The office in Korea was opened in 1987. We promote liberty in Korea through a variety of programs including democracy building, projects with market economy, human rights, rule of law and also the re-unification issue, bringing in the unique German experience of re-unification. In fact, FNF has projects in both Koreas. The North Korea program started in 2004, focusing on economic policy. The session today at the Jeju Forum is hosted by both FNF and Economic Freedom Network Asia (EFN Asia), FNF support’s network of liberal minded think tanks and individuals.

Dr. Kim Young-Han

Threat of the Protectionism by the US Trump Presidency

- Why Protectionism by the Billionaire US President?

Trump thinks that the current format of ‘the Global Open Market System’is unbearable and unsustainable for the US blue collar workers. Are US blue collar workers simply irrational? No, they are absolutely rational.

- The US blue collar workers know that there is not and will not be an effective trade adjustment assistance system in the US. Winners get everything with no room for losers in global open market according to the US experiences. (The same with the Brexit case.)

- How much of a threat caused by the Trumpian Protectionism?

Very threatening and disastrous. If Trumpian Protectionism is spilled over to major trading countries, the global trade war is the next stage, just like the experience before the two World War. The current one-sided protective measures of the US are highly likely to provoke retaliatory measures from trading partners.

- Is Trumpian Protectionism Sustainable?

Not really, since it’s self-defeating. Why? The source of gains from free trade: Efficiency Gains via Reallocation of economic resource from inefficient sectors to efficient sectors. In the US, without the effective trade adjustment assistance mechanism, resources in the inefficient sectors became laid-off instead of being reallocated. What Trump tries to do is to keep inefficient sectors protected as inefficient, which is self-defeating and unsustainable. He suspects Trump will realize this after 3-4 years.

- Can other powers fill in the US role?

The Share in the Global Trade: EU takes roughly 40% of the world trade, followed by Asia which takes 33%, and North America (17%). If the US goes back to protective regime, it is bad, while the other players can keep the remaining 83% under free trade regime. The EU might play a more meaningful role in leading the global free trade regime and also Asian powers like China. But he does not think so.

- The requirements for the leadership the global free trade regime: Leader has to prepare itself and operate on a rule-based trade policy and National Treatment for all players (treat all players as domestic players). The EU is more prepared, but not China. Furthermore, Big Players with market power are likely to resort to bilateral arrangements based on one-sided bargaining power. Therefore, relying on a multilateral platform is better than relying on a big guy leading power. Rebuilding the Multilateral Free Trade Regime via WTO is the solution.

The Role of Asia in Rebuilding the Global Free Trade Regime

- Datawise, Asia takes significant market power, i.e. 33% of the global trade. Historically speaking, all Asian countries’ economies, such as Japan and South Korea, have emerged via the global free trade regime with no regret against the multilateral free trade regime, WTO. A multilateral free trade regime as WTO is welfare dominant to a single country leadership (by whether the US or China). Asia has kept the spirit of multilateral or plurilateral free trade regime via ASEAN and ASEAN+3, and even ASEAN +6. Asian economy with her complexity in terms of diverse stages of economic development and asymmetry of economic size and power works as a miniature of the global economy with gradual and sustainable unit of economic integration.

- Condition for “Sustainable Global Open Market System”

i) Effective Trade Adjustment Assistance Mechanism: Losers (i.e., workers in the importing competing sectors with comparative disadvantages) should be reallocated to Winners’ sectors (jobs in the export sectors with comparative advantages) via Effective Trade Adjustment Assistance Mechanism.

ii) Multilateral Free Trade Regime with strong surveillance and reputation building mechanism with respect to the Big Guys with market power.

Dr. Razeen Sally

He has three main points to make. First, where we are in the global economy, particularly on trade. Second is on protectionist threat. Third is on what can be done in and by Asia to keep the market open.

- Where are we in the global economy?

Economic globalization has not been reversed, since the global financial crisis, but it has stalled. There has been a global growth slowdown. Trade to GDP worldwide has not increased, since about 2006. Foreign direct investment flow has decreased, since the crisis Cross-border flow of finance has Decreased considerably, as expect from the global financial crisis.

- But particularly on trade, something unusual is going on. Since the beginning of 19^th century until 2008, world trade grew faster than world output, which is the indication that trade is the engine of growth. But since 2012 until the end of 2016, trade growth barely kept pace with world GDP growth at about 3 percent or less. This is highly unusual and tends not to happen except in war and deep recession. This is particularly worrisome for Asian nations, whom depend on exports. But still too early to tell if this is a new trend.

Free Trade 65, On the US withrawal from the TPP

Last month, US President Donald Trump issued this Memorandum to the US Trade Representative. Part of it said,

“it is the intention of my Administration to deal directly with individual countries on a one-on-one (or bilateral) basis in negotiating future trade deals. Trade with other nations is, and always will be, of paramount importance to my Administration and to me, as President of the United States.

Based on these principles, and by the authority vested in me as President by the Constitution and the laws of the United States of America, I hereby direct you to withdraw the United States as a signatory to the Trans-Pacific Partnership (TPP), to permanently withdraw the United States from TPP negotiations, and to begin pursuing, wherever possible, bilateral trade negotiations to promote American industry, protect American workers, and raise American wages.”

Global media outlets, even free market groups and leaders called this act as "US protectionism" and I disagree with this assessment. The US, the EU, ASEAN countries, all other countries in the planet have their own sets of protectionism, usually in the form of non-tariff barriers (NTBs) or non-tariff measures (NTMs). But withrawal from a regional free trade agreements (FTAs) = protectionism?

The purpose of regional  FTAs is to have free trade, freer mobility of services/people among member-countries in the region while retaining or expanding protectionism to non-member economies. Thus, the Trans Pacific Partnership (TPP) is free trade, zero tariff among the 12 member countries across the Pacific but not to other countries outside the agreement.

I see four implications of this move by Mr. Trump.

1. "Trade diversion" from non-members to TPP-members won't happen anymore. TPP is US + 11 other countries, of which 4 are from the ASEAN (MY, SG, VN, BR). So others not included in the TPP (ID, TH, PH, CM, SK, TW, etc) that are supposed to experience lower trade with the US will be spared of some negative effects due to trade diversion. http://www.bbc.com/news/world-us-canada-38721056

2. The biggest winners may be Asian countries that were left out of the  TPP (PH, TH, ID,...) and not China, so this article is wrong. https://hbr.org/.../if-trump-abandons-the-tpp-china-will...

Papers by Dr. Ramon Clarete of UPSE, Dr. Cesar Cororaton (formerly with PIDS, now in a US university) have computed the trade diversion effect. Something like -0.3 to -0.6% of potential GDP reduction in Asian countries not part of TPP.

3. More countries will realize that they need to push the multilateral, global free trade agenda under the WTO, instead of creating or expanding regional FTAs. If they can't do (a) multilateral free trade or (b) regional free trade, then (c) unilateral trade lib will become more attractive to them. ASEAN countries have done this step, across the board reduction in tariff even for non-ASEAN countries, but not towards zero tariff though, unlike SG and HK.

4. Japan will be pushed to the front to lead the TPP, http://www.wsj.com/.../japan-to-keep-pushing-free-trade....While China will continue pushing for RCEP, much bigger than TPP.

So, does stepping back from a regional FTA like TPP automatically means protectionism? If yes, how to explain HK which does not seem to belong to any regional FTA in the planet except with China, and HK is the most free trade economy in the world?

Stepping back from a regional FTA (TPP, TTIP, EU, NAFTA, AFTA, MERCUSOR, etc) may mean expanding free trade with more countries outside the region. Of course it may also mean further protectionism.

Bilateral FTA means that trade deals will be customized with each country's security and diplomatic offers or services. I think this means that there will be more trade and business diplomacy, less military/climate/political diplomacy. The top US diplomat, State Sec, is a big businessman, not big politician or big foreign affairs bureaucrat.

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See also:

Free Trade 62, IDEAS supports TPP Agreement for Malaysia, January 30, 2016 

Free Trade 63, Dealing with anti-trade lib, anti-TPP activists, February 06, 2016 

Free Trade 64, PH experience in manufacturing growth, November 04, 2016

BWorld 64, The WTO and trade agreements

* This is my article in BusinessWorld last June 13, 2016.

Free trade means free individuals and a free society.

People who cannot find certain goods and services at specific quality from local producers given their limited personal or household budget may be able to find those from foreign producers. And people who cannot sell their products or services to local buyers may find those buyers abroad.

And this highlights the beauty of free trade: No trade will occur unless both parties, the buyer and seller, will benefit. There are losers and gainers in free trade of course, the same way that there are losers and gainers in no trade (autarky) or restricted trade. Overall, there are “net gains” in free trade where the advantages outnumber the disadvantages.

Global free trade is supposed to be facilitated by the World Trade Organization (WTO) when it was created in 1995. But 21 years later, this is far from happening.

Regional trade agreements (RTAs) and even trans-continental agreements were invented such as the ASEAN Free Trade Area (AFTA), Regional Comprehensive Economic Partnership (RCEP), and the Trans-Pacific Partnership (TPP).

This topic was discussed during the recently concluded big annual international conference, “Jeju Forum for Peace and Prosperity 2016,” held in Jeju, South Korea. The forum also had a panel that had the theme, “Trans-Pacific Partnership: an Assessment of its Political Economy” sponsored by the Friedrich Naumann Foundation for Freedom (FNF) and the Economic Freedom Network Asia (EFN Asia) last May 26, 2016.

The discussion moderator was Dr. John Delury, Associate Professor at the Graduate School of International Studies, Yonsei University, Seoul, South Korea. The discussants were Dr. Sethaput Suthiwart-Narueput, Executive Chairman of the Thailand Future Foundation (TFF), Kwon Tae-shin, President of the Korea Economic Research Institute (KERI) in Seoul, and Dr. Keisuke Iida, Professor at the University of Tokyo Graduate Schools for Law and Politics, Japan. The opening remarks was given by Dr. Lars-Andre Richter, Resident Representative of FNF Korea Office.

Panel Rapporteur was Pett Jarupaiboon, who is also the also the Program Manager of EFN Asia, based in Bangkok, Thailand. Pett shared his notes with me.

The three discussants are all liberal economists and are pro-free trade, pro-WTO, but they disagree and debate on the role of the TPP.

In particular, Mr. Kwon and Dr. Iida were critical of the WTO because of the lack of progress in global free trade. Dr. Sethaput argued that RTAs like TPP would undermine the progress of the WTO.

Here are the main arguments of the discussants.

(1) Mr. Kwon, KERI, South Korea. TPP members will enjoy an increase in exports and income from an enlarged market size, and they will also enjoy more consumer welfare due to a decrease in import prices and intensive competition. According to a recent study by the Peterson Institute for International Economics, if TPP takes effect in 2017, the GDP of TPP member countries is likely to increase by 0.5%-8.1% in 2030, compared to the GDP forecast in an event of non-adoption of TPP.

(2) Dr. Iida, Univ. of Tokyo, Japan. TPP has a rule-making function, and these rules as provided in international relations as well as who wrote them are important issues. For the US, joining TPP is part of a larger strategy of “pivoting” to Asia or rebalancing to Asia. The US was preoccupied with the wars in Afghanistan and Iraq and was not paying enough attention to Asia. Therefore, TPP was part of the toolkit to achieve this new policy for the Obama Administration. For Japan, which has to rely on the US for security, TPP meant mending the fences with the US following a series of recent frictions including the planned relocation of one of the most important marine bases in Okinawa to outside Okinawa.

He added that TPP is seen to benefit Japan, projected at 2.6% of GDP (accordingly to the Cabinet Office), a significant number considering that its potential growth rate minus TPP membership is mere 0.5%.

(3) Dr. Sethaput, TFF, Thailand. A multilateral system with non-preferential treatment covering many countries like the WTO is better than mega-regional trade regimes like TPP and RCEP. Why?

(a) TPP is subject to the usual problems of trade diversion: increased trade among members, lesser trade with non-members.

(b) TPP is not just about trade, it also includes other issues like investor and intellectual property protection, labor and environmental standards, etc.

(c) The investor-state dispute settlement (ISDS) mechanism provides international arbitration that benefits US corporates. The US Trade Representative notes on its Web site that “the United States has never lost an ISDS case.”

(d) RCEP is a better alternative, has less non-trade baggage, uses the best elements of the multilateral system, like WTO dispute settlement, TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rights).

(e) Ultimate goal should be the Free Trade Area of the Asia-Pacific, which includes all the existing members of APEC including China and Russia. This can be achieved through either expanding the TPP or merging TPP and RCEP.

Personally, I believe that the best trade policy is unilateral trade liberalization. Be friends to all countries and economies who can bring in the best products and services at best qualities and at the best or most competitive prices into our shores and shops. This will bring down the cost for all local manufacturers in need of cheaper capital goods, cheaper raw materials, and intermediate products, which will result in cheaper production processes. Local consumers will also benefit for obvious reasons. And those countries will likely return the favor with zero or very low tariff for Philippine exports too.

Since this is far from happening, the second best policy is multilateral and global free trade. This is not happening too. So the third best policy is joining mega-RTAs like the TPP and RCEP. The worst policy of course is autarky or no trade, or even very restricted trade.

The Philippines and all ASEAN members are already RCEP members. The Philippines should proceed applying for TPP membership. The dreaded provision ISDS is actually important and useful. It simply protects foreign investors who come to other TPP member-countries based on TPP rules, when other member-countries will suddenly change the rules midway. The ISDS in effect will help prevent members from arbitrarily changing rules on trade, investments, IPR, competition and other policies.

Bienvenido S. Oplas, Jr. is a Fellow of SEANET, President of Minimal Government Thinkers, which is a member of EFN Asia.

minimalgovernment@gmail.com

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See also: 

BWorld 2, Benefits of Trade Liberalization for the Philippines, May 16, 2015 

BWorld 7, Free Trade vs.Protectionism via Non-Tariff Measures, June 26, 2015  

BWorld 12, Investments, APEC and economic liberalization, July 25, 2015 

BWorld 18, Non-tariff barriers in the ASEAN, September 12, 2015 

BWorld 23, ASEAN trade bureaucracies and Doing Business 2016 Report, November 07, 2015

BWorld 44, Why the Philippines should join the TPP, February 19, 2016 

BWorld 48, On unilateral trade liberalization, March 17, 2016

BWorld 59, Free trade and Norwegian salmon, May 28, 2016

BWorld 62, Unemployment and underemployment data may be overstated, June 08, 2016 

BWorld 63, Can renewables only power the PH and Asian markets? June 10, 2016

EFN Asia 61, Panel on TPP at Jeju Forum 2016

Reposting this Rapporteur's report of the EFN Asia panel discussion at the Jeju Forum for Peace and Prosperity 2016, published at the EFN website. Pett Jarupaiboon was the panel Rapporteur.
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EFN ASIA AT JEJU FORUM 2016: TPP AND ITS POLITICALECONOMY

Monday, 13 June 2016

The Jeju Forum for Peace and Prosperity (Jeju Forum) addresses stability and security issues in Asia through international cooperation and the participation of various leading think tanks, academics, and leaders in the field. An annual event, the forum brings together thousands of participants from all over the world to the International Convention Center in Seogwipo on the beautiful island of Jeju.

The Economic Freedom Network in Asia (EFN Asia) with support from the Friedrich Naumann Foundation for Freedom (FNF) co-hosted a panel discussion at this year’s event (May 25-27, 2016) titled “The Transpacific Partnership (TPP): An Assessment of its Political Economy on the occasion of this year’s Jeju Forum for Peace and Prosperity”.

The Panel was moderated by Dr. John Delury, Professor at Yonsei University, Seoul. The discussion brought together venerable experts in the field: Kwon Tae-Shin, President of Korea Economic Research Institute and Former Minister of the Prime Minister’s Office; Dr. Iida Keisuke, Professor at University of Tokyo, Graduate School of Law and Politics; and Dr. Sethaput Suthiwart-Narueput, Executive Chairman of the Thailand Future Foundation. Prior to the the panel discussion, H.E. Rolf Mafael, German Ambassador to South Korea gave his opening remarks and congratulatory speech.

It has been a long tradition for EFN Asia with the support of FNF to host a session at Jeju Forum. Besides the participation of global leaders in both the public and private sectors, one of the main highlights of this year’s forum was also the presence of Ban Ki-Moon, Secretary General of the United Nations as a keynote speaker at the main opening session.

The Trans-pacific Partnership (TPP) is the biggest free trade bloc accounting for 40 percent of global GDP and one-third of world trade. It was launched last year amidst both hope and skepticism as it poses economic opportunities as well as political and social challenges. In addition to removing traditional trade obstacles at an unprecedented level, the agreement goes much broader to embrace contentious issues including the environment, intellectual property and the investor-state dispute settlement. Additionally, as often is the case with free trade agreements (FTAs), there are important US geopolitical objectives towards Asia.

While most liberal economists generally support the concept of free trade, viewpoints on TPP can differ as the panel discussion elucidated. While it can be viewed that the World Trade Organization (WTO) plays a significant role towards the progress/acceptance of TPP, some of the criticisms towards WTO has been their lack of progress on a similar front. Contrastingly it was argued that reservations toward TPP stems from the fact that preferential agreements like this would undermine the progress of WTO.

According to Mr. Kwon Tae-Shin, TPP members will enjoy an increase in exports and income from an enlarged market size, and they also will enjoy more consumer welfare due to a decrease in import prices and intensive competition. A recent study by the Peterson Institute for International Economics projected that if TTP takes effect in 2017, the GDP of TPP member countries will likely increase by 0.5~8.1% by 2030, compared to the GDP forecast in an event of the non-adoption of TPP.

Dr. Keisuke mentioned that President Obama emphasized the rule-making aspect of TPP. Certainly, what kind of rules we have in international relations and who gets to write these rules are very important issues, and hence, this rule-making aspect of TPP is certainly important. For the United States, joining TPP is part of a larger strategy of “pivoting” to Asia or rebalancing to Asia. There was recognition that the United States was preoccupied with the wars in Afghanistan and Iraq and was not paying enough attention to Asia. Therefore, TPP was part of the toolkit to achieve this new policy for the Obama Administration. For Japan, who relies on the United States for security, TPP meant mending the fences with the United States following a series of recent frictions, including those arising from the planned relocation of one of the most important marine bases in Okinawa to outside Okinawa. From an economic perspective, TPP will significantly benefit Japan as well. The economic benefits, which amount to 2.6% of GDP (accordingly to the Cabinet Office), are a significant payoff to a country whose potential growth rate is a mere 0.5%.

Dr. Sethaput expressed his support for a multilateral system with non-preferential treatment like the WTO to mega-regional trade regimes like TPP and RCEP. He argued that when talking about the pros and cons of TPP, it is important to distinguish whether we are talking about the region as a whole or individual countries.  While individual countries in the region can and do benefit from preferential access under TPP, most countries in the region as a whole—especially the developing ones—would be collectively better served by greater progress in multilateral liberalization under the WTO.  This is due to several reasons. First, TPP is a preferential trading arrangement, and therefore subject to the usual problems of trade diversion. Second, TPP is not just about trade, but has a whole lot of other issues included (investor and intellectual protection, labor and environmental standards, etc.), a lot of which are not necessarily in the interests of developing countries. Third, they have less bargaining power, as reflected by the sequential bargaining approach taken by the United States in its negotiations as well as some of the features of the agreements on standards and dispute settlement.

Undoubtedly, TPP will significantly increase trade between its members. However, it is worth noting that the benefits gained by each member country will be much different. The effects it has on non-members are also significant. Taking Japan’s example, TPP meant mending with the United States. There were strains in the U.S.-Japan relations from 2009 to 2010, involving the relocation of one of the most important marine bases in Okinawa to outside Okinawa. This issue infuriated some policymakers in the U.S. government, and their bilateral relations faced a crisis. However, strengthening a relationship with an ally comes with some costs, especially for those countries that are outside this agreement. Putin is said to be very critical of TPP.

As far as trade is concerned, there is no inherent trade-off between different trading arrangements. Japan and ASEAN countries are still negotiating RCEP in good faith, and no one has so far turned their back on the RCEP. Inevitably, the degree of trade opening through RCEP will be lower than that achieved through TPP, but still it is worth trying. Eventually, our ultimate goal should be the Free Trade Area of the Asia-Pacific (FTAAP), which includes all the existing members of APEC. And this could be achieved through either an expansion of TPP or the merging of TPP and RCEP. At this point in time, it is hard to say which is more likely. Concerning WTO, on the one hand it has had a salutary impact on the global trading system. Legally, it is most advanced. Also, the dispute settlement system it possesses is very valuable. On the other hand, it has had a very poor track record in facilitating trade negotiations and how to bring the Doha Round to a satisfactory conclusion without incurring a reputation that it ended in a failure is a big question to consider.

Thailand, according to Dr. Sethaput, has the unfortunate distinction of being the country that is usually estimated to lose out the most from not being in TPP, but the losses are not that huge: around 0.9% of GDP cumulatively through 2030, or a CAGR of less than 6 basis points. Most of the potential gains from joining are on the trade front and the improved market access for Thailand from TPP is not that significant. First, Thailand already has FTAs in place for 75% of the trade it does with TPP countries.  The countries Thailand does not have FTAs with include the United States, Mexico, and Canada, and these three collectively account for about 10% of it exports.  Second, tariffs on many of the things Thailand export to the United States are not that high to begin with.  Third, the reduction in tariff and non-tariff barriers in the United States under TPP for key export categories for Thailand will not be that rapid, if what was offered to Malaysia is any indication (e.g., 0% in autos in 10 years). The possible indirect benefits to FDI are probably more important but also more difficult to assess.

Dr. Sethaput also pointed out the less visible costs, especially in the investor-state dispute settlement (ISDS) mechanism.  Under TPP, the ISDS provides international arbitration in the way that benefits US corporates. The US Trade Representative (USTR) notes on its website that “the United States has never lost an ISDS case.”  Issues like fairness and equal treatment under the law are sensitive ones.  Excessive corporate recourse to arbitration has already started to raise concerns in domestic court cases in the United States. In relation to WTO, he argued that the world as a whole would be much better served by greater progress under WTO.  But mega-regional trading agreements (RTAs) like the TPP or RCEP undermine the multilateral trading system. We decide to participate in RTAs because we cannot conclude Doha, and we cannot conclude Doha because we decide to participate in RTAs. Also, even if one believes that WTO is dead and that RTAs are the only game in town, RCEP is a better alternative. It is the one loaded with much less non-trade baggage and at the same time, making the best use of the best elements of the multilateral system (e.g. WTO dispute settlement, TRIPS).  At the very minimum, this would help to enhance limited bargaining power that countries have under TPP.

Turning to Korea, according to Mr. Kwon Tae-shin, export is an essential element to sustain the Korean economy. Korea’s dependence on exports (exports/GDP) was 53.9% as of 2013, nearly twofold the average of OECD, which stood at 28.7%. Its dependence on foreign trade was also 102.8% as of 2013, which was significantly above the average of OECD: 57.7%. It is necessary for Korea to expand its trade through international agreements such as TPP. The negative effects of non-participation in TPP are greater than participation.  Especially, it may possibly leave Korea behind in competition with Japan, which is a TPP member country and one of Korea’s main rivals in various manufacturing industries. Additionally, TPP pursues high standard FTA, and it strictly complies with international norm including anti-corruption, institutional transparency, investment & the protection of intellectual property, labor & environment related rules, etc. Those requirements actually make developing countries reform their local laws and institutions and accept global standards, which will become institutional strength of those developing countries in the long run.

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See also: 
EFN Asia 22: Dealing with Economic Nationalism, Jeju Forum 2013, June 03, 2013
EFN Asia 38: Report on Globalization and Inequality, Jeju Forum 2014, June 02, 2014 
EFN Asia 48: Report on Free Market Environmentalism, Jeju Forum 2015, May 29, 2015 
EFN Asia 54, Sethaput Narueput on economic freedom and poverty, December 16, 2015
EFN Asia 60, Conference 2014 in Hong Kong, part 5, April 03, 2016

ALF 7, Panel on TPP, RCEP and other RTAs

I am reposting this article from the EFN Asia website, written by a friend, Sethaput. One of those pro-free trade but anti-TPP papers.

As a free marketer like Sethaput, for me, the best action is unilateral, one-way trade liberalization. Just give the consumers and producers more choices, more options, more freedom where and whom to buy or sell. This is unpalatable to many sectors of course, similar to advocating significantly shrinking governments and foreign aid institutions, so its chance of being adopted is very small.

So the second-best solution is multilateral, worldwide liberalization. But this is not happening too, look what's happening at the WTO negotiations, 21 years after it was created in 1995. So the third-best solution is regional liberalization via regional trade agreements (RTAs) like the ASEAN FTA (AFTA), ASEAN Economic Community (AEC), Regional Comprehensive Economic Partnership (RCEP), and the Trans Pacific Partnership (TPP).

The no-no option or solution is protectionism, via high tariff or various non-tariff barriers (NTBs) and restrictions.

Photo below, during the panel discussion at the ALF, 19 February 2016.
From left: Julian Morris of Reason Foundation (US) as session chair/moderator, Sethaput (Thailand), Vivek Dehejia, IDFC Institute (India) and Razeen Sally, IDEAS Chair in Political Economy and Prof. at the National University of Singapore (he's Sri Lankan).

TPP, RCEP, FTAAP …ARE THEY REALLY GOOD FOR DEVELOPINGCOUNTRIES?

Monday, 14 March 2016

Dr Sethaput Suthiwart-Narueput

Thailand Future Foundation (www.thailandff.org)

(Remarks delivered at Asia Liberty Forum (ALF), 18-20 February 2016, Kuala Lumpur. Remarks represent the views of the author and not necessarily those of the Foundation; sethaput@thailandff.org.)

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Let me start with a few general observations on whether regional trading agreements (RTAs) are good for developing countries, before moving specifically to the Trans Pacific Partnership (TPP).

First, RTAs are not as good for developing countries as multilateral liberalization under the WTO.  Although they are often inappropriately called “free trade agreements,” these RTAs are really preferential trading agreements, and subject to the usual problems of trade diversion and complicated rules of origin.  While individual developing countries may benefit from the preferential access offered by RTAs, developing countries collectively as a group would be much better served by greater progress in multilateral liberalization.

Second, recent RTAs like the Trans Pacific Partnership (TPP) are not just (or mainly) about trade, but about a whole lot of other things, many of which are not in the interests of developing countries.  As Jeff Sachs has noted, the TPP is really 4 deals in 1, encompassing a preferential trading agreement; regulatory standards for trade; labor and environmental standards; and regulations covering investor protection, intellectual property (including the expansion of copyright and patent coverage), and service sectors.  As such, the bulk of the 30 or so chapters of the TPP agreement are not really about trade.  With the TPP, we seem to have gone from trade agreements with some standards and other non-trade related baggage thrown in, to an agreement on standards and regulations with some trade thrown in.  As noted by many economists, much of this shift has probably been driven by US corporate interests: “The TPP and TTIP seem to be about corporate capture, not liberalism[1]” (Rodrik, 2015); “[TPP] is largely about Hollywood and pharma rather than conventional exporters[2]” (Krugman, 2015).

Third, by design, developing countries typically have much less bargaining power under RTAs than multilateral agreements.  The TPP is no exception.  As Jagdish Bhagwati has noted, the US managed to obtain better terms by sequentially bargaining with smaller countries first before essentially offering a “take it or leave it” deal with larger countries such as Japan.  The asymmetry in bargaining power is reflected in the very language of the agreements.  In the side agreement on labor standards between the US and Malaysia under the TPP, for example, the words “Malaysia shall” appeared 34 times while the words the “US shall” appeared zero times.  Perhaps in the spirit of partnership, the words “Malaysia and the US shall” did manage to appear together once, in the context of securing funding for some technical assistance.

More worrisome, the lack of bargaining power extends to dispute settlement.  Under the multilateral system, developing countries have recourse to the WTO dispute settlement mechanism.  By contrast, under the TPP, the Investor-State Dispute Settlement System (ISDS) provides international arbitration to “ensure that Americans doing business abroad receive the same kind of protections…that are available to companies and investors doing business in the US under US law.”  The US Trade Representative (USTR) helpfully goes on to note on its website that “the US has never lost an ISDS case.  We have had only 13 cases brought to conclusion against us and the US has prevailed in every case.”  Not surprisingly, the lack of favorable outcomes has deterred others, with only one new case brought against the US in the last five years.

Fourth, nevertheless, individual developing countries can and do gain from RTAs.  Estimates by both the World Bank and the Institute of International Economics (IIE) using computable general equilibrium (CGE) trade models of the net benefits to Vietnam and Malaysia from joining the TPP are on the order of around 8+% of GDP cumulatively through 2030, though these estimates are likely to be on the high side for reasons discussed further below.  At the same time, other countries in the region, notably Korea and Thailand, lose out from not being in the TPP.

Let me now turn to the next part of my remarks and try to answer the following question:  In light of the above observations, what position should an old-fashioned, liberal economist from a developing country in Asia take in good conscience towards the TPP?

This is not such an easy call.  Do we tap into our collective or national conscience?  The TPP undermines the multilateral approach and thereby yields an inferior collective outcome for developing countries.  But despite very uneven bargaining power, it can generate benefits for the individual developing countries who decide to join the club.  Do we give greater weight to politics or principles?  Trade agreements have an unfortunate tendency to bring out a wide variety of NGOs and special interest groups in protest, for protectionist or other reasons.  Bedfellows matter.  If we take a position against the TPP, do we want to be seen to be allied with such protectionist interests?  Alternatively, do we want to be seen supporting a RTA like the TPP which has such illiberal parentage and baggage?  The TPP extends copyright and intellectual property (IP) protection far beyond the WTO TRIPS guidelines.  The TPP also seeks to impose higher environmental and labor standards on trading partners in an attempt to promote what it sees as “fair trade.”  But what does it really mean for trade to be “fair”?  The USTR provides some insight into its thinking on this question on its website: “When the rules are fair, Americans can out-compete anyone in the world.”  A corollary must be that if Americans can’t compete, then trade by definition isn’t fair!

On balance, this old-fashioned liberal economist from Asia would tend to say “no” to the TPP, for reasons of both principle and pragmatism.  Why?

First, principles and precedents matter.  We should not abandon the principle that RTAs should be first and foremost about trade and establish a precedent whereby RTAs are commonly and excessively loaded with all manner of other non-trade related baggage.  As Jagdish Bhagwati has written in the context of India and the TPP:

“We are open to trade liberalisation in PTAs but we will not sign on to all the non-trade features built by US lobbies into the TPP under the pretence that these are the marks of a ‘modern’ trade agreement.  Thus, if we want to join a golf club, we must know how to play golf; but we cannot be expected to go to Church and sing madrigals with the other members! – Jagdish Bhagwati[3]

The TPP risks undermining other principles as well.  In a “governance-challenged” region such as Asia, probably the single most important principle to uphold is the rule of law.  However, the TPP provides a means for US corporations and investors to circumvent the rule of law by resorting to arbitration under the ISDS mechanism.  What kind of signal does this send regarding equal treatment under the law?  Excessive corporate recourse to arbitration has already started to raise such concerns even in domestic court cases in the US.  Think of how easy it would be to fan the flames of protectionism here in Asia by claiming that these trade agreements provide one law for locals but another for foreigners.

Second, from a purely pragmatic standpoint, the economic gains and losses from TPP for individual countries are not all that large and are probably less than commonly supposed.  Let’s start with the losses.  Thailand has the unfortunate distinction of being the country that is usually estimated to lose out the most from TPP, but even here the losses are not huge: only around 0.9% of GDP cumulatively through 2030, or a CAGR of less than 6 basis points.  If I were to compromise my liberal economic principles, I would want to do it for more than just 6 basis points.  What about the gains?  The devil is in the details as each country’s circumstances are different, but chances are that the gains to a Thailand or Indonesia would be less than those to Malaysia and Vietnam just because new entrants to the TPP would have to negotiate with all the other signatories.

Of course, for many signatories, geopolitical and other non-economic considerations are likely to be an equally important part of the TPP calculus.  But there are several reasons for believing that the estimated gains to signatories might be less than commonly supposed.  First, not surprisingly, the estimated gains focus solely on the stuff that can be quantified, basically trade and investment flows.  The models and estimates pretty much ignore the much more difficult to quantify effects of the TPP such as the higher labor and environmental standards, much tighter IP protection, and ISDS.  But just because these effects are difficult to quantify doesn’t mean that they have zero cost to developing countries.  Second, the models rely on historical time series data for their calibration, data which may not reflect future prospects.  The World Bank model, for example, relies on data up to 2011.  But trade growth prior to 2011 was much higher than it is today or it is likely to be going forward for some time.  Less trade means less gains from trade which probably means less benefits from TPP.[4]

This brings me to my last point.  Mega-RTAs like TPP, TTIP or RCEP undermine the multilateral trading system.  A dangerous, self-fulfilling dynamic is created.  We decide to participate in RTAs because we can’t conclude Doha and we can’t conclude Doha because we decide to participate in RTAs.  Big trade deals get a large amount of policy and public attention and eat up a lot of political capital.  Do we really want to use what scarce political capital we have for an illiberal trade deal like the TPP?  Even if we were to believe that the multilateral route is dead and that RTAs are the only game in town, we should make sure that we choose the best game for us.  Why not try instead to work on RCEP to make it the best of all possible RTAs, one loaded with much less non-trade baggage and one which makes best use of the best principles and elements of the multilateral system?

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[1] Dani Rodrik, “The Muddled Case for Trade Agreements,” Project Syndicate, 11 June 2015

[2] Paul Krugman, “TPP at the NABE,” NY Times Blog, 11 March 2015

[3] Jagdish Bhagwati, “India should not toe the US line on the Trans-Pacific Partnership,” Hindustan Times, 28 Sep 2015

[4] A third and more subtle reason has to do with the specification of the baseline or counterfactual scenario.  As is typical, most of the modeling effort and attention is focused on analyzing the policy scenario at hand, i.e., TPP.  But the baseline is equally important in determining the size of the estimated gains since the gains are just calculated as the difference between the TPP and baseline scenarios.  But what if the right baseline scenario to use is a world where multilateral liberalization is more successful?  Or if RCEP is quickly implemented?  The corresponding gains from TPP would probably be reduced.

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See also:

ALF 4, Conference 2016 in Kuala Lumpur,January 09, 2016 

ALF 5, Meeting of Property Rights Alliance in KL, February 19, 2016 

ALF 6, Panel discussion on property rights, February 23, 2016

Free Trade 61, Unilateral liberalization in Pakistan, January 29, 2016
Free Trade 62, IDEAS supports TPP Agreement for Malaysia, January 30, 2016 

Free Trade 63, Dealing with anti-trade lib, anti-TPP activists, February 06, 2016

BWorld 44, Why the Philippines should join the TPP, February 19, 2016
BWorld 45, Asia Liberty Forum and property rights, February 20, 2016

BWorld 41, OFWs, cheap oil and the TPP

* This is my article in BusinessWorld last February 04, 2016.

Labor mobility and migration across countries and continents is a result of push and pull factors in both the labor exporting and labor importing or receiving countries. Labor-surplus countries generally have lower wages and labor skills due to limited employment opportunities while labor-deficit countries generally have higher wages and skills training.

If labor migration is heavily restricted via multiple regulations and permits, taxes and mandatory contributions -- if not prohibited outright -- the wage gap and income inequality between the labor-surplus and labor-deficit countries will worsen.

If labor migration is less restricted, then the wage gap and income inequality between the two group of countries will narrow or lessen. And if such migration is fully allowed and assured, then global wages per industry and sub-industry, wages per skills levels -- other things being equal or held constant -- will move towards equilibrium or near-equality.

Remittances of nationals who are working abroad are among the biggest sources of revenues of both governments and households for many countries in the world today. The top five in remittance inflows worldwide are India, China, Philippines, Mexico, and France. (See Table 1)

In Southeast Asia, learning the trade of labor migration rather quickly aside from the Philippines are Vietnam and Indonesia. From 2004 to 2014 or in just one decade, Vietnam’s remittances have expanded 5.2 times while Indonesia’s have expanded 4.6 times over the same period. Impressive.

In South Asia, besides India, Pakistan, and Bangladesh, Sri Lanka and Nepal are also learning the ropes as well. Nepal in particular is very dependent on remittances, which comprise nearly 30% of its GDP in 2014.

In Africa, Nigeria’s remittances have expanded nearly 10 times from 2004 to 2014 and Egypt’s have expanded nearly 6 times. In Europe, Ukraine’s remittances increase over the same period was the fastest in the world, expanded by almost 18 times.

The Philippines’ remittances expansion over the same period was no longer huge as the big jump was experienced in the 80s and 90s. There are differences in the figures by the World Bank (WB) and the Bangko Sentral ng Pilipinas (BSP).

For instance, based on BSP data: 2014 remittances reached $24.35B (vs WB’s $28.4B).

For 2015, BSP’s forecast is $25.3B while WB’s forecast is $29.7B. The difference could be due to different accounting method used by the WB that applies to other countries in its global database.

It should be noted that the numbers are only for remittances that pass through the formal banking and remittance centers. They do not include money that are brought in personally by the migrant workers when they come home, or via relatives and close friends co-workers returning home.

Estimates of total remittances in the Philippines via formal financial channels + personal/informal channels range from $35 to $40 billion in 2015 alone.

The Center for Indonesian Policy Studies (CIPS), a new and independent, market-oriented think tank in Jakarta, is conducting a comparative study on labor migration by the Philippines and Indonesia, with the explicit goal of learning from the Philippine experience, especially in labor protection during and after deployment.

Based on latest available data from the World Bank, of the top 10 destinations for OFWs in 2013, four are in the Middle East, five in the Trans Pacific Partnership (TPP) bloc, and Italy. (See Table 2)

The current low oil prices and approval of the TPP Agreement will have initial and short-term negative impact on the deployment of OFWs for two reasons.

One, Saudi Arabia and other Middle East economies will demand less foreign workers because of their shrinking revenues from oil exports. And two, the Philippines will temporarily lose out to Vietnam and Malaysia in some services and labor mobility as they are TPP members and hence, will benefit from lower tariff and non-tariff barriers (NTBs) by the big TPP economies like the US, Canada, Japan and Australia.

There are several policy implications and reform measures for the Philippines.

One, reduce the number of permits, procedures, taxes, and fees for both manpower agencies and the prospective OFWs as the competition from upcoming labor exporting economies will become more intense. In this aspect, the Philippines should follow the lead of Vietnam, Indonesia, Pakistan, Bangladesh, Nigeria, and Egypt.

The Philippine Overseas Employment Administration (POEA) can shorten the process for private manpower agencies which have good track records over the past 10 years or more.

Currently, the procedures and permits required of new recruitment agencies and those that are 10+ or 20+ years old are the same.

Two, the Philippines should pursue its application for TPP membership. Thailand and Indonesia are almost sure to apply for membership in the next round of membership expansion, they will reap the benefits of bigger market access, both goods and services, to the richer member-economies of TPP.

Three, reduce the business bureaucracies, taxes and fees in the Philippines so that more businesses, local and foreign, will come and stay here. Then more and new local higher-paying jobs will be created, and this will help absorb the workers and professionals from the Middle East who are sent home due to cheap oil.

Bienvenido S. Oplas, Jr. is the President of Minimal Government Thinkers, and a Fellow of the South East Asia Network for Development (SEANET). minimalgovernent@gmail.com

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See also:BWorld 15, OFWs, MERS-CoV and the DFA, August 08, 2015

BWorld 38, Climate change and the need for cheap energy, January 14, 2016

BWorld 39, Coal and renewables complement each other, January 26, 2016

BWorld 40, CCT vs other welfare programs, SSS vs pension deregulation, January 29, 2016

Migration 20: Overseas Employment, Positives Outweigh the Negatives?, October 09, 2013

MERS-CoV and OFWs, Part 3, September 04, 2014

Migration 21: Why Do Many Filipinos Work Abroad? January 14, 2015

Foreign Aid 16: ADB on OFW Remittances, March 21, 2015

Labor Econ 15: Wages in Asia, Robots and OFWs, April 30, 2015

Free Trade 60, PH Constitution vs. services liberalization, Malaysia in TPP

A friend asked me what is in the Philippine Constitution that can prevent the country from joining free trade agreements (FTAs) like the Trans Pacific Partnership (TPP). I said that it's the constitutional prohibition or restriction of foreign equity investments in certain sectors (ie, zero FDIs allowed); in other sectors, foreign equity investments are limited to 40% max. Or the 60-40%, Filipino-foreign equity restrictions.

Industries with no or zero foreign equity allowed include the following:
1. Mass Media except recording
2. Practice of professions: Engineering, Law, Medicine and allied professions, accountancy, architecture, criminology, chemistry,...

3. Retail trade with paid up capital of less than $2.5M, cooperatives, etc. other industries.. ., utilities (water, electricity distribution,...) others.

So it is not prohibition on joining the TPP itself, but the TPP provides for goods and services liberalization among member countries. So Filipino multinationals like Jollibee, SM, San Miguel, etc. can easily enter the other TPP member countries but those countries' companies cannot easily enter here. 

The implication is that we must amend our constitution to remove the restrictions on foreign investments, the restrictions in the practice of profession. Filipino doctors can practice in the US, Canada, UK, etc., but foreign doctors cannot practice here. Filipino consumers and the public in general are deprived of more choices, more freedom, because of trade protectionism imposed by governments.

Meanwhile, I am reposting this well-written piece by a good friend, on Malaysia being a part of the TPP. The photo I got from the web and just added here, not part of the original article.
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TPPA: we should prioritise consumers

By Wan Saiful Wan Jan

Thinking Liberally, The Star, 19 January 2016

As we get closer to the parliamentary Trans Pacific Partnership Agreement (TPPA) debate next week, the anti-liberalisation campaigners have upped their ante to oppose the mega trade deal.

I disagree with their anti-liberalisation views but I admire their tenacity to mobilise a vocal campaign. The movement is spearheaded by Bantah TPPA. It is fascinating to watch how they work. They have been so efficient to the extent that many look at them for objective views.

But they are far from objective. Their sole purpose of existence is to oppose the TPPA and they will be silent on anything good. By being persistently vocal and by starting their campaign early they created the false impression that they are objective observers. Today they have a created a groundswell and you can expect politicians to follow their lead.

When Bantah TPPA started their campaign in 2013, I almost signed up too. As an advocate of unilateral liberalisation, I am ideologically driven to oppose the bilateral and multilateral nature of free trade agreements (FTAs).

I prefer unilateral liberalisation because it allows you drive your own reform agenda. The multilateral nature of the TPPA, just like all other FTAs, dilutes the impacts you can gain from liberalisation.

Free Trade 59, TPP membership expansion in SE Asia

The Trans Pacific Partnership (TPP) Agreement is expected to become operational and implemented around 2-3 years from now, when all the 12 member-countries have ratified the deal. The idea of zero tariff for many products among members is attractive enough. Meaning companies located in any member-country can buy from, and sell to, other members at zero, free trade prices.

I support the TPP. I will also support TPP membership expansion in the future to include the Philippines, Thailand and Indonesia, among others. Governments-negotiated free trade agreements (FTAs) are often not real free trade as there are many conditionalities. But protectionism and trade nationalism is worse than having bilateral and regional FTAs, especially huge ones like the TPP.s

Below are some news reports about the subject.

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"The reduction in the trade barriers within the TPP (with or without Philippine participation) results in trade creation within the TPP and trade diversion from the non-TPP...

The model results show that TPP participation will lead to an overall welfare gain for the Philippines. But the gain can potentially be higher. The analysis in the paper only considers additional yearly FDI inflows of US$1 billion over a 10-year period. While these inflows will improve the economy’s position relative to the FDI frontier..."

Potential Economic Effects on the Philippines of the Trans-Pacific Partnership (TPP)

by Caesar B. Cororaton and David Orden

Revised February 2015

(54 pages) http://www.gii.ncr.vt.edu/docs/GII_WP2014-3.pdf

"Thailand is highly interested in joining TPP ...," Somkid Jatusripitak told a news conference in Tokyo. "Chances are high that Thailand will seek to join TPP."

Somkid, the country's economic tsar, said the government was analysing the impact of joining the trade deal, particularly on sensitive issues like agriculture and pharmaceuticals...."

Nov. 27, 2015, http://uk.mobile.reuters.com/art.../idUKKBN0TG0I620151127...

"Indonesia should join the Trans-Pacific Partnership (TPP) as a way to promote structural reform. Such reform would include restructuring state-owned enterprises (SOEs), improving the investment climate, improving economic efficiency and productivity to create jobs for the nation’s surplus labor and promoting exports. The spectacular experience of East Asia indicates that East Asian countries have become more developed and prosperous during the past 60 years mainly due to their greater penetration into international markets through trade and incoming private investment." 

December 07, 2015, http://m.thejakartapost.com/.../benefits-trans-pacific...

"Under the agreement, companies can gain substantial benefits from being located in TPP member countries and selling goods and services into other TPP member markets.

The most obvious change in a post-TPP world will be the reduction of tariffs. On the date of entry into force of the agreement, 90% of all goods tariffs in all 12 members will drop overnight to zero. The remaining tariffs will also drop, over time, with many eventually becoming duty free.

The tariff reductions mean that firms may no longer have to contend with tariff peaks—specific items or sectors where tariffs can easily reach 30, 50, or 150%. In many of these markets, companies hoping to export products have not been competitive. With the reduction in tariffs, new TPP markets should now be attractive to many firms." -- Deborah Elms, Dec. 10, 2015,

http://www.asiantradecentre.org/.../using-the-trans...

“The big winners on trade are likely to be the big winners on investment, especially over a 10-year period,” says Dr Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington, DC.

In percentage terms, Mr Hufbauer expects Vietnam to be a big winner in both categories because it is coming from far behind the rest of the field. In addition, its tariffs on many imports – among the highest in the TPP trade area – will be lowered or eliminated. To get the maximum benefit from the TPP, Mr Hufbauer says Vietnam will need better technology and financial services, both of which will require FDI. “If Vietnam carries through on the reforms in the TPP, it will get a ton of investment,” he says.

Dec. 10, 2015, http://www.fdiintelligence.com/.../Vietnam-and-Malaysia...

"Japan, Vietnam and Malaysia are set to get a big economic boost from a sweeping Pacific trade agreement concluded in October, while the U.S. and other North American countries would see much smaller gains from the Trans-Pacific Partnership, according to the first detailed study of the pact."

Jan. 6, 2016, http://www.wsj.com/.../pacific-trade-pact-set-to-give-big...

"Being a part of the TPP is a significant component of our international trade strategy which has been in place over the past four years, the newly appointed Cabinet official said.

“Some estimated it may take another two years for the TPP to take effect, because there are provisions that lay down some conditions before it could take effect,” he said.

Jan. 7, 2016, http://www.manilatimes.net/cristobal-ph-certain.../238289/

"The 12 nations agreed to a deal that, if implemented, would not only reduce or eliminate tariffs but rein in the advantages of state-owned enterprises and impose binding environmental standards.

Even though Beijing isn’t part of the deal, Obama administration officials say the rules will still challenge China to reform its economy in other ways. The TPP, endorsed by many former military officers, would also boost Washington’s ties with its allies in the region a time when China is flexing its economic and military muscles."

Jan. 12, 2016,  http://blogs.wsj.com/.../will-the-pacific-trade-pact.../

"Thailand, the Philippines and Indonesia have actually expressed interest to be part of the Trans-Pacific Partnership Agreement (TPPA), said the International Trade and Industry Ministry (Miti).

Miti said this in its written response to issues raised by Dr Jomo Kwame Sundaram recently that countries such as Thailand and the Philippines had opted to distance themselves from this treaty."

Jan. 14, 2016, http://www.thestar.com.my/.../thailand-philippines-and.../

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See also:

Free Trade 46: Debate on TPPA and Liberalization in Malaysia, March 31, 2015 

Free Trade 47: TPP, RCEP and IPR, May 11, 2015 

Free Trade 55, TPP Agreement, finally, October 06, 2015

Free Trade 56, Trade, investments and taxes in APEC countries, November 08, 2015 

Free Trade 57, Growth, IPRI 2015 and the TPP, November 28, 2015

Free Trade 58, TPP and its rabid critics, December 10, 2015

Free Trade 58, TPP and its rabid critics

I am reposting these two papers below, published this week in Kuala Lumpur. The first is a well-written piece (as usual) by a good friend, the second is a press statement by IDEAS. The image I got from the web and just added here.

(1) Be wary of anti-TPP ideologues

by Wan Saiful Wan Jan 

(CEO, Institute for Democracy and Economic Affairs (IDEAS), Malaysia)

I am usually very keen to take part in discussions about the benefits and challenges of trade liberalisation.

The Trans-Pacific Partner­­ship (TPP) agreement is one of the steps towards further li­­beralisation and I have been taking part in many events with those who oppose it lately.

But I am losing steam very fast and I have been asking myself many times if it is actual­ly worth the effort to debate the TPP cri­tics.

The anti-TPP activists have been campaigning for many years. I remember reading some material from them back in mid-2013.

The text of the TPP was released on Oct 5, 2015, but they have been opposing since mid-2013.

That means, at the very least, they have been opposing the TPP more than two years before they even knew what the TPP is.

In other words, when they started campaigning against it, they did not even know what it is.

To make it easier to understand, let’s turn that into a political analogy. If someone comes to you and says that Party A is bad news, a rational person would react by asking for the evidence.

If the only evidence is based on hearsay and assumptions, it is very likely that the person is talking from ideology and sentiment instead of rational thinking. It is also likely that he is a supporter of Party B trying to badmouth Party A.

That is exactly what has happened to the TPP. If anyone pretended to know the content of the TPP before Oct 5, he was either a bomoh or an ideological activist.

There is no other way to explain the pretentious behaviour of claiming to know something that was not even released yet at that time.

The reality is, those who have been campaigning against the TPP are mostly ideolo­gical anti-liberalisation activists. They be­­lieve that a paternalistic government must protect us forever because we will never grow up as strong adults.

Their opposition to liberalisation is driven by the ideological belief that Malaysians are too weak and too stupid, and therefore, they as the clever ones, must protect us from competition.

Over the last few months I did try to engage with some of them. But I found them impossible to engage with because they jump from one point to another without any desire to take in answers to the issues they complain about.

And they will dismiss any answer you provide, accusing you of not knowing enough because only they have the superior ability to grasp complex issues.

They usually start by saying the TPP was negotiated in secret and therefore it must be bad. It does not matter how many times you explain to them that it is normal practice to negotiate the final deal before making it public.

They are not interested in the answer and before you know it, they would jump to a dozen more complaints, all of which are plucked from the Internet way before the true text is released.

If you tell them that the complaints are not in the actual text, they will say it may not be in now, but there is no guarantee it cannot be inserted in the future.

How do you talk to someone who refuses to accept the fact but is very quick at bringing into the conversation all future possibilities? Since there is no guarantee that driving a car is safe, should we ban all cars?

The main point here is that their opposition is driven by blind anti-liberalisation ideology. It does not matter that two cost benefit analyses have been released to say that the TPP would bring many benefits to the rakyat.

They would scramble to find faults with the studies, and I wouldn’t be surprised if they will soon accuse the two studies as biased just so that they can ignore the data and stick to their own opinions.

When it comes to ideology, data and facts are irrelevant.

Having said that, some of the complaints against the TPP deserve to be analysed further.

There are concerns about the potential impact of the extended copyright and patent protection on pricing of the protected items. Many parties have expressed concern about the potential risks behind the investor-state dispute settlement mechanism (ISDS), the government’s ability to conduct public health measures, impact on labour rights, domination of big powers especially the United States, and so on.

The concerns should indeed be addressed by our Government. The rakyat deserves to be told the real picture.

Unfortunately, and I choose my words carefully here, the Government has been very lousy at providing explanations on these issues.

After five years of negotiation, we see today a Government that seems to be clueless how to conduct the necessary public education exercise.

All the burden seems to be placed on Datuk Seri Mustapa Mohamed and his Ministry of International Trade and Industry. This is wrong because the TPP was negotia­ted by the Government as a whole, involving 16 agencies.

By right they should work together and pool resources to educate the public.

But we only see silence from almost all the other agencies. In fact some, including go­vernment-linked companies that were represented in the negotiation, are publicly hinting that the TPP should be rejected even though they were involved at the negotiation stage.

If this is not incoherence, should we call it irresponsibility?

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(2) Results of TPP cost benefit analyses validate need to liberalise Malaysia’s economy

PRESS STATEMENT

Kuala Lumpur, 7 December 2015 – The results of the two cost benefit analyses on Malaysia’s participation in the Trans-Pacific Partnership conducted by the Institute of Strategic and International Studies (ISIS) and PriceWaterhouseCoopers (PWC) were released last week.

“Making an informed decision about Malaysia’s participation in the TPP requires a systematic and rational approach utilising the best possible evidence and analyses,” stated Wan Saiful Wan Jan, IDEAS Chief Executive Officer. “These two reports allow our parliamentarians, decision makers and civil society stakeholders to get answers on their concerns and then to make informed decisions.”

Wan Saiful added that: “I am glad that both reports did not play down the many concerns raised by various parties about the TPP. The fact that the two studies concluded that Malaysia would, overall, benefit from joining the TPP validate what we have been saying all along that liberalisation is good for the rakyat.”

“I want to emphasise that the government needs to get their act together to inform the public about the benefits of this trade agreement. So far it has done a lousy job at explaining the TPP despite having five years of negotiating it. It is unacceptable that the burden is piled on MITI alone, while other ministers behave as if they are unconnected to the process. All the ministries involved need to speak up as one government and there must be a coherent strategy to communicate with the public.”

“At the same time, I am worried about those who oppose the TPP because they have been unduly influenced by anti-liberalisation activists. These activists will oppose the TPP even when studies say it is good. They have been opposing it for years, before reading the actual text of the agreement or digesting the conclusions from the two studies. Even now, they will continue to oppose it regardless of these recent developments.”

“It is shocking how much coverage these anti-liberalisation activists have received and how many people have been influenced by their scare tactics. I expect that they will now be scrambling to find faults and attempt to discredit the two studies in order to save the little credibility that they have left. We must not be fooled and allow ourselves to be terrified. I urge everyone to read the two studies and decide based on the facts. We must ignore made-up accusations thrown by those who are driven by ideology rather than facts.”

“On the other hand, the two cost benefit analyses documented that Malaysia has obtained various exemptions and carve outs from the TPP, such as in the areas of Bumiputera policies and GLCs. I understand the short term political needs for these exemptions. But from the perspective of the longer term welfare of the rakyat, these exemptions will blunt the full benefits of the TPP. It would mean that Malaysia will not gain the maximum benefit from this round of liberalisation,” said Wan Saiful.

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See also:

Free Trade 54, Eco-protectionism at APEC 2015 meeting, September 28, 2015 

Free Trade 55, TPP Agreement, finally, October 06, 2015

Free Trade 56, Trade, investments and taxes in APEC countries, November 08, 2015 

Free Trade 57, Growth, IPRI 2015 and the TPP, November 28, 2015