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Point.Counterpoint.
The Trans Pacific Partnership and Australia.
[Click the boxes below to read each view] 

Game changer for global trade
Our  economic health depends on that of our neighbours, says Donald Robertson.

Don't believe the hype 
Don't get sucked into the lofty rhetoric, it's wrong, says Leon Berkelmans.

Point: Mega-regional deal a game changer
Donald Robertson
 Partner, Herbert Smith Freehills
On LinkedIn

 Donald practises international law and international arbitration for Herbert Smith Freehills and is also Adjunct Professor of Law, Sydney University Law School.
Jump to counterpoint
The Trans-Pacific Partnership (TPP) is an ambitious and comprehensive mega-regional agreement. Finally sealed in the early hours of Monday morning (US time), it is complex in its scope, spanning 12 diverse Pacific Rim nations, and worth approximately $US28 trillion.
This encompasses approximately 40 per cent of global GDP, creating enormous political, economic and legal consequences.

 Opponents need to go beyond slogans aimed against "free trade agreements", and understand that the TPP is much more than this.

 An 'economic constitution'

 Criticism of the TPP as a free, or even preferential, trade agreement misses the point. The TPP is not so much a free trade agreement as an agreement dealing with the "economic governance" of member state markets. It is a form of economic constitution for the region, and should be judged as such. It is the most modern of its kind and responds to a number of discrete factors.

 This includes the failure of the World Trade Organisation (WTO) Doha round, which became bogged down in its effort to secure an easing of global trade restrictions. Only now is the WTO catching up on the need for trade agreements to cover a broad range of issues that govern the infrastructure of trade and investment (the rules by which they are governed)  to maintain their integrity.

 "Globalisation" is another factor the TPP is responding to, but not globalisation in any simple sense. The predominant pattern of globalisation now is trade in production processes rather than trade in finished products. This is variously called "offshoring" or "supply chain trade", resulting from the great unbundling of production processes.

 Global trade is no longer just about importing and exportingfrom one country to another, but about creating and sustaining global value chains, by which goods and services intertwine the economies of a number of different countries. In the context of the TPP, the Pacific Rim is a cluster of value chains and intertwined marketplaces.

 Real regional gains

 The true gains to be had from trade will no longer be obtained at a global level, but at the regional level. The WTO may be structurally incapable of dealing with the regionality of trade patterns.

 As a result, the TPP properly contains, for example, provisions in relation to corruption of market processes as well as strong rules in relation to protection of intellectual property. Importantly, it contains provisions on "regulatory coherence" to ensure a common set of rules govern the way member states regulate markets. Those strong rules are important because of the need for consistent treatment of property rights and consistent regulatory regimes across entire global value chains.

 Corruption within developing economies needs to be reduced to allow market forces to truly identify where value can be added. The market should also not be distorted by special privileges applying to state-owned enterprises, which are nominally "sovereign" but, in truth, market players.

 Important safeguards

 The often-criticised Investor-State Dispute Settlement (ISDS) provisions are important safeguards of these economic governance provisions. There will be express carve-outs from those provisions (if they are even needed - general legal principles suggest not) to preserving the public interest in regulating markets and activities that affect the public interest, such as the environment and health. 

 Criticism of the TPP (especially around ISDS provisions) claiming that it interferes with the sovereignty of nation states is misplaced. It is true that any form of constitution regulates the sovereign powers of the member states. But this blurring of the lines of autonomous states is a necessary consequence of globalisation and the intertwining of markets, not of the TPP itself.

 Importantly, the TPP illustrates an understanding among nation states that in a globalised world, their future health depends on that of their neighbours and they need to act accordingly, not out of a desire to advance only their own welfare.

Counterpoint: Don't believe the hype
Dr Leon Berkelmans
 Director, the Lowy Institute.
@LeonBerkelmans

 Leon is director of the International Economy Program and the G20 Studies Centre at the Lowy Institute. He has previously worked for the RBA and US Federal Reserve.
Jump to point
It's over the line. Or at least a line. The Trans-Pacific Partnership has been sealed.  It now remains to be ratified by legislatures. This will provide all sorts of fun for those who love political intrigue.

 But for those who love economics, this deal is hard to digest.

 Over-hyped

 The first point to realise is that, like all trade deals, it is completely over-hyped.

 We've heard deals sold before of their transformational potential. Remember our deal with the US ten years ago? John Howard talked of the "enormous" benefits of the deal.

 Ten years later, it's hard to see these "enormous" benefits. In fact, Shiro Armstrong, of the Australian National University found that trade had come in under what would have been expected in the absence of a deal.

 So don't get sucked into the lofty rhetoric, it's wrong.

 If there are upsides, they will be small. That's what modelling usually shows.

 For example, modelling by the Centre for International of Economics found that the three marquee bilateral agreements signed over the last couple of years - with Japan, China, and Korea, would only increase GDP by 0.05 to 0.1 per cent. That's not a sustained increase in growth by the way, it's a one shot bump.

 But there are downsides in the TPP, downsides we don't understand.

 Hidden downsides

 First, let's look at intellectual property (IP). Australia is an importer of intellectual property, so any increase in intellectual property protection will hurt us.

 We have been told that "TPP will not require any changes to Australia's patent system and copyright regime".

 I hope they're right. But it wouldn't be the first time these reassurances have been off the mark.

 For example, before a Parliamentary Committee the Department of Foreign Affairs and Trade said it was not aware of any increase in our IP obligations in the Korean Free Trade Agreement, a position they later had to change.

 In any case, the TPP further entrenches our IP law in international treaties.

 That gives us less room to manoeuvre in the future. And this has caused grief in the past. Bipartisan reforms have been scuppered because they were in violation of the Australia-US Free Trade Agreement.

 More innovation?

   Maybe increased intellectual property protection leads to more innovation globally. I think that's hard to argue on based on historical experience.

 One of my favourite books, Against Intellectual Monopoly by Michael Boldrin and David Levine, argues that more intellectual protection leads to less innovation, as companies divert attention away from creation toward protecting their turf.

 Another problematic provision involves investor protection. We have expanded the scope for foreign companies to take us to a tribunal if they feel aggrieved by government action.

 This can undermine legitimate government decisions. We are assured carve-outs are adequate, so government decisions on, say, the environment, will not be challenged.

 But the carve-outs are often prefaced with the line "except in rare circumstances".

 The carve-out is not blanket, apart apparently for tobacco in the TPP, and any company can argue their case is rare. And if we are so worried about tobacco, why aren't we worried about other industries as well?

 To further raise alarm, these rights given to foreign companies (but not domestic ones) have not been shown to increase foreign investment, their raison d'&ecirc;tre.

 The downsides are uncertain and could be large, while the upsides are small.

 The agreement is bad. This is not the judgement of some ardent lefty protectionist. No. Eliminate all tariffs tomorrow I say. Unilaterally.

 It may not lead to a nice photo op, but it is good policy.

READ MORE
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