Policy Watch

Policy Watch - February 2016

"TPP, RCEP, FTAAP...are they really good for developing countries?" 

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.

 Click here to read the full paper.

*Remarks by Sethaput Suthiwart-Narueput delivered at Asia Liberty Forum, 18-20 February 2016, Kuala Lumpur

[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


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