Political corruption and the ‘free trade’ racket

The US-EU free trade pact and TPP are about securing regulatory gains for major corporate interests, writes Baker.

White House Correspondents'' Association (WHCA) Dinner Events
The Obama administration is pursuing two major "free trade" agreements that in fact have very little to do with free trade and are likely to hurt those without the money and power to be part of the game [Getty]

In polite circles in the United States, support for free trade is a bit like proper bathing habits: It is taken for granted. Only the hopelessly crude and unwashed would not support free trade.

There is some ground for this attitude. Certainly, the US has benefited enormously by being able to buy a wide range of items at lower cost from other countries. However, this does not mean that most people in the country have always benefited from every opening to greater trade.

And it certainly does not mean that the country will benefit from everything that those in power label as “free trade”. That is the story we are seeing now as the Obama administration is pursuing two major “free trade” agreements that in fact have very little to do with free trade and are likely to hurt those without the money and power to be part of the game.

The deals in questions, the Trans-Pacific Partnership (TPP) and the US-European Union “Free Trade” Agreement are both being pushed as major openings to trade that will increase growth and create jobs. In fact, eliminating trade restrictions is a relatively small part of both agreements, since most tariffs and quotas have already been sharply reduced or eliminated.

Rather, these deals are about securing regulatory gains for major corporate interests. In some cases, such as increased patent and copyright protection, these deals are 180 degrees at odds with free trade. They are about increasing protectionist barriers.

All the arguments that trade economists make against tariffs and quotas apply to patent and copyright protection. The main difference is the order of magnitude. Tariffs and quotas might raise the price of various items by 20 or 30 percent. By contrast, patent and copyright protection is likely to raise the price of protected items 2,000 percent or even 20,000 percent above the free market price. Drugs that would sell for a few dollars per prescription in a free market would sell for hundreds or even thousands of dollars when the government gives a drug company a patent monopoly.

In the case of drug patents, the costs go beyond just dollars and cents. Higher drug prices will have a direct impact on the public’s health, especially in some of the poorer countries that might end up being parties to these agreements.

There are also a wide variety of regulatory issues that are being pursued through these agreements in large part because there would be difficulty getting them accepted through the normal political process. For example, the sort of government mandated internet policing that was part of the shipwrecked Stop Online Piracy Act is likely to reappear in one or both agreements. 

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It is also likely that rules that limit the power of governments to restrict fracking could be in the agreements. Such rules could prohibit not only the federal government, but also state or county governments, from imposing restrictions designed to protect the public’s health.

These are the sorts of restrictions that may appear in the TPP and US-EU Free Trade Agreement. The reason for using tentative language is that none of the specifics of the deal have yet been made public. The Obama administration is negotiating these pacts in secret. It has made almost nothing about the negotiating process public and has shared none of the proposed text with the relevant committees in Congress (Public Citizen has posted information on the TPP based on leaked documents).

Incredibly, it has shared portions of the proposed TPP with the relevant industry groups. While elected representatives in Congress may not be able to find out anything about proposed rules on drug patents or restrictions on fracking, Pfizer and Merck will have the opportunity to weigh in on patent rules and the major oil and gas companies will help to draft language on fracking that serves their interests.

The idea is that once a deal is completed there will be enormous political pressure for Congress to approve it no matter what it contains. In addition to the campaign contributions that supporters of the deals will get from the special interest groups who stand to benefit, news outlets like the Washington Post will use both their news and opinion sections to bash members of Congress who oppose a deal. They will be endlessly portrayed as ignorant Neanderthals who do not understand economics.

The reality of course is that it is the “free traders” who either do not understand economics or deliberately choose to ignore it. Many of the provisions that we are likely to see in these deals, like stronger patent protections, will slow growth and cost jobs.

These deals will also lead to more upward redistribution of income. The more money that people in the developing world pay to Pfizer for drugs and Microsoft for software, the less money they will pay for the products that we export, as opposed to “intellectual property rights”. These payments are great if you own lots of stock in drug or software companies, but for the vast majority of the nation’s workers who are not big stockholders, extracting money from people in the developing world for these corporate giants is not good news.

This is yet another case where the government is working for a tiny elite against the interests of the bulk of the population. And it is doing it in a way that would be difficult to caricature: making powerful corporate interests direct negotiating partners, while excluding democratically elected representatives from the process. 

It is tempting to say that Washington could not get more corrupt, but it probably will.

Dean Baker is a US macroeconomist and co-founder of the Centre for Economic and Policy Research.

Follow him on Twitter: @DeanBaker13