A Second Bite at the Cherry

Audrey Young did us all a service when she laid out in yesterday’s Herald the origins of the Trans Pacific Partnership (TPP). She goes back to 1998 to describe how New Zealand’s keenness for a free trade agreement with the US prompted us to join a small group of Asian and Pacific countries in pressing for what eventually became a much larger group committed to free trade across the region.

As an exercise in genealogy, however, her account is sadly deficient. It does not go back far enough and it looks at only one part of the TPP’s family tree.

How many people remember something called the Multilateral Agreement on Investment (MAI)? It is scarcely recalled now because it long ago passed, unmourned, into history.

But in 1995, the MAI appeared as a draft agreement, negotiated by OECD members. As Wikipedia records “it sought to develop multilateral rules that would ensure that international investment was governed in a more systematic and uniform way between states.”

It was originally worked on in secret, but when the draft was leaked in 1997, it drew widespread criticism from civil society groups and developing countries, particularly over the perceived intention and danger that the agreement would make it difficult for governments to regulate foreign investors.

The protesters saw the agreement as a deliberate attempt to create not just a level playing field for investors (as the MAI’s proponents argued) but a free-for-all in which multinational corporations would be able to do whatever they liked and could cock a snook (whatever a snook is) at elected governments.

The strength of that global opposition, through protests, rallies and public debate, was so great that in 1998, the French government took fright and withdrew the draft. Protesters around the world heaved a sigh of relief.

But the big business interests were not done yet. Some immediately realised that there was another way to skin the cat. Instead of talking about investment, they reasoned, it might be better to talk about trade. They had recognised, in any case, that there were already in existence a number of trade agreements that contained the kind of provisions they were looking for.

The Germans, for example, unwilling to trust the judicial systems of third-world countries, had begun the practice of inserting into trade agreements with such countries provisions that disputes should be resolved in German courts, or possibly in specially constituted tribunals. And there was the precedent of the North American Free Trade Agreement (NAFTA) which had introduced in 1994 just such a provision into what looked like an ordinary free trade agreement.

It was, after all, easy to agree that free trade required that all parties should operate on a level playing field. It followed that anything that regulated or restrained the free play of market forces – and that included not just market arrangements such as cartels and price fixing but also action by governments – could be said to tilt the playing field.

What could be more natural, then, that a free trade agreement should include provisions to allow corporations to challenge individual governments if they tried to implement policies that would make life difficult for business interests? And wouldn’t the chances of winning over public opinion be much greater if those provisions could be carefully slid into what looked like a free trade agreement, since didn’t everyone think that free trade must be a good thing?

That is why, under the TPP, attempts to organise the market, through producer cooperatives like Fonterra and Zespri, or monopsonistic buying arrangements like Pharmac, are under threat. That is why a government that wanted to pursue policies in the interests of better health or protecting the environment could find itself before an international business tribunal at the behest of international companies that argued that such policies might reduce their profits.

The TPP is, in other words, a renewed attempt to succeed where the MAI failed. Globalisation has, after all, proceeded apace since 1998, and today’s voters are now much more used to the idea that business interests must always prevail – even over democratically elected governments.

It is the TPP’s dual parentage that makes it not just a free trade agreement (albeit one that delivers surprisingly few free trade benefits) but also a charter for multinational investors. The pity of it is that there is of course a pressing need for an international agreement on the rights and duties of international investors – a charter that establishes the duty to observe the laws and regulations of the host country – but the TPP takes us in the opposite direction.

It is that dual parentage, too, that explains why so many commentators on the TPP talk past each other. Those who see nothing but a free trade agreement proclaim its benefits; those who look deeper and understand the genealogy warn against the loss of democracy.

The disputants, though, are not all well-intentioned, even if misguided. The people we should really be worried about are those who understand the situation perfectly and who talk the language of free trade while deliberately seeking a much less benign outcome.

Bryan Gould

1 February 2016