Following the success of years-long trade negotiations in Atlanta on Monday, Congress will soon be called to give an up or down vote on the 12-country Trans-Pacific Partnership free trade agreement. Contrary to Hillary Clinton, who positioned herself against the deal on Wednesday, Congress should find much to like in the agreement’s contents.
At a basic level, free trade agreements amount to a bunch of countries getting together and saying, “I’ll stop taxing your dairy products if you stop taxing my dairy products.” Long-protected Canadian dairy farmers, for instance, may get mad at newly permitted competition from nearby American dairy farmers — but, ultimately, consumers get better and cheaper cheese options. This is all to the good, and we see much of just this thing from preliminary analyses of deal.
At the next level, free trade agreements deal with “non-tariff trade barriers.” These are the arbitrary rules and regulations — but not taxes — designed to keep out foreign products. Negotiations here can be quite cynical, even though they typically produce net benefits.
For example, the 2011 U.S.-Korea deal permitted American automakers to each sell up to 25,000 cars per year that didn’t meet South Korea’s auto safety and environmental standards. The reason? Korea had a nasty habit of unexpectedly changing auto safety requirements, exempting Hyundai and other locals but banning American brands. Rather than creating predictable auto safety regulations tied to, well, safety, Korea decided to allow limited imports of supposedly unsafe American cars to be sold. Better some than none at all.
The TPP goes further by creating a “dispute resolution mechanism” in which corporations can sue for international arbitration when targeted disproportionately by regulators. The basic goal is to promote a U.S.-style conception of the rule of law, rather than leaving businesses to take their chances in local foreign courts.
While likely to reduce unreasonable regulatory discrimination, there is some debate about how the mechanism will be applied. The tobacco industry, reportedly, cannot use the dispute resolution mechanism in the TPP. This compromise was made because many signatory countries believe that arbitrary treatment of the tobacco industry is a legitimate public interest.
Legitimate concerns have also been raised about the U.S. preserving its regulatory sovereignty against these arbiters, while progressives have voiced a fear that large businesses will bully governments into abandoning legitimate regulation. This is something to monitor as more details emerge.
Another primary feature of the TPP is the extension of U.S.-style intellectual property protection to the other TPP signatories, notably for certain types of pharmaceutical drugs called biologics. This seems good for America, but has short-run costs and long-run benefits for other countries.
Currently, American drug companies spend billions of dollars testing many failed potential drugs for every one safe and effective drug that succeeds through government trials. After billions are spent in development, many drugs cost only pennies to reproduce. Inside the U.S., pharmaceutical companies then charge a market-driven price until their patent expires to recover those costs and make a profit.
Outside the U.S., however, countries are currently able to bypass our patent rules and produce replicas, or “biosimilars,” right away.
The TPP aims to change this by making international producers wait at least five years before marketing cheap generics locally. On the one hand, some other countries may have to wait a few years longer than they currently do for the cheapest versions of newly invented drugs. On the other hand, it increases the size of the potential profit for companies that invent and patent the next useful drug — further encouraging innovation.
The likely outcome: More incentives for American companies, more drug development for everyone and slightly longer waits for cheap access to new drugs in poor countries. From an American perspective, this is unambiguously good. From a global perspective, it’s still a long-run boon.
Initial reports on the TPP signal a net win for America and the other 11 signatories. The deal looks to cut taxes, create a dispute mechanism for scrutinizing future regulations and extend American-style rule of law and R&D incentives.
With both libertarian economists and President Obama agreeing on TPP, it’s easy to believe the academic estimates of large net benefits from freer trade, broader rule of law and stronger intellectual property protection abroad. Congress, however, will now need to show a similar level of bipartisan leadership. Cross your fingers.
This article originally appeared in Washington Examiner