Trans-Pacific Partnership Free Trade Agreement

By Oxfam

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Oxfam exposes—and works to thwart—proposed trade rules like those in the Trans-Pacific Partnership (TPP) that could prohibit policy tools that developing countries need to manage their economies, reduce poverty, and improve public health.

The TPP free trade agreement (FTA) would be large and ambitious. Twelve nations have entered the negotiations: Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. The pact would eliminate remaining tariffs on nearly $2 billion in goods and services. But it would go much further by requiring signatories to “upwardly harmonize” regulations. They would need to maintain “compatible” rules protecting foreign investment, easing regulations on corporate transactions, and expanding intellectual property protection beyond existing global norms to strengthen monopolies.

The TPP exemplifies how US free trade agreements focused narrowly on serving powerful commercial interests fail to spread the benefits of globalization to people in poverty. A trade agreement aimed at actually fostering development and reducing poverty would need to treat wealthy and poor countries differently. Developing countries would need greater flexibility on tariffs and safeguards for sensitive products, liberalization of basic services, intellectual property (IP) rules affecting access to medicines, and rules regulating investment. Instead, the TPP aims to replicate US standards across the board. Critics have pointed out a number of risks. Oxfam has focused on IP.

We believe IP rules should not further restrict generic competition, which limits access to affordable medicines. To this end, the TPP should not impose strict IP rules on developing countries that exceed World Trade Organization (WTO) obligations under the 1994 Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement.

Intellectual property

IP protection can both foster and hinder innovation and economic development. Typically, countries start out by imitating and adapting existing technologies and then move into innovation. Historically, IP legislation has followed development: as countries have grown richer and evolved from imitation to innovation, they have strengthened IP laws. Some European countries followed this trajectory when it came to chemical patents, for instance, introducing them only in the 1960s or later, once their chemical industries had taken root.

But over the past two decades, trade agreements have forced developing countries to leapfrog to higher levels of IP protection before they could follow the path from imitation to innovation.

The harm this requirement can cause is particularly striking in the case of pharmaceuticals. Nearly two billion people still lack regular access to medicines, and the cost of patented medicines is one important reason. Strict IP protection boosts profits for the multinational corporations that market these drugs by strengthening monopolies, restricting generic competition, and keeping prices high.

Although it introduced a 20-year patent term for medicine, the TRIPS Agreement also provided developing countries with safeguards to help them keep drugs affordable. In 2001, all WTO members, including the United States, adopted the Doha Declaration on the TRIPS Agreement and Public Health, which reaffirmed countries’ “right to protect public health and, in particular, to promote access to medicines for all.” Yet, since then, US trade policy has sought to tighten IP protection beyond the TRIPS standards. Oxfam found that strict IP provisions in an FTA the US signed with Jordan drove up the price of key medicines, such as those needed to treat cancer and heart disease.

All the countries that are initial parties to the TPP already have IP protections that exceed TRIPS standards, including some form of data exclusivity. Vietnam implemented these provisions initially as part of the 2001 US-Vietnam Bilateral Trade Agreement, and they were part of the US requirements for accepting Vietnam’s accession to the WTO. Chile and Peru did so as required by their respective FTAs. However, these examples should not be seen as a justification for establishing IP rules in a TPP agreement that exceed TRIPS requirements.

Oxfam believes the TPP should:

  • Conduct TPP negotiations with full transparency, including public release of all proposals and negotiating texts.
  • Recognize the Doha Declaration on the TRIPS Agreement and Public Health as the guiding principle for all IP rules that affect public health and access to medicines.
  • Not undermine the May 10 Agreement by insisting on stricter IP protections than those included in the US FTAs with Peru, Panama, and Colombia.
  • Not seek to harmonize IP protections across TPP countries to the level of the strictest standards in place among these countries. To do so would require developing-country TPP partners to enforce stricter IP rules on par with their developed-country counterparts. Initial TPP negotiating partners, as well as countries that could eventually join a TPP, have divergent socioeconomic contexts and development levels. They should be allowed to make independent decisions outside of trade agreements on the appropriate level of IP protection.
  • Not expand IP enforcement obligations to replicate the failed Anti-Counterfeiting Trade Agreement (ACTA) or to include border enforcement of patents that would lead to cross-border seizures of legitimate generic medicines.
  • Avoid restricting or in any way interfering with any national, regional, or local government program to establish reimbursement rates or otherwise control the costs of pharmaceuticals or medical devices. To do so could limit local and state initiatives to control the cost of medicines here in the US, as well as the ability of US Congress to legislate on this matter in the future. It could also undermine cost controls used by public health systems in developing and other developed countries such as New Zealand.
  • Stop catering to special interests in the pharmaceutical industry; all trade rules affecting public health and access to medicines must be fully aligned with the public interest.

Investment rules

The commercial interests of US investors must be weighed against the broader public interest of improving livelihoods, reducing poverty and inequality, and promoting environmental sustainability. Developing countries in particular need tools to effectively regulate foreign investment to support their economic development. Oxfam believes that public interest protections for sustainable development, the environment, health and safety, and workers’ rights should be protected.

For this reason, we oppose provisions in the TPP that would create an investor-state dispute settlement mechanism for resolving disputes over investments. Instead, we believe such disagreements should be handled by domestic courts of the host state. International arbitrators frequently lack expertise in and understanding of local laws and societal values that are often at the heart of investment disputes, and their decisions risk undermining national laws and values. This risk is particularly prominent when investment disputes raise constitutional questions, such as in the allocation of powers among governmental organs or permissible limitations of property rights. The principles of democratic accountability require that domestic courts adjudicate such disputes whenever possible. Only if evidence reveals that domestic courts are unwilling, unable, or otherwise incapable of administering justice in a manner that secures due process of law should a dispute be addressed by an international forum.

In cases where international dispute resolution is appropriate, a government-to-government dispute settlement mechanism rather than an investor-state mechanism should be used. A government-to-government dispute settlement guarantees the crucial role of governments in determining and protecting the public interest, while investor-state dispute resolution gives investors inappropriate leverage to undermine legitimate measures to promote sustainable development, environmental protection, and human health and safety.

Furthermore, in order to ensure that investment can foster sustainable development and poverty reduction, developing countries need the flexibility to use policy tools, such as performance requirements and capital controls, that serve their domestic development needs. Recent global financial crises have demonstrated that capital controls can serve as a bulwark against capital pouring into and out of countries in ways that can wreck economies. Even the International Monetary Fund (IMF), long a stalwart of liberalization, has recognized the risks liberalization carries for countries that have not reached certain “thresholds” of financial and institutional development, and the IMF has cautioned that full liberalization is not necessarily an “appropriate” goal for all countries at all times.

Regional integration

The TPP poses a risk, even to countries not now participating in negotiations. TPP’s aim of harmonizing trade rules could undermine regional integration and hamper trade with other developing-country neighbors unable to join the more exclusive club. The Office of the US Trade Representative (USTR) says it hopes to expand the TPP to include additional countries throughout the Asia-Pacific region. However, if TPP negotiations seek to establish far-reaching trade rules on par with or beyond those in the US-Singapore and US-Australia FTAs across all TPP countries, it would not only undermine development and poverty-reduction efforts in developing countries party to the agreement, but it would also threaten development and poverty-reduction efforts in other potential developing-country TPP partners in the region that would have to adopt such rules if they sought to join the TPP at a later date. Rather than fostering regional integration, which could help developing countries improve their competitiveness, such upward harmonization of trade rules would increase barriers to trade among neighbors.

Oxfam has shared its concerns with USTR and trade ministries in most other TPP negotiating partner countries, and we continue to monitor developments.

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