TPP, Globalized Trade, and Resiliency

This morning the Trans Pacific Partnership (TPP) was signed. This is the biggest trade agreement in the world, covering 40% of global trade and including 12 nations, including Canada, the US, Mexico, Japan, Chile, Australia, New Zealand, Malaysia, Peru, Brunei, Singapore, and Vietnam. Previously, the biggest trade agreement that Canada was a part of was the North American Free Trade Agreement (NAFTA), but since the TPP also includes the US and Mexico, it will supersede NAFTA.

There are a lot of people analyzing this deal today, saying whether it will be good or bad for Canada. Here are some highlights. There has also been much said about the nature of free trade in general, and even the Trans Pacific Partnership specifically. (I highly recommend you check out this link – it’s a comic about global trade, and specifically the TPP, and it is very informative).

The details of the deal are finally being made public (after it is signed, go figure), and it’s not looking good for our dairy and chicken markets – both of which are huge in Provencher – and our auto sector, which is the largest employer in Canada. But completely aside from the details of the deal, I see big problems with it. These problems have to do with the nature of globalization, trade agreements, transportation, and climate change, as well as with the way the Harper government has handled trade.

Problem #1: Secrecy and Manipulation

This trade agreement has been in negotiation in some form for almost a decade, but we’re only hearing details about it now, after it has been signed. There was no public consultation, and not even a motion in Parliament – though Harper is NOW saying that he’ll propose a motion to ratify it, after he’s signed it. If we had known the details, the question of how to approach it would have been an election issue; because we did not, the only election issue is take-it-or-leave-it. The NDP are saying leave it; the Conservatives are saying take it; and the Liberals are saying wait and see. This will define the rest of the election, with the Conservatives pushing the increased prosperity that they believe always comes with trade agreements, and claiming that the NDP will ruin us all by refusing to participate in it. It’s a false choice that we’re being pushed into, and it’s extremely clever of Mr. Harper to do so, but it’s incredibly manipulative. It’s presenting us with a choice between prosperity and poverty, at least on the surface, and most of us don’t know enough about economics to debunk the political rhetoric that’s already starting to come out about it. We’ll just have to choose which leader we believe, and vote for them; but it seems clear that Harper is the safer choice, given the situation, because the risk of not being involved in the world’s biggest trade deal is scarier than the status quo that Mulcair is offering. But this is a false choice, because…

Problem #2: Trade Deals Don’t Always Increase Trade

Since becoming Prime Minister, Stephen Harper has signed Canada into dozens of trade agreements with 39 nations. Not all of them have benefited Canada. Just this morning on CBC’s The Current, an economist explained that since signing a trade agreement with South Korea, our imports from there have increased significantly while our exports there have stayed flat. Just because there are no trade barriers doesn’t mean that people there actually want our products. When they work, that’s great! When they don’t, it’s a risk for nothing.

Problem #3: Trade Deals Aren’t Always In Our Best Interests

Free trade agreements are never actually free. They are carefully negotiated agreements to reduce certain tariffs (taxes on imported goods) and other trade barriers. If it were truly “free trade” there would be nothing to negotiate: each nation would completely remove all tariffs and other protections for their own nation’s industries, period. But that never happens, and the negotiation sets the terms for the economic relationship that follows. Depending on how well the deal is negotiated, we might do very well – or we might do very poorly.

Take, for example, Mexico and NAFTA. Before NAFTA, many Mexicans survived on subsistence agriculture and the export of corn. Corn has long been a staple crop in Mexico, with thousands of varieties and a deep connection to Mexican culture. But in the negotiation of NAFTA, the US managed to maintain the ability to heavily subsidize their corn crops, while Mexico removed trade barriers for agricultural products, which led to a situation in which it was cheaper for Mexicans to buy American corn than to even plant their own corn. A way of life for thousands of Mexicans was routed, and the number of Mexicans trying to find a way into America skyrocketed. While there are surely hundreds of factors involved (not just corn), Mexico is now largely run by drug cartels and the US is talking about spending billions on building a wall all along the Mexican border, and I can’t help but think that the shift from a farming economy in northern Mexico to unemployment or factory work (as Canadian and US manufacturers set up in Mexico for lower labour costs) factors into this somehow. Of course that’s difficult to prove, but my point here is that the way a trade deal is negotiated can have effects that go far beyond any particular industry or product.

I have a book called Smart Globalization: The Canadian Business and Economic History Experience, which makes the case that Canada has historically only signed onto trade agreements when they were clearly beneficial to Canada. In the past nine years Stephen Harper has signed trade deals with 39 nations without the input of Parliament, which means that our system for ensuring that something is in Canada’s best interests (i.e., the system of regional representation called Parliament) was bypassed. Can we really be sure that all of these agreements are tilted in our favour?

Problem #4: Trade Deals Limit Sovereignty

The goal of a trade deal is to set clear boundaries that nations cannot cross in regard to how they regulate industry and trade, and to ensure that those boundaries are firm enough that investors can trust that they will not change. For example, the trade deal that Stephen Harper signed with China will take us decades to withdraw from even if we start immediately. We can’t simply back out, and we can’t change the terms unless China agrees. If we wanted to change the terms because it turned out to be bad for us, then that would mean that it was very, very good for China, so why would they agree to change it? In this sense, trade agreements are laws that govern the actions of nations, and therefore overrule national laws.

This is particularly dangerous because we live in a rapidly changing environment, especially due to climate change. If we decide to enact regulation on an industry that is affected by a trade deal for the sake of preserving our environment, for example, we are open to being sued by any industry from the other nation that is currently, or even could someday be, profiting from that industry. We’ve been sued numerous times under NAFTA, and BC was recently threatened with a lawsuit because it refused to export water to the US. Much of BC and the US west coast are in a drought; one would think that bottled water sales should take a back seat to conservation in a drought, but NAFTA has no such provisions. If Canadian municipalities, provinces, or our federal government were to legislate regulations on polluting industries, such as putting a price on carbon at the source, we could face serious economic consequences because of our trade agreements. There are enough economic arguments against taking action on climate change without adding the threat of getting sued in a secret international trade court that supersedes the power of our own government.

Problem #5: The Nature of International Trade

International trade functions on the economic system of “comparative advantage” (for a full rundown on how this works, see the Economix link at the beginning of this post). The gist is that some places are better at producing some products than other places. We all have our strengths, and it’s comparatively cheaper to produce palm oil in Costa Rica than it is to produce it in Canada, while it is cheaper to produce seal skins in Canada than in Costa Rica. Therefore, it is economically advantageous for both Canada and Costa Rica to trade with each other than to produce each others’ products. The argument makes sense economically, but there are a number of problems with it:

a. Comparative Advantage is calculated almost entirely in financial terms

It really comes down to “is it cheaper to make this here, or can we save money by getting it from China?” But what if it wasn’t just about what is cheaper? What if we were actually concerned about the environmental or human rights issues in these other countries? You can, of course, try to reduce social and environmental costs to financial terms by putting prices on them, but then you run into the problem of commodifying the commons: is it really a good idea to make clean air and water into something to be traded on an international market? Not really, even if it were possible; can we really put a dollar figure on the forests that were lost in Costa Rica to plant row upon row of oil palms? For the most part, we do the opposite: environmental and social costs are externalities, which is another way of saying that we don’t even count them – we have removed them from the equation, leaving them to be paid by the poor, or by our children or grandchildren.

b. Comparative Advantage on a global scale depends on cheap transportation

Transportation is shockingly cheap, when it’s scaled up to the level of global trade. There are apples that are grown in England, shipped to South Africa to be waxed, and then shipped back to England to be sold and eaten. Because they’re being shipped on a massive scale, and alongside other more profitable goods, the cost to transport them back and forth is almost negligible in terms of dollars and cents. But when it comes to the environmental cost of shipping a product around the world in order to shave a penny off of its per unit price, it’s astronomically wasteful and leads to some strange contradictions. For example, take a hybrid car: made with a hybrid electric engine to save on fuel consumption, the amount of fuel consumed in the process of collecting its various parts from their place of manufacture around the world actually eliminates most fuel savings and resulting lower carbon footprint the hybrid engine may have provided. And what happens when we run out of oil, or when oil becomes so expensive that shipping is no longer so financially viable? (We can make electric cars, but electric container ships? We have a lot of work to do to innovate ourselves out of this hole.) We’ll lose an awful lot of comparative advantage at that point – so what will happen to our trade deals then?

c. Comparative Advantage destroys resilience

The more we trade with outside nations under the logic of comparative advantage, the more we’ll focus on our strengths, which means we’ll invest more and more into a few profitable industries. We all know the primary product of Saudi Arabia is oil, but what else do they produce? Can their economy survive without oil? What will happen to them when they run out, or if there’s a war and their oil wells are set on fire, or if the rest of the world weans itself off of oil? The more we depend on a few products, the less resilient our economy is. Taken to its ultimate end, comparative advantage can lead to every nation in an interdependent state of vulnerability.

Take the Irish Potato Famine as an example. All of Ireland was producing the same kind of potato – one product that employed 2/5 of the population. It just so happened that a particular type of potato bug liked to eat that kind of potato. Had they been growing several varieties of potato, the bugs wouldn’t have spread so quickly or eaten so many potatoes (they only like the one kind); had they been growing crops other than just potatoes, it might not have been that bad at all. Instead, a million Irish people died and another million immigrated, dropping the population of Ireland by about 1/4. England’s potatoes all came from Ireland, so their potato market would have been decimated, but they ensured enough potatoes for England by taking all of the potatoes that survived the bugs, which is why so many people in Ireland starved.

When we invest heavily in a particular industry or product, we tie our national economy to that product. In Canada, our dollar has recently dropped in value significantly, and this is due primarily to a drop in the cost of oil. While the oil sands only actually make up about 2% of our Gross Domestic Product (GDP), investment in that industry makes up a more significant portion of our nation’s prospects – and the drop in oil prices hurt investor confidence, sending oil stocks plummeting as fast as the international cost of a barrel, all thanks to Saudi Arabia flooding the market with their cheaper oil. Thousands of Canadians are out of work, and Canadian corporations have lost millions or billions of dollars, and the ripple effects of this are wider in our economy in general because of the degree to which we have invested in oil. If we had a more diverse investment, say, in clean energy technologies and systems, we could better respond to a change in the marketplace. That’s resilience: the ability to survive the unexpected. Diversity is the key to resilience, but comparative advantage focuses us on specialization. Canada’s specialization, it appears, is exporting our natural resources as cheaply as possible, which is not only unresilient, it is economically foolish.

Problem #6: Climate Change will Disrupt International Trade

I don’t know if you’ve heard, but South Carolina is under water. They haven’t had this much rain in a thousand years.

The thing about climate change is that it’s not just that things are getting warmer, they’re getting weirder. A small change in temperatures can change entire weather patterns, leading to stronger and less predictable storms. Is this really the best time to be increasing trade across the ocean and shackling ourselves economically to nations that are more vulnerable to climate change?

We’ve already talked about how international trade agreements put us into a state of interdependent vulnerability, but how much more vulnerable will it get if there are environmental barriers to trade? We can’t simply pretend that business will carry on as usual as the world continues to warm and weather becomes more extreme.

Conclusion

That’s enough reasons for me to think that the Trans Pacific Partnership isn’t in our best interests – because it, and trade deals like it, do not account for our changing world. We need to shift from a carbon economy to a clean energy economy, and from a consumption economy to a conservation economy, if we want to be prepared for the changing climate and do our part to minimize the change that will occur.

When you add to it the fact that the TPP endangers supply management, expands copyright on medications to keep their prices higher for longer, and threatens an open internet, it’s not just a bad deal for Canada, it’s an affront to our values: the family farm is already threatened, and this could lead to a greater industrialization of agriculture; the cost of living for our seniors is already sky-high, largely due to medication costs, and this deal will make that worse; and the internet is the greatest cultural and innovation hub in world history, and this deal will put it under the kinds of controls that restrict access, increase costs, and stifle the flourishing collaboration and community that has characterized our engagement with the internet thus far.

The Green Party has opposed this deal from the beginning. It’s not that we’re against trade – by no means! But trade deals like this go so much further than simply trade, infringing on sovereignty and having massive environmental and cultural effects. A Green government would re-open Canada’s trade agreements, renegotiating where possible to ensure we have the freedom to act to conserve resources and address climate change and injustice. We would also seek new trade agreements that address a more thoroughly assessed comparative advantage that takes the sustainability of an industry and the resilience of a nation into account. Because our best interests are always our long-term best interests.

Your candidate,

Jeff Wheeldon

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