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What Is The Trans-Pacific Partnership (TPP) About?

The Trans Pacific Partnership is a trade deal involving 12 countries (or 11 countries depending on which media source you consult). This is basically an expanded version of NAFTA from 3 countries to 12. It also encompasses more issues like labour mobility and affects more sectors of the economy. The theory behind trade deals is that they seek to lower tariffs erected by governments which foster "fairer" competition and lower prices. A tariff is essentially an import tax which can influence trade by limiting what can come into a country (and will affect what is going out of the exporting country). Without these tariffs, the theory says that the free market would decide where the goods are produced and efficiency would be maximized due to innovation and increased productivity. This all sounds good on paper coming from the era of high tariffs and limited trade before these trade deals existed.

Are trade deals really effective on a global scale? It is not very clear. Many people who support trade agreements say that increased competition will lower prices for consumers. This is true, but where do these lower prices come from? The supporters of trade agreements say that efficiency is the reason and that everyone benefits. This is not entirely true considering the trend toward outsourcing to countries with cheap labour, child labour, foreign worker programs and increased automation. It is nice to have cheaper goods, but if you have no job you cannot afford to buy them. This trend toward cheaper labour means higher unemployment. Stagnation of income and a lower standard of living are other effects of consistently lower wages.

It is true that there is higher production in terms of GDP for the member countries, but the distribution of this wealth is not even. The expression "the rich get richer and the poor get poorer" summarizes this problem. Freer trade has contributed to this phenomenon by forcing people to work for lower wages to survive and not getting their share of the increased profit. That share of increased production goes to corporate profits, which have swelled higher since the advent of free trade agreements. Contrary to what people have said in the past, these profits do not trickle down to the consumer but get reinvested in more capital equipment. This creates an even larger divide between the rich and the poor without proper distribution. Producers will benefit from trade deals since they obtain cheaper labour and production, but this will come at the expense of the worker. This worker is also the voter, the citizen and the consumer - so is it worthwhile overall?

Some sectors will benefit from a trade agreement and some will not. The sectors that benefit a given country are the ones where a member country can produce the cheapest goods. If you are not the low cost producer, you will lose business since a company can locate in any of the 12 countries and produce goods for close to the same price. The low cost producer does not equal the best producer since social services, costs to the environment and indirect costs tend to be borne by the citizens and not the producer of the goods. In how many sectors can Canada produce something cheaper than Vietnam or Peru? Even sectors like mining or oil production can be determined by countries with cheaper extraction methods. If innovation is an advantage and it has been established, the production can still go to the lowest bidder. In situations like the dairy sector, the producers are being paid by the Canadian government to become more efficient over a time period. Once the transition period is over, they will sustain the same competition as other sectors.

The whole intention behind trade deals is to create prosperity. The assumption is that the wealth generation is for the majority of people in a democratic society. Are these assumptions really true? If these deals are good for the average citizen, why are they always held in secret? If secret meetings are good for negotiating, why aren't the contents of the deal exposed during the negotiation process and prior to signing it so that the deal can be debated by anyone who wants to participate? There should also be adequate time for people to get informed and digest what is in the agreement before anything is signed and voted upon. These policies are supposed to be for everyone's benefit - so why are most people not represented physically at the negotiating table and not consulted?

There are reports concerning a company's ability to contest a country's laws and demand compensation under a trade deal. It seems odd that a corporation has the right to overturn the law in a jurisdiction in which it operates. If this is the case, laws will be aligned with corporate interests rather than the citizenry and they will get very expensive to enforce. These expenses will be paid by the citizens of a given country via taxes. These citizens are also the workers, voters and consumers. If this reality is indeed true, it should be disclosed upfront since it is a game changer. Environmental, safety or social welfare laws will also be aligned with corporate interests and these may are opposed to what the average person wants. Should a company produce something that is superior to what currently exists in the market, it may be sued by its competitors to protect their profit margin. Isn't the whole point of freer trade to create better products fairly? Protecting the status quo is actually a hindrance as it promotes current methods as opposed to better ones.

Are these trade deals delivering the prosperity that everyone believes they do?

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.