TTIP: It's Not About Trade
This month, we're reposting noteworthy articles from 2014. In his February 12th Op-Ed, Dean Baker argues that with TTIP, not all is as it seems. EU and US officials would have citizens believe promotion of trade is the impetus behind TTIP negotiations. But slashing already-low tariffs is hardly worth the effort. The real goal is the implementation of a new regulatory structure, resulting in an international policing mechanism unlikely to have been approved via normal political processes in each country.
The most important fact to know about the Transatlantic Trade and Investment Partnership (TTIP) is that promoting trade is not really the purpose of the deal. With few exceptions, traditional trade barriers, in the form of tariffs or quotas, between the United States and European Union (EU) are already low. No one would devote a great deal of effort to bringing them down further, there is not much to be gained.
The pursuit of free trade is just a cover for the real agenda of the TTIP. The deal is about imposing a regulatory structure to be enforced through an international policing mechanism that likely would not be approved through the normal political processes in each country. The rules that will be put in place as a result of the deal are likely to be more friendly to corporations and less friendly to the environment and consumers than current rules. And, they will likely impede economic growth.
In a wide variety of areas the EU has much stronger protections for consumers and the environment than in the United States. For example, the United States has a highly concentrated mobile phone industry that is allowed to charge consumers whatever they like. The same is true for Internet access. As a result, people in the United States pay far more for these services.
Fracking for oil and natural gas has advanced much more in the United States than in Europe is part because it is largely unregulated. In fact, the industry got a special exemption from laws on clean drinking water, so that they don't even have to disclose the chemicals they are using in the fracking process. As a result, if they end up contaminating ground water and drinking water in areas near a fracking site it will be almost impossible for the victims to prove their case.
These are the sorts of regulatory changes that industry will be seeking in the TTIP. It is unlikely the governments of individual European countries or the EU as a body would support the gutting of consumer and environmental regulations. Therefore the industry groups want to use a "free-trade" agreement to circumvent the democratic process.
However the worst part of the TTIP is likely to be in its rules on patents and copyright. The United States has a notoriously corrupt patent system. A major food manufacturer once patented a peanut butter sandwich and of course Amazon was able to get a patent on "1-click shopping." These frivolous patents, which are common in the United States, raise prices and impede competition. Europeans will likely see more of such patents as a result of the TTIP.
The deal is likely to have even more consequences for the cost and availability of prescription drugs. The United States pays roughly twice as much for its drugs as Europeans. This is due to the unchecked patent monopolies granted to our drug companies. A major goal of the pharmaceutical industry is to be able to get similar rules imposed in the EU so that they can charge higher prices.
Just to be clear, this part of the TTIP is 180 degrees at odds with free trade. The pharmaceutical industry will be seeking to make its patents stronger, longer, and more far-reaching, for example by applying protection to the data used to register drugs so that generic competitors cannot enter the market.
There is an enormous amount of money at stake in this battle. The United States spends close to $350 billion a year on drugs that would sell for around one-tenth this price in a free market. The difference is almost 2 percent of GDP or more than 25 percent of after-tax corporate profits. This amounts to a huge transfer from the public at large to the pharmaceutical industry.
The enormous gap between the patent-protected price and production costs gives drug companies an incentive to mislead the public about the safety and effectiveness of their drugs, which they do with considerably regularity. In short, an outcome of the deal can be much higher drug prices and lower quality health care.
None of the models used to project economic gains from a TTIP even try to estimate the economic losses that would result from higher drug prices or other negative consequences of stronger patent protection. For this reason these models do not provide a useful guide to the likely economic impact of a TTIP.
The notion that a TTIP will provide some quick boost to the economies of the EU and the United States is absurd on its face. The public should scrutinize whatever comes out of the negotiating process very carefully. If politicians demand a quick yes or no answer, then the obvious answer must be "no."
Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC.
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