The TPP is Toast: This could be good news over the long term for Latin America.

Demonstrations against the TPP in Santiago, Chile

On Monday of last week, President-elect Donald Trump, outlining plans for his first 100 days in office, declared that he would withdraw the U.S. from the Trans-Pacific Partnership (TPP) trade deal and replace it with “fair” bilateral agreements. As the Japanese Prime Minister, Shinzo Abe, one of the 12 signatories to the deal, declared, the TPP “without the U.S, is meaningless.” The agreement aimed to lower barriers on trade and investment among twelve countries (bordering the Pacific Ocean: US, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru), accounting for approximately 60 percent of the world economy and 40 percent of the world’s population.

Opposition to the TPP in Latin America

The leaders of the three Latin American governments claimed that the agreement would produce improvements in human welfare by stimulating economic growth through opening new markets for exports. However, not all of their countrymen agreed. Since the TPP required legislative approval before going into effect, civil society organizations, students, indigenous groups, and others in Mexico, Peru and Chile, mobilized to dissuade congresses from passing the deal. Protesters pointed to a variety of drawbacks. Tough intellectual property rules would give pharmaceutical companies longer monopolies over brand name drugs, making it harder for generic companies to produce cheaper drugs vital to public health. The TPP did take a stab at labor and environmental protection: it attempted to ensure improved labor conditions by stipulating that member nations must respect the right to freedom of association and collective bargaining and maintain laws governing minimum wages, acceptable hours of work, and occupational safety and health. Critics pointed out, however, that these commitments were unlikely to have much impact given the lack of specification around the level of minimum wages and the absence of sufficient legal and institutional frameworks to guarantee labor freedoms. The ability of corporations to appeal complaints about practices that infringe on profits watered down the potential effectiveness of the labor and environmental provisions. Hence, it seemed unlikely that the TPP could impede a continued “race to the bottom.” Perhaps equally important among the criticisms raised by these protests was the fact that the TPP had been negotiated largely in secret, in the absence of civil society and trade union consultation, with only multinational corporations having a seat at the table.

The TPP: No Panacea for Employment Growth

Even the experts did not agree on whether the agreement would bring tangible benefits. A recent World Bank report predicted substantial trade growth and a boost to GDP for members. However, a study by the Global Development and Environment Institute at Tufts University found that between 2015 and 2025, the agreement would produce increasing inequality and job losses in all participating countries, with a total loss of 771,000 jobs, including 448,000 in the United States, 78,000 in Mexico, and in Chile and Peru, 14,000. The TPP provided for the lowering of tariffs on raw materials, agricultural products, and manufactured goods while raising protection for intellectual property and medicines. It would likely increase markets for agricultural exports from Chile and Peru. However, this benefit would be arguably counterbalanced by the harm caused by cheaper Asian manufactured products (with lower wage rates) to domestic industries—increasing unemployment. The increased access to the U.S. market on the part of Asian producers with low wage rates would hurt Mexican exports to the U.S.

One promise of the TPP (and arguably its primary purpose) was to reduce costs by removing tariffs, thereby facilitating the movement of materials, inputs, and parts through to final assembly within global value chains. We have to question, however, just how much this will benefit Latin American countries (and poorer Asian countries as well) in terms of decent employment generation, even if there is some improvement in numbers of jobs. Mexico is largely on the low wage, low technology end of U.S-dominated value chains due to its participation in the North American Free Trade Agreement (NAFTA). It is difficult to see how the TPP could change this; indeed, as noted above, the TPP, were it to survive, would decrease the numbers of these lower end jobs in Mexico. Meanwhile it would not increase decent employment opportunities. As I discuss in The Politics of Inclusive Development, insertion at the bottom of global value changes tends not to trigger economic growth and employment generation in other parts of the domestic economy—so good employment opportunities do not emerge here in any substantial numbers. Insertion into global value chains means that obtaining better-paid employment opportunities for one’s population depends on moving up the value chains through technological innovation and adaptation. However, achieving this is extremely difficult—and may indeed be impossible for most countries. There are very few cases where this has occurred. Samsung and Hyundai are two examples of South Korean companies moving up and ultimately coming to control global value chains; however, these accomplishments occurred in a context that is unlikely to be replicated elsewhere and was one that included heavy state involvement.

The Need for Inclusive Fair Trade Agreements

Perhaps the demise of the TPP will give Latin American countries the opportunity to contemplate alternatives. Trade can provide opportunities for economic growth and improved living standards. The maintenance of highly protected inefficient domestic companies is no solution as we know from the failed import substitution industrialization drives of the 1950s and 1960s. However, neither are trade agreements that ignore environmental impacts and do not incorporate measures to ensure the generation of decent employment over the long term. The best way forward is through the development of industrial policies that stimulate and support the emergence of sectors with export potential, through ensuring adequate spending on innovation and research and development, and through the development of trade agreements that are fair and inclusive. Trade agreements will not achieve improved social outcomes as long as they have as their main priority that giving free rein to multinational corporations to achieve the lowest possible production costs. Other priorities must enter discussions and this will only happen if the negotiations are inclusive. If the processes by which trade agreements are negotiated do not change, their outcomes will continue to have adverse social consequences and even worse political ones.