by Ronald Labonté, Arne Ruckert, and Ashley Schram, University of Ottawa
Now that the full text of the Trans-Pacific Partnership (TPP) has been finally released, academics and policy wonks are busy assessing what it all means for the Canadian economy and the well-being of Canadians. Even before the text was released, most assessments attributed little economic impact to the TPP. The most widely cited estimate of TPP annual income gains by the Peterson Institute average only 0.5% of GDP (achieved by 2025) across the 12 signing parties, just 0.2% more than global economic income gains (the background trend) over the same period. High-income TPP parties will gain less, lower-income TPP parties more. Moreover, the econometric models used to make this prediction are based on assumptions of perfect competition and full employment — all labour loss in non-competitive sectors is absorbed by growth in the competitive ones. Empirically, this has rarely been the case, which governments appear to have accepted. For example, Canada has committed over CAD $5 billion in compensation to two sectors (automotive and dairy farming), both expected to lose because of the TPP.
Alternative econometric models based on more realistic assumptions come to different conclusions. A recent study using the United Nations Global Policy Model database predicts mild economic losses for developed TPP economies (-0.04% average annual GDP change) and insignificant growth for developing economies (+0.22% average annual GDP change), and expects the loss of a total of 650,000 jobs for all TPP countries. For Canada, it expects negligible GDP changes (+0.03% annually), but also predicts a loss of 58,000 jobs. The study also shows that income and wealth inequality is likely to increase, as the share of GDP going to capital will rise while the share going to labour will decline. This link between “free trade” and growing income inequality is now well established in the policy literature, as, for example, in a recent analysis of NAFTA’s impact on Canada. Bluntly put, the TPP does not align well with the new Liberal government’s commitment to rebuild the middle class and address inequality head on.
Economic stagnation and negative employment effects, however, are not the only pathways by which trade and investment agreements can undermine the well-being of Canadians. Our recently conducted health impact assessment of the TPP also raises concerns about changes to the Intellectual Property Rights (IPR) regime and how they will translate into additional costs for the health care systems of TPP member countries. The TPP lengthens the time that life-saving drugs can be patented by allowing “patent term extensions” for regulatory delays and making it easier for existing pharmaceuticals to be re-patented for new uses. The first-time inclusion of biologics in a trade agreement, with eight years minimum market exclusivity, also raises public health concerns, as such drugs are increasingly important in the treatment of cancer and immune disorders. One estimate of similar IPR concessions in the signed, but not-yet ratified Canada–European Union Comprehensive Economic and Trade Agreement pegged those additional costs for the strained Canadian health care system at around $850 million annually.
Another widely shared concern is the role of Investor-State Dispute Settlement (ISDS) mechanisms in the TPP. The use of ISDS by foreign investors to sue governments over regulatory decisions that they believe have compromised the value of their investments has risen in the past decade. A 2013 review of ISDS claims found that 40 cases involved health or environmental protection, including food safety, pharmaceuticals, and tobacco control measures. Most of the environmental disputes have important indirect health implications as well. The Canadian government claims that the TPP ensures the rights of parties to regulate in the public interest based on the ISDS Chapter’s Article 9.15: “nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental, health or other regulatory objectives” (our emphasis). Those five italicized words, however, effectively undermine the entire Article, since governments can undertake such regulations only if they abide by all the other rules in the ISDS Chapter. This offers scant protection from investor suits over changes in health or environmental regulations.
Signing on to the TPP could thus become a key obstacle for the Canadian government in its recently announced and laudable desire to introduce plain packaging of tobacco products. There is a tobacco exclusion in the TPP, which Canada could invoke, but this would not preclude tobacco firms from “treaty shopping” for another investment agreement from which to launch a dispute. Neither does the recent ISDS tribunal rejection of Philip Morris’s case against Australia’s plain packing legislation offer any assurance to Canada since it was rejected on jurisdictional and not substantive grounds. Such uncertainty with respect to tobacco policy also extends to alcohol regulation; both could be thwarted through ISDS challenges.
Given the negligible economic impact of the TPP — and the policy, regulatory, and health risks it poses (only a few of which we touched on) — this is not a good deal for Canada. While the CIPS Working Group’s report on “A 21st Century Trade Strategy for Canada” argued that this was “no time for complacency” and urged immediate ratification of CETA and the TPP, we believe that time is, in fact, much needed now to allow for reflection and a full and public interrogation of the TPP’s benefits and risks to Canadians.
A slightly different version of this article was first published by the Winnipeg Free Press: http://www.winnipegfreepress.com/opinion/analysis/canada-should-reject-trade-deal-368132101.html