Trade Agreements Can Advance Economic Freedom

Kenichiro Seki/ZUMA Press/Newscom

The United States is currently engaged in Trans-Pacific Partnership (TPP) trade negotiations designed to reduce barriers to international trade and investment. The latest text from these negotiations shows how trade agreements, if properly designed and implemented, help advance economic freedom around the world.

Among other things, the draft text calls for:

  • No discrimination between domestic and foreign investors;
  • Equal treatment for investors from all TPP countries;
  • No “performance requirements” on foreign investors, such as requiring them to purchase domestically produced inputs;
  • Allowing investors to freely transfer profits; and
  • No expropriation of investments without prompt and fair compensation.

If properly implemented, these TPP investment protection provisions will be an effective extension of a right enumerated in the U.S. Bill of Rights to people who invest in other countries: “No person shall be…deprived of…property, without due process of law; nor shall private property be taken for public use without just compensation.”

One vital element of the TPP text is a provision allowing investors who believe a government has violated its commitments to request international arbitration. Otherwise, investors could see their property expropriated, and then be forced to rely on the court system of the very government that expropriated their property to receive fair compensation. That would make as much sense as if Louisville had been forced to have its recent championship basketball game refereed by members of Michigan’s coaching staff.

The draft provisions related to investment protection in the TPP are quite similar to the factors used to assess countries’ investment freedom in The Heritage Foundation’s annual Index of Economic Freedom. According to the data in the 2013 Index, countries that have adopted policies promoting greater investment freedom are much more prosperous than those that restrict investment. While the average gross domestic product (GDP) per capita of the eight countries with an investment freedom score of zero is $5,350; the GDP of nine countries with a score of 90 or better is close to $40,000.

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The latest TPP draft investment provisions, if successfully put into place, demonstrate how a trade agreement can promote U.S. constitutional values, prosperity, and economic freedom.

Source material can be found at this site.

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