Trans-Pacific Partnership May Have Far-Reaching Consequences for U.S. Industry

This week, the 12 Trans-Pacific Partnership (TPP) member countries decided the final terms of what they report is a far-reaching agreement (Agreement or TPP Agreement).  The 12 TPP countries are Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States, collectively known as “members.” Together they account for roughly 40 percent of global GDP.  If the Agreement takes effect, it could have a significant impact on numerous companies with ties to the Pacific Rim.

The TPP Agreement includes industry-specific chapters for textiles and apparel, investment and financial services and e-commerce.  In addition, the Agreement potentially affects many regulatory areas, including government procurement, competition policy, treatment of state-owned enterprises (SOEs), intellectual property, labor, the environment, anti-corruption, trade restrictions relating to technical standards and plant, animal and human health, and customs duties.  To enforce many of these commitments, the TPP would create a dispute settlement mechanism similar to that of the World Trade Organization (WTO).  The Agreement has 30 chapters, which are summarized below.

The TPP Agreement text is not expected to be made available until sometime next month.  When President Obama notifies Congress of his intention to sign the Agreement, Congress will have at least 90 days to review the details before giving the deal a “yes” or “no” vote, as established under Trade Promotion Authority (TPA) passed earlier this summer.  Whether Congress will support the Agreement is not yet clear.  It will also have to be ratified domestically by all other TPP member countries.

If it comes into force, the TPP Agreement will be the most significant trade agreement since the completion of the Uruguay Round Agreements Act that created the WTO.  As noted below, members may opt out of certain commitments for sensitive industries or policies.  Thus, careful review of the TPP Agreement will be necessary to determine the extent of market access that it would provide for a given industry or regulatory area.  In addition, some of the TPP provisions are aspirational, rather than enforceable.

For those seeking more details on the Agreement, the following is a breakdown of each of its 30 chapters:

1. Initial Provisions and General Definitions

  • Recognizes the continued application of other international trade agreements among the members, including the WTO Agreement, bilateral agreements and regional agreements.

2. Trade in Goods

  • Eliminates or reduces tariffs and non-tariff barriers on industrial and agricultural goods, some immediately and others through a gradual phase-out process.  According to the Office of the United States Trade Representative (USTR), the Agreement will eventually end more than 18,000 tariffs in the member countries.
  • Bans use of performance requirements, such as local production requirements.
  • Calls for eliminating agricultural export subsidies and certain agricultural policy reforms.

3. Textiles and Apparel

  • Eliminates immediately most textile and apparel tariffs.
  • Requires use of yarns and fabrics from TPP region to promote regional supply chains.

4. Rules of Origin

  • Creates rules of origin that will define whether a particular good originates from a TPP member country and is eligible to receive TPP Agreement’s preferential tariff benefits.
  • Provides that inputs from one TPP member country are treated the same as inputs from any other TPP member country if used to produce a product within any TPP member country.

5. Customs Administration and Trade Facilitation

  • Improves the transparency and integrity of customs; increases cooperation to combat duty evasion; ensures expedited customs procedures for express shipments; and creates common rules for trade facilitation.

6. Sanitary and Phytosanitary (SPS) Measures

  • Aims to ensure SPS measures identify and manage risks in a transparent, non-discriminatory manner and that the SPS measures are science-based and no more trade restrictive than necessary.
  • Requires members to allow public comment on proposed SPS measures.
  • Permits emergency measures to protect human, animal or plant life or health.
  • Establishes a consultation mechanism to rapidly resolve SPS-related conflicts.

7. Technical Barriers to Trade (TBT)

  • Aims to ensure that TBT regulations and standards do not create undue barriers to trade.
  • Requires all TPP member countries to adhere to transparent implementation of technical standards, including permitting public comment on proposed technical regulations and publication of technical regulations.
  • Promotes TPP-wide regulatory approaches for specific sectors, including cosmetics, medical devices, pharmaceuticals, information and communications technology products, wine and distilled spirits, proprietary formulas for prepackaged foods and food additives, and organic agricultural products.

8. Trade Remedies

  • Promotes transparency and due process through recognition of best practices in trade-remedy proceedings.
  • Allows members to apply a transitional safeguard measure under certain conditions.

9. Investment

  • Provides basic investment protections, such as national treatment and most-favored-nation treatment, and prohibits expropriation not for public purpose, without due process or without compensation.
  • Provides for neutral and transparent arbitration of disputes.
  • Prohibits “performance requirements,” such as local content requirements.
  • Ensures largely free transfer of investment-related funds and freedom to appoint senior management positions of any nationality.
  • Provides “negative list” that ensures members’ markets are fully open to foreign investors unless they have taken an exception in the Agreement’s annexes.

10. Cross-Border Trade in Services

  • Provides for national treatment, most-favored nation treatment, market access and other core obligations found in the WTO.
  • Prohibits quantitative restrictions on supply of services, requirements of a specific type of legal entity or joint venture, or requirement of local presence.
  • Uses “negative list” to ensure markets are fully open to services suppliers from TPP member countries, unless they have taken an exception in the Agreement’s annexes.

11.  Financial Services

  • Includes core obligations, such as national treatment, most-favored nation treatment, market access and minimum standard of treatment.
  • Allows for certain cross-border sales rather than requiring suppliers to establish operations in the other country in order to sell their service.
  • Provides that a supplier of a TPP member may provide a new financial service in another TPP member country’s market if domestic companies in that market do so.
  • Includes specific commitments on portfolio management, electronic payment card services and transfer of information for data processing.
  • Allows members, via the “negative list,” to carve out exceptions in the Agreement’s annexes.
  • Offers certain exceptions that allow financial regulators to promote financial stability and integrity.

12.  Temporary Entry for Business Persons

  • Encourages authorities to streamline temporary entry of business persons into TPP member countries.

13.  Telecommunications

  • Commits members to ensuring that major telecommunications-services suppliers in their territory provide interconnection, leased circuit services, co-location and access to facilities under reasonable terms and conditions and in a timely manner.
  • Promotes regulatory transparency and fairness and discourages discrimination against specific technologies.

14.  Electronic Commerce

  • Ensures free flow of information and data across borders, subject to legitimate public policy objectives such as personal information protection.
  • Prohibits:
    i.      requirements that companies in TPP countries build data centers to store data as a condition for operating in a TPP country’s market;
    ii.      requirements that source code of software be transferred or accessed;
    iii.      imposition of customs duties on electronic transmissions; and
    iv.      discriminatory measures that favor national producers or suppliers.
  • Promotes promulgation of laws and policies to address fraud and cybersecurity and ensure privacy.
  • Encourages paperless trade, such as the use of electronic customs forms, electronic authentication and electronic signatures.

15.  Government Procurement

  • Includes a commitment to core disciplines, such as national treatment and non-discrimination.
  • Requires timely publishing of relevant information and sufficient time for suppliers to obtain tender documentation and submit bids.
  • Commits members to treat tenders fairly and impartially, to maintain their confidentiality and to award contracts based solely on the evaluation criteria specified in the relevant notices and tender documentation.
  • Encourages establishment of due-process procedures for addressing questions and complaints related to awards.
  • Members agree to a “positive list” of entities and activities covered by the government procurement chapter, which is listed in annexes.

16.  Competition Policy

  • Commits members to agree to adopt/maintain national competition laws that proscribe anticompetitive business conduct and to establish/maintain enforcement authorities for these laws.
  • Includes obligations related to due process and procedural fairness as well as private rights of action.
  • Establishes enforcement cooperation by means of notification, consultation and information exchange.
  • Note that this chapter is not subject to the dispute settlement provisions of the TPP Agreement.

17.  State-Owned Enterprises (SOEs) and Designated Monopolies

  • Applies to large SOEs principally engaged in commercial activities.
  • States that members must ensure that, with certain public service exceptions, SOEs make commercial purchases and sales on the basis of commercial considerations.
  • Provides that members must ensure that their SOEs do not discriminate against the enterprises, goods and services of other members, and they must not cause adverse effects or injury to other members through the provision of non-commercial assistance to SOEs.
  • Holds that courts must have jurisdiction over the commercial activities of foreign SOEs in their territory and that administrative bodies regulating both SOEs and private companies must do so impartially.
  • Provides that members must list their SOEs and provide additional information about ownership, control and assistance upon request.

18.  Intellectual Property

  • Covers patents, trademarks, copyrights, industrial designs, geographical indications, trade secrets, other forms of intellectual property and enforcement of intellectual property rights.
  • Establishes standards for patents based on the WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement and international best practices.
  • Contains pharmaceutical-related provisions, including five years of data exclusivity for protection of data that was generated in getting medicines approved. Under U.S. law, data exclusivity is granted for 12 years, a standard that the United States will reportedly be allowed to maintain under the TPP. The TPP’s exclusivity agreement is controversial because U.S. biotechnology firms believe the lesser TPP standard that allows other companies to use their data earlier, i.e., after the firms’ significant investment, could chill the financing and development of breakthrough medicines.
  • Includes an obligation for members to seek balance in copyright systems through exceptions and limitations for legitimate purposes, including in the digital environment.
  • Commits members to providing strong enforcement systems for intellectual property rights.

19.  Labor

  • Commits members to adopt and maintain in their laws and practices the fundamental labor rights recognized in the International Labor Organization’s 1998 Declaration on Fundamental Principles and Rights at Work and its Follow-up—freedom of association, right to collective bargaining, elimination of forced labor, abolition of child labor and elimination of employment discrimination. 
  • Commits members to agree to promulgate laws related to the provision of minimum wages, limitations on hours of work and occupational safety and health.

20.  Environment

  • Provides that members agree to effectively enforce their environmental laws and not to weaken environmental laws in order to encourage trade or investment.
  • Provides that members agree, among other things, to fulfill their obligations under the Convention on International Trade in Endangered Species of Wild Fauna and Flora; promote sustainable forest management; ensure sustainable fisheries management and conservation of important marine species; and combat illegal fishing and harmful fisheries subsidies.

21.  Cooperation and Capacity Building

  • Establishes a committee to identify and review areas for potential cooperative- and capacity- building assistance for the lesser-developed TPP member countries.

22.  Competitiveness and Business Facilitation

  • Creates formal mechanisms to ensure the Agreement improves the economic competitiveness of members.

23.  Development

  • Identifies three areas to be considered for collaborative work once the TPP Agreement enters into force: (1) broad-based economic growth; (2) women and economic growth; and (3) education, science, technology and research.

24.  Small-and-Medium-Sized Enterprises (SME)

  • Includes commitments by all members to create user-friendly websites targeted at SMEs and to provide easily accessible information on the TPP Agreement and provisions relevant to SMEs.
  • Establishes a SME committee that will regularly review how well the TPP is serving SMEs and consider ways to enhance benefits.

25.  Regulatory Coherence

  • Promotes mechanisms for effective interagency consultation and coordination and encourages regulatory best practices, including provision of public notice of expected regulatory measures, impartial assessment of proposed regulatory measures, and communication on the grounds for the selection of chosen regulatory alternatives.
  • Does not impact the rights of members to regulate public health, safety, security and other public interests.

26.  Transparency and Anti-Corruption

  • Promotes the goals of strengthening good governance and combating bribery and corruption.
  • Provides that members agree to adopt or maintain laws criminalizing offers/solicitations of undue advantages vis-à-vis public officials as well as other acts of corruption affecting international trade or investment.
  • Provides also that members will endeavor to adopt standards of conduct for public officials and increase training of public officials. 

27.  Administrative and Institutional Provisions

  • Sets out the framework by which members will assess, implement and operate the provisions of the TPP Agreement. 

28.  Dispute Settlement

  • Provides for an impartial, unbiased dispute mechanism to resolve disputes that cannot be resolved through consultations and is applicable across the Agreement with a few specific exceptions.
  • Allows for trade retaliation if a member found not to have complied with its obligations fails to bring itself into compliance.

29.  Exceptions to TPP Obligations

  • Allows TPP members to regulate in the public interest, including for essential security interests and other public welfare concerns.
  • Incorporates the general exceptions provided in Article XX of the General Agreement on Tariffs and Trade 1994 for the goods trade-related provisions and similar general exceptions in Article XIV of the General Agreement on Trade in Services with respect to the services trade-related provisions.

30.  Final Provisions

  • Defines how the TPP Agreement will enter into force, methods for amending it, rules governing the process by which additional countries may join, means of withdrawal and the authentic languages of the TPP Agreement. 

As the TPP Agreement is not yet public, the text of the Agreement likely will reveal additional details of interest.  The USTR has provided additional details of the Agreement on an issue-by-issue basis here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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