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Trans-Pacific Trade Pact Gets Boost with Framework Agreement, Potential Expansion

Tuesday, November 15, 2011
Sandler, Travis & Rosenberg Trade Report

The Trans-Pacific Partnership Agreement currently under negotiation by nine countries saw forward progress this past weekend when leaders released the outlines of the agreement they intend to conclude and three more countries indicated their intent to participate.

TPP Features

After nine rounds of negotiations, TPP trade ministers reported that they have established the broad outlines of a “next-generation, transformative agreement that will further elevate our trade and investment relationships, create the foundation of a Free Trade Area of the Asia Pacific, and support jobs, economic growth, and higher living standards in our countries.” According to the ministers, the following five features “will define this historic agreement and set a new standard for trade agreements in the future.”

Comprehensive Market Access. The goal of the TPP is to provide comprehensive, duty-free access to goods markets and to simultaneously lift restrictions on services. The ministers reported “headway” in their efforts to negotiate market access packages for goods, services and investment “even as we work to address the specific sensitivities between us and build upon previous free trade agreements.”

Regional Agreement. The TPP participants have agreed to construct a fully regional agreement that facilitates trade and the development of production and supply chains among members. The ministers said the TPP will be the first trade agreement to include commitments addressing issues related to the development of regional production and supply chains holistically, including issues related to connectivity, customs cooperation and standards. Participants have also agreed to develop a single tariff schedule as well as common rules of origin to “help build regional commercial networks that will enhance the competitiveness of our businesses and encourage the use of TPP inputs.”

Cross-Cutting Trade Issues. TPP will include the following four new issues.

• specific commitments to promote regulatory coherence by improving regulatory practices, eliminating unnecessary barriers, reducing regional divergence in standards, promoting transparency, conducting regulatory processes in a more trade-facilitative manner, eliminating redundancies in testing and certification, and promoting cooperation on specific regulatory issues, with additional commitments on food safety, animal and plant health issues of common concern that would build on existing World Trade Organization rights and obligations

• commitments to enhance the domestic and regional competitiveness of each party’s economy and promote economic integration in the region, which could include “a first-of-its-kind mechanism to facilitate enhanced dialogue between government and stakeholders on competitiveness priorities in the TPP region, including supply chains”

• commitments to address concerns small and medium-sized enterprises have raised about the difficulty in understanding and using FTAs, including by enhancing SMEs’ access to relevant and usable information and resources about the TPP, coordinating to ensure that SMEs are able to take advantage of the agreement after it is implemented, and creating a mechanism for coordinating capacity building activities aimed at facilitating SMEs to trade and invest in the TPP region

• working to identify during the negotiation process the most appropriate tools to address how differences in levels of development may affect the ability of some countries to implement the “high ambition of the agreement,” including targeted trade capacity building assistance and negotiated implementation flexibilities, and discussing possible cooperation related to broad economic and social development priorities such as increasing the participation of women in economic activity, targeting trade policies to alleviate extreme poverty, integrating rural or isolated areas into international markets and promoting corporate social responsibility

New Trade Challenges. “New challenges that have emerged in global trade” will be considered as part of the TPP negotiations. These include developments in the digital economy such as cloud computing, trade issues related to green growth, and appropriate approaches to ensuring a pro-competitive business environment.

Living Agreement. Finally, negotiators are “establishing a structure, institutions, and processes that allow the agreement to evolve in response to developments in trade, technology or other emerging issues and challenges.”

Issues Under Negotiation

The trade ministers said consolidated legal texts have been developed in virtually all negotiating groups and that the text is almost complete in some areas while in others further work is needed. The legal texts will cover all aspects of commercial relations among the TPP countries, including the following.

Competition. Negotiators have made significant progress on the text, which includes commitments on the establishment and maintenance of competition laws and authorities, procedural fairness in competition law enforcement, transparency, consumer protection, private rights of action and technical cooperation.

Cooperation and Capacity Building. Several cooperation and capacity building activities
have already been implemented in response to specific requests and additional activities are being planned to assist developing countries in achieving the objectives of the agreement. The TPP countries also are discussing specific text that will establish a demand-driven and flexible institutional mechanism to effectively facilitate cooperation and capacity building assistance after the TPP is implemented.

Cross-Border Services. TPP countries have agreed on most of the core elements of the cross-border services text, providing the basis for securing fair, open and transparent markets for services trade, including services supplied electronically and by SMEs, while preserving the right of governments to regulate in the public interest. Participants are negotiating on a “negative list” basis, which presumes comprehensive coverage but allows countries to negotiate specific exceptions to commitments in specific service sectors.

Customs. Negotiators have reached agreement on key elements of the customs text as well as the fundamental importance of establishing customs procedures that are predictable, transparent and expedite and facilitate trade. The text will ensure that goods are released from customs control as quickly as possible while preserving the ability of customs authorities to strictly enforce customs laws and regulations. TPP countries also have agreed on the importance of close cooperation between authorities to ensure the effective implementation and operation of the agreement as well as other customs matters.

E-Commerce. Negotiators have made encouraging progress, including on provisions addressing customs duties in the digital environment, authentication of electronic transactions and consumer protection. Additional proposals on information flows and treatment of digital products are under discussion.

Environment. TPP countries share the view that the environment text should include effective provisions on trade-related issues that would help to reinforce environmental protection and are discussing an effective institutional arrangement to oversee implementation as well as a specific cooperation framework for addressing capacity building needs. They also are discussing proposals on new issues such as marine fisheries and other conservation issues, biodiversity, invasive alien species, climate change, and environmental goods and services.

Financial Services. The text related to investment in financial institutions and cross-border trade in financial services will improve transparency, non-discrimination, fair treatment of new financial services and investment protections while protecting the right of financial regulators to take action to ensure the integrity and stability of financial markets, including in the event of a financial crisis.

Government Procurement. TPP negotiators have agreed on the basic principles and procedures for conducting government procurement and are developing specific obligations, seeking comparable coverage by all countries while recognizing the need to facilitate the opening of the procurement markets of developing countries through the use of transitional measures.

Intellectual Property. TPP countries have agreed to reinforce and develop existing WTO Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) rights and obligations. Proposals are under discussion on many forms of intellectual property, including trademarks, geographical indications, copyright and related rights, patents, trade secrets and data required for the approval of certain regulated products, as well as intellectual property enforcement and genetic resources and traditional knowledge.

Investment. Negotiations are ongoing on provisions to ensure non-discrimination, a
minimum standard of treatment, rules on expropriation, and prohibitions on specified performance requirements that distort trade and investment. The investment text will include provisions for expeditious, fair and transparent investor-state dispute settlement subject to appropriate safeguards, and discussions on scope and coverage are continuing.

Labor. TPP countries are discussing elements for a labor chapter that include commitments on labor rights protection and mechanisms to ensure cooperation, coordination and dialogue on labor issues of mutual concern.

Legal Issues. TPP countries have made substantial progress on provisions concerning the administration of the agreement, including clear and effective rules for resolving disputes, and are discussing some of the specific issues relating to the process. There has also been progress on exceptions from agreement obligations and disciplines addressing transparency in the development of laws, regulations and other rules. Proposals related to good governance and procedural fairness issues in specific areas are also under discussion.

Market Access for Goods. The text on trade in goods addresses tariff elimination among partner countries, including significant commitments beyond their current WTO obligations, as well as the elimination of non-tariff barriers. Proposals related to import and export licensing, remanufactured goods, agricultural export competition and food security are also under discussion.

Rules of Origin. TPP countries have agreed to seek a common set of rules of origin that will be objective, transparent and predictable. They are also discussing proposals for cumulation as well as a system for verification of preference claims that is simple, efficient and effective.

Sanitary and Phytosanitary Standards. The TPP will reinforce and build upon existing rights and obligations under the WTO Agreement on the Application of Sanitary and Phytosanitary Measures. The SPS text will contain a series of new commitments on science, transparency, regionalization, cooperation and equivalence. Negotiators have also agreed to consider a series of new bilateral and multilateral cooperative proposals, including import checks and verification.

Technical Barriers to Trade. The TBT text will reinforce and build upon existing rights and obligations under the WTO Agreement on Technical Barriers to Trade and include commitments on compliance periods, conformity assessment procedures, international standards, institutional mechanisms and transparency. TPP countries are also discussing disciplines on conformity assessment procedures, regulatory cooperation, trade facilitation, transparency and other issues.

Telecommunications. In addition to broad agreement on the need for reasonable network access for suppliers through interconnection and access to physical facilities, TPP countries are close to consensus on a broad range of provisions enhancing the transparency of the regulatory process and ensuring rights of appeal of decisions. Additional proposals have been put forward on choice of technology and addressing the high cost of international mobile roaming.

Temporary Entry. Negotiators have substantially concluded the general provisions of this chapter, which are designed to promote transparency and efficiency in the processing of applications for temporary entry. Specific obligations related to individual categories of business persons are under discussion.

Textiles and Apparel. In addition to market access, TPP countries are discussing a series of related disciplines such as customs cooperation and enforcement procedures, rules of origin and a special safeguard.

Trade Remedies. TPP countries have agreed to affirm their WTO rights and obligations and are considering new proposals, including additional obligations in the areas of transparency and procedural due process. Proposals also have been put forward relating to a transitional regional safeguard mechanism.

Three More Countries Seek to Join

Japan, Mexico and Canada all indicated their intent to begin discussions on joining the TPP during the talks held last weekend. The U.S. welcomed these countries’ interest in the agreement but cautioned that they must be willing to comply with its “high standards for liberalizing trade.” Observers note that these three economies are highly protective of specific domestic industries and that the impact of the TPP could be substantially reduced if they seek to perpetuate those protections in a final agreement.

Because the TPP is seen as a step toward an eventual Free Trade Area of the Asia-Pacific, U.S. officials were asked whether they envision China eventually becoming a member of the TPP. Deputy National Security Advisor for International Economic Affairs Mike Froman did not rule it out, saying that the TPP “is an open platform for those countries who can credibly achieve a level of openness and ambition that we expect of all TPP partners.” However, he also noted that China has “not expressed interest” in the TPP thus far.

Next Steps

The leaders of the nine current TPP countries have instructed negotiators to meet in early December and to schedule additional negotiating rounds at that time. Froman said that over the next year TPP leaders “would hope that they could complete the legal text of the agreement and make as much progress as possible on the schedules, the tariff schedules, and the other specifics of the agreement.” However, no firm deadline for completing the negotiations has been set.

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