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Trans-Pacific Partnership Concluded After Key Issues Resolved

Tuesday, October 06, 2015
Sandler, Travis & Rosenberg Trade Report

After five years of “intensive” negotiations and a marathon final session in Atlanta that went several days longer than anticipated to clear the remaining hurdles, trade ministers announced Oct. 5 the successful conclusion of the Trans-Pacific Partnership free trade agreement among Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. The ministers said negotiators will now continue technical work, including the legal review, translation, and drafting and verification of the agreed text, to prepare a complete text for public release.

A joint statement asserted that the final agreement “achieves the goal we set forth of an ambitious, comprehensive, high standard and balanced agreement” that “addresses the challenges our stakeholders face in the 21st century, while taking into account the diversity of our levels of development.” According to the Office of the U.S. Trade Representative, this is accomplished through five key features: comprehensive market access, a regional approach that facilitates the development of production and supply chains and seamless trade, addressing issues such as the development of the digital economy and the role of state-owned enterprises in the global economy, promoting inclusive trade for economies at all levels of development and businesses of all sizes, and serving as a platform for regional integration.

A USTR fact sheet indicates that highlights of specific features within the TPP’s 30 chapters include the following.

Trade in Goods. TPP parties agreed to eliminate and reduce tariffs and non-tariff barriers on industrial goods. Most tariff elimination will be implemented immediately but some tariffs will be eliminated over longer timeframes. Parties also agreed not to impose conditions on companies to obtain tariff benefits (e.g., local production requirements) or WTO-inconsistent import and export restrictions and duties, including on remanufactured goods.

On agricultural products, TPP parties agreed to eliminate or reduce tariffs and other restrictive policies. They will also promote policy reforms, including by eliminating agricultural export subsidies and working together in the WTO to develop disciplines on export state trading enterprises, export credits, and the timeframes allowed for restrictions on food exports. Further, they have agreed to increased transparency and cooperation on certain activities related to agricultural biotechnology. 

Textiles and Apparel. Most tariffs on textiles and apparel will be eliminated immediately, although tariffs on some sensitive products will be eliminated over longer timeframes. There are specific rules of origin that require the use of yarns and fabrics from the TPP region, with a short supply list mechanism that allows the use of certain yarns and fabrics not widely available in the region. There are also commitments on customs cooperation and enforcement to prevent duty evasion, smuggling and fraud as well as a textile-specific special safeguard to respond to serious damage or the threat of serious damage to domestic industry in the event of a sudden surge in imports.

Rules of Origin. TPP parties agreed on a single set of rules of origin that define whether a particular good is originating and therefore eligible to receive preferential tariff benefits. The agreement provides for accumulation so that, in general, inputs from one TPP party are treated the same as materials from any other if used to produce a product in any TPP party. A common TPP-wide system of showing and verifying that goods made in the TPP meet the rules of origin has been created, and importers will be able to claim preferential tariff treatment as long as they have the documentation to support their claim. The agreement also provides the competent authorities with the procedures to verify claims appropriately.

Customs Administration and Trade Facilitation. TPP parties have agreed to transparent rules, including publishing their customs laws and regulations as well as providing for the release of goods without unnecessary delay and on bond or “payment under protest” where customs has not yet made a decision on the amount of duties or fees owed.  They agreed to advance rulings on customs valuation and other matters, disciplines on customs penalties, and expedited customs procedures for express shipments. To help counter smuggling and duty evasion they agreed to provide information, when requested, to help each other enforce their respective customs laws.

Sanitary and Phytosanitary Measures. The TPP builds on WTO SPS rules for identifying and managing risks in a manner that is no more trade restrictive than necessary. TPP parties agreed to allow the public to comment on proposed SPS measures to inform their decision-making and to ensure that traders understand the rules they will need to follow. They also agreed that import programs are based on the risks associated with importations and that import checks are carried out without undue delay. Emergency measures necessary for the protection of human, animal or plant life or health may be taken provided that they are notified to all other parties and their scientific basis is reviewed within six months. In addition, TPP parties committed to improve information exchange related to equivalency or regionalization requests and to promote systems-based audits to assess the effectiveness of regulatory controls of the exporting party. 

Technical Barriers to Trade. TPP parties agreed to cooperate to ensure that technical regulations and standards do not create unnecessary barriers to trade. They also agreed to rules that will facilitate the acceptance of the results of conformity assessment procedures from the conformity assessment bodies in the other TPP parties. Parties will be required to allow for the public to comment on proposed technical regulations, standards and conformity assessment procedures to inform their regulatory processes and ensure that traders understand the rules they will need to follow. They also will ensure a reasonable interval between the publication of technical regulations and conformity assessment procedures and their entry into force. The agreement includes annexes to promote common regulatory approaches across the TPP region in the areas of 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.

Trade Remedies. A transitional safeguard mechanism will allow TPP parties to apply a transitional safeguard measure during a certain period of time if import increases as a result of the tariff cuts implemented under the TPP cause serious injury to a domestic industry. These measures may be maintained for up to two years, with a one-year extension, but must be progressively liberalized if they last longer than a year. In addition, TPP parties applying a transitional safeguard measure must provide mutually-agreed compensation. No more than one allowed safeguard may be imposed on the same product at the same time and no safeguard measure may be imposed on any product imported under a TPP tariff-rate quota.

Investment. TPP provides the basic investment protections found in other investment-related agreements, including national treatment; most-favored-nation treatment; “minimum standard of treatment” for investments in accordance with customary international law principles; prohibition of expropriation that is not for public purpose, without due process or without compensation; prohibition on performance requirements such as local content or technology localization requirements; free transfer of funds related to an investment (subject to exceptions to ensure that governments retain the flexibility to manage volatile capital flows, including through non-discriminatory temporary safeguard measures (such as capital controls) restricting investment-related transfers in the context of a balance of payments crisis or the threat thereof, and certain other economic crises or to protect the integrity and stability of the financial system); and freedom to appoint senior management positions of any nationality. TPP parties adopted a negative list approach to investment, meaning that their markets are fully open to foreign investors except where they have taken an exception in one of two country-specific annexes.

The agreement also provides for neutral and transparent international arbitration of investment disputes, with safeguards to prevent abusive and frivolous claims and ensure the right of governments to regulate in the public interest, including on health, safety and environmental protection.

Services. TPP includes core obligations found in the WTO and other trade agreements: national treatment; most-favored nation treatment; market access, which provides that no TPP country may impose quantitative restrictions on the supply of services (e.g., a limit on the number of suppliers or number of transactions) or require a specific type of legal entity or joint venture; and local presence, which means that no country may require a supplier from another country to establish an office or affiliate, or to be resident, in its territory to supply a service. TPP parties accept these obligations on a negative list basis. There is a professional services annex encouraging cooperative work on licensing recognition and other regulatory issues and an annex on express delivery services.

E-Commerce. TPP parties committed to ensuring the free flow of information and data that drive the Internet and the digital economy, subject to legitimate public policy objectives such as personal information protection. They also agreed not to require that TPP companies build data centers to store data as a condition for operating in a TPP market and that source code of software is not required to be transferred or accessed. The agreement prohibits the imposition of customs duties on electronic transmissions and prevents TPP parties from favoring national producers or suppliers of such products through discriminatory measures or outright blocking. There are provisions encouraging TPP parties to promote paperless trading between businesses and the government, such as electronic customs forms, and providing for electronic authentication and signatures for commercial transactions.

State-Owned Enterprises and Designated Monopolies. The SOE chapter covers large SOEs that are principally engaged in commercial activities. Parties agreed to ensure that their SOEs make commercial purchases and sales on the basis of commercial considerations except when doing so would be inconsistent with any mandate under which an SOE is operating that would require it to provide public services. They also agreed to ensure that their SOEs or designated monopolies do not discriminate against the enterprises, goods and services of other parties. TPP parties agreed to not cause adverse effects to the interests of other TPP parties in providing non-commercial assistance to SOEs or injury to another party’s domestic industry by providing non-commercial assistance to an SOE that produces and sells goods in that other party’s territory.

Intellectual Property. The IP chapter establishes standards for patents based on the WTO’s TRIPS Agreement and international best practices. On trademarks, it provides protections of brand names and other signs that businesses and individuals use to distinguish their products in the marketplace. Certain transparency and due process safeguards are required with respect to the protection of new geographical indications. The chapter contains pharmaceutical-related provisions that facilitate both the development of innovative, life-saving medicines and the availability of generic medicines, taking into account the time that various parties may need to meet these standards. It also includes commitments relating to the protection of undisclosed test and other data submitted to obtain marketing approval of a new pharmaceutical or agricultural chemicals product. 

In copyright, the IP chapter establishes commitments requiring protection for works, performances and phonograms such as songs, movies, books and software. It also includes an obligation for parties to continuously seek to achieve balance in copyright systems through, among other things, exceptions and limitations for legitimate purposes, including in the digital environment.

Finally, TPP parties agreed to provide strong enforcement systems (e.g., civil procedures, provisional measures, border measures, and criminal procedures and penalties) for commercial-scale trademark counterfeiting and copyright or related rights piracy. In particular, TPP parties will provide the legal means to prevent the misappropriation of trade secrets and establish criminal procedures and penalties for trade secret theft, including by means of cybertheft, and for camcording.

Labor. TPP parties agreed to adopt and maintain in their laws and practices the fundamental labor rights as recognized in the ILO 1998 Declaration: freedom of association and the right to collective bargaining, elimination of forced labor, abolition of child labor and a prohibition on the worst forms of child labor, and elimination of discrimination in employment. They also agreed to have laws governing minimum wages, hours of work, and occupational safety and health. These commitments also apply to export processing zones.

The parties agreed not to waive or derogate from laws implementing fundamental labor rights to attract trade or investment and not to fail to effectively enforce their labor laws in a sustained or recurring pattern that would affect trade or investment between the TPP Parties. The labor chapter includes commitments to discourage the importation of goods that are produced by forced labor or child labor or that contain inputs produced by forced labor, regardless of whether the source country is a TPP party.

Environment. The parties agreed to effectively enforce their environmental laws and not to weaken environmental laws to encourage trade or investment. They also agreed to fulfil their obligations under the Convention on International Trade in Endangered Species of Wild Fauna and Flora and to take measures to combat and cooperate to prevent trade in wild fauna and flora that has been taken illegally. In an effort to protect their shared oceans, TPP parties agreed to sustainable fisheries management, to promote conservation of important marine species, to combat illegal fishing, and to prohibit some of the most harmful fisheries subsidies that negatively affect overfished fish stocks and that support illegal, unreported or unregulated fishing. They also agreed to protect the marine environment from ship pollution and to protect the ozone layer from ozone-depleting substances.

Competitiveness and Business Facilitation. The agreement creates formal mechanisms to review the impact of the TPP on the competitiveness of the parties through dialogues among governments and between government, business and civil society, with a particular focus on deepening regional supply chains.

Small and Medium-Sized Enterprises. Complementing the commitments throughout other chapters on market access, paperwork reduction, Internet access, trade facilitation, express delivery and others, the SME chapter includes commitments by each TPP party to create user-friendly websites targeted at SME users to provide easily accessible information on the TPP and ways they can take advantage of it, including descriptions of the provisions of TPP relevant to SMEs, regulations and procedures concerning IPR, foreign investment regulations, business registration procedures, employment regulations and taxation information. In addition, the chapter establishes an SME Committee that will meet regularly to review how well the TPP is serving SMEs, consider ways to further enhance its benefits, and oversee cooperation or capacity building activities to support SMEs through export counseling, assistance and training programs; information sharing; trade finance; and other activities.

Regulatory Coherence. This chapter aims to facilitate regulatory coherence in each TPP country by promoting mechanisms for effective interagency consultation and coordination. It encourages widely-accepted good regulatory practices and includes provisions to help ensure that regulations are written clearly and concisely, that the public has access to information on new regulatory measures (online, if possible), and that existing regulatory measures are periodically reviewed to determine if they remain the most effective means of achieving the desired objective. TPP parties are encouraged to provide an annual public notice of all regulatory measures they expect to take. The chapter does not affect the rights of TPP parties to regulate for public health, safety, security and other public interest reasons.

Transparency and Anti-Corruption. TPP parties agreed to ensure that their laws, regulations and administrative rulings of general application with respect to any matter covered by the TPP are publicly available and that, to the extent possible, regulations that are likely to affect trade or investment between the parties are subject to notice and comment. TPP parties agreed to ensure certain due process rights for TPP stakeholders in connection with administrative proceedings, including prompt review through impartial judicial or administrative tribunals or procedures.

Dispute Settlement. The TPP dispute settlement mechanism applies across the agreement, with few specific exceptions. Submissions made in disputes will be made available to the public, hearings will be open to the public unless the disputing parties otherwise agree, and the final report presented by panels will be made available to the public. Panels will be composed of three international trade and subject matter experts independent of the disputing parties. To maximize compliance, the agreement allows for the use of trade retaliation (e.g., suspension of benefits) if a party found not to have complied with its obligations fails to bring itself into compliance. Before the use of trade retaliation, a party found in violation can negotiate or arbitrate a reasonable period of time in which to remedy the breach.

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