What next for the Trans-Pacific Partnership?

By Jayant Menon. Posted October 28, 2015

Introduction

After more than 5 years of numerous missed self-imposed deadlines, trade ministers from the 12 participating Asia-Pacific countries finally concluded the Trans-Pacific Partnership (TPP) in Atlanta on 5 October 2015. The public fanfare accompanying the announcement led many to believe the agreement would soon come into force. Yet there is a lot that needs to be done before that happens, and there is no guarantee that it will. In this article, I examine two issues: (i) what concluding the TPP means in terms of what was achieved and what remains to be done; and (ii) what the TPP is likely to look like, given what we now know following the negotiations.

What was achieved in Atlanta?

In Atlanta, the trade ministers finally concluded negotiations on the TPP—nothing more, nothing less. That is, they settled the final points of the agreement, which can no longer be re-opened for negotiations or amended. Apparently, the most difficult issues related to intellectual property (IP) protection for biological drugs, automotive-assembly rules, dairy products, and the like were finally resolved. The agreement summary for 30 chapters is now available from the United States Trade Representative (2015). The purported full text of some of these chapters, such as the one on IP, is available on Wikileaks (2015a).

Next steps

Release of negotiated text

However, while the agreement has been announced, the full negotiated text has not been released. This is expected to be made public sometime in November 2015. Why the delay? It seems officials are still working on the wording of the agreement. This is in itself unusual given the announcement and all the fanfare. Several United States (US) Democrats fear “side agreements and special secret deals” are still being struck (World Trade Online 2015c), while one trade minister was forced to concede that “a few issues have yet to be settled… and we are still negotiating via email” (Kumar 2015). But will all be revealed when the negotiated text is finally released? Apparently not, since what is publicly released is not expected to be the “final legally scrubbed text” either (World Trade Online, 2015d). Although the released text should be very close to the final version to be presented for ratification, it seems the TPP is a “living document” that continues to evolve.

Ratification

Following its release, the next step is ratification by the respective legislatures of the 12 participating countries. It is generally accepted this should be done within 2 years. In the case of the US, as President Obama narrowly secured the Trade Promotion Authority (TPA) that prevents changes to the agreement itself, legislators will have 90 days to study the agreement before Congress votes “yes” or “no.” While the TPA may have helped in successfully concluding negotiations, how it affects congressional passage is less clear. If a majority of legislators find there was too much compromise in the final agreement—and as they can no longer change its details—they could vote “no.” Its prospects may have been better without the TPA. House Republicans in particular, who will need to support the TPP in numbers if it is to pass, may be hard pressed to throw their support behind it if there are too many compromises.

Other countries may also face challenges in getting the agreement passed by their legislatures, or ratifying the agreement without amendment. If the TPP is ratified only after a country “cherry picks” and avoids dealing with the more sensitive areas of reform, the whole process could be further compromised.

What happens if one or more countries fail to ratify the TPP? The TPP can still survive if at least six original signatories—accounting for 85% of the region’s 2013 gross domestic product (GDP)—complete ratification, preferably but not necessarily within 2 years (World Trade Online 2015a). This GDP threshold was clearly set to ensure the agreement cannot enter into force without both the US and Japan.

Implementation

The final step, following successful ratification, is implementing the agreement. This is arguably the most crucial step in the process in terms of its impact on the ground. History is littered with examples of trade and other agreements that had little or no impact because of the way in which they were implemented. While the controversial investor-state dispute resolution mechanism—which allows corporations to sue governments—may increase the likelihood of compliance, it cannot guarantee comprehensive implementation. In short, we will simply have to wait and see, and that wait will last a minimum of 2 years, and possibly a lot longer.

What could the TPP finally look like?

Although we will know a lot more about what the TPP looks like when the negotiated text is released, we can already judge some crucial aspects based on information either officially or unofficially released. With time running out in the lead-up to the Atlanta meeting, there was increased talk of compromise and flexibility to break deadlocks and reach agreement.

Menon (2014a) warned that the TPP was “degenerating into a series of bilateral deals, with a US-Japan agreement at its core…” and that to accommodate the differences, we should “…look out for a lot of transition periods.” A clear example lies in the treatment developing country members receive in certain sensitive areas. Although the TPP has not officially adopted special or differential treatment, it is now clear that the special interests of these partners—Viet Nam and Malaysia in particular, but also Peru and Mexico—have been accommodated to secure agreement. This is perhaps most evident with respect to IP rights for pharmaceuticals.

The leaked text purported to be the final IP chapter (Wikileaks 2015a) shows that developing countries have transition periods to implement some pharmaceutical rules that extend up to 18 years in the case of Viet Nam (World Trade Online 2015b). Data exclusivity on biologics also appears to have been limited to 5 years, a lot less than the 12 years pushed by the US pharmaceutical lobby. Different transition periods will also apply to copyright and trademark provisions. Furthermore, some countries even have the option to maintain current domestic rules when implementing TPP obligations (Wikileaks 2015b).

There are several other examples, including reforming government procurement policies or state-owned enterprises (SOEs), especially in Viet Nam and Malaysia. As both these issues are embedded within the national affirmative action (Bumiputera) policy in Malaysia, the Minister of International Trade and Industry, Mustafa Mohamad, reiterated publically on the day the agreement was concluded, that “elements of flexibility accorded to Malaysia included longer transition periods and differential treatment for the country’s sensitive areas… such as government procurement, SOEs and Bumiputera issues” (Bernama 2015). It does not get much clearer than that. Details are not yet available but it appears that Malaysia, Viet Nam, Peru, and Brunei Darussalam may be granted a minimum 5-year grace period to reform their SOE policies.

So in a very real sense, the challenge is to present a series of bilateral deals as if they were one comprehensive agreement.

Conclusion

The public fanfare accompanying the announcement that negotiations on the TPP had been concluded successfully led many to believe the agreement would soon come into force. Yet there is far to go before that happens. The next milestone will be the public release of the negotiated text, expected sometime in November 2015, and then members are expected to ratify the agreement within 2 years. But prospects for ratification remain unclear in several countries, including the US. If one or more members miss the ratification deadline, the TPP can still survive if at least six original signatories—accounting for 85% of the region’s 2013 GDP—complete ratification, preferably but not necessarily within 2 years. After ratification comes implementation. And this is where the real challenge lies. The investor-state dispute resolution mechanism may help, but it cannot ensure compliance in all cases.

There are already signs that the original objectives of the TPP may have been compromised. Developing countries—such as Viet Nam and Malaysia, but also Peru and Mexico and maybe others—appear to have secured long transition periods for many sensitive reform areas.

If the TPP is ratified and enforced, there is no doubt that it will have significant impact on both members and non-members. The only issue relates to the magnitude and distribution of gains and losses. Available estimates of its impact (e.g., Petri et al. [2014]) ignore the watering down of the agreement, and may greatly overstate the benefits in the short- to medium-term. In the long run, however, the TPP will be judged by its ability to attract other nations—such as the People’s Republic of China—under its umbrella. But first, it has to come into force. Unfortunately, the chances of this happening remain almost as uncertain as they were before Atlanta. Only time will tell.
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References:

Bernama. 2015. TPPA Talks Considered Malaysia’s Concerns, Sensitivities: Mustapa. 5 October. Kuala Lumpur.
Kumar, P. 2015. TPPA Grants M’sia Access to 4 Non-FTA Partners, The Malaysian Reserve. 21 October. Kuala Lumpur.
Menon, J. 2014a. TPPing Over? VoxEU. 1 July.
Menon, J. 2014b. From Spaghetti Bowl to Jigsaw Puzzle? Fixing the Mess in Regional and Global Trade. Asia and the Pacific Policy Studies 1(3): 470–483.
Petri, P, M. Plummer, and F. Zhai. 2014. The TPP, China and the FTAAP: The Case for Convergence. In New Directions in Asia-Pacific Economic Integration, edited by G. Tang and P. Petri. Honolulu: East-West Center.
United States Trade Representative. 2015. Summary of the Trans-Pacific Partership Trade Agreement.
Wikileaks. 2015a. TPP Treaty: Intellectual Property Rights Chapter. 5 October.
Wikileaks. 2015b. TPP Transition Periods on Pharmaceutical Intellectual Property Rules. 9 October.
World Trade Online. 2015a. New Zealand Says TPP Offers Three Options For Entry Into Force. 13 October.
World Trade Online. 2015b. Final TPP Deal On Drug IP Has One Standard With Transitions, Leak Shows. 9 October.
World Trade Online. 2015c. Nine House Democrats Call For Quick Release Of TPP Text, Vow Opposition. 13 October.
World Trade Online. 2015d. Canada Gov’t Change To Delay TPP Text; Dems Push Quick Action. 22 October.