Overview on the Trans Pacific Partnership Agreement (TPP)
– now the Comprehensive and Progressive Agreement for the
Trans-Pacific Partnership (CPTPP)
The TPP was originally known as the Trans- Pacific Strategic
Economic Partnership concluded in 2006 among Singapore, New
Zealand, Chile and Brunei (P-4 agreement) as a means to promote
trade liberalization in the Asia- Pacific Region. As its name
indicates, the original purpose of the agreement was only to
address economic issues. As the number of participating countries
in the P-4 agreement increased, starting with the United States in
September 2008 and other countries to follow being Australia, Peru,
Vietnam, Malaysia, Canada, Mexico and Japan until July 2013, the
agreement is agreed to be "a comprehensive, next-generation
regional agreement that liberalizes trade and investment and
addresses new and traditional trade issues and 21st-century
challenges" by TPP Trade ministers. In June 2015, the United
States approved the trade promotion authority for President Obama.
The Agreement finally becomes as it is today through tough
negotiation rounds, while the last round in Atlanta in September
2015 was considered the most intensive one. The TPP was already
concluded on 06 October 2015. However, in January 2017, right after
President Trump took his office, the United States formally
expressed its withdrawal from the agreement, leaving other 11
parties with the decision to continue the agreement without the
United States or not. In November 2017, during APEC meeting in Da
Nang, Vietnam, ministers from 11 countries decided to push ahead
with the TPP with its new name – CPTPP with only 20 items
suspended out of an around 5000-page document, mainly in the
Intellectual Property chapter. On 8 March 2018, the CPTPP was
finally signed in Chile. The CPTPP accounts for 495 million people
representing 13.5 percent of the world total economic output
– worth a total of $10 trillion.
The CPTTP will help Vietnam make good use of international
cooperation opportunities, balance relationships with key markets,
approach larger markets including Japan and Canada, boost
import-export, reduce import deficit, and attract foreign
investment. In addition, CPTTP will also help Vietnam's economy
allocate its resources more effectively, enabling active supports
to the processes of restructuring, innovation and improving
regulations, and improve administrative reforms.
What makes CPTPP the template for next-generations trade agreements
– What commitments are beyond the WTO commitments ?
Freer trade zone
Commitments in Trade in goods
Tariff and non-tariff barriers are reduced and removed
substantially across all trade in services and goods under the
CPTPP. Import tariffs are reduced for 100% goods traded among
member states, with more than 90% being eliminated immediately when
the Agreement takes effect. The CPTPP also covers issues which have
never been addressed in the WTO, including export duties, import
duties for re-manufactured goods, market access for re-furbished
goods, stricter regulations on import and export licensing,
monopolies and goods in transit.
Lower tariff barriers from the CPTPP will give Vietnam greater
access to large consumer markets in Japan, Canada and Australia.
The potential positive effect on trade could be transformative,
with estimates that the CPTPP will boost Vietnam's exports by
over 37% until 2025.
Commitments in Trade in services and Investment
All 11 member states give consent to a liberalized trade in this
area. More sectors are opened in the CPTPP compared with the WTO,
such as telecommunications, distribution and manufacturing
sectors.
In addition, besides incorporating basic WTO principles (national
treatment (NT), most-favored nation treatment (MFN), market access,
and local presence), the CPTPP takes a negative approach, meaning
that their markets are fully open to service suppliers from other
CPTPP Parties, except otherwise indicated in their commitments
(i.e, non-conforming measures). In order to make such reservations,
the member state must prove the necessity of such preservation and
negotiate with other member states. If approved, the non-conforming
measures are only limited to such list, except for measures in
certain sensitive sectors which are included in a separate list.
Member states are only allowed to adopt policies that are better
than what they commit (ratchet principle). The CPTPP also includes
obligations on removal of performance requirements (i.e., no
conditions on local content requirements, export conditions, use of
certain technology, location of the investment project, etc.) and
reasonable requirements on senior management and board of
directors. Notably, the CPTPP Chapter on Investment for the first
time makes it very clear and transparent concerning the MFN
principle, that countries operating in multi-state regime must give
foreign investors the best investment conditions of all states,
regardless of the state where the investment takes place. Investors
are also allowed to petition against the Government from the
investment registration stage.
Textiles
Textiles are among Vietnam's core negotiating sectors.
According to suggestions by the United States, negotiations on
textiles were conducted separately from negotiations on market
access for other goods. To be qualified for CPTPP preferential
tariff treatment, the CPTPP applies the yarn-forward principle,
meaning textile products must be produced in CPTPP countries from
yarn forward. However, the CPTPP includes exceptions that allow (i)
certain materials to be sourced from outside CPTPP ("Short
supply list"), (ii) certain manufacturing phases (for example,
dying, weaving, etc.) to be conducted outside CPTPP; and (iii) one
country to be able to use non-CPTPP materials in exchange for its
export of certain textile goods to another country.
Government procurement
The CPTPP makes a list of government entities and agencies whose
procurement of particular̉ goods and services at a particular
amount must be subject to public tender. Any negotiation to expand
coverage of the Government Procurement chapter, particularly in
relation to state government and local government contracts, will
be delayed. Parties will only initiate talks on this issue at least
five years after the date of entry into force of the CPTPP.
This chapter includes NT and MFN principles, removes tender
conditions favoring local tenders such as using local goods or
local suppliers, conditions on technology transfer or two-way trade
and investment, etc. These rules require all parties, to reform
their bidding procedures and protect their own interests by
disqualifying tenders with poor performance and low capacity.
Investor-State Dispute Settlement
The CPTPP aims at protecting investors and their investment in the
host country by introducing requirements on non-discrimination;
fair and equitable treatment; full protection and security; the
prohibition of expropriation that is not for public purpose,
without due process, or without compensation; the free transfer of
funds related to investments; and the freedom to appoint senior
management positions regardless of nationality.
For the first time investors of a party may sue the Government of
the other party for its violation of investment-related commitments
when the investors make investment in that party. However, please
note that under the CPTPP, investors will not be able to sue the
Government using ISDS clauses if there is any dispute in connection
with an investment agreement. An investment agreement means a
written agreement that is concluded and takes effect after the date
of entry into force of the CPTPP between an authority at the
central level of government of a Party and a covered investment or
an investor of another Party and that creates an exchange of rights
and obligations, binding on both parties under the applicable law.
Investment agreement refers to an agreement in writing, negotiated
and executed by both parties, whether in a single instrument or in
multiple instruments. A unilateral act of an administrative or
judicial authority, such as a permit, licence, authorisation,
certificate, approval, etc. and an administrative or judicial
consent decree or order will not be considered a written
agreement.
CPTPP also includes procedures for arbitration as means of settling
disputes between investors and the host state. It covers new
provisions compared with existing agreements such as transparency
in arbitral proceedings, disclosure of filings and arbitral awards,
and participation of interested non-disputing parties to make
amicus curiae submissions to a tribunal. Arbitral awards are final,
binding and fully enforceable in CPTPP countries.
Application of the CPTPP and older/ existing agreements
Member states of the CPTPP acknowledge existing rights and
obligations of each member under existing international agreements
to which all CPTPP member states are parties (for example, the WTO
Agreement, NAFTA, or bilateral agreements) or at least two member
states are parties. In case there is any consistency between a
provision of the CPTPP and a provision of another agreement to
which at least two CPTPP member states are parties, these parties
will consult with each other to reach a mutually satisfactory
solution. Please note that the case where an agreement provides
more favourable treatment of goods, services, investments or
persons than that provided for under the CPTPP is not considered as
an inconsistency.
Implementation deadline of the CPTPP
The CPTPP provides that "at least six or at least 50
percent" of the accord's signatories must ratify for the
deal to entry into force, and indicates that the threshold which
applies will be "whichever is smaller." Once such
threshold is met, the CPTPP will take effect for this group 60 days
after they have all notified New Zealand, the accord's
depositary.
Any signatory which ratifies the CPTPP after it comes into force
will have to wait 60 days from the date when they notified their
ratification for it to take effect for such signatory.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.