Vietnam: BOOM TIME – The Trans Pacific Partnership Agreement Now Becomes The Comprehensive And Progressive Agreement For The Trans-Pacific Partnership – What Is Next?

Last Updated: 17 November 2017
Article by Oliver Massmann

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.

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 are beyond the WTO?

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 a particular̉ goods and services at a particular amount must be subject to public tender. 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, especially Vietnam, in the context of China's bidders predominantly win the bids with cheap offer price but low-quality services, 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 may sue the Government for its violation of investment-related commitments.

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

Brunei, Canada, Malaysia and Vietnam still have some outstanding issues, so further negotiations are necessary. Canada and Japan will also have to agree on auto rules in the CPTPP. However, negotiators have set the goal of signing the CPTPP in the first quarter of 2018. After that, all 11 countries will have to ratify it before it can come into effect.

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.

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