The TPP isn’t a done deal yet

Author: Jayant Menon, ADB

After more than five years of missed deadlines, trade ministers from the 12 participating Asia-Pacific countries that met in Atlanta finally concluded the negotiations surrounding the Trans-Pacific Partnership (TPP) on 5 October 2015. So is the TPP settled? The short answer to the question is not yet. The public fanfare accompanying the announcement led many to believe the agreement would soon come into force. Yet there is still much more work to be done before this happens.

United States Trade Representative Michael Froman is flanked by international counterparts during the closing press conference after an agreement was reached by twelve Trans-Pacific Partnership (TPP) member countries, in Atlanta, Georgia, USA, 5 October 2015. But there is still much more work to be done before this happens. (Photo: AAP)

While the TPP agreement has been announced, the full negotiated text has not been released. It is expected that it will be made public sometime in November 2015. This delay is apparently because officials are still working on the wording of the agreement. This is in itself unusual given the announcement and all the fanfare. Several US Democrats fear ‘side agreements and special secret deals’ that water down the agreement are still being struck, while one trade minister was forced to concede that ‘a few issues have yet to be settled … and we are still negotiating via email’.

Worse still, what is finally publicly released is ‘not expected to be the final legally scrubbed text’ either, although it is expected to closely resemble the final version to be presented for ratification. It seems the TPP is a ‘living document’ that will continue to evolve.

Following its release, the next step is for the TPP to be ratified by the respective legislatures. This is expected to happen within about two years. For the US, legislators will have a minimum of 90 days to study the agreement before Congress votes ‘yes’ or ‘no’. While the Trade Promotion Authority (TPA), the fast-track negotiating authority granted to the US President, may have helped in successfully concluding negotiations, how it affects congressional passage is less clear. If a majority of legislators find the final agreement compromised too much they could vote ‘no’, as they can no longer change its details. House Republicans will need to support it in numbers if it is to pass, but may find it difficult if there are too many critical compromises.

Other countries may also face challenges in getting the agreement passed by their legislatures. If the TPP is ratified only after a country ‘cherry picks’ the agreement for its desirable elements, and avoids dealing with the more sensitive areas of reform, the whole process could be compromised.

What if one or more countries fail to ratify the TPP? The TPP will still survive if at least six original signatories — accounting for 85 per cent of the region’s 2013 GDP — complete ratification, preferably but not necessarily within two years. The GDP threshold ensures the agreement cannot enter into force without both the US and Japan.

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 have had little or no impact because of the way in which they have been implemented. While the controversial investor–state dispute resolution mechanism may increase the likelihood of compliance, it cannot guarantee comprehensive implementation.

Even without the negotiated text, 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 September 2015 Atlanta meeting, there was increased talk of compromise and flexibility to break deadlocks and reach agreement.

More than a year ago, I warned that the TPP was ‘degenerating into a series of bilateral deals, with a US–Japan agreement at its core’ and to accommodate the differences, we should ‘look out for a lot of transition periods and other loopholes’. It is now clear that the special interests of middle-income countries — Vietnam and Malaysia in particular, but also Peru and Mexico — have been accommodated to secure agreement.

The leaked text purported to be the final intellectual property chapter shows that transition periods for pharmaceuticals can extend up to 18 years (as it does for Vietnam). Data exclusivity on biologics also appears to have been limited to five years, a lot less than the 12 years the US pharmaceutical lobby pushed for. Different transition periods also apply to copyright and trademark provisions. And some countries even have the option to maintain current domestic rules when implementing TPP obligations.

There are several other examples of special interests being added to the TPP, including exemptions for reforming government procurement policies and state-owned enterprises (SOEs). Immediately following conclusion of negotiations, Malaysia’s Trade Minister reiterated that ‘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’. There are also indications that Malaysia, Vietnam, Peru and Brunei may be granted a minimum five-year grace period to reform its SOE policies. But the integrity of reform outcomes tends to wane as delays in implementation increase.

These compromises suggest that the impact of the TPP is likely to be lower than what most estimates suggest, since the main benefits would be derived from real reforms in these sensitive areas. Still, in the long run the TPP will be judged by its ability to attract other nations — such as China — under its umbrella. But first, it has to come into force. Unfortunately, the likelihood of this happening is only marginally higher than before Atlanta.

Jayant Menon is Lead Economist (Trade and Regional Cooperation) in the Economic Research and Regional Cooperation Department of the Asian Development Bank and an adjunct fellow at the Arndt-Corden Department of Economics, The Australian National University.

This is an abridged version of an article that first appeared here on Asian Pathways.

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