Awaiting the Trans-Pacific Partnership, by Antonio Delgado

Last month, the leaders of Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam announced that the negotiations for completion of the Trans-Pacific Partnership (“TPP”) were on track. Progress was made on the legal texts and annexes that will regulate a diverse range of sectors that include goods and services, investment, financial services, government procurement, and temporary entry markets. The focus of the TPP is now aimed at resolving the outstanding issues and achieving a final agreement by the end of this year.[1]

The TPP constitutes an initiative to complete a regional free trade agreement (“FTA”) between the above mentioned states. U.S. Vice President Joseph Biden has referred to it as the “most ambitious trade negotiation underway in the world.” The idea of creating a legal framework to regulate trade between countries with such differences in development and culture and with heterogenic political and legal systems is already a complicated one. Australia, Canada, Japan, New Zealand and the United States are highly developed economies while Mexico, Chile, Vietnam and Malaysia range from middle income to the developing state category. There is also the issue of how the agreement will overlap with the rules of the WTO and the several FTA’s the United States have signed with other TPP countries such as Chile and Singapore.[2] The enterprise becomes even more challenging if we take into account that the TPP partners intend to liberalise trade for nearly all goods and services and include commitments beyond those currently established in the WTO.[3] The TPP aims to be broader than FTAs limited to goods, such as those offered by China, or more comprehensive models, that nevertheless exclude sensitive agriculture products, offered by the European Union or Japan. It seeks to extend liberalisation to new and cross cutting issues such as regulatory coherence, supply chain competitiveness and small and medium sized enterprises.[4]

To date, the TPP partners have completed 19 rounds of negotiations and the current question is whether they will be able to finalise an agreement by the rapidly approaching end of 2013. More than 20 chapters in the agreement are under discussion, including market access for goods and services, agriculture and rules on IP rights, technical barriers to trade, foreign investment, competition policies, trade remedies and labour. An interesting aspect of the TPP is the completely different dynamic regarding their negotiations when comparing them with that of other FTA’s such as NAFTA and the DR-CAFTA. This time the United States may find it harder to impose its visions or standards on such a big group of countries, especially where Japan, the third biggest world economy, is concerned.

Amongst the issues that are currently being discussed is whether the TPP will include an investor-state dispute settlement mechanism. In 2011, Australia’s federal government indicated that it would no longer provide for investor-state arbitration in future bilateral and regional FTAs. This stance could also be adopted by other less developed states disinclined with the idea of being held accountable before international tribunals.[5] Critics of investor-arbitration have argued that this form of dispute settlement discourages states from engaging in public interest regulation and interferes with the respondent state’s sovereignty to implement desirable public policies. Investor-state arbitration has also attracted criticism from more politically populist countries, mainly those in Latin America, according to whom investment tribunals are biased in favour of investors from developed states and grant them greater protection than domestic investors. While we might be more or less sympathetic to these arguments, the real issue is how they will influence the TPP negotiations, what type of investor-state dispute resolution mechanism, if any, will be born from the TPP as a result, and how it would relate to the dispute settlement provisions of other BITs and FTAs already signed between the TPP partners.

The clock is ticking and the time left for the TPP negotiators to agree on these and other issues is extremely limited. It remains to be seen if the TPP partners are able to finalise before 2014 such an ambitious agreement and, exactly, the precise terms of the consensus reached. For the time being, in view of the TPP’s geographical reach and the scale of its liberalisation, we can anticipate, that we might be about to witness a novel kind of trade agreement that has the potential to grow and expand into something far bigger.



[1] See Trans-Pacific Partnership Leaders Statement, available online at http://www.ustr.gov/about-us/press-office/press-releases/2013/october/tpp-leaders-statement

[2] For a discussion on the potential treaty overlap caused by successive or simultaneous negotiations of trade agreements and its effect on legal certainty see our post by José Ángel Rueda, Japan’s favourable stance towards FTAs and treaty succession, of 31 March 2013.

[3] Ian F. Fergusson et al., “The Trans-Pacific Partnership Negotiations and Issues for Congress” (August 2013) CRS Report for Congress, summary.

[4] Ibid. 46-51.

[5] Several developing countries have sought to reduce their exposure to investor state arbitration. In 2007, the Philippines negotiated to exclude investment arbitration from its FTA with Japan, and Bolivia withdrew from ICSID. Ecuador and Venezuela followed in 2009 and 2012. Argentina announced in 2012 that it will withdraw from ICSID and South Africa has signalled that it will no longer include investor state provisions in future BITs. See Leon E. Trakman, “Resolving Investor-State Disputes: Australia’s Dilemma and Choices” (2013) UNSW Law Research Paper No. 2013-64, 7, available online at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2331790.

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