On October 5, 2015, Canada and 11 other countries announced the conclusion of the Trans-Pacific Partnership (“TPP”), the terms of which have not been finalized, nor made public. Fifteen side agreements are expected to be added dealing with different problems intended to clarify some situations between two specific States that do not concern the other partners. Negotiators indicate that these texts should be ready in few weeks and thereafter be translated in the various official languages of the participating countries before being submitted for ratification. This process will likely take two years.
A Free Trade Agreement
Based on the available information, the TPP contains the characteristics of a classic free trade agreement:
- elimination and reduction of customs duties for products meeting the rules of origin of the TPP, and alleviation of the administrative burden of customs and origin procedures;
- liberalisation of cross-border trade in services, save those listed in « negative lists » of each country, and undertaking by each country to never adopt more restrictive trade measures than those already in force or than those that may be adopted in the future;
- access to government procurement of all countries;
- investments subject to rules mainly relating to expropriation and to discriminatory measures, and to an arbitral procedure between investors and the host Countries;
- temporary admission of business persons;
- protection of intellectual property including longer periods of protection and undertaking of each country to provide civil and criminal remedies as well as measures at the borders and to combat trade in counterfeit and pirated goods;
- establishment of a dispute resolution mechanism between States, modelled on the World Trade Organization’s dispute settlement system.
As well, measures will be added to regulate State-Owned Enterprises, to facilitate electronic commerce such as the undertaking not to impose customs duties or other charges on online digital products, to help SMEs benefit from the advantages and business opportunities of the TPP, to ensure the transparency and good regulatory practices and to facilitate regulatory coherence and cooperation, to fight against corruption, to protect and promote internationally recognised labour principles and rights and environmental obligations, and to refrain from waiving or derogating to environmental laws to promote trade or attract investments.
To date, it is difficult to appreciate with accuracy the advantages and downsides of the TPP since the texts have not been made public.
It is possible to state that for Canada the TPP will have the principal advantage of creating new commercial ties with Australia, Brunei, Japan with which it was negotiating a free trade agreement, Malaysia, New Zealand, Singapore and Vietnam. Canadian enterprises will in particular profit from the reduction of the high customs duties on certain products particularly in Malaysia and in Vietnam, and compete on an equal footing with enterprises from other TPP countries in these markets. Furthermore, some Canadian enterprises will be able to choose to outsource from Vietnam where the average monthly salary is 117 $US rather than from China that has been kept outside the TPP.
Moreover, the TPP seems to add very little to the free trade agreements already concluded between Canada and the United States, Mexico, Chile and Peru, other than a better access to public procurement from Chile and Peru and more flexible rules of origin. Canadian enterprises already benefit from a privileged access to these important markets.
The following months will lead to multiple debates here and among our partners that will give everyone a better opportunity to appreciate the potential consequences of the TPP. Following the announcement of its conclusion, some in Canada expressed fears, such as the producers of milk and other products under supply management and the automobile industry to whom important sums of money have been promised. The transborder flows of personal data and investment state arbitration are also subject to criticism. Others have stated their approval, such as the pork, beef and grain producers as well as other enterprises that aim for these exportation markets. Even if the American government is divided, it would be surprising if it refused to ratify the TPP which was negotiated at the initiative of the United States, namely to create a counterweight to China (Containment).
The TPP deals with important issues that are not strictly economic. It will be important to follow this question and to appreciate the impact of the TPP after the participating countries will have made the details of their agreement public and will have lifted the secrecy surrounding the negotiations of these last few years.
For more detailed information, please do not hesitate to contact Bernard Colas or one of our specialists in international trade law.