Should Free Traders Support the Trans- Pacific Partnership? An Assessment of America’s Largest Preferential Trade Agreement By Daniel J. Ikenson, Simon Lester, Scott Lincicome, Daniel R. Pearson, K. William Watson September 12, 2016 CATO WORKING PAPER No. 39 1000 Massachusetts Avenue NW Washington DC 20001 Cato Working Papers are intended to circulate research in progress for comment and discussion. Available at www.cato.org/workingpapers.
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Should Free Traders Support the Trans-Pacific Partnership? An Assessment of America’s Largest Preferential Trade
Agreement
By Daniel J. Ikenson, Simon Lester, Scott Lincicome, Daniel R. Pearson, K. William Watson
September 12, 2016
CATO WORKING PAPER No. 39
1000 Massachusetts Avenue NW Washington DC 20001
Cato Working Papers are intended to circulate research in progress for comment and discussion. Available at www.cato.org/workingpapers.
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ShouldFreeTradersSupporttheTrans-PacificPartnership?AnAssessmentofAmerica’sLargestPreferentialTradeAgreement
ByDanielIkenson,SimonLester,ScottLincicome,DanielPearson,andK.WilliamWatson
AbstractThispaperpresentsachapter-by-chapteranalysisoftheTrans-PacificPartnershipagreementfromafreetrader’sperspective.Briefsummaries,assessments,scoresonascaleof0(protectionist)to10(freetrade),andscoringrationalesareprovidedforeachevaluatedchapter.Ofthe22chaptersanalyzed,wefound15tobeliberalizing(scoresabove5),5tobeprotectionist(scoresbelow5),and2tobeneutral(scoresof5).Consideredasawhole,thetermsoftheTPParenetliberalizing–itwould,onpar,increaseoureconomicfreedoms.Accordingly,theauthorshopeitwillberatifiedandimplementedassoonaspossible.DanielIkensonisdirectoroftheCatoInstitute’sHerbertA.StiefelCenterforTradePolicyStudies.SimonLesterisapolicyanalystattheCatoInstitute’sHerbertA.StiefelCenterforTradePolicyStudies.ScottLincicomeisanadjunctscholarattheCatoInstitute;theviewsexpressedarehisownanddonotnecessarilyreflectthoseofhisemployers.DanielPearsonisaSeniorFellowinTradePolicyStudiesattheCatoInstitute.K.WilliamWatsonisapolicyanalystattheCatoInstitute’sHerbertA.StiefelCenterforTradePolicyStudies.
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IntroductionAfternearlysixyearsofnegotiations,aTrans-PacificPartnershipagreementwasreachedinOctober2015.ThedealwassubsequentlysignedbythegovernmentsoftheUnitedStatesand11otherpartiesinWellington,NewZealandinFebruary2016.Intermsofthevalueoftradeandshareofglobaloutputaccountedforbythe12membercountries,theTPPisthelargestU.S.tradeagreementtodate.LegislationtoimplementtheTPPcouldbeintroducedinCongressthisyear,butwithcausticanti-traderhetoricpermeatingthepresidentialelectioncampaignsandthemajor-partycandidatespubliclyopposingthedeal,prospectsforpassingsuchlegislationin2016lookbleak.Election-yearpoliticsaside,skepticismand,insomecases,outrightoppositiontotheTPPhavebeenregisteringacrossthepoliticalandideologicalspectra.Theusualanti-tradeargumentsfromlabor,environmental,andothergroupsonthelefthavebeensupplementedbyfree-marketorientedassertionsthattheTPPistoomuchaboutglobalgovernanceandtoolittleaboutmarketliberalization.Althoughoftenreferredtoasafreetradeagreement,theTPPisnotreallyaboutfreetrade.Likeallso-calledfreetradeagreements,theTPPisaboutmanagedtrade.Thedealincludesbroadswathsofliberalization–“freer”trade–aswellasrulesandprovisionsthatserveother,sometimeslessliberalpurposes.Theagreement’s30chaptersdealwithtraditionaltradeissues,suchas:marketaccessforgoods,services,andagriculturalproducts;rulesoforigin;and,customs-andotherborder-relatedissues.Butitalsoincludesrulesaffectinge-commerce,theoperationsofstate-ownedenterprises,theformulationofregulations,intellectualproperty,investmentpolicy,laborpolicy,environmentalpolicy,andotherpolicyareasthatarelessobviouslyassociatedwithtradeortradebarriers.WhetherfreetradersshouldsupportratificationoftheTPPdependsonwhether,andtowhatextent,theywishtoavoidmakingtheperfecttheenemyofthegood.Iffreetradepurityisthebenchmark,thentheTPPfailsthetest.Butwhatifthedealincludesmoretradeliberalizationthanprotectionismandcanbedeemednetliberalizing?Shouldthatbeenough?Doesitdependonspecificprovisionsinspecificchapters?Thispaperpresentsachapter-by-chapteranalysisoftheTPPfromafreetrader’sperspective.1Briefsummaries,assessments,scoresonascaleof0(protectionist)to10(freetrade),andscoringrationalesareprovidedforeachevaluatedchapter.Ofthe22chaptersanalyzed,wefound15tobeliberalizing(scoresabove5),5tobeprotectionist(scoresbelow5),and2tobeneutral(scoresof5).Consideredasawhole,thetermsoftheTPParenetliberalizing.
1Wewereabletoanalyzeand“score”22ofthe30TPPchapters.Eightchaptersdidnotlendthemselvestoqualificationorscoring.
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TheTrans-PacificPartnershipinaNutshell
TheTPPisthelargestU.S.tradeagreementtodate–intermsofthevolumeoftradeandshareofglobaloutputrepresentedbythe12countriesinvolved.2In2014,themembercountriesaccountedfor$5.3trillionor23percentoftheworld’sexportsand$28trillionor36percentofglobalGDP.3TheTrans-PacificPartnershiphasbeenasourceofcontentionsincePresidentObamaformallyannouncedU.S.participationinthenegotiationsin2009.FromtheoutsetthedebatesurroundingtheTPPgeneratedmoreheatthanlight.Old,traditionalbattlelineswereredrawn,withbusinesslobbiestoutingthebenefitstoU.S.exportersandthejobstheywouldcreate,andlabor,green,andotheranti-corporatelobbieswarningofTPP’simminentworkerabuses,exacerbatedincomeinequality,andadversehealthandenvironmentalconsequences.Duringsixyearsofslow-movingnegotiations,mostoftheTPP’sdetailswerekeptinthevault,accessibleonlytoclearedadvisorsandmembersofCongress.Thedearthofinformationaboutthetradedealproducedanenvironmentripeforspeculation,misinformation,exaggeration,anddishonesty,whichwasexploitedbythoseintentonstokingfearsandoppositiontothedeal.TheabsenceofanysignificanteffortfromPresidentObamatorebutmendaciousclaimsabouttheTPP,challengehisparty’santi-tradeorthodoxy,ortoreassureAmericansthatremovingrestrictionsontheireconomicfreedomisactuallysomethingtocelebrateexplainsmuchaboutwhytheatmospheresurroundingtradeandtheTPPbecamesotoxic.ManyTPPmembers,includingtheUnitedStates,alreadyhavebilateralfreetradeagreementsbetweenandamongthemselves,whichmeansthatsomeofthebenefitsofTPP’slowerhangingfruitarealreadybeingrealized.However,theliberalizationinTPPgoesfartheranddeeperthantheliberalizationinothertradeagreements,andthedealincludesimportantnewcountrieswithlargeconsumermarketsandpoolsofresourcesforimportsandcollaborationontheproductionandsupplyside.Theagreements30chaptersdealwithtraditionaltradeissues,suchas:marketaccessforgoods,services,andagriculturalproducts;rulesoforigin;and,customs-andotherborder-relatedissues.Butitalsoincludesrulesaffectinge-commerce,theoperationsofstate-ownedenterprises,theformulationofregulations,intellectualproperty,investmentpolicy,laborpolicy,environmentalpolicy,andotherpolicyareasthatarelessobviouslyassociatedwithtradeortradebarriers.Arguably,thissecondclusterofrulesandprovisionsbelongsintradeagreements,asprotectionismnowadaysismorelikelytolurkbehindtheborder.Butincludingsuchrulesandprovisionsintrade
2TheTPPsignatoriesareAustralia,Brunei,Canada,Chile,Japan,Malaysia,Mexico,NewZealand,Peru,Singapore,theUnitedStates,andVietnam.3PeterA.PetriandMichaelG.Plummer,“TheEconomicEffectsoftheTrans-PacificPartnership:NewEstimates,”PetersonInstituteforInternationalEconomics,WorkingPaper16-2,January2016.
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agreementsinviteslegitimateconcernsaboutthepotentialforoverreachingglobalgovernanceandwhetherthatcouldleadtoanerosionofnationalsovereigntyanddomesticaccountability.TherehasbeenagreatdealofoppositionexpressedbycertaincivilsocietygroupstovariousaspectsoftheTPP.Someofthoseconcernsseemtohavemerit,butmuchishyperventilation,stokedbyinterestgroupswhoseoppositiontotradeagreementsishard-wiredintheirorganizationalpurposes,andwhosetacticsrelyheavilyontheuseofhyperboleandmisinformationtoscarepeopletotheircauses.Nevertheless,therearelegitimateconcernsaboutpotentiallyoverreachingprovisionsonlaborandtheenvironment,aswellasonintellectualproperty,investment,andinsomeotherareas,whichcouldthreatentheexerciseofdomesticsovereigntyintheUnitedStatesandintheothermembercountries.Andthoseshouldbeconsiderationstoweighagainstthelikelybenefitsofliberalizationintheagreement.
GlobalizationMeans21stCenturyTradeAgreementsareMoreComprehensiveTheproliferationofcross-borderinvestmentandtransnationalsupplychainshaschangedthenatureofproductionandconductofinternationaltrade.Nottoolongago,mostproductswereproducedinasinglecountryandsellingthoseproductsinforeignmarketsinvolvedexportingfromonelocationtoanunaffiliatedimporterabroad.Thekindsoftradebarriersthatconcernedforeignproducers,exporters,andimporterswereborderbarriers,suchastariffsandslowcustomsclearanceprocedures,whichcouldincreasethecostsoftheirtransactions.Ensuringnon-discriminationagainstimportsmostlyrequiredmonitoringofprotectionismattheborderonly.Revolutionsincomputing,communications,andtransportation,alongwithcontinuousreductionsintariffsthroughoutthesecondhalfofthe20thcenturyspurredaproliferationofcross-borderinvestmentandtheemergenceoftransnationalproductionandvaluechains.Thesedevelopmentschangedthecomplexionofinternationalcompetition.Withproductsandservicesbeingcreatedanddeliveredinmultiplecountriesandwithcompaniessettingupoperationsinforeigncountriesandcompetingdirectlywithincumbentdomesticfirms,thescopefordiscriminationexpanded.Or–moreaccurately–discriminationinlegalandregulatoryenvironmentsbecamemorenoticeable.Nolongerwasprotectionismperceivedasjustaproblemofborderbarriers.Itnowlurkedinnationalregulations,performancerequirements,buylocalprovisions,investmentbenchmarks,regulatorystandards,intellectualpropertylaws,andotherdomesticlaws,regulationsandrules.So,asthenatureofglobalcommerceevolved,sotoodidthescopeforprotectionism.Accordingly,moderntradeagreementshaveexpandedcoverageineffortstopreventandweedoutthesemorehiddenformsofdiscrimination.Butinsodoing,tradenegotiationssometimeshaveencroachedintoareasofdomesticpolicymakingalreadyoccupiedbyinterestgroups,regulators,andcongressionalcommitteesthathavejurisdictionalclaimstothepolicymatters,butlittlefamiliaritywith
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orinterestintradeagreements.Althoughthenatureofinternationalcommercehaspushedtradeagreementsintotheserelativelynewareas,thatpenetrationintodomesticregulatoryspacesometimeshasgeneratedsignificantpushbackamidconcernsthatbundlingcommitmentsininternationaltradeagreementsmightservetocircumventdomesticregulatoryandlegalprocesses.And,asissooftenthecase,legitimateconcernsareoftenexaggeratedandexploitedbyinterestgroupswithulteriormotives.AllofthesefeatureshavebeenondisplaythroughoutthenegotiationoftheTrans-PacificPartnership.
ShouldFreeTradersSupporttheTrans-PacificPartnership?Realfreetradersabhordomestictradebarriersandwantthemremovedregardlessofwhetherothergovernmentsremovetheirownbarriers.Thebenefitsoftradearetheimportsweobtain,nottheexportswegiveup.Thosebenefitsaremeasuredbythevalueofimportsthatcanbepurchasedforagivenunitofexports–themore,thebetter.Tradebarriersreducethosebenefits,whichincludegreatervariety,lowerprices,morecompetition,betterquality,andtheinnovationspawnedbythoseandotherfactors.TheprocessofU.S.tradepolicyformulationhasneverbeenparticularlyaccommodatingoffreetraders’perspectives.Freetradeviewshavebeenmarginalizedbytheirbeingsubsumedwithinabroadercategoryofviewslabelled“pro-trade,”whichisdominatedbybusinesslobbiesandother“pro-export”mercantilists.Asthedefinitionoffreetradehasbeenexpandedtomeanpro-trade,thedefinitionofprotectionismhasbeennarrowedtoexcludecertainviews,suchas:“I’mnotaprotectionist;Ijustwantalevelplayingfield,”or;“I’mforfreetrade,aslongasit’sfairtrade.”Thosearetheclichésusedbyprotectionists,whoarenowpopularlygroupedunderthepro-tradeumbrella.So,today’stradedebate(framedasitisbymedia,lobbyists,andpoliticians)doesnotfeaturefree-tradersononesideandprotectionistsontheother.Instead,oneiseitherpro-tradeoranti-trade,supportscorporationsortheirworkers,andbelievesfreetradeagreementsareeithergoodorevil.Inaworldwiththesebinarychoices,nuancegetssqueezedout.Wheredoyoufitifyousupportthetariffreductionsinatradeagreement,butareunhappywiththecorporatewelfareitbestowsonparticularindustries?Whatifyouknowthattradeliberalizationisgoodforbothcorporationsandtheirworkersalike?Whatifyou’repro-market,butnotpro-business?Giventheseandotherambiguities,shouldfreetraderssupportfreetradeagreements?Freemarketsareessentialtoourprosperity.Freetradeistheextensionoffreemarketsacrosspoliticalborders.Makingmarketsfreerandexpandingthemtointegratemorebuyers,sellers,investors,andworkersdeepensandbroadensthatprosperity.Whengoods,services,capital,andlaborflowfreelyacrossborders,Americanscantakefulladvantageoftheopportunitiesoftheinternationalmarketplace.Freetradeprovidesbenefitstoconsumersandtaxpayersintheformoflowerprices,greatervariety,andbetterquality.And,itenablesbusinessesandworkerstoreapthebenefitsofinnovation,specialization,andeconomiesofscalethatlargermarketsafford.Countlessstudieshaveshownthateconomiesthataremoreopengrowfasterandachievehigherincomesthanthosethatarerelativelyclosed.
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U.S.tradebarriershurtU.S.citizens,asconsumers,taxpayers,workers,producers,andinvestors.WhetherornottoremoveU.S.barrierstotradeispurelyadomesticdecision.TheanswerhelpsshedlightonwhetherpolicymakersthinkU.S.citizensareworthyofthefreedomtomaketheirowneconomicchoices.Itisareformtowhichallfreepeopleareentitled,andcanbeachievedwithoutneedofanyforeigngovernment’sconsent.Americanswouldbebetteroffifwesimplyundertookourownreforms–ontariffs,regulations,andotherartificialimpedimentstocommerce–withoutregardforwhatothergovernmentsdo.Freetradeisaboutthefreedomofpeopletotransactastheywish,whentheywish,withwhomtheywish,andwithoutpoliticiansandbureaucratsasgatekeepers.Despitewhatwecallthem,freetradeagreementsarenotreallyaboutfreetradeatall.Rather,theyareinstitutionsofmanagedtrade,premisedonassumptionsthatareanathematorealfreetraders.Atthemostfundamentallevel,freetradeagreementnegotiatorsseeimportsasthepricewepayforexports,whilefreetradersconsiderexportsthepricewepayforimports.Negotiatorstreatproductionasanendinitself(“maximizeexportsoverimports”),whilefreetradersseeconsumptionasthesolepurposeofproduction(“maximizeimportsoverexports”).Managedtradeisabouttheproliferationofoftenlabyrinthinerulesintendedtodistributeparticularbenefitstospecificinterests,whilefreetradeisaboutremovingimpedimentsthatbenefitsomeattheexpenseofotherssothateachofusindividuallyhasthefullestbatteryofchoicestodecidehowbesttouseourownresources.Inmanyrespects,freetradeagreementsgivefreetradeabadname.Butdoesthatmeanfreetradersshouldopposethem?Despitetheirflaws,freetradeagreementshavehelpedreducedomesticimpedimentstotrade,expandoureconomicfreedoms,andlockinpositivereforms,evenifonlyastheresidualbyproductofanill-premisedmercantilistprocess.Ultimately,freetradeagreementshavedeliveredfreertrade.Isthatnotgoodenough?Thequestionofwhetherfreetradersshouldsupportfreetradeagreements,then,hingesuponwhethertheycanseepasttheseshortcomingsandinconsistenciestotheendresult.Ifone’sfealtyistothepurelogicoffreetrade,thenthosecharacteristicsoftradeagreementsarenotshortcomings,butfatalflaws.Butifoneismoreconcernedwiththeendresult–theexpandedeconomiclibertiesandthebountyofitspromise–thenthatfreetradermightbemoreinclinedtoforgivetheindiscretionsandsupportanimperfecttradeagreement.Overtheyears,thedefaultpositionofCato’stradescholars–generallyspeaking–hasbeenthelatterview.Wehaveidentifiedtheflawsintheassumptionsunderlyingmercantilistreciprocity,assailedthecorporatewelfareitbestows,andadvocatedforunilateralfreetrade,whileultimatelyfindingourwaytosupportingfreetradeagreementsbecause,wartsandall,theyhaveexpandedoureconomicliberties.Thatsaid,notallfreetradeagreementsarethesame.Ideally,thetextswouldbeshort,sweet,andunequivocal:“Thereshallbefreetradeamongtheparties.”But,regrettably,it’smorecomplexthanthat.Sothedevilisinthedetails.
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Whetherrealfreetradersshouldrecoilorrejoiceoverthisbroadeningofthescopeoftradeagreementsisanimportantquestiontoanswer.Tofreetraders,thewholepointoftradeistoexpandthesizeofthemarkettoenablegreaterandmorerefinedlevelsofspecialization,andeconomiesofscale.Reducingtariffsandotherborderbarrierstoenablegoodsandservicestocrossfrontiersisoneway–thetraditional,textbookway–ofexpandingthesizeofthemarket.Butintegrationandmarketexpansionwillremainhinderedifthelawsandregulationsgoverningcommercedifferbetweenoramongthecountriesthatreducedtheirborderbarriers.Harmonizationofproductstandards,equivalenceofregulations,similarityofintellectualpropertyregimes,andthecoherenceofotherdomesticframeworksthatgovernoraffectcommercemightalsohelpexpandthesizeofthemarket.Itisthislatterformofmarketexpansionthatmakesmoderntradeagreements–21stcenturyagreements,suchastheTPP–socontroversial.
AssessingtheTPPWithtermsandprovisionsspreadover30sometimesoverlappingchapters,theTPPagreementprovidesmuchtoevaluate.Somechapterslendthemselvestoquantitativeanalysis,wheretheamountoftradeliberalizationcanbecalculated.Othersrequireassessmentsofqualitativetermstoevenbegintounderstandwhethertheyare,onnet,liberalizingorprotectionist.Renderingjudgmentisbynatureasubjectiveexercise.Assessmentsoftheproprietyorefficacyofparticularpoliciesarelikelytoreflectsomeaprioriviewsorinstitutionalbiases.Accordingly,provisionsinatradeagreementthatmightbeconsideredgoodorbadbyscholarsatthepro-marketCatoInstitutemightbevieweddifferentlybypeopleassociatedwithpro-business,pro-labororpro-establishmentorganizations.AtradeagreementthatopenstheU.S.markettogreaterforeigncompetitionmaybewelcomedbyconsumersandimport-consumingindustries,butitmightbereviledbyimport-competingproducers.Adealthataccordsspecialprivilegesonforeigninvestorsmaywinkudosfrommultinationalcorporations,butitmightnotsitwellwiththoseworriedaboutasymmetricaccesstojudicialrecourse.Anagreementthatconditionspreferentialtariffaccessforclothingonuseofregionally-producedfabricmaywinthesupportoftextileproducers,butmightnotbeinthebestinterestofU.S.designers,retailers,orconsumers.Anagreementostensiblyaboutremovingtradebarriersthatlocksin25percentdutiesonpick-uptrucksfor30yearsmayelicitfistbumpsinDetroit,butmightcausedismayamongtruckconsumers.Beautyisintheeyeofthebeholder.ItiswiththoseconsiderationsinmindthatitisnecessarytoexplainthecriteriausedinthisassessmentoftheTPP.WhereastheAFL-CIOmightscoretheTPPaccordingtohowwellitprotectsworkerrightsandtheSierraClubmightfocusonthenumberofenforceableenvironmentalprovisionsandtheChamberofCommercemightprioritizetheamountofincreasedforeignmarketaccessobtainedandtheAmericanIronandSteelInstitutemighthomeinonthecontingentprotectionitprovides,freetradershavetheirownsetofstandardsandcriteria.
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Forfreetraders,theidealisfreetrade:Noborderbarriers;nodomesticregulationsorpoliciesthathaveprotectionistintentoreffectsorthatotherwisebestowrelativeprivilegesondomesticcompaniesortheirproducts;nosuperfluousrulesthataremerelytangentiallyrelatedtotrade,butviolationsofwhichcanbeinvokedtoerectnewimportbarriers.Measuredagainstthosestandards,theTPP–withits5,500pagesofexplicitrulesandexemptions–wouldnotpassthefreetradetest.TheTPPisnotfreetrade.LikeallotherU.S.tradeagreements,theTPPisamanagedtradeagreement,withprovisionsthatbothliberalizeandrestricttradeandinvestment.SomefreetraderswouldrejecttheTPPoutofhandforitsfailuretoeliminateallrestrictions.Whilesuchcomprehensivetradeliberalizationwouldbeideal,expectingasmuchisunrealistic.Thatoutcomeissimplypoliticallyunattainable.Holdingoutfortheidealwouldmaketheperfecttheenemyofthegood,whenthegoodisverylikelybetterthanthestatusquo.IftheTPPwilldelivermoretradeliberalizationthanrestriction,andrealisticalternativestomorecomprehensiveliberalizationareunavailable,whynotsupporttheTPP?So,howtodeterminewhethertheTPPisnetliberalizing?
DescriptionofMethodologyThescoresforeachassessedchaptertakeavaluerangingfrom0to10,with10assignedtochaptersthatofferthemostliberalizingtermspossible(“freetrade”);0assignedtochaptersimposingthemostrestrictivetermspossible(“protectionism”),and;5assignedtochaptersforwhichtheterms,inaggregate,haveaneutraleffect.Asitsohappens,nochapterswereassignedscoresof“0”or“10.”Beforeassigningscores,eachchapterwasreviewedbythreeCatotradeanalysts,whoseindividualassessmentswerecompiled,comparedanddebated.Finalscoreswereagreedbyconsensus.Allofthescoredchapters(22of30)wereevaluatedthroughtheprismofthefollowingconsiderations:
1. Whether,towhatextent,andhowquicklytheywouldreducetradebarriersorincreasetrade2. Whetherandtowhatextenttheycouldhavegonefurthertoliberalizetrade3. WhethertheyaremoreliberalizingthanthetermsandprovisionsofotherU.S.FTAs4. Whethertheydisproportionatelybenefitspecificproducersorotherinterestgroups5. Whethertheybreaknewground(positivelyornegatively)andestablishmarkersforfuture
liberalization6. Whethertheybelongintradeagreements7. Whethertheyareclear,simple,andenforceable8. Otherrelevantfactors.
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Someofthechaptersareaboutmarketaccess,someareaboutrulesandgovernance,andothersaretechnical,administrative,or“suggestive,”meaningthattheprovisionsarenotenforceablecommitments,butrathersuggestionsofbestpractices.Chaptersfallingintothislastcategory(8of30)werenotassessedorscored.Thechapterreviewsinthenextsectionincludescores,summaries,assessments(includinglistsofprosandcons),andscoringrationales.Someofthechaptersareaboutmarketaccess,someareaboutrulesandgovernance,andothersaretechnicaloradministrative.Itwaspossibletoassignscoresto22oftheTPP’s30chapters.TheassessmentsarebasedonthefinaltextoftheTrans-PacificPartnershipAgreement,reachedinOctober2015.4
ChapterAssessmentsScoring,Table,andFigureDescriptionsTable1presentstheassignedscoresinnumericalorderofchapter.The“Nature”ofeachchapterisalsodefinedas“MarketAccess,”“RulesandGovernance,”“Administrative,”or“Suggestive.”Noneofthe“Suggestive”chapterswasscored.SincesomechaptersaremoresignificantthanothersintermsoftheircontributiontotheoveralldeterminationofwhethertheTPPisnetliberalizing,adistinctionforchapter“Tier”wascreated.“First”tierchaptersaremoresignificantdeterminantsofthefinalverdictthanare“Second”tierchapters,soanyreasonableefforttoassignaTPP-widescoreshouldweightthechaptersaccordingly.Table2presentsthesameinformation,butindescendingorderofscore.Figure1andFigure2conveytheinformationfromTable2visually,whichrevealthatthescoresrangefrom3to8,withthemodeandmedianscorebothat6.Table3presentsthesameinformationastheprevioustables,butsortedbyNature,Tier,andChapter.Atthebottomofthetablearevariousaveragescalculatedfromthevaluesinthetable.Theweightedaveragescoreof6.03isobtainedbyassigningTier1chapterstwiceasmuchweightasTier2chapters.The“GradingonaSpecialCurve”scoreof6.7adjuststheweightedaveragescorefromascaleof0-10toascaleof0-9toaccountforthefactthatascoreof10wassimplyunattainable.ItisimportanttorecognizethatderivingaTPP-widescorefromastraightaverageofthechapterscoresunrealisticallyassignsthesameweight(significance)toeachchapter.Butitshouldn’ttakemuchconvincingthatthetermsofthe“TemporaryEntryforBusinessPersons”chapterarelesssignificantthanthetermsofthe“MarketAccess”chapterorthatthe“TradeRemedies”chapterislesssignificant
4https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/tpp-full-text.
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thanthe“CrossBorderTradeinServices”chapter.SomekindofweightingisnecessarytogenerateaTPP-widescore,butweightingisnecessarilysubjective.ThevariousaveragespresentedatthebottomofTable3indicatethatthisanalysisfindstheTPPtobenetliberalizingfromavarietyofperspectives.Eachoftheaveragesisabove5.Themedianandmodescoresare6.ThesimpleaverageoftheTier1scoresis6.63.And,whilefivechapterswerefoundtobemoreprotectionistthanliberalizing(scoresbelow5),15chapterswerefoundtobemoreliberalizing(scoresabove5).Twohadneutralscoresof5.
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Table1:TPPScoringbyChapter
Chapter Title Nature Tier Score 1 Initial Provisions and General Definitions Administrative None None 2 National Treatment and Market Access Market Access First 8 3 Rules of Origin Market Access First 6 4 Textiles and Apparel Market Access First 3 5 Customs Administration and Trade Facilitation Market Access First 8 6 Trade Remedies Market Access Second 3 7 Sanitary and Phytosanitary Measures Rules & Governance Second 6 8 Technical Barriers to Trade Rules & Governance Second 6 9 Investment Market Access First 6 10 Cross Border Trade in Services Market Access First 8 11 Financial Services Market Access Second 6 12 Temporary Entry for Business Persons Market Access Second 6 13 Telecommunications Rules & Governance Second 5 14 Electronic Commerce Rules & Governance Second 7 15 Government Procurement Market Access First 6 16 Competition Rules & Governance Second 5 17 State-Owned Enterprises Rules & Governance Second 6 18 Intellectual Property Rules & Governance Second 4 19 Labor Rules & Governance Second 3 20 Environment Rules & Governance Second 4 21 Cooperation and Capacity Building Suggestive None None 22 Competiveness and Business Facilitation Suggestive None None 23 Development Suggestive None None 24 Small and Medium Enterprises Suggestive None None 25 Regulatory Coherence Rules & Governance Second 6 26 Transparency and Anti-Corruption Suggestive None None 27 Administrative and Institutional Provisions Adminstrative None None 28 Dispute Settlement Rules & Governance Second 8 29 Exceptions Adminstrative None None 30 Final Provisions Market Access First 8
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Table2:TPPChapterScoresinDescendingOrder
Title Nature Tier Score
2 National Treatment and Market Access Market Access First 8 5 Customs Administration and Trade Facilitation Market Access First 8 10 Cross Border Trade in Services Market Access First 8 28 Dispute Settlement Rules & Governance Second 8 30 Final Provisions Market Access First 8 14 Electronic Commerce Rules & Governance Second 7 3 Rules of Origin Market Access First 6 7 Sanitary and Phytosanitary Measures Rules & Governance Second 6 8 Techical Barriers to Trade Rules & Governance Second 6 9 Investment Market Access First 6 11 Financial Services Market Access Second 6 12 Temporary Entry for Business Persons Market Access Second 6 15 Government Procurement Market Access First 6 17 State-Owned Enterprises Rules & Governance Second 6 25 Regulatory Coherence Rules & Governance Second 6 13 Telecommunications Rules & Governance Second 5 16 Competition Rules & Governance Second 5 18 Intellectual Property Rules & Governance Second 4 20 Environment Rules & Governance Second 4 4 Textiles and Apparel Market Access First 3 6 Trade Remedies Market Access Second 3 19 Labor Rules & Governance Second 3 1 Initial Provisions and General Definitions Adminstrative None None 21 Cooperation and Capacity building Suggestive None None 22 Competiveness and Business Facilitation Suggestive None None 23 Development Suggestive None None 24 SMEs Suggestive None None 26 Transparency and Anti-Corruption Suggestive None None 27 Administrative and Institutional Provisions Adminstrative None None 29 Exceptions Adminstrative None None
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Figure1:FrequencyofAssignedChapterScores
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Figure2:FrequencyofAssignedChapterScores,ByChapterType
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Table3:TPPChapterScoresbyNatureandTier,IncludingAverages
Chapter Title Nature Tier Score 2 National Treatment and Market Access Market Access First 8 3 Rules of Origin Market Access First 6 4 Textiles and Apparel Market Access First 3 5 Customs Administration and Trade Facilitation Market Access First 8 9 Investment Market Access First 6 10 Cross Border Trade in Services Market Access First 8 15 Government Procurement Market Access First 6 30 Final Provisions Market Access First 8 6 Trade Remedies Market Access Second 3 11 Financial Services Market Access Second 6 12 Temporary Entry for Business Persons Market Access Second 6 7 Sanitary and Phytosanitary Measures Rules & Governance Second 6 8 Technical Barriers to Trade Rules & Governance Second 6 13 Telecommunications Rules & Governance Second 5 14 Electronic Commerce Rules & Governance Second 7 16 Competition Rules & Governance Second 5 17 State-Owned Enterprises Rules & Governance Second 6 18 Intellectual Property Rules & Governance Second 4 19 Labor Rules & Governance Second 3 20 Environment Rules & Governance Second 4 25 Regulatory Coherence Rules & Governance Second 6 28 Dispute Settlement Rules & Governance Second 8 A Simple Average Score (22 Chapters) 5.82 B Simple Average Score (Market Access Chapters) 6.18 C Simple Average Score (Rules Chapters) 5.45 D Simple Average Score (First Tier Chapters) 6.63 E Simple Average Score (Second Tier Chapters) 5.36 F Weighted Average Score (22 Chapters) 6.03 G Grading on a Special Curve (22 Chapters) 6.70
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Chapter1:InitialProvisionsandGeneralDefinitionsScore:NoScoreSummaryThischapterestablishesthestructureoftheoverallTPPAgreementanditsrelationshiptoothertradeagreementsbetweenandamongtheTPPparties,andprovidesgeneralandtechnicaldefinitions.AlloftheTPPpartiesalreadyhaveobligationstoeachotherasmembersoftheWorldTradeOrganization,andsomehaveobligationsundervariousbilateraltradeagreements.ThischapteracknowledgesthattheTPPwascraftedwithsensitivitytothoseobligationsandwiththeintentionofavoidingthecreationofnewobligationsthatwouldbeinconsistentwithpre-existingagreements.Partieshaverecoursetoconsultationswithotherpartiesiftheybelievethereareinconsistencies.Article1.1stipulatesthattheTPPisa"freetradearea"subjecttotherulesoftheWTO.WhiletheWTOenshrinestheprinciplesof“most-favorednation”(alltradeliberalizationbyamembercountryshouldapplyonanon-discriminatorybasistoallothermembers)and“nationaltreatment”(foreignentitiesandtheirproductsandservicesshouldbeaccordedthesametreatmentunderlawasdomesticentitiesandtheirproductsandservicesareaccorded),thatinstitutionlonghasrecognizedthatsomemembersmightwishtopursuedeeperandbroaderliberalization.Aslongascertaincoreconditionsaremet–inparticular,thattheliberalizationbetweencountriespartytosuchagreementscoverssubstantiallyalltradebetweenthem,andthattheagreementsdonotraisebarrierstoexternaltrade–bilateralorregionalagreementsarepermitted.Article1.2thendiscussestherelationshipoftheTPPtootherinternationalagreementsmoregenerally.WithmostoftheTPPpartiesalreadyhavingbilateraltradeagreementswithotherTPPparties,thereisthepotentialforoverlappingobligationsandconflictingrules.Article1.2stipulatesthatitistheintentionoftheTPPpartiesthattheseagreements"coexist,"andsetsoutthepossibilityforpartiestousetheTPP'sdisputesettlementprocesstoresolvepossibleconflictsbetweentheTPPandotheragreements.Thepracticaleffectofthis"coexistence"approach–asopposedtospecifyingthattheTPPsupersedesthetermsofintra-TPPmemberbilateralagreements–remainstobeseen.AssessmentNone.
ProsNone.ConsNone.
ScoringRationaleNone.
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Chapter2:NationalTreatmentandMarketAccessforGoodsScore:8SummaryChapter2establishesthebasicrulesfortradeingoodsamongtheTPPParties.Itincludescommitmentswithrespecttofourcoreelements:(1)MarketAccess;(2)NationalTreatment;(3)Agriculture,and;(4)TheAdministrationofTariffRateQuotas.WithrespecttoMarketAccess,thepartiescommittoeliminatetariffsandquantitativerestrictionsongoodstradeby:• RemovingcustomsdutiesonimportsofalmostallproductsoriginatinginotherTPPparties,in
accordancewithdetailedschedulesfoundineachparty’sAnnex2-D;• Prohibitingimportandexportrestrictions,exceptwithrespecttotheproductslistedinAnnex2-A
andundervariousotherconditions;• Prohibiting“performancerequirements”asconditionsofreducedimporttariffs;• Adoptingrulesonimportandexportlicensingtoensurethatsuchsystemsaretransparent,non-
discriminatoryandnotdisguisedtraderestrictions;• Limitingadministrativefeesandformalities(e.g.,customsfees)associatedwithimportationor
exportationtotheapproximatecostofservicesrendered;• Prohibitingexportduties,exceptforthoseonthegoodslistedinAnnex2-C;• Committingtopublishpromptlyanyrules,regulationsandproceduresconcerningtheimportation
orexportationofgoods.WithrespecttoNationalTreatment,thepartiesgenerallycommittotreatthegoodsofotherTPPpartiesthesameastheywouldtreatdomesticgoods.Thisisafundamentalprincipleofalltradeagreements.OnAgriculture,thepartiesundertakevariousobligations,includingcommitmentsto:• EliminateexportsubsidiesonagriculturalgoodsdestinedtootherTPPparties;• Negotiatemultilateraldisciplinesonexportcredits,exportcreditguaranteesandinsurance
programs;• Negotiatemultilateraldisciplinesonagriculturalstatetradingenterprises;• Restricttospecificandlimitedconditionstheimpositionofexportrestrictionsforfoodsecurity
reasons;• Improvetransparency,cooperationandinformation-exchangerelatedtothetradeofproductsof
modernbiotechnology,includingGMOs.ConcerningtheAdministrationofTariffRateQuotas(TRQs),partiescommittoadministerallTRQs,assetforthinAnnex2-D,inatransparentandimpartialmannerandsubjecttovariousdisciplines.Assessment
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InitssummaryofChapter2,theOfficeoftheU.S.TradeRepresentativeemphasizesthebenefitsofforeigntradebarrierreductionstoAmericanexporters,butdownplaysthebenefitsofeliminatingU.S.tradebarrierstoAmericanbusinesses,consumers,andtaxpayers:
ThroughtheTPPAgreement,theUnitedStatesisseekingtocreateaneconomicarchitectureintheAsia-PacificregionthathelpsAmericanbusinesses,workers,farmersandranchersproduceandselltheirgoodsmoreeasily.TheNationalTreatmentandMarketAccessforGoodsChapter(alsoknownastheGoodschapter)helpsusreachthisgoalbyremovingbarrierstoexportofMade-in-Americamanufacturesandfarmproducts…Reducingoreliminatingthesetariffs,andotherbarrierstoAmericanexports,inmanyfast-growingmarketswillhelpsupporteconomicgrowthandhigh-wageemploymentforAmericansinthe21stcentury.Insodoing,TPPwillhelpsecureAmerica’semergingroleastheworld’smostattractivesiteformanufacturing,supporthigherincomesandruraldevelopment,andhelptoensureafutureofsustainedU.S.economicgrowthbasedonhigh-wageemployment,research,investment,andproduction.5
Theseexportbenefitsarelegitimate,butrealfreetraderswouldemphasizethesubstantialbenefitsfromtheTPP’simportliberalization.Notwithstandingthemercantilistobjectivesoftradenegotiations(andthepoliticalaversiontoacknowledgingthebenefitsofimports),theprovisionsinChapter2willbroadlyimproveAmericans’accesstoimportedproductsandcomponents,undergirdingeconomicgrowthtothebenefitofU.S.businesses,consumersandworkers.Thechapterprovidesfortheelimination–immediatelyoreventually–ofnearlyallU.S.tariffsongoodsfromtheotherTPPparties.Thatdynamicismorelikelyto“secureAmerica’semergingroleastheworld’smostattractivesiteformanufacturing…”thanisthereductionofbarrierstoU.S.exports.6ItalsopromisesthatAmericanconsumerswillenjoygreatervarietyofgoodsatlowerprices,thusimprovinglivingstandardsandeasingthestrainonfamilybudgets.Forexample,theU.S.footwearindustryestimatesthatTPP’stariffliberalizationwillprovide$500millioninsavingsforAmericanshoeconsumersinitsfirstyearofimplementationand$6billionoverthefirstdecade.7ThebenefitstoU.S.companiesthatexport–especiallythosethatrelyonimportedintermediategoods–willneverthelessbesignificant.AlthoughexistingFTAsbetweentheUnitedStatesandsixoftheTPPpartiesmeanthatU.S.exportersarealreadyenjoyingpreferentialaccesstothosemarkets,theotherparticipants–particularlyMalaysia,Japan,Vietnam,andNewZealand–presentsubstantialnewopportunitiesforU.S.exporters.Forexample:
5OfficeoftheUnitedStatesTradeRepresentative,“TheTrans-PacificPartnership:LevelingthePlayingFieldforAmericanWorkers&AmericanBusinesses,”NationalTreatmentandMarketAccessforGoods,https://ustr.gov/sites/default/files/TPP-Chapter-Summary-National-Treatment-and-Market-Access-for-Goods.pdf.6SeeDanielIkenson,“ReversingWorrisomeTrends:HowtoAttractandRetainInvestmentinaCompetitiveGlobalEconomy,”CatoPolicyAnalysisno.735,August22,2013,http://www.cato.org/publications/policy-analysis/reversing-worrisome-trends-how-attract-retain-investment-competitive.7FootwearRetailersandDistributorsofAmerica,“Trans-PacificPartnership:IssueBrief,”http://fdra.org/key-issues-and-advocacy/trans-pacific-partnership-tpp/.
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• Onbeefproducts,Japanwilleliminatedutieson74percentofitstarifflines,whileVietnamwilleliminatetariffscurrentlyashighas34percent.8
• Onmachinery,whichaccountsforalmost6percentofU.S.manufacturingoutput,Japanwillimmediatelyeliminatealltariffs,whileMalaysiaandNewZealandimmediatelyeliminateabout94percentoftheirtariffs.9
• About15percentofVietnam’stariffsof20percentadvaloremorhigherwillbeeliminatedimmediately(60percentwillbeeliminatedwithin5years),whichwillopenthatlargemarketmuchfurthertoU.S.(andotherTPP)exporters.
RelativetoexistingU.S.FTAs,Chapter2alsobreaksnewgroundwith:
• provisionsonbiotechgoods(GMOs),whichforthefirsttimeestablishtransparencyrequirementsforparties’lawsandregulationsontradeinbiotechproducts;
• commitmentsthattradein“remanufacturedgoods”(i.e.,restoredorrefurbishedproducts)issubjecttothesamegeneralprohibitionsonimportandexportrestrictions;
• provisionsrequiringtransparencyinexportlicensingprocedures;• specificdisciplinesonagriculturalstatetradingenterprises;• ageneralcommitmenttoeliminate(most)agriculturalexportsubsidies.
Overall,however,onlythebiotechcommitmentsarelikelysignificantbecausethetradevalueoftheproductsatissue,oraffectedbythemeasuresatissue,isnotlarge.Thenationaltreatment,non-discriminationandtransparencyrulesarealsolaudable,astheywilleither(1)prohibitTPPPartiesfromdiscriminatingagainstthegoodsofotherPartiesinfavoroftheirdomesticmanufacturersandfarmersor(2)shineneededlightonmeasureswiththepotentialforsuchabuse,suchasimportlicensingorcustomsfees.Meanwhile,thecommitmentstoeliminateharmfulagriculturalexportsubsidiesarewelcomed,althoughtheactualimpactwilllikelybemutedbytherecentagreementbyWTOMembersinNairobitodoessentiallythesamething.10AlthoughChapter2liberalizestradeingoodsamongtheTPPparties,itincludesavarietyofprovisionsthatmoderate–andoccasionallyimpede–thatliberalization.Forexample,boththeUnitedStatesandJapanmaintainseparatetariffliberalizationschedulesforeachTPPparty.Thatmeansthesameimportedproductmaybesubjecttodifferenttariffrates,dependingonthecountryoforigin.Forexample,intheU.S.schedule,88percentoftariffsonimportsfromcountriesthatarealreadyU.S.tradeagreementpartnersgotozerouponentryintoforceoftheagreement.ButforimportsfromMalaysia,Japan,andVietnam(allnewpartners),thecomparablefiguresare83.7percent,74.6percent,and66.4
8UnitedStatesDepartmentofAgriculture,ForeignAgriculturalService,http://www.fas.usda.gov/sites/default/files/2016-05/tpp-beef-05-15-2016.jpg.9U.S.DepartmentofCommerce,InternationalTradeAdministration,“U.S.MachineryExports:DiscoveringtheBenefitsofTPP,”Tradeology(TheOfficialBlogofITA),February3,2016,https://blog.trade.gov/2016/02/03/u-s-machinery-exports-discovering-the-benefits-of-tpp/.10InDecember2015,WTOMembersatthetenthministerialconferenceinNairobiagreedtoadoptaMinisterialDecisiononExportCompetition(WT/MIN(15)/45)thatincludesacommitmenttoeliminatesubsidiesforfarmexports(paras.6-11).
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percentrespectively.ThesedisparitiesreflectprotectionistconcessionsmadetocertainU.S.industries,whichaddneedlesscomplexity,encouragetradediversion,andimpedetheTPP’sgoalofcreatingaseamlessAsia-Pacificsupplychain.Furthermore,despiteliberalizingmanytariffsimmediatelyorwithinafewyearsafterentryintoforce,theTPPmaintains–andinsomecasesevencreates–newbarrierstoimportsof“sensitive”imports.Manytarifflinesarenotimmediatelyliberalizedbutaresubjecttophase-outperiodsofover10years.Forexample,theagreementmaintainsphase-outsforU.S.tariffsonbeef(15years),dairyproducts(20-30years),processedfruit(15years)andrice(15years).Italsoincludesa30-yearphase-outofthe25percenttariffonpick-uptrucksfromJapan,withotherJapanesecarsandtrucksfacingslightlyshorterphase-outperiods.Othercountriesprovidesimilarlyslowaccesstotheirmarkets.Meanwhile,theUnitedStates’Annex2-DdeniestruemarketaccesstosomeofthemostcompetitiveTPPexportersbyestablishingrestrictiveTRQsonsugar,beefanddairyimportsand“specialsafeguardmechanisms”–whichrestrict“surges”offairly-tradedimportsfromthesecountries–forsugaranddairy.Japanmaintainssimilarmeasuresforawiderangeofagriculturalproducts,whileMalaysia,MexicoandVietnamdosoonamorelimitedbasis.
Pros• TPPpartieswillberequiredtofollowgeneralnon-discriminationprinciples,andtoavoid
quantitativeimportandexportrestrictions,whichwillhelpreininprotectionismandpreventfavoritismofoneTPPpartyoveranother.
• Tariffliberalizationcommitments,overall,aresignificantandshouldprovidetangiblebenefitsforconsumersandproducers.
• Uponentryintoforce,theproportionofMFNduty-freetarifflinesamongthe12TPPpartieswillincreasefrom51.3percentto87.8percentandnearlyallremainingtariffswillgotozerowithin16years.
• Uponentryintoforce,theproportionofMFNduty-freetarifflinesonU.S.importsfromTPPpartieswillincreasefrom36.4percentto90.5percent,andto99percentuponfullimplementation.
• Sevenofthe12TPPcountrieseliminatealltariffsonTPPimportseventually.• Eliminatesexportsubsidies.• Tariffreductionswilloccurinlargeandgrowingconsumermarkets,suchasJapanandVietnam,
wherebarrierstraditionallyhaveimpededaccessofU.S.exporters.• NovelrulesforGMOs,exportlicensing,agriculturalexportsubsidiesandotherissuesshould
facilitatetradeinareasnotcoveredinpreviousU.S.FTAs.Cons• TheTPP’sampleliberalizationpotentialispartiallyoffsetbymyriadexceptionstothebasic
marketaccessandnationaltreatmentprovisions–exceptionsthatinmanycasesgobeyondpreviousFTAsintermsoftheirrestrictiveness.
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• Thesecarve-outsraiseconcernsthattheagreementwillcementprotectionisminsensitiveU.S.andforeignsectorsandsetaprecedentforsimilarprotectionisminfuturetradeagreements.
• U.S.andJapanmaintainseparatetariffschedulesforeachcountry,whichnegatessomeofthebenefits,mayencouragetradediversion,setstheprecedentofviolatingMFNbypermittingdiscriminationwithinapreferentialtradeagreement.
• Longtariffphaseoutsforautos,beef,clothing,andmuchofU.S.agriculture.ScoringRationaleTheprovisionsinChapter2willimmediatelyandsubstantiallyopentheU.S.markettoregionalimportsbyincreasingthepercentageofMFNduty-freetarifflinesfrom35.4percentto90.5percentuponentryintoforce,andto99percentbyfullimplementationinyear30.Likewise,foreignmarketsareopenedjustaswideandusuallyfasterwiththepercentageofMFNduty-freetarifflinesrisingfrom51.3percentto87.8percent,andnearlyallremainingtariffsgoingtozerowithin16years.Sevenofthe12TPPcountrieseliminatealltariffseventuallyandexportsubsidiesareeliminated.Despitevastamountsofliberalization,theagreementcouldhavebeenmoreliberalizingstill.AlthoughTPPaccomplisheswide-scaletariffeliminationandreductionacrosstheregion,someparties–especiallytheUnitedStatesandJapan–tookexemptionsoradoptedveryslowtariffphaseoutsforcertainproductstosatisfypowerfuldomesticinterests,suchasbeef,sugar,andautoproducersintheUnitedStatesandricefarmersinJapan.TheUnitedStatesholdstheunfortunatedistinctionofmaintainingthelongesttariffphase-outs–noliberalizationofthe25percenttariffonlighttrucksuntilthe30thyearofimplementation.Moreover,theUnitedStatesandJapanmaintainseparatetariffschedulesforeachcountry,whichwouldseemtonegatesomeofthemarketaccessbenefitsprovidedelsewhereintheagreement,stuntsupplychaindevelopment,andleadtotradediversion.However,thoseconcernsshouldbeweighedagainstthefactthatthemarketaccessliberalizationagreedbytheTPPpartiesisconsiderableinabsolutetermsandrelativetopreviousFTAs.Thetermsofthischapterareclearlynetliberalizing.
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Chapter3:RulesofOriginandOriginProceduresScore:6SummaryChapter3establishestherulesforcustomsauthoritiestodeterminewhetheranimportedgood“originates”withintheregion,therebyqualifyingforthepreferentialtreatmentaffordedundertheagreement.Generally,aproductisconsideredoriginatingifitwaswhollymadewithintheregion(inthecountriespartytotheagreement),ifitwassignificantlytransformedwithintheregionfromimportedmaterialsandcomponents,oriftherelativevalueoforiginatingmaterialsandmanufacturingperformedintheregionissufficientlyhigh.Thechapterconsistsofaseriesofgeneralrulesandanannexthatprovidesalonglistoftheproduct-specificrulesoforigin,whichclarifyhowmuchtransformationmustoccurorhowmuchofafinalproduct’svaluemustbeaddedwithintheregionorcomefromoriginatingmaterials.Someproductshavehigherminimumregionalvaluecontentrequirementsthanothersandsomeproducts(particularlyautomobiles)areassigneddetailedexplanationsconcerningtheamountoftransformationthatmustoccurwhenusingnon-originatingmaterialinputs.Forautomobiles,thereisanadditionalannex,whichexplainsthatcertainproductionactivitiesautomaticallyconferoriginatingstatusregardlessofotherproduct-specificrules.TheTPP’srulesoforiginallowforunlimited“cumulation.”Thatis,materialsandmanufacturingactivityfrommultipleTPPcountriescanbecombinedforpurposesofdetermininghowmuchofaproduct’scontentoriginatedwithintheTPPregion.Thechapteralsoestablishesrulesforcustomsprocedures,whichexplainhownationalcustomsauthoritiesshouldinteractwithimportersandexporterswhendeterminingwhethergoodsareoriginating.AssessmentRulesoforiginarenecessarycomponentsofpreferentialtradeagreements.Whenproductsfromdifferentcountriesreceivedifferenttarifftreatments,customsofficialsmusthaveawaytodeterminewhichtariffratetoapply.Rulesthatpermitgreateruseofnon-originatinginputsorbroaderdefinitionsofwhatconstitutesproducttransformationtendtobemoretradeliberalizingthanmoreproscriptiverules,whichimposegreaterrestrictionsonqualificationfortheagreement’spreferentialtariffrates.Intoday’sglobalizedeconomy,strictrulesoforiginimpedetheevolutionandoperationofmoreefficientsupplychainsandcanbeusedtoprivilegeexistingproducersbylimitingcompetition.Theyincreasethelikelihoodandcostoftradediversion,whichoccurswhenlessefficientproducersarechosensimplyforthetariffadvantagestheyreceive.Moreover,complicatedrulesoforigintendtogeneratehighercomplianceandverificationcosts,whicherodethebenefitsofpreferentialdutiescausingimporterstosimplyforegotheirclaimstopreferences.
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TheTPP’srulesoforiginaregenerallymoreliberalthanpastU.S.tradeagreements.ThelowestregionalcontentthresholdgenerallyrequiredinotherU.S.tradeagreementsis35percent;intheTPP,themostcommonthresholdis30percent.Productswithhigherregionalcontentrequirements,suchaschemicalsandmetals,arealsoabout5percentagepointsloweracrosstheboardintheTPPthaninotherU.S.FTAs.TheTPP’srulesoforigincontentrequirementsforautomobilesarebetween35and45percent,whichissignificantlymoreliberalthanNAFTA’s,whichareabout60percent.NAFTA’stariffeliminationshelpedcreateanintegratedNorthAmericanautoindustry;thelowerthresholdsfororiginstatusintheTPPlikelywillincreasecompetitionbyallowingmorediversesupplychainsutilizingautopartsfromoutsidetheTPP.However,theTPPdoessingleouttheautoindustryforspecialtreatmentbyincludingaseparateannexonautomobilerulesoforigin.Thoserulesallowcertainnon-originatingmaterialstocountasoriginatingifcertainspecificproductionprocessesareperformed.Therulesreflectadecisiontoprivilegesomesupplychainarrangementsoverothers.PastU.S.agreementshaveincludedspecialprovisionsforfootwearwithdetailedrulesgoverningthetypesofprocessesthathadtobeperformedandwhatproportionsofvariousmaterialscouldbeused.TheTPP’srulesoforiginforfootweararemuchlessdetailed,thoughtheydoimposearelativelyhighregionalcontentrequirementofabout45percent.Thechapter’sproceduralprovisionsmostlyensurethatnationalcustomsauthoritieseffectivelyimplementandenforcetherulesoforigin,buttheyalsoimprovetheruleoflawbyinsistingoncertainproceduralrightsforimporters.
Pros• TherulesoforiginonthewholearemoreliberalthanpastU.S.tradeagreements.• Therelativelylowregionalcontentrequirements,combinedwithunlimitedcumulation,will
enableabroaderarrayofsupplychainarrangementsthancurrentlyenjoyedintheregion.• Relativelylessdetailedrulesinkeyareaswillmeanaloweracostofcomplianceandwideruse
oftariffpreferences.Cons• Aswithallpreferentialtradeagreements,therulesoforiginservetolimittheimpactoftariff
liberalization.• Specialrulesforsomeproducts,especiallyautos,representaformofmanagedtradewhere
supplychainsareshapedthroughnegotiationsratherthanthemarket.• AsnewsupplychainsdeveloptotakeadvantageoftheTPP,thestrictestrulesoforiginwill
insulatesomeregionalindustriesfromglobalcompetition.ScoringRationale
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Rulesoforigin(ROOs)arefeaturesofpreferentialtradeagreementsthatare,bydefinition,restrictive.Rulesthatmakeallowancesformorenon-originatingcontentpermitgreaterflexibilityandinnovationinsupplychainarchitecture,whichmeansgenerallylowerproductionandcompliancecosts,andotherefficiencies,andarethusmoreliberalizing.TheTPP’sROOsaremoreflexiblethanthoseinotherU.S.FTAsandarethusakintoareductionintradebarriers,whichislikelytoleadtomoretrade.Ofcourse,theROOscouldhavebeenmoreliberalizingstill,buteffortstomakethemsoranintooppositionfromautoandautopartsproducers,especiallyfromproducersintheNAFTAcountries.Althoughtheycouldhavebeenevenlessrestrictive,theTPP’sROOsarerelativelypermissiveandwillenablemoretrade,butwerecraftedwithalotofguidancefrom–andforthebenefitof–incumbentautoandautopartsproducers.
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Chapter4:TextilesandApparelScore:3SummaryTheTextilesandApparelChapterestablishesspecialrulesoforiginfortextileandappareltrade.Althoughtherulesoforiginvarybyproduct,thepredominantfeatureofthechapteristhe“yarnforward”rule,whichconfersoriginatingstatusonfabricandclothingonlyifitismadefromregionalinputs–fromtheyarncomponentforwardintheproductionprocess.Thechapterdoesgrantcertainexceptionstotheyarnforwardrule,byallowingdeminimisamountsofnon-originatingcomponents;relaxingtherequirementformaterialsusedinhandicraftsorfolkloricgoods;andprovidinga“shortsupplylist,”whichincludesfabricsthatmaybesourcedoutsidetheregionbecausetheyarenotproducedinsufficientcommercialquantitieswithinTPPcountries,amongotherthings.UnlikepreviousU.S.FTAs,thereisnomechanismtoaddorremovefabricfromtheshortsupplylist.Fabricsonthatlistarethereeithertemporarily(5years)orpermanently.Thechapteralsoestablishesaspecialsafeguardprovisionfortextilesandapparel,whichallowstariffstoberaisedifanincreaseinimportsonaccountoftariffreductionsmadepursuanttoTPPprovisionsissogreatastocauseseriousinjurytoadomesticindustry.AnytariffincreaseunderthisprovisioncannotexceedtheMFNrateappliedwhentheTPPenteredintoforceortherateappliedimmediatelybeforethetariffreductionthatspurredtherequestforsafeguardaction.Finally,thechapterincludesspecialrulesforcustomsofficialsseekingtoverifytheoriginoftextileproducts.AssessmentTheTextileandApparelchapterisprotectionist.Inadditiontoveryslowtariffliberalizationforclothing,whichissubjecttosomeofthehighestU.S.tariffs,thepresentchapterrepresentsacontinuationofthemisguidedpolicyofprotectingU.S.textileproducersbylimitingpreferentialaccesstofabricsandclothingmadefromregionally-producedtextiles.Essentially,preferentialaccesstotheU.S.marketisreservedforcustomersofU.S.textileproducers,makingtheruleslittlemorethanasubsidytoU.S.producers.Eventhechapter’sexceptionsarereservedforsituationswherefreertradewouldnotharmestablishedinterest–producersofforeignhandicraftsandfolkloricgoods,forexample,don’tpurchaseU.S.textiles,andproductsontheshort-supplylistarenotcommerciallymeaningfultoU.S.textileproducers.TheTPP’srulesfortextileandappareltradearenothingnew.Theycontinuealongtraditionofmanagedtradeinoneofhistory’soldestindustrialsectors.ThechapterconspirestoensurethattheTPP’slargestclothingproducer,Vietnam,hastoestablishnew–likelymuchlessefficient–supplierrelationshipsandincurgreatercoststoobtainpreferentialaccesstotheU.S.andotherlargeTPPmarkets.Thatwilldepriveconsumersofmanyofthebenefitsoftradeandtransferrentstoexisting
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textileproducers.Theonebrightspotistheabsenceofamechanismformanagingtheshortsupplylist,whichintroducesslightlygreatercertaintytothesupplychainmanagementprocess.
Pros• Thenegativecharacterofthischapterismitigatedbyitsnarrowscope.• Theshortsupplylistprovidesarelativelyhighnumberofexceptionstotheyarnforwardrule.• Thereisnomechanismforaddingorremovingitemsfromtheshortsupplylist,conferringa
higherdegreeofpredictabilitythanwouldbethecaseifthelistweresubjecttorevision.Cons• Singlingoutoneindustryforspecialtreatmentissoinherentlyoffensivetofreetradethatthis
chapterisirredeemablyprotectionist.• ThechapterexistssimplytomitigatethetradeliberalizationstipulatedinChapter2,even
thoughthatliberalizationfortextilesandapparelisgrudgingandback-loaded.• Thespecialsafeguardmechanismgivesincumbentinterestsonemoretooltouseintheirefforts
toimpedetheprocessoftextileandapparelproductionbeingperformedwhereitisperformedmostefficiently.
ScoringRationaleAlthoughitprovidesforsomeliberalizationoftariffsovertime,theTextilesandApparelchapterisprimarilyrestrictiveandintendedtomanagesupplychainrelationships,whileensuringthatthegainsfromtradearedistributedinapolitical,ratherthaneconomic,manner.Thechaptercouldhavebeenmuchmoreliberalizinghadtariffsbeeneliminatedmorequicklyandwithoutsomanyconditions.ThetermsofthechapterprimarilyservetoprotecttheU.S.textileindustry’sapparelcustomerbaseattheexpenseofU.S.apparelconsumersandforeignapparelproducerswhosourcetheirtextilesfromothersuppliers.TheTPP’srestrictiverulesfortextileandappareltradecontinuealongtraditionofmanagedtradeandshouldraisequestionsaboutwhyan18thcenturyindustrywarrantssuchprotectionina21stcenturyagreement.
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Chapter5:CustomsAdministrationandTradeFacilitationScore:8SummaryThegoalofChapter5istoensurethat“customsproceduresareappliedinamannerthatispredictable,consistentandtransparent.”Thechapterincludesprovisionsintendedtoimproveefficiencyandcooperationamongthepartiesregardingcustomsissues.Amongthemarecallsforexpeditiousresponsestorequestsforadviceorinformation;requirements(withsomeexceptions)thatadvancerulingsregardingcustomsclassificationsbeissuedwithin150daysofsuchrequests;requirementsthatgovernmentspublishandmakeavailabletoimportersandexportersrelevantcustomslawsandprocedures;encouragementoftheuseofautomationtofacilitateclassification,valuation,andcustomsclearance;andrequirementsthatrequestsforconfidentialtreatmentofinformationbegrantedwhenwarranted.Otherprovisionsofnotearetheobjectivestoreleaseallexpressshipmentswithinsixhoursofdocumentsubmission,andtoreleaseallshipmentswithin48hoursofarrival.Tohelpachievethatgoal,partiesarerequiredtoimplementrisk-managementsystemsthatfocusinspectioneffortsonhigh-riskshipments.Bothadministrativeandjudicialappealsproceduresaretobeavailable.AssessmentTheprovisionsinthischapterhavestrongpotentialtoreduceimportant–oftenoverlooked–impedimentstotrade.Liketariffcuts,improvementsincustomsandtradefacilitationproceduresreducethecostoftradeandincreaseitsflow.AsmultitudesofstudiesconductedbytradeanddevelopmenteconomistsattheWorldBankandelsewherehavedemonstrated,delaysattheborderconstitutesignificantbarrierstotrade.EconomistsDavidHummelsandGeorgSchaurestimatethateachdayofdelayintransitisequivalenttoanadvaloremtariffofbetween0.6and2.1percent.11Moreover,opaquenessofcustomsprocessingandclearanceprocedurescreatesgreaterscopeforcorruption,whichalsoraisesthecostsandreducesthebenefitsoftrade.Thechapterseekstoreducethesekindsofadministrativebarriersbyidentifyingandadoptingbestpracticesorcommonstandardsandprocedures.Customsadministrationisanareathatgenuinelycanbenefitfromadvancesindigitaltechnology.Chapter5seekstobringcustomsclearanceproceduresintothe21stcentury.AlthoughmostoftheissuesaddressedinthischapterarealsocoveredbytheWTOTradeFacilitationAgreement(whichisexpectedtoberatifiedandadoptedasearlyasnextyear),insomecasestherequirementsofTPP’sChapter5aremorerigorous.Forexample,recognizingthattimeintransitisatradebarrier,thischaptermandatesmaximumtimelimitsforshipmentprocessingatborders.Modernelectronicsmakeitpossibletoexpeditetheprocessofmovinggoodsacrossborders,whilealsomakingiteasiertodetectcustomsevasionandcorruption.
11DavidL.HummelsandGeorgSchaur,“TimeasaTradeBarrier,”AmericanEconomicReview,Vol.103,No.7,December2013,https://www.aeaweb.org/articles?id=10.1257/aer.103.7.2935.
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Thesechangesshouldreducethecostsofimportingandexporting,withdisproportionatebenefitsflowingtosmallandmedium-sizedenterprises.SMEswithlimitedresourcesshouldfinditmucheasiertonavigatecustomsrequirementsoncetheTPPisimplemented.
Pro• Implementationofthesemeasuresshouldhelpsmooththeprocessofcustomsclearanceand
reducethecostsofinternationaltrade,especiallywithrespecttoTPPmembersthatdonotcurrentlyemploymoderncustomsprocedures.
• Expressshippers(andthecustomerstheyserve)arelikelytohavemoreconfidenceintheirabilitytodelivergoodsona“justintime”basis.
• Thedevelopmentofhighlyfunctionalandeasy-to-usedigitaltechnologytoexpeditecustomsclearancewithintheTPPmayprovideahelpfultemplatethatcouldbeadoptedbyothertradingnations.
Con• Giventheimportanceofefficientcustomsclearanceprocedurestoreducingtransittime,which
isatradebarrier,thechaptercouldhavegonefurtherwithmorerigidrequirementsbackedupbycapacitybuildingandotherresourcestoimplementthereforms.
ScoringRationaleTheprovisionsintheCustomsAdministrationandTradeFacilitationchapteraregenuinelydesignedtoreducethecostsoftradeassociatedwithdelays,uncertainty,administrativeinefficiency,andcorruption.Theyshouldhelpincreasetradeflowsimmediately.Thechaptercouldhavegonefurthertomandateevenfastercustomsprocessing(andothermeasurestoimproveefficiencyandreducecorruption),butachievingevenhigherstandardsmighthavebeentoodifficultforsomeoftheparties.Ontheotherhand,theprovisionsdogofurtherthanpreviousefforts,includingtheagreed–butnotyetimplemented–WTOTradeFacilitationAgreement.Ifthetermsfavorsomeenterprisesmorethanothers,it’snotbecauseofanyprejudicialrulesthatcarveoutbenefitsforparticular,vocal,politically-activeindustries.Thereductionoftradecostswillproviderelativelygreaterbenefitstosmallandmedium-sizedfirmsbecausethosecostsconstitutealargerbarriertotradeforthosefirmsthantheydoforbigbusinesses.Theobligationsandsuggestionsarticulatedinthischapterreflectthefindingsofalotofresearchoverthepast15years.Timeisatradebarrierandeffortstoreducedelaysshouldbewelcomeadditionstotradeagreements.
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Chapter6:TradeRemediesScore:3SummaryThemainpurposeoftheTradeRemedieschapteristoreaffirmtherightsoftheparties,establishedundervariousWTOagreements,tohaveandtousetheirdomesticsafeguards,antidumping,andcountervailingdutylawsinmannersthatareconsistentwiththeobligationsspelledoutinthoseagreements.Ostensibly,theselawsareintendedforthepurposeofremedyingeconomicinjuryresultingfromthesaleofproductsinexportmarketsat“unfairly”lowprices(antidumping),theprovisionofsubsidiestoproducersofexportedproducts(countervailingduty),orasuddensurgeinthevolumeofimports(safeguards).Thechapterincludeslanguagetoensurethatexportersfacingforeigntraderemedymeasuresreceiveproceduraldueprocessandtransparency.Thechapteralsoincludesprovisionsallowingthepartiestoapplytransitionalsafeguardmeasurestoone,some,orallpartiesduringthetariffphase-outperiod,ifimportshaveincreasedandarefoundtobeacauseorthreatofinjurytothedomesticindustry.Thesafeguardcouldlastfortwoyears,withaone-yearextensionpermitted,butwouldhavetobe“progressivelyliberalized”ifleftinplaceformorethanoneyear.Compensationintheformofimprovedaccessforimportsfromtheotherpartywouldberequired.Failuretoagreeoncompensationwouldallowtheothercountrytoretaliate.AssessmentChapter6isprotectionist.ItiscommittedtoaffirmingthecircumstancesandproceduresunderwhichTPPpartiescanraisetradebarriers.ThechapterensuresthatTPPbringsnoliberalizationtotheU.S.antidumping,countervailingduty,orsafeguardregimes.ItaccomplishesthatobjectivebyspecifyingthateachcountryretainsitsrightsundertheWTOtoinvokemeasuresundertheirrespectivedomesticlaws.Moreover,thechapteravailsthepartiesofnewformsofprotectionismbyprovidinga“transitionalsafeguardmeasure,”whichcouldbeusedtoincreasetariffsonimportsnotevenfoundtobe“unfairly”traded.Whenimportshaveincreasedsufficientlyandarefoundtocause“seriousinjury”tothedomesticindustry,theprovisioncouldresultinthereversionoftariffstothehigherratesthatprevailedbeforetheincreaseininjuriousimports.Sincethegovernmentimposingasafeguardmaynotbeabletocomeupwithoffsettingconcessions,itseemslikelythatinnocentindustrieswouldgethurtwhentheotherpartyimposesretaliation.IntheUnitedStates,adomesticindustrywouldfileapetitionforreliefandtheU.S.InternationalTradeCommissionwoulddeterminewhethertheindustryhasbeenseriouslyinjured.Ifsuchadecisionisreached,itwouldbeuptotheOfficeoftheUnitedStatesTradeRepresentativeandtheWhiteHousetofindcountervailingconcessionsthatcouldbeofferedtotheothercountry.Thepoliticsofreducingprotectionforoneindustryinordertoincreaseitforanothercanbequitetricky,somostlikelynoconcessionswouldbeofferedandretaliationwouldensue.
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Safeguardshavethepotentialtobeappliedagainstallgoodsforwhichtariffsarereducedandforwhichimportsincreasetothepointthattheyirritatethedomesticindustry.Thismeasurecouldbeusedtorestrictimportsof“fairlytraded”goods,whichmeanstherewouldbenoneedtodemonstratethatimportsareenteringthecountryatunfairlylowprices.However,“seriousinjury”appearstobeahigherstandardthan“materialinjury,”whichisthestatutorystandardusedbytheU.S.InternationalTradeCommissiontodetermineharminantidumpingandcountervailingdutycases.Inotherwords,itmaybemorechallengingforthedomesticindustrytoprevailinasafeguardcasethaninan“unfairtrade”case.Thechapterbreaksabitofnewgroundbypromotingthetransparencyoftraderemedyprocedures,aswellasencouragingmemberstoprovidedueprocesstofirmscaughtupinthesedisputes.TheU.S.traderemedysystemalreadyisrelativelytransparent,butthisprovisionmaybehelpfultocompaniesinvolvedinantidumpingorcountervailingdutyactionsinitiatedbyotherTPPcountries.
Pros• Thechapterencouragesgreatertransparencyintraderemedyprocedures.• Accesstothetransitionalsafeguardislimitedandwouldendwhenthetariffcommitmentsfora
specificproductarefullyimplemented.• Eventhoughthesafeguardprovidesanewalternativeforinstitutingprotection,itseemsnot
likelytobeusedoften,largelybecauseothertraderemedymeasuresmaybeeasiertoobtain.
Cons• Thechapterisunabashedlyprotectionist.• Thechapterdoesnothingtoreininprotectionistabusesofthetraderemedylawsortolimitthe
collateraldamagetheselawsinflictonotherU.S.entities.• Thesafeguardlanguagedoesnothingtoincreasethedegreeofliberalizationthatmightbe
achievedunderTPP;itworkstoslowtheprocessofmakingmarketsmoreopenandcompetitive.
ScoringRationaleNothinginthischapterdoesanythingtoreducetradebarriers.Infact,thechapteriscommittedtopreservingandexpandingtheaccessofdomesticindustriestotoolsthatleadtoprotectionistoutcomes.OneofmanyglaringshortcomingsinthetraderemedylawsisthatU.S.industriesthatrelyontheimportedproductsandcomponentssubjectto“remedial”tariffshavenorecoursetoaffecttheoutcome.UnderU.S.law,onlytheeffectofthemeasuresontheindustryseeking“relief”isconsidered,andtheimpactofincreasedcostsimposedondownstream,import-usingcompaniesiscompletelydisregarded.Chapter6isablownopportunitytofixthatproblem.Thetraderemedieschapterismostlyacontinuationofthestatusquo,whichistosayitisagiveawaytoupstream,litigiousU.S.industriesthatpreferpoliticaltoeconomicsolutions.IfthereisanythingpositiveaboutChapter6,itistherequirementthatdomesticauthoritiesmaketheirtraderemediesregimesmoretransparent.
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Chapter7:SanitaryandPhytosanitaryMeasuresScore:6SummaryChapter7addresseshealth-andfoodsafety-relatedrestrictionsontradeandbuildsupontheWTOSanitaryandPhytosanitaryAgreementbyrequiringgreatertransparencyandcooperationwithrespecttotherationaleandproprietyofspecificSPS-basedrestrictions.ThechapterincludesprovisionsthatestablishanSPScommittee,requireidentificationofcontactpointsineachcountry,andprovideguidelinesfortransparencyandnotification.ItrecognizesthattherecanbemorethanoneapproachtoaddressingSPSissues,whichmayprovideequivalentprotection.Itencouragesthepracticeof“compartmentalization”sothat,insteadofbanningimportsfromanentirecountry,thebanwouldapplyonlytothecommoditiesfromregionsknowntopresentriskstopublichealth.Onthoseoccasionswhentrade-restrictingemergencymeasuresareimposed,partiesareobligatedtoconductascientificreviewwithinsixmonthsofimposition.Technicalconsultationsamongpartiesarerequiredpriortoresortingtodisputesettlement,butissuesthatcannototherwiseberesolvedmaybeadjudicatedundertheprovisionsofChapter28.Onthewhole,thechapterreaffirmsacommitmenttoscience-basedriskassessmentindealingwithSPSmatters.AssessmentInrecentyears,U.S.exportersofbeef,pork,chicken,andgeneticallymodifiedgrainshavefacedtraderestrictionsduetohealthconcerns,includingbovinespongiformencephalopathy(BSE),avianinfluenza,andporcineepidemicdiarrheavirus(PEDv).Therecourseofgovernmentstotraderestrictionsforthepurposeofprotectingpublic-healthhasneverbeeninquestion.Butsometimesthisallowanceservestomaskprotectionistorotherwisepoliticalobjectives.ThischapterreducesthescopeformischiefbydefiningmoreclearlytheconditionsthatwouldwarrantSPSrestrictions,aswellastheproceduresandbenchmarksforevaluatingtheirpropriety.TheseprovisionsgobeyondobligationstakenundertheWTOSPSAgreementinwaysthatseemlikelytofacilitate,ratherthanrestricttrade.Inthischapter,thepartiesacceptthescience-basedapproachtoSPSfavoredbyAustralia,Canada,NewZealand,andtheUnitedStates,whichputsamorerigorousburdenofproofongovernmentstojustifytheirdecisionstoimposeSPS-basedtraderestrictionsonimportsfromanotherparty.TherulesbuilduponWTOobligationsbyaddingmoredetailsconcerningtransparencyandcooperation,andbydefiningmoreclearlywhenandhowitmaybeappropriatetoapplySPSmeasures.ThatcouldsetaprecedentforfutureagreementsandmightplacepressureontheEUtoreconsideritslessrobustevidentiarythresholdsandweedoutspuriousSPSclaims.AndperhapsthisreaffirmationoftheneedtouseSPSmeasuresthoughtfullywillprompttheUnitedStatestoreconsiderthewisdomofsomeofitsownSPSbarriers.
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Moreover,theliberalizingrequirementthatSPSmeasuresbebasedonsoundscienceiscomplementedbytheallowancefor“compartmentalization,”whichwilllikelyhavetheeffectofmitigatingtheadverseimpactofbroadSPSrestrictionsontrade.
Pros• ProvisionsaredesignedtomitigatetheproblemofdisguisedprotectionisminSPSmeasures.• RequiresSPSmeasuresbescience-basedandconformtoappropriateinternationalstandardsor
comportwithobjective,documented,scientificevidence.• RequiresthatanySPSmeasureimposedisnomoretraderestrictivethanisnecessarytoachieve
therightlevelofsafetyprotection.• GMOsarenotdiscussedinthischapter,whichmeansthattherearenoformalhealth-related
dimensionstotheseproductsintheTPP.• SPSdisputesthatcannotberesolvedthroughconsultationscouldbeadjudicatedthroughthe
disputesettlementproceduresofChapter28.
Cons• EmergencymeasuresinresponsetoSPSconcernscouldrestricttradeforsixmonthsbefore
undergoingscientificreviewtodeterminerisk.ScoringRationaleTheSPSchaptercontributestotradeliberalizationbymakingitmoredifficultforpartiestoimposehealth-orfoodsafety-relatedtraderestrictionswithoutsufficientmerit.TheuseofSPSmeasures(eithertoprotectpublichealthortoserveprotectionistpurposes)isincreasing,sotheinclusionoftighterrulesislikelytobetradeliberalizing.However,governmentsstillreservemuchdiscretioninthisrealm,andfutureabusesremainlikelytooccur.TheprovisionscouldhavebeenmoreliberalizinghadtheyincludedmorespecificbenchmarksandevidentiarythresholdstosurpassbeforeimposingSPSrestrictions.However,suchlanguagemighthavepresentedunnecessaryrestrictionsontheexerciseoflegitimatedomesticpolicyresponsestohealthandfoodsafetycrises.Fornow,theprovisionsinthischapterrepresentprogressintacklingthesekindsoftradebarriers.Certainly,SPSrulesbelongintradeagreementsandthoseruleswillhavetoevolveovertime,balancingpublicheathanddomesticsovereigntyononehandwiththeimperativeofmaintaininganenvironmentfornon-discriminatorytradeontheother.
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Chapter8:TechnicalBarrierstoTradeScore:6SummaryTechnicalbarrierstotradetaketheformofproductstandardsandregulationsintendedtoprotectpublichealth,productandworkersafety,andotherdesiredsocialoutcomes,whichmayalsohaveprotectionistordiscriminatoryeffectsonimports.TheobjectiveofChapter8istofacilitatetrade,including“byeliminatingunnecessarytechnicalbarrierstotrade,enhancingtransparency,andpromotinggreaterregulatorycooperationandgoodregulatorypractice."TheTPP'schapterontechnicalbarrierstotradebuildsonexistinginternationalrulesinothertradeagreements.Chapter8iseffectivelyareassertionoftheWTOTBTAgreementwithsomesmallrefinementshereandthere.Article8.4explicitlyincorporatesmanyoftheTBTAgreementobligationsthathavebeenlitigatedrecently.Amongtheprovisionsofthechapterarenewrulesconcerninginformationandcommunicationtechnologyproducts,whichgomuchfurtherthanexistingWTOrulesinhowtheyapplytoproductsthatusecryptography.Atleastonitsface,thisrequirementimposesasignificantnewobligationontheTPPparties,potentiallyactingasanimpedimenttogovernmentsdemandingthatprivatecompaniesturnoverencryptionkeys.TheWTO'sTBTCommitteeisalsoactiveinevaluatingTBTmeasuresthatraise"specifictradeconcerns"forparticularWTOMembers.TheCommitteeoffersanalternativetolitigation,andprovidesaforumforreviewinganddiscussingthesemeasures.Thischapterestablishesasimilarcommittee.Additionally,thereareprovisionsontransparencyrequiringthat"[e]achPartyshallallowpersonsofanotherPartytoparticipateinthedevelopmentoftechnicalregulations,standardsandconformityassessmentproceduresbyitscentralgovernmentbodiesontermsnolessfavorablethanthosethatitaccordstoitsownpersons."AssessmentOnmostTBTmatters,thischapter’simpactislikelytobemutedbecauseofthelargerolethathasbeenplayedbytheWTOinthisarea.TPPeffortsmaybeduplicativeandhavingaccesstomultipleforaforthesamesetsofissuescouldgenerateconfusion,ifnotconflict.WhilehavingaTPPchapterontheseissuesdoesofferopportunitiesforinnovationwheretheWTOhasfailed,theWTOhasbeenfairlysuccessful.OneareainwhichtheWTOmaybecomingupshortisinmutualrecognitionandgoodregulatorypractices.TheseissueshavebeendiscussedattheWTO,butwithlimitedsuccess.However,itisnotclearexactlywhatroleaTPPTBTchaptershouldplayinthisarea,giventheseparateRegulatoryCoherencechapterintheTPP.
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Chapter8doesincludeseveralannexesonspecificproducts,someofwhichareenforceableandgobeyondtherequirementsoftheWTOTBTAgreement.Theseannexescoverwineanddistilledspirits;informationandcommunicationstechnologyproducts;pharmaceuticals;cosmetics;medicaldevices;proprietaryformulasforprepackagedfoodsandfoodadditives;andorganicproducts.Theytendtofocusontransparencyandconsumerprotectiongoals,alongwiththepromotionofinternationalstandards,goodgovernance,andregulatorycooperation.Therulesprohibitinggovernmentsfromdemandingencryptionkeysmayprovetobeimportantinprotectingprivacy–althoughitsmainfunctionmaybetooffercommercialbenefitsbyprotectingcompanies'assets.Ontheotherhand,inChapter29(Exceptions),thereisanexceptionfor"security"concerns,whichisstatedverybroadlyandlookstobe"self-judging."Asaresult,itmaybethat,inpractice,governmentscanstilltaketheseactionsbyinvokingthesecurityexception.Ultimately,theimpactoftheencryptionruleswilldependinlargepartonwhethergovernmentsattempttoenforcethem.Often,theprecisescopeoftherulesisnotclearuntillitigationpromptsaninterpretation.
Pros• Regulatorybarriersareagrowingmenacetotrade,soeffortstodevelopandimplementnew
rulestoreintheminarelaudable.• Toagreatextent,Chapter8duplicatestheWTO'sTBTAgreement,butitalsointroducessome
newfeaturesthatwillhelpreducethescopeforprotectionismmasqueradingasregulatorynecessity.
• SomeofthespecialandadditionalrulesintheAnnexestothischapterbreaknewground.Cons• InternationalobligationsontechnicalbarrierstotradeareacorepartoftheWTOalready,so
thebenefitsofextendingtheseobligationstotheTPPmaybesomewhatlimited.• ThenewrulesonencryptioninAnnex8-Bareconfusinginscope,andtheirimpactisunclear.
ScoringRationaleTechnicalbarrierstotradeare,bydefinition,tradebarriers,soeffortstocurbtheirabuse,suchasthosearticulatedinChapter8,mustbeconsideredtradeliberalizing.Thechapterbreaksgroundestablishingnewrulestoensurethattradeinawidervarietyofproductsandservicesisprotectedfromdiscriminatory,technicalbarriers.Byandlarge,muchofthelanguageinChapter8reassertsprinciplesandreestablishesrulesthatexistundertheWTOTBTAgreement,buttherearealsonovelprovisionsthatlikelywillservetoreinintechnicaltradebarriersinotherareas.Theprovisionsinthischapterarefairlystraightforwardandenforceable,andtheycertainlybelongintradeagreements.However,someofthelanguagemightbesubjecttodifferentinterpretations,whichmeansthefullimpactoftheprovisionsmightnotbeascertaineduntiltheyarelitigatedandadjudicated
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indisputesettlement.Overall,becausetheWTOTBTAgreementalreadycoversmuchofwhatiscoveredinthischapter,theTPPTBTrulesareunlikelytohaveabroadimpactontradebetweenTPPparties.
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Chapter9:InvestmentScore:6SummaryInternationaltradeandinvestmentgohand-in-hand,asmosttradeisconductedbetweenaffiliatesofthesamemultinationalenterprises.Tradeofteninvolvesparentcompaniesexportingcomponentsorfinishedproductstoaffiliatesabroad,whichthenprocessorpackageandselltoendusersinforeigncountries.Likeinvestmentchaptersinothertradeagreementsandbilateralinvestmenttreaties,theTPP’sInvestmentchapterprovidesbasicguaranteesandprotectionsforinvestorsandinvestments,including“nationaltreatment,”“most-favored-nationtreatment,”“minimumstandardoftreatment,”andrightstocompensationforgovernmentexpropriationofaninvestment.Thechapterobligatepartiesnottointerferewithcapitalflowsrelatedtoacoveredinvestment,includingtransfersofprofits,dividends,interestpayments,androyalties,subjecttoexceptionsthatensuregovernmentshavetheflexibilitytoengageinprudentialmeasurestomanagepotentiallyvolatilecapitalflows.Itprohibitstheuseof“performancerequirements,”includinglocalcontentrequirements,minimumexportrequirements,technologytransfer,andlocalizationrequirementsasconditionsofinvestment.Moreover,Chapter9guaranteesthatinvestorshavetheabilitytoappointseniormanagerswithoutregardtonationality,andensuresthatanyrestrictionsoftheappointmentofboardmembersbasedonnationalitydonotadverselyaffectaninvestor’scontrolofitsinvestment.WithrespecttosectorsandactivitiesopentoinvestmentfromTPPparties,thechapterusesanegative-listapproach,whichmeansthatthespecifiedcommitmentsapplytoallsectorsandactivitiesthatarenotexplicitlyidentifiedasexemptions.Underthischapter,TPPpartiesarealsoentitledtopursueneutralarbitrationofdisputesthroughinternationaltribunalsunderthetermsofprovisionscommonlyreferredtoas“investorstatedisputesettlement.”AccessofTPPinvestorstoISDS,however,willexcludetobaccocompanies,somefinancialservicescompanies,andso-called“shellcompanies,”whicharedefinedascompaniesestablishedinordertotakeadvantageoftreatyrightsbutthatlacksubstantialbusinessactivitiesinthatcountry.AssessmentAmongtheimportantliberalizingfeaturesoftheinvestmentchapteristhe“negativelist”approachemployedbythepartiestosingleoutsectorsandactivitiesexcludedfromthenewinvestmentrules.Underanegativelistapproach,thepartiesidentifywhichsectorsareNOTbeingliberalized,ratherthanthosewhichare.Thisisconsideredamoreliberalizingapproachbecauseanynewindustriesthatemergewon’tbeonthatlistandareautomaticallyopenedtoforeigninvestment.Moreover,theexistenceofalistofsectorsthatremainprotectedreadilyidentifiesindustriesthatmightbetargetedforfuturereforms.
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Chapter9alsospecifiesthattherewillbenoso-calledperformancerequirementsasconditionsofinvestment.Partiescannotrequireaminimumthresholdofoutputtobeexportedorminimumlocalcontentrequirementsorthatproprietarytechnologybetransferredtodomesticentities.Thechapter’snon-discriminationrequirements,underwhichpartiesagreetotreatforeigninvestorsandinvestmentsastheywoulddomesticinvestorsandinvestments,arealsoimportantcommitmentstoliberalization.TheTPPchapteralsoencouragesinvestmentbyraisingthescreeningthresholdsforwhenforeigninvestmentneedsapprovalbythegovernment.Whileliberalizingforeigninvestmentisclearlyagoodeconomicpolicy,therearerulesintheTPPinvestmentchapterthatgobeyondliberalization,andfunctionmoreasalitigationmechanismforforeigninvestors.Inparticular,theTPPincludesthecontroversialinvestorstatedisputesettlement(ISDS)mechanism.DespitebroadandgrowingconcernsovertheuseandpotentialabuseofISDS,theTPPessentiallyadoptstheexistingU.S.approachwithafewminortweaks.Thecoreobligationsofnon-discrimination,theminimumstandardoftreatment,andcompensationforexpropriationremain.Newprovisionsrelatedtotheburdenofproofforminimumstandardoftreatmentclaims,ortheearlydismissalofclaimsthatare"manifestlywithoutlegalmerit,"areunlikelytomakeameaningfuldifferenceinhowtheagreementoperates.Meanwhile,someofthecarve-outsseemtoconfirmthecharacterizationofISDSasaprivilegebestoweduponforeigninvestors,ratherthananecessityundergirdingtheruleoflaw,asproponentsclaim.AnexemptiondenyingaccesstoISDSproceduresfortobaccocompaniessothatgovernmentscanimplementtobaccocontrolmeasuresmorebroadlywouldseemtoendorsetheviewthatISDSisaspecialprivilege–andonethatcanbedeniedtoparticularindustries.Thisclausesetsabadprecedentthatcouldopenthedoortodiscriminationagainstotherproductsandindustriesinthefuture.Finally,theISDSprovisionsintheTPPInvestmentchapterdifferinsignificantwaysfromtheprovisionsininvestmentchaptersinexistingbilateraltradeagreementsbetweensomeTPPparties,invitingpotentialconflict.Forexample,NAFTA’sISDSchapteralreadyincludesprovisionsthataffectCanada,Mexico,andtheUnitedStates.Now,investmentdisputesfeaturingNorthAmericaninvestorsandgovernmentswillbesubjecttobothNAFTAISDSandTPPISDSrulessimultaneously.Howwillthisberesolved?AsimplerandclearerapproachmighthavebeentohaveTPPISDSsupersedeNAFTAISDS.Asaspecialrulethatappliesonlytoforeigninvestors–typicallymultinationalenterprises–ISDSreinforcesfalseperceptionsthatbigcorporationsaretheprimarybeneficiariesoftradeagreements,whichperpetuateeconomicinequalityandhurtthepoor.Inreality,theTPP’stradeandinvestmentliberalizationdojusttheopposite.
Pros• CommitmentsmadeunderTPPtoliberalizeinvestmentrestrictions,suchasahigherthreshold
forscreeningforeigninvestment,willhavegreateconomicbenefits.• Theuseofanegativelisttoidentifysectorsandactivitiesthatareoff-limitsincreasesthescope
forliberalization.
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• SomeoftheISDSprovisionshavebeenimprovedtomakethemslightlylessproblematic.Cons• ISDSprovisionswillcreatemorelitigationandcontroversy,withoutanyprovenliberalizing
impact.• ExclusionoftobaccoproductsandcompaniesfromuseofISDSprovisionssetsabadprecedent
fordiscriminationagainstotherindustriesinfuturetradeagreements.• Therewasnoattempttoaddresstheseriousproblemofsubsidiestoencourageforeign
investment.ScoringRationaleAlthoughthetradeliberalizingfeaturesinotherchaptersoftheagreementwillalsoservetoencouragemoreFDIintheregion,theTPPInvestmentchapterestablishescertainrulesgoverningthetreatmentofforeigninvestorsandforeigninvestmentthatshouldamplifyinvestmentandtradeflows.Certainly,thechaptercontributestotradeliberalizationanditsprovisions–withtheexceptionofthoseoperationalizingISDS–belongintradeagreements.Therejectionofperformancerequirements,suchasminimumexport-to-outputratios,useoflocalcontent,orthetransferoftechnologytodomesticentities,asconditionsofinvestmentisapositivedevelopment.Andtheuseofa“negativelist”approach,whichidentifiesthesectorsandactivitiesexcludedfromtheinvestmentcommitmentsagreedinthechapter,meansthatforeigninvestmentiswelcomeasageneralrule.Buttheagreementcouldhavebeenmoreliberalizingiffewerindustriesandinvestmentswereonthenegativelist.Althoughinvestmentopportunitiesaboundundertheserules,theexceptionslistsarealsoquitelong.Trimmingthoselistswouldhavemadeformoreliberalization.Furthermore,theso-calledcarve-outoftobaccoproductsandcompaniesfromtheISDSmechanismsetsabadprecedentfordiscriminationagainstotherindustriesprospectively.
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Chapter10:CrossBorderTradeinServicesScore:8SummaryChapter10includessubstantiveobligationstoliberalize“cross-bordertradeinservices.”WhilethegeneralobligationsaresimilartothosefoundintheWTO’sGeneralAgreementonTradeinServices(GATS)–nationaltreatment,mostfavorednationtreatment,andmarketaccess–thisagreementtakestheimportantstepofmovingawayfromthepositivelistapproachtakenintheGATS,insteadusinganegativelistapproach:TPPpartiescommittofullliberalizationofeveryservicesectorthathasnotbeencarvedoutasa"nonconformingmeasure."
Withregardtononconformingmeasures,therearetwokinds.AnnexIcontainscurrentmeasuresthatwouldotherwiseviolateoneormoreofthe"coreobligations"describedabove,butwhichapartyhasdetermineditneedstomaintaininforce.Forsuchmeasures,thepartycommitstoa“standstill,”promisingthemeasureswillnotbecomemorerestrictivelater,aswellasa“ratchet,”sothatifthemeasuresareamendedinthefuturetobecomelessrestrictive,thenew,morefavorabletreatmentwillbecomethebenchmarkforthestandstillrequirement.Inaddition,AnnexIIcontainsalistofreservationsthatofferfulldiscretiontomaintainexistingnon-conformingmeasuresoradoptnewrestrictions.
TheTPPincludesanewruleconcerning"localpresence."Article10.6states:"nopartyshallrequireaservicesupplierofanotherpartytoestablishormaintainarepresentativeofficeoranyformofenterprise,ortoberesident,initsterritoryasaconditionforthecross-bordersupplyofaservice."
Beyondthesecoreobligations,Article10.8alsodealsmoregenerallywith"domesticregulation"oftradeinservices.Paragraph1reads:"Eachpartyshallensurethatallmeasuresofgeneralapplicationaffectingtradeinservicesareadministeredinareasonable,objectiveandimpartialmanner."Forthisobligation,thereisnonon-conformingmeasuresexception,andthusthisprovisionappliesbroadlytoallservicesregulation.So,intheoryatleast,thisprovisioncouldbeusedtoofferafairlyextensivemeansofjudicialreviewofdomesticservicesrulesbyatradedisputepanel.
Inanannex,thechapteralsooffersinstructionstodevelopnewcommitmentsforcertainprofessionalservices.AseparateAnnexsetsoutstrongerobligationsrelatingto"expressdeliveryservices,"withagoalofpreservingcompetitionintheareaofdeliveryservicestothegreatestextentpossible.Inthisregard,paragraph5ofAnnex10-Breads:"Nopartyshallallowasupplierofservicescoveredbypost-monopolytocrosssubsidizeitsownoranyothercompetitivesuppliers’expressdeliveryserviceswithrevenuesderivedfrommonopolypostalservices."Italsorequirespartiestoensurethatpostalmonopoliesdonotabusetheirmonopolyposition.
AssessmentOverall,thischapterofferssomeofthemostextensivetradeliberalizationintheentireagreement.U.S.firmsmaintainsignificantcomparativeadvantagesinthetradableservicessectors,andstandtobenefit
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fromtheconsiderablecommitmentsmadebymostoftheotherTPPparties.Liberalizationofservicesinmultilateralforahasprovendifficulttoachieve.Inthe21yearssincetheGATStookeffect,therehasbeenverylittleenforceableservicesliberalizationachievedglobally.AttemptstosecurestrongercommitmentsintheDohaRoundfailedandeffortstopushthosecommitmentsforwardaspartofthenowplurilateralTradeinServicesAgreementarestillincomplete.Accordingly,theTPPisanachievementinservicesliberalizationthatgoesfurtherthananyotheragreement.Whilethegeneralobligationsconcerningnationaltreatment,mostfavorednationtreatment,andmarketaccessaresimilartothosefoundintheWTOGATSagreement,theTPPtakestheimportantstepofmovingawayfromthepositivelistapproachtoanegativelistapproach.TheTPPincludesanewrulethatprecludespartiesfromrequiringbusinessesoftheotherpartiestoestablisha"localpresence"asaconditionofsupplyingcross-borderservices.
TheTPPpartiescommittofullliberalizationofeveryservicesectorthathasnotbeencarvedoutasa"nonconformingmeasure."Importantly,thescopeofaTPPParty'sliberalizationoftradeinservicescanonlybeascertainedbyreviewingallofitsnon-conformingmeasures.Thatsaid,thereappearstobeagoodamountofservicesliberalizationintheTPP.Nevertheless,theexistenceofalonglistofnon-conformingmeasuressuggeststhatservicesliberalizationcouldhavegonefurther.
Pros• Achievesimportantservicesliberalizationacrossmanysectors.• Prohibitslimitsonthenumberofsuppliers,thenumberofpersonsemployed,orthevalueof
servicestraded.• Spellsoutnon-conformingmeasures(listedinAnnexesIandII).• Providesguidelinesforrecognitionoflicensingandcertificationbyotherparties.• Requirestransparencywithregardtoregulationsgoverningservices.• Prohibitsrestrictionsoncross-borderpaymentsandtransfers,withexceptionsforbankruptcy,
criminaloffences,judicialorders,etc.Cons• Noliberalizationofmaritimeservices(JonesAct).• Noliberalizationofcommercialairlineservices.• Noliberalizationofprofessionallicensingrequirements.
ScoringRationaleOverall,thischapterofferssomeofthemostextensivetradeliberalizationintheentireagreement.Relativetoothertradeagreements,theTPP’scommitmentsoncross-borderservicetradeseemtogofurtherthananythingsincetheWTOGATSagreementin1995.Evenso,theexistenceofextensivenon-conformingmeasures–especiallywithrespecttoimportantU.S.maritimeservices(JonesAct)andcommercialairlineservicesindustries,whichhavelanguishedininefficiencybehindprotectionistwalls–showsthatservicesliberalizationcouldhavegonefurther.
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Chapter11:FinancialServicesScore:6SummaryBeyondthegeneralchapteroncross-bordertradeinservices,theTPPalsoestablishesmorespecificrulesforparticularkindsofservices.Oneoftheseisfinancialservices,whichcoverstwobroadcategories:insuranceservices,andbankingandotherfinancialservices.Generallyspeaking,U.S.financialservicesbusinessesenjoyastrongpositionininternationaltrade.Asaresult,theUnitedStatesoftentakesan"offensive"positionininternationaltradenegotiationsontheseissues,pushingtoopenupforeignservicesmarketstomoreinternationaltrade(althoughmorerecentlytherehasbeensomesensitivityregardinghowU.S.financialregulationswouldbetreatedundertradeobligations,whichhasmadetheU.S.positionslightlymore“defensive.”).Aswithservicesliberalizationingeneral,thefinancialserviceschapterincludesgeneralprinciplesofnationaltreatment,mostfavorednationtreatment,andmarketaccess,combinedwithasetofexceptionsandcarveoutsthatlimititsscope.Asnoted,financialserviceshasbeenasensitiveareaforU.S.tradenegotiators,inpartbecauseoffearsthatthetraderulesinthisareawouldinterferewith"prudential"regulation,todealwithfinancialcrisesandrelatedissues.IntheTPP,Article11.22addressesthisconcerninthecontextofinvestor-statedisputesbyestablishingaspecialmechanismthroughwhichgovernmentscanobtainexceptionstothenormalproceduresunderqualifyingcircumstances.Thoughitisunlikelythatadisputewouldreachthisstage,theprovisionaddssomereassurancestogovernmentsthattheirabilitytoregulatetoachievesufficientlevelsofmacroeconomicsecurityisprotected.Sofar,thereislittleactualexperiencewithfinancialservicesobligationsintradeagreements,althoughadisputeattheWTOovercertainArgentinemeasuresrelatedtotaxhavens,currentlyattheappealstage,couldhelpclarifyhowtraderulesapplytocertainoftheseprovisions.AssessmentOverall,thefinancialserviceschapterrequiresthesamekindsofcommitmentstonon-discriminationandliberalizationthatarerequiredinotherpartsoftheTPP.Itsliberalizingthrustissomewhatconstrainedbyhighlyconservativenationalapproachestofinancialregulation,reinforcedbyrecollectionsoftheAsianFinancialCrisisandthemorerecentcrisesintheUnitedStatesandEurope.AnexceptiontotheprohibitionofdatalocalizationrequirementsagreedbyTPPpartiesintheE-Commercechapterisgrantedinthischapterforfinancialservicesfirms.Thatprovisionlikelywillleadtoincreasesinthecostsofprovidingcross-borderfinancialservices.
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Thedesiretoexerciseprudenceandthepoliticalnecessityofavoidingtheperceptionthatgovernmentsmaybecavingtoexternalpressuretoweakenfinancialreformsadoptedinresponsetopastcrisesmayhavecontributedtothemitigationofliberalizationinthischapter.
Pros• Promotesmarketaccessbyforbiddinglimitsonthenumberoffinancialinstitutionsorthe
valueofservicestraded.• Allowssupplierstoprovidefinancialservices(includingnewservices)acrossborders,and
userstobuythem–thoughregistrationorauthorizationofsuppliersmayberequired.• Requiresprotectionofindividualaccountinformation,andinformationthatoughtnottobe
disclosedduetolawenforcementorlegitimatecommercialinterests.• Ensuresthatfinancialinstitutionshaveaccesstopubliclyoperatedpaymentandclearing
systems.• Allowsback-officefunctionstobecarriedoutintheterritoryofanotherparty.• Establishesacommitteeonfinancialservicestooverseethechapter.
Cons
• ExcludesfinancialservicesfirmsfromthebenefitsassociatedwithrulesagainstdatalocalizationrequirementsagreedintheE-Commercechapter.
• Themanyexceptionstotherulessuggestthatagreatdealofpotentialliberalizationwasforegone.
ScoringRationaleTPPpartiesmakesomecommitmentstoliberalizationoffinancialservicesbypermittinggreatercompetitionandagreeingtoextendnationaltreatmentandmost-favorednationstatustoforeignfirms.Thedealreducesbarrierstoforeignfirmswishingtocompeteininsurance,portfoliomanagement,andpaymentservicesmarkets.Butthatrelativelymodestamountofliberalizationismitigatedbythefactthatfinancialfirmsparticipatinginforeignmarketswillbeexemptfromthedatalocalizationprohibitionsthatapplytoallotherindustries.Thatexemptioncouldleadtogovernmentsrequiringfinancialservicesfirmstoadoptsub-optimaldatastoragearchitecture,whichwouldraisethecostofdoingbusiness.Overall,thefinancialserviceschapterreflectsthecommitmenttonon-discriminationandliberalizationreflectedinotherpartsoftheTPP.Itstrivestobeliberalizing,butisconstrainedbytraditionallyprotectivenationalapproachestofinancialregulation,aswellasrecollectionsoftheAsianFinancialCrisisandthemorerecentU.S.andEuropean-centriccrises.Thedesiretoexerciseprudenceandthepoliticalnecessityofavoidingtheperceptionofgovernmentscavingtoexternalpressuretoweakenfinancialreformsadoptedinmanycountriesinresponsetothosepastcrisescontributedtothemitigationofliberalizationinthischapter.Muchmoreliberalizationinthissectorhasbeenlefttofuturereformsandagreements.
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Chapter12:TemporaryEntryforBusinessPersonsScore:6SummaryInordertoconductbusinessinternationally,travelandformalentryintoothercountriesisoftennecessary,andthatusuallyrequirestravelvisas.Thetermsofthischapterareintendedtofacilitatethatprocesswithreliable,efficientproceduresforentryofbusinesspersonswhoarenationalsorpermanentresidentsofapartyandwhoarenotpersonsseekingentryforpurposesofemploymentorpermanentresidence.Thechapterextractscommitmentsfromthepartiesthatwillimprovebusinessentryprocedures.Theprovisionsinthechapterincludecommitmentstoensurethatinformationonvisarequirements,includingexplanatorymaterialsandinformationconcerningwhereinquiriesshouldbedirected,isreadilyavailabletothepublic.ThechapterencouragesTPPpartiestoprovideinformationpromptlyconcerningthestatusofapplications,ensurethatapplicationfeesarereasonable,andtorenderdecisionsandinformapplicantsofthosedecisionsinatimelymanner.AssessmentByandlarge,temporaryentryforbusinesspersonsisofconsiderableimportancetofirmsprovidinggoodsandservicesacrossborders,anditisappropriatetoconsidersystemicdelaysintheseareastobetradebarriers.Effortstostreamlineandexpeditetheprocessareclearlyimportantcomponentsoftradeliberalization.Althoughthe11U.S.TPPpartnersmadepositivecommitmentsinthisarea,theUnitedStatesmadenone,owing–apparently–tothepoliticalsensitivitiessurroundingimmigrationissues(eventhoughtheseprovisionshavenothingtodowithimmigration).Initssummaryofthechapter’sprovisions,theOfficeoftheUnitedStatesTradeRepresentativereports:“Inaddition,whiletheother11TPPPartieshaveagreeduponcountry-specificreciprocalcommitmentsonaccessforeachother’sbusinesspersons,theUnitedStatesisnotundertakinganycommitmentsinthisarea.”12
Pros• Encouragesdevelopmentof“trustedtraveler”programs,suchasthe“APECBusinessTravel
Card.”• Requirespartiestomakeavailablepertinentinformationabouttheirtemporaryentry
requirementsandprocedures.• Encouragescooperationonissues,suchaselectronicprocessingsystemsforvisas.
12OfficeoftheUnitedStatesTradeRepresentative,“TheTrans-PacificPartnership:LevelingthePlayingFieldforAmericanWorkers&AmericanBusinesses,”TemporaryEntryforBusinessPersons,https://medium.com/the-trans-pacific-partnership/temporary-entry-for-business-persons-3559e41ae388#.7x7zebccb.
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• Establishesa“CommitteeonTemporaryEntryofBusinessPersons,”whichwillmeetonceeverythreeyears.
Cons
• TheUnitedStatesmakesnocommitmentsinthisarea,whichcouldimpedetheprovisionofbusinessservicesbyforeignfirmsintheUnitedStates.
ScoringRationaleBusinessvisasoftenareessentialrequirementsintheprovisionofbusinessandotherservicestoforeigncustomers.Unnecessarydelays,excessivepaperwork,limiteddurationsofvisits,andotherredtapeimpedetheprovisionofthoseservices,justascargoinspectiondelaysandtariffsdo.Commitmentstogreaterefficiencyinthisrealmarecertainlyappropriateprovisionstoincludeintradeagreements.Thechapterismoderatelyliberalizinginthat11countriescommittedtoreducebarrierstotemporaryentryforbusinesspersons.ItcouldhavebeenmoreliberalizingiftheUnitedStatesmadeit12countries.
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Chapter13:TelecommunicationsScore:5SummaryInmostcountries,thetelecommunicationssectorismonopolisticoroligopolistic.Inordertodiscourageanti-competitivebehavior,theindustriestendtobehighlyregulated.TheTelecommunicationsChapterestablishesrulesconcerningtheregulationoftelecommunicationservicesandserviceproviders.Membersareobligatedtopermitforeignenterprisestosupplyandusedomestictelecommunicationsinfrastructureandservicesonanondiscriminatorybasis.Thechapterprohibitstheimpositionofunnecessaryconditionsontheuseofthoseservices.Itincludesprovisionsintendedtofacilitateinterconnectivityofnationalphonesystemsandinteroperabilityofmobilephonesacrossmarkets.Thereisalsoaprovisionsettingoutarightforforeignsupplierstochallengethedecisionofadomesticregulatorybody.Theobligationsaresubjecttodisputesettlement.AssessmentIntheTPP,thetelecommunicationschaptermostlycarriesoverpreviousobligationswithoutmuchmodification.However,theproliferationofmobilephonesledtoonenewprovision,dealingwithinternationalmobileroamingservices.Byandlarge,therulesinthisareahavethepotentialtobeliberalizing,althoughtheextentofliberalizationdependson–amongotherfactors–whetherthepartieshaveactuallymadecommitmentsthatgobeyondtheirobligationsattheWTOorinotherFTAs.Thatseemstobeunclearandwillremainsounlessanduntilpartiesbringclaimstoenforcetheseobligations.Therehasonlybeenoneprevioustradedisputeconcerningtelecommunicationsobligations,sothedearthoflegalinterpretationofthecommitmentsmadecastssomeuncertaintyoverwhetherthischapterprovidesmuchliberalization.Moreover,thechapter’sobligationsaretemperedbyArticle13.3,whichgivesthepartieswideberthinhowtheyimplementtheirobligations,includingbyrelyingonmarketforcesandbyacknowledgingthatconsumerinterestsaresufficientlyservedwithoutdirectregulationinaparticulararea.Itwouldlikelyleadtomoreliberalizingoutcomesifthechapterspecifiedthesortsofregulationsthatareprohibitedwithoutmandatingparticularregulatoryapproaches.Regulationinthetelecomservicessectormaypreventcertainanticompetitivepractices,butitalsostiflesinnovationandprivilegesestablishedfirms.
Pros• Thechapterrecognizestheimportanceoftelecommunicationsinfrastructuretotheprovisionof
goodsandservicesandacknowledgesthatimpedimentstoaccessingthatinfrastructurearetradebarriers.
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• Someofthechapter’srulestargetprotectionism.• Someofthechapter’srulesfocusonpromotingcompetitionandconsumerinterests.
Cons• Therulesenvisionaveryactiverolefortelecomregulatorstomanagecompetitioninthe
market.• Thechapterpromotesharmonizationofapproachestoregulatingtelecommunicationsservices
thatultimatelycoulddiscouragecompetition.ScoringRationaleThetermsofthischapterhavethepotentialtobeliberalizing,butthedownsideisthattherulesareawfullydetailedandenvisionaveryactiverolefortelecomregulatorsinsettingmarketconditionsandmanagingcompetitioninthemarket.Itwouldbemoreclearlyliberalizingifthechapterlaidoutwhatsortsofregulationsareprohibitedwithoutmandatingparticularregulatoryapproaches.Regulationinthetelecomservicessectormaypreventcertainanticompetitivepractices,butitalsostiflesinnovationandprivilegesestablishedfirms.Mostoftheprovisionsinthechapterarecarry-oversfromprevioustradeagreementswithoutmuchmodification.However,theproliferationofmobilephonesinrecentyearshasledtoonenewprovision,dealingwithinternationalmobileroamingservices.Lowermobileroamingratesshouldreducethecostofconductingbusinessacrosstheregion.
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Chapter14:ElectronicCommerceScore:7SummaryTheE-CommerceChapterappliestomeasures“thataffecttradebyelectronicmeans.”Itsprovisionsareintendedtoensurethefreeflowofdata,preventforcedlocalizationofdataserversandtechnologies,promotethesecurityoftheinternet,andprotecttheprivacyofindividualsandbusinesses,astheyuseandcreatecontent.Chapter14includesamixofnegativeobligationsthatprohibitTPPpartiesfromimposingtradebarriers,andpositiveobligationsthatrequirethepartiestoundertakespecificmeasures.Thechapterincludesprohibitionsofcustomsdutiesonelectronictransmissions;prohibitionsagainstrequiringforeigncompaniestoprovidesoftwaresourcecodesasaconditionofdoingbusiness;prohibitionsofrestrictionson“thecross-bordertransferofinformationbyelectronicmeans,includingpersonalinformation,whenthisactivityisfortheconductofthebusinessofthecoveredperson";prohibitionsofrequirementsthatlocalcomputingfacilitiesbeusedasaconditionofdoingbusinessintheterritory,and;prohibitionsagainstrequiringthe"transferof,oraccessto,sourcecodeofsoftwareownedbyapersonofanotherParty,asaconditionfortheimport,distribution,saleoruseofsuchsoftware,orofproductscontainingsuchsoftware,initsterritory."Withrespecttothepositiveobligationsimposedongovernments,thischaptercoversanumberofregulatoryissues.Article14.7requirespartiestohave"consumerprotectionlawstoproscribefraudulentanddeceptivecommercialactivitiesthatcauseharmorpotentialharmtoconsumersengagedinonlinecommercialactivities."Article14.8requiresthatpartieshavea"legalframeworkthatprovidesfortheprotectionofthepersonalinformationofusersofelectroniccommerce."And,Article14.14addressestheissueofspame-mails,requiringmeasuresthatlimittheabilityofcompaniestousespam.Otherprovisionsinthechapterarebestdescribedasglobalgovernanceprovisionsthatharmonizedomesticregulationswithoutreallyliberalizingtrade.AssessmentChapter14includesanumberofprovisionsthatwillhelpliberalizetradebyapplyingsomebasicfreetradeprinciplestoelectroniccommerce.Mostimportantly,itprohibitstheimpositionofcustomsdutiesonelectronictransmissions;appliesthegeneralprincipleofnondiscriminatorytreatmentfordigitalproducts;prohibitsTPPpartiesfromrequiringtheuseoflocalcomputingfacilitiesasaconditionforconductingbusinessintheirterritory;requiresthepartiesto"allowthecross-bordertransferofinformationbyelectronicmeans,includingpersonalinformation,whenthisactivityisfortheconductofthebusinessofthecoveredperson";precludesthepartiesfromrequiringthe"transferof,oraccessto,sourcecodeofsoftwareownedbyapersonofanotherParty,asaconditionfortheimport,distribution,saleoruseofsuchsoftware,orofproductscontainingsuchsoftware,initsterritory.”
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ThechapterincludesanumberofprovisionsthatgobeyondpreviousFTAs,andisperhapsoneofthemostinnovativeTPPchapters.ButaswithmanyTPPchapters,theliberalizationistemperedsomewhatbytheexceptionsandcarveoutsfoundinotherchaptersoftheagreement,aswellasthegeneralexceptionsinChapter29.Thus,theobligationstoliberalizemaynotbeasbroadastheyappearatfirstglance.Forsomesensitiveissues,theinteractionoftheobligationandtheexceptionsareunclear.Moreover,anadditionallayerofcomplexityariseswiththisagreementbecausetradeingoodsandservicesarealreadycoveredinseparatechapters.Therelationshipbetweentheliberalizingobligationsofthischapterandthoseofotherchaptersisnotalwaysclear.
Pros• Partiesareprohibitedfromimposingcustomsdutiesonelectronictransmissions.• Partiesareprohibitedfromrequiringtheuseoflocalcomputingfacilitiesasaconditionofdoing
businessintheterritory.• Partiesarerequiredto"allowthecross-bordertransferofinformationbyelectronicmeans,
includingpersonalinformation,whenthisactivityisfortheconductofthebusinessofthecoveredperson."
• Partiesareprohibitedfromrequiringthe"transferof,oraccessto,sourcecodeofsoftwareownedbyapersonofanotherParty,asaconditionfortheimport,distribution,saleoruseofsuchsoftware,orofproductscontainingsuchsoftware,initsterritory."
Cons• Thereareasignificantnumberofprovisionsthatset“globalgovernance”rulesonthingslikee-
signatureregulationsandconsumerprotectionlaws,whichdon’tnecessarilyliberalizetrade,carrysomeriskofrent-seeking,andreallydon’tbelongintradeagreements.
ScoringRationaleThefreeflowofinformationisessentialtofreetradeinelectroniccommerce,aswellastotheindustriesforwhichdataarecrucialcomponentsoftheproductorservice.Inestablishingrulestopromotefreeinformationflow,theE-Commercechapterisclearlytradeliberalizing.ItincludesanumberofprovisionsthatgobeyondpreviousFTAs,andisoneofthemostinnovativeTPPchapters.ThechapterisamixofnegativeobligationsthatprohibitTPPpartiesfromimposingtradebarriers,whichisanunambiguouslypositivedevelopment,andaffirmativeobligationsthatrequirethepartiestoundertakespecificmeasures,whichisamixedbagfromafreetrader’sperspective.
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Chapter15:GovernmentProcurementScore:6SummaryTheGovernmentProcurementchaptercommitsthepartiestonationaltreatment(foreigncompaniesandbidsareextendedthesametreatmentintheprocessasaredomesticcompaniesandbids)andmost-favored-nationtreatment(allforeigncompaniesandtheirbidsareentitledtosametreatmentasanyotherforeigncompanyorbid)inconsiderationofallcoveredprojects.Ingeneral,partiesagreetoacceptbidsforpublicprocurementprojectsfromproducersandserviceprovidersofotherparties,andtoconsiderthosebidsonanon-discriminatorybasis.Thechapterharmonizestheproceduresassociatedwithannouncingpublicprocurementprojectsandconsideringbids,includingthepublicationofprocurementinformation,noticesofintendedprocurement,requirementsforparticipation,aregistrationsystem,selectivetendering,limitedtendering,andassociatedtimeperiods.Inaddition,thechapterprovidesrulesoninformationdisclosuretoensurethetransparencyoftheprocedureanddecision-making.Italsoestablishesanobligationforeachpartytomaintainatleastoneimpartialadministrativeorjudicialauthoritytoreviewanychallengesorcomplaintsfiledbyasupplier.Specificcommitmentsmadebythepartieswithrespecttoprojectvaluethresholdandcoveragevary.Everycountry,includingtheUnitedStates,hasparticularprogramsthatTPPgovernmentprocurementcommitmentswillnotcover.TheUnitedStatescontinuestoexcludefromcoveragethesameprogramsexcludedinpastagreements,suchasprojectsfundedbyloans,grantsandotherformsofassistancefromthefederalgovernmenttostateandlocalentitiesthataresubjectto“BuyAmerica”requirements.Thechapteralsoprovidesforsomegeneralexceptionstothecommitmentsforthepurposeofprotectingpublicmorals,human/animallifeorhealth,IPrights,andphilanthropicwork,ifsuchmeasuresarenotarbitraryorunjustifiablydiscriminatoryamongTPPmembers,oradisguisedrestrictiononinternationaltrade.Thechaptercreatesacommitteeongovernmentprocurement,whichwillmeettoaddressanymattersrelatedtotheimplementationandoperationofthechapter,upontherequestofaparty.AssessmentTheGovernmentProcurementchapter,whileslightlyliberalizing,isamajordisappointmentfortheopportunitiesforegone.ItsucceededbyopeningpreviouslyclosedforeignprocurementmarketsinVietnamandMalaysiatocompetitionfromU.S.andotherTPPcountries’bidders,butitcouldhavebeenmuchmoreliberalizingifproject-valuebiddingthresholdswerelowerandmorecategoriesofprojectsweremadeeligible.Theexistenceofmanycountry-specificandsector-specificrestrictionsonbiddingreinforcestheconclusionthatthischapterisverymuchaboutmanagedtrade.
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ThechaptercouldhavebeenmuchmoreliberalizingiftheUnitedStateshadbeenwillingtograntwaiverstoitshighlyinefficient,self-destructiveBuyAmericaprovisionsandopeneditsstateandlocalprocurementmarkets.Asitstands,mostoftheestimated$1.7trillionU.S.market(federal,state,andlocal)remainsofflimitstoforeignparticipation,ensuringthatU.S.taxpayerscontinuetogetthesmallestbangfortheirbucks.WhereasthefailuretoloosenthegripofBuyAmericaprovisionsovergovernmentprocurementspendingisamajorshortcomingofthischapter,thefollowingparagraphseemstosuggestthattheOfficeoftheU.S.TradeRepresentativeconsidersitavirtue:“TPP’sGovernmentProcurementchapterwillhelpcreateexportopportunitiesforAmericanproducersofmanufacturedgoodsandserviceswhichsupporthigh-wageemploymentintheUnitedStates,rangingfrominformationtechnologytotransportmachinery,medicaltechnologies,professionalservices,andmanyotherproducts.Atthesametime,itwillsupportU.S.businessesandworkers,includingbymaintainingcurrentBuyAmericarequirementsandsmallbusinessandothersetasides.”13Anyfree-tradeorientedanalysiswouldconsiderthatlastsentencepoliticallymotivatedandeconomicallyuninformed.
Pros• Includesfirstgovernmentprocurementcommitmentsmadeinaninternationalagreementby
VietnamandMalaysia.• EstablishesgovernmentprocurementbenchmarksforprospectivenewTPPmemberstomeetor
exceed.• Establishesdueprocesstoguaranteealltenderswillbetreatedfairlyandimpartially,andhave
theaccesstoareviewauthority.• Includesaprovisiontorecommencenegotiationsinthisareawithinthreeyears.
Cons• Thechapteronlyappliestosectorsthateachgovernmenthasagreedtoopen(positivelist),so
theeffectislimited.• TheUnitedStatesdidnotopenupitsvaststateandlocallevelgovernmentprocurement
markets.• Thechapterdoesnotcoveranyfederalloansorgrantsprovidedbyprocuringentities.• Thetechnicalspecificationclause(Art.15.12)preserveswidelatitudeforAmericanprocuring
entitiestoestablishrequirementsforlaborandenvironmentalprotection.• Therearenoconcessionsonthethresholdforthecoveredprocurement.Forinstance,the
thresholdforthecentralgovernmententityprocurementisequivalenttothethresholdunder
13OfficeoftheUnitedStatesTradeRepresentative,“TheTrans-PacificPartnership:LevelingthePlayingFieldforAmericanWorkers&AmericanBusinesses,”GovernmentProcurement,https://medium.com/the-trans-pacific-partnership/government-procurement-ac9def5bba92#.qxpb4bfes,(Emphasisadded).
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theGovernmentProcurementAgreementandhigherthanthatestablishedintheU.S.-KoreaFreeTradeAgreement.
ScoringRationaleTheprovisionsofthischapterwillservetoopensomecurrentlyclosedforeignprocurementmarkets,aswellasopenfurtherthemarketsinothercountries.Butthepromiseofthatliberalizationistemperedbytheexistenceofvoluminouscountry-specificandsector-specificexemptions.Mostdisappointingforfreetradersisthefailureofthischaptertoridthe$1.7trillionU.S.procurementmarketofhighlyrestrictiveBuyAmericaprovisions.Governmentprocurementprojectsremainhighlyprotectedfromforeigncompetition,sorulestoliberalizemarketaccesstothepublicsectorarecrucialcomponentsofgoodtradeagreements.ThisTPPGovernmentProcurementchaptermakessomeprogress,butcouldhavebeenmuchbetter.
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Chapter16:CompetitionScore:5SummaryChapter16establishesrulesrelatedtocompetitionpolicy.Itbeginswiththerequirementthateachpartymusthavenationalcompetitionlaws“thatproscribeanticompetitivebusinessconduct,withtheobjectiveofpromotingeconomicefficiencyandconsumerwelfare.”Thechapterencourageseffectiveandtransparentcompetitionpoliciesthatprotectconsumersagainstmonopolypracticesandencouragemarket-basedcompetition.Theseprinciplesaremeanttoensurethatregulatoryactionsrestonobjectiveandtransparentcriteriaandaretakeninamannerthatdoesnotdiscriminateagainstforeignbusinesses.Thechapterlaysoutextensivedueprocessrightsandtransparencyrequirements,includingtherightofpartiestoproceduralfairnessincompetitionlawenforcement,representationbycounsel,protectionofbusinessconfidentialinformation,andprovisionforaprivaterightofactionbywhichindividualscanseekredressthroughajudicialprocessforharmexperiencedduetoviolationofcompetitionlaws.Thechapteralsoencouragescooperationamongnationalcompetitionauthorities;mandatesthatpartieshaveconsumerprotectionstatutesthatoutlawfraudulentanddeceptivecommercialactivities;encouragestransparencyintheoperationofcompetitionpolicies;and,callsforconsultationsamongpartiestoaddressmattersarisingunderthischapter.Asinpreviousagreements,noneoftheCompetitionchapter’sprovisionsissubjecttodisputesettlement.AssessmentNoneoftheprovisionsinthecompetitionchapterliberalizestradeperse.Rather,thechapterpromotestheconditionsofcompetitionthatarehospitabletomarketcompetition,includingcompetitionfromforeigncompanies.TheproceduralrulesmightpromotegreaterruleoflawandjusticeiftheyarefollowedbytheTPP’smoreauthoritarianmembers,whichmaybehelpfultomultinationalcompaniesthatdealwithanticompetitivesituationsinothercountriesandcouldencourageoverseasinvestment.But,asthechapterwillrequirenochangestoU.S.law,oneshouldassumetherewillbenodirectbenefitstoU.S.consumers.
Pros• Theproceduralrulesmightpromotegreaterruleoflawandjusticeiftheyarefollowedbythe
TPP’smoreauthoritarianmembers.• Thecommitmenttorulesthatsupportcompetitionshouldhelpencourageoverseasinvestment
and,atthemargin,mayservetofacilitategreatereconomicintegrationamongtheTPPparties.
Cons
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• Thecompetitionchapterdoesverylittletoliberalizetrade.ScoringRationaleThischapterisbasicallyneutralwithregardtotradeliberalization.SinceTPPmembersareofferinghortatorysupportforopencompetitionamongfirms,itmayleadtosomeincreaseinforeigninvestment.However,foreignfirmsthatbelievetheyarenotbeingtreatedfairlyunderthischapterwouldlikelyhavetoabsorblargelegalcostsoveraconsiderableperiodoftimetoachieveanyredress.
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Chapter17:State-OwnedEnterprisesScore:6SummaryThepurposeofthischapteristocurtailthemarketdistortingeffectsofstate-ownedenterprises,whicharedefinedasanycommercialenterprisesinwhichthestatehasmajorityownership,controllingownership,ortheabilitytoappointamajorityoftheboardofdirectors.SOEshavebecomemoreprominentactorsintheglobaleconomyinrecentyears.AccordingtotheOfficeoftheU.S.TradeRepresentative,“Whereasin2000,therewasonlyoneSOEintheFortuneGlobal50listofthelargestcompaniesintheworld,nowthereareclosetoadozen.Theirinternationalactivityhasraisednewconcernsaboutgovernmentinfluence,potentialtradedistortions,andunfaircompetition.Inaddition,someTPPcountriesthatmaintainmanySOEsarealreadyconsideringreformstoenhancetheefficiencyandproductivityoftheireconomies.”14ConcernsabouttheroleofSOEshavegrowninrecentyearsbecauseSOEsthathadpreviouslyoperatedalmostexclusivelywithintheirownterritoriesareincreasinglyengagedininternationaltradeofgoodsandservicesoractingasinvestorsinforeignmarkets.ThechapterrepresentsthefirsteverattempttodisciplineSOEsasadistinctcategorythroughtraderules.Theprovisionsincludethreebroadobligationsmeanttoreducethediscretionofgovernmentstousestate-ownershipasatoolfortradeprotectionism.TheseobligationsarethatSOEsanddesignatedmonopoliesmustoperateaccordingtocommercialconsiderationsonly,mustnotgiveorreceivesubsidiesinawaythatharmsforeigntrade,andmustnotdiscriminateagainstforeignsuppliers.Beyondthethreebroadobligationsspecifiedinthechapter,thepartiesmustalsoprovidetheircourtswithjurisdictionovercivilclaimsarisingfromSOEactivitiesjustliketheydofornon-SOEfirms;publiclylistalltheirSOEsanddesignatedmonopolies,eventhosenotcoveredbythechapter’srules;and,committofurthernegotiationswithinfiveyearsthatcouldleadtomoreliberalizationofSOEs.Thescopeofthechapterisexplicitlylimitedtoensurethatitsrulesdon’tinterferewiththeoperationofcentralbanks,stockexchanges,bankdepositinsurance,sovereignwealthfunds,orpensionfunds.Thesubstantiverulesinthechapteraren’tentirelynew.TherequirementtooperateaccordingtocommercialconsiderationscanbefoundintheGeneralAgreementonTariffsandTrade,butisapplicableonlytostatetradingcompanies;thenondiscriminationobligationismirroredafteraprovisionintheGeneralAgreementonTradeandServicesregardingmonopolyserviceproviders;andthechapter’ssubsidydisciplinesaresimpleexpansionsoftherulesoftheWTOAgreementonSubsidies
14OfficeoftheUnitedStatesTradeRepresentative,“TheTrans-PacificPartnership:LevelingthePlayingFieldforAmericanWorkers&AmericanBusinesses,”State-OwnedEnterprisesandDesignatedMonopolies,https://medium.com/the-trans-pacific-partnership/state-owned-enterprises-and-designated-monopolies-bfddb20cb3b3#.gpub66qjm
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andCountervailingMeasures.WheretheTPPbreaksnewgroundisbyapplyingthesedisciplinestoSOEsgenerally.AssessmentWhiletheprivatizationofpublicassetsisanimportantpartofeconomicliberalization,theState-OwnedEnterpriseschapterdoesnotattempttoeliminateorpreventgovernmentownership.Instead,itisintendedtoreducetheeconomicdistortionscausedbydirectgovernmentownershipofprominentfirms.Thechapter’sthreemainobligationsmakeanexcellentcontributiontointernationaleconomiclaw.Therulesaresimpleandwell-tailoredtoaddresstheproblemofprotectionismconductedthroughmanagementofSOEsandthegrantingofspecialprivilegestothem.Thechapter’scommitmentsbuildonprinciplesinvariousWTOagreementsandinpreviousU.S.freetradeagreements,butgobeyondtheminimportantways,includingbyapplyingsubsidiesrulestoservicesexportsofSOEsandtotheoperationsofSOEmanufacturersoutsidetheirhometerritory.Onthedownside,thechapterprovidesfornumerousexceptionstothebasicrules,whichwillhavetheeffectofdiminishingtheimpactoftheseotherwisemarket-orienteddisciplines.Eachpartymaintainsdetailedlistsofexemptions,allowingthebulkofexistingSOEstocontinueoperatingwithoutpayingmuchheedtotheSOEdisciplines.MostmembershavecarvedoutspecificSOEsfromthechapter’sdisciplines,particularlyintheenergyandfinancesectors.Theextentoftheseexemptionssignificantlylimitsthechapter’spracticalimpact.Moreover,byrequiringacontrollinginterest,thedefinitionofanSOEleavesoutagreatnumberofenterprisesthatreceivespecialtreatmentbythestateduetoinappropriategovernmentinvolvementthroughownership.Amongtheentitiesexemptedareexportcreditagencies,suchastheU.S.Export–ImportBankandtheOverseasPrivateInvestmentCorporation;entitiesthatdon’tmeetaminimumrevenuethreshold;and,SOEsanddesignatedmonopoliesofsub-centralgovernments.
Pros• TheSOEChapter’scorerules—commercialconsideration,nondiscrimination,andsubsidy
disciplines—representimportantandpositivecontributionstotheTPPandtointernationaltraderulesingeneral.
• ThechapterestablishesprecedentsforreininginsomeofthemarketdistortingpracticesofSOEsandlaysdownmarkersforTPPaccessionsbyothercountries,including,importantly,China.
• Theprovisionsrequireongoingnegotiationsontheseissueswiththeobjectiveofcontinuingtocurtailabusesandneutralizeunfairadvantagesbestoweduponthesekindsofentities.
Cons
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• Whilethechapterincludesgoodrules,itsnumerousexceptionsandlimitedscopesignificantlydiminishitsabilitytoreducetheeconomicharmcausedbytheproliferationofprivilegedandinsulatedSOEs.
• Theprovisionsfailtoaddressmanyoftheproblemsprivatefirmscurrentlyfaceintheregion,astheycompetewithSOEs.
• Thechapterdoesnotattempttoeliminateorpreventgovernmentownership,whichisashortcomingthatensuresacontinuationofunfaircompetition.
ScoringRationaleByandlarge,theprovisionsinChapter17willhelpreducetradebarriersandcreatemoretrade.AndtheylaydownmarkersforcountrieswithlargeSOEsectorsthatmaywanttoaccedetotheTPPinthefuture.Thechapterbreaksnewgroundinapositiveway,asthefirsttradeagreementthatspecificallytargetstheabusesofstate-ownedenterprises,andfuturenegotiationsontheseissuesaremandatedinthechaptertext.ThoughtherulesdiscipliningSOEsareclear,soarethevastexemptionswhichlargelydefangthoserules.Theprovisionscouldhavebeenmademorerobusttoapplytomoreactivities,andtolimitthenumberandtypeofgovernment-assisted,-directed,or-ownedfirmsthatwereultimatelyexempted.
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Chapter18:IntellectualPropertyScore:4SummaryTheTPPcontinuesthelong-standingpracticeofincludingprotectionsforintellectualpropertyintradeagreements.Chapter18containscomprehensiveanddetailedrulesthatwillaffectthesubstanceandadministrationofdomesticintellectualpropertylaws.ThechapterpredominantlyservestosetminimumlevelsofprotectionforrightsholdersandpartiallyharmonizestheIPlawsofthe12TPPparties.Anumberofkeyprovisionsareworthnoting.Withrespecttotrademarks,thechapterclarifiesthatnonvisualsignsareeligibleforprotection;establishesextraprotectionforfamousmarks;and,setsrulesgoverningdisputesoverwebdomainnames.Regarding“GeographicalIndications,”thechaptergivesprecedencetotrademarksover“later-in-time”GIsandrequiresthepartiestoadoptproceduresforcancelingexistingGIprotectionsasgeneric–withexceptionsgrantedforGIsalreadyagreedbytreaty.Concerningpharmaceuticalpatentsandrelatedtestdata,thechapterrequirespatentlinkagesandpatentextensionsforunreasonabledelaysbyaparty’spatentofficeoritsdrugsafetyregulators.Itdoesnotrequirethatbiologicdrugsbegrantedmorethanthestandard5yearsofdataexclusivityenjoyedbyotherdrugs.Copyrightprotectionforthedurationofthelifeoftheauthorplus70yearsisenshrinedinthischapter,asaretherequirementsthatpartieshavesomecriminalpenaltiesfortradesecretmisappropriation,andcriminalandcivilpenaltiesfordecodingencryptedsignalsfromsatelliteandcabletransmissions.WithrespecttothequestionofwhetherandtowhatextentinternetserviceprovidersshouldbeliablefortheIP-infringingactivitiesenabledbytheirprovisionofinternetservices,thechapterrequirespartiestohaveanoticeandtakedownsystem(similartotheU.S.DigitalMillenniumCopyrightAct)forwebsitesthathostallegedlyinfringingcontent.Thechapteralsoincludesprovisionsrequiringcivilandcriminalliabilityforcircumventingtechnologicalprotectionmeasures(e.g.,unlockingyourphone)andfortamperingwithdigitalrightsmanagementdata.AssessmentThechapter’sbreadthanddepth(itisthelongestchapterintheTPP)rendercomprehensiveanalysisofitsimpactdifficult.Generally,however,oneishard-pressedtodescribetheintellectualpropertyprotectionsextendedinthischapterastrade"liberalizing."Infact,theIPchapterisprotectionist–thoughnotasbadasmanycriticsclaim.Thestructureofthechapter,likeIPchaptersinother
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agreements,remainsgenerallyunbalancedinrequiringprotectionofexclusiverightswhilemerelypermittinglimitationsandexceptionstothoserights.Althoughthechapter’sprovisionsdonotexceedtheprotectionunderU.S.law,theydolockinthatlevelofprotectionandimposenewobligationsonforeigncountriestochangetheirlaws.Whileacasecanbemadeforsomelevelofintellectualpropertyprotection,itisnotclearwhysuchprotectionshouldbeincludedintradeagreements,asopposedtointernationalintellectualpropertyagreements.Moreover,theprotectionsthathavebeenincludedarguablygobeyondwhatisnecessarytopromoteinnovation–oneofthemainjustificationsfortheseprotections.AndwemustbevigilantaboutensuringthatthemonopolyprivilegesbestowedthroughIPprotectionsdonotimpedecompetitionandhurtconsumersanymorethannecessary.Atthesametime,intellectualpropertyprotectionsarefixturesinU.S.tradeagreements,anditwouldbedifficulttoratifyaTPPwithoutIPprotections.TheTPP’sIPprovisionswereamajorsourceofcontroversyduringthenegotiations,anddisagreementsoverthefinalprovisionsareanimportantreasonthatU.S.ratificationisindoubt.Ononehand,theTPP'sintellectualpropertychaptersimplybuildsonpreviousU.S.freetradeagreementsbyextendingthenumberoftradepartnerstowhichtheseprinciplesandprovisionsapply,withoutaddingmuchinthewayofnewobligations.Forexample,whiletheWTO'sTRIPSagreementrequiresacopyrighttermoflifeoftheauthorplus50years,priorU.S.FTAsalreadyextendedthetermtolifeplus70years.Inadoptingthislongerterm,theTPPdoesnotchangethesubstance,butmerelyappliesthesameprincipletomorecountries.Ontheotherhand,theTPPdoesgofurtherinprotectingintellectualpropertyinatleastafewways.OneofthemostcontroversialaspectsoftheTPPnegotiationswasthetermofexclusivityoftestdataforbiologicdrugs.UnderU.S.law,thecurrenttermis12years,whichisfarmorethananyotherTPPparty.U.S.negotiatorspushed–tosomeextent–forthelongestpossibletermitcouldget.Ultimately,acompromisewasreachedthatallofthegovernmentscouldlivewith:5yearsofprotection,withvagueprovisionssuggestingasmuchas8yearswaspossible.
Pros• Thechapterwon’trequirechangestoU.S.intellectualpropertylaws,anditsprovisionsare,on
thewhole,moreflexiblethanthoseintheU.S.-KoreaFTA.• TheTPPwilladdverylittletoexistingU.S.internationalobligationsinthearea.• ThetextisgenerallymoreflexibleandpermissivethanpreviousU.S.tradeagreementsandeven
includesanovelprovisioncallingonmembersto“endeavortoachieveanappropriatebalance”intheirIPregimesthrough“limitationsorexceptions”toexclusiverights.
• SinceIPrulesaregoingtobeapartoftradeagreementfortheforeseeablefuture,thiscallforbalancerepresentsanimportantsteptowardimprovingtheIPpolicythattradeagreementsimpose.
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• Thechaptermakesapositivecontributiontothefightagainstexcessiveprotectionofgeographicalindications.
Cons• Intellectualpropertyprotectionis,bydefinition,protectionism.• Thestructureofthechapter,likeIPchaptersinotheragreements,remainsgenerallyunbalanced
initsrequiringprotectionofexclusiverights,whilemerelypermittinglimitationsandexceptionstothoserights.
• Althoughthechapter’sprovisionsdonotexceedtheprotectionunderU.S.law,theydolockinthatlevelofprotectionandimposenewobligationsonforeigncountriestochangetheirlaws.
• Themostobjectionableprovisionistheextensionofcopyrightdurationofexistingworkstolifeoftheauthorplus70years—a20yearsextensionformanyTPPmembers.
ScoringRationaleWhileintellectualpropertypolicyhasbecomeaprominentcomponentofeconomicgovernanceinthe21stCentury,strengtheningtheprotectionofpatentsandcopyrightsdoesnotfurtherthegoaloftradeliberalization.Ofcourse,ifthepartiesadoptmorerigorousrulestocurtailpiratingofmusic,videos,andtheftofotherintellectualproperty,theremaybeanincreaseinlegaltradeofthoseproducts.Moreover,protectingbiologictestdataforfiveoreightyearsmayhelppharmaceuticalcompaniesrecoupsomeoftheirresearchanddevelopmentcosts,throughhigherrevenues,andreducethecostsofnewmedicinesintheUnitedStates.However,theseprotectionsarejustaslikelytostymiecompetition.AndAmericanconsumerswillcontinuetoabsorbmostofthecostsfordevelopingnovelmedicines.TheIPChapterintrudesintoregulatorymattersthatwouldbebestnegotiatedinadifferentforumordealtwithinapurelydomesticcontext.ComparedtopastU.S.tradeagreements,however,theTPP’sIPChapterisnotespeciallyonerous.Itsprovisionsaregenerallyweakerandmoreflexible,andthechapterincludesahelpfulprovisioncallingonmemberstoseekbalanceintheirIPregimes.TheTPPwillnotrequireanychangesinU.S.IPlaw,thoughitmaymakereformofthoselawsmoredifficultinthefuture.
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Chapter19:LaborScore:3SummaryLaborissueshavebeenassociatedwithtradeagreementssincetheexceptionforgoodsproducedwithprisonlaborwasarticulatedintheoriginalGATTin1947.Butitisonlymorerecentlythatpositivecommitmentstoprotectlaborrightshavebecomefixturesintradeagreements.Whatbeganasa“laborcommission”establishedthroughaside-lettertotheNorthAmericanFreeTradeAgreementin1993,laborprotectionsintradeagreementsexpandedinsubsequenttradedealsandhavenowbecomeenforceablecommitments.Theso-calledMay10thAgreementbetweenCongressandPresidentBush(reachedonMay10,2007)raisedthebenchmarksforlaborprotectionandenforceabilityevenhigher.TPP’sLaborchapterprovisionsgofurtherthanallpreviousfreetradeagreementshavegonetoregulatedomesticlaborlawsinamannerostensiblyintendedtoprotectworkers’rights.Asinpreviousagreements,partiesarerequiredtoadoptandmaintainlawsandregulationsthatabidethefundamentallaborrightsarticulatedbytheInternationalLaborOrganization(ILO),includingfreedomofassociationandtherighttocollectivebargaining;eliminationofforcedlabor;abolitionofchildlabor;andtheeliminationofemploymentdiscrimination.Butforthefirsttimeinatradeagreement,theTPPpartiesarerequiredtohavelawsgoverningminimumwages,hoursofwork,andoccupationalsafetyandhealth.Alloftheseobligationsareenforceableandsubjecttodisputesettlement,whichcanresultintheimpositionoftradesanctions.ThechapterrequiresthatTPPpartiesnotfailtoeffectivelyenforcetheirlaborlawsinamannerthatwouldaffecttradeorinvestmentbetweenthepartiesandnottoweakenlaborprotectionsinexportprocessingzonestoattractinvestment.Moreover,theUnitedStatestooktheunusualstepofnegotiatingbilateralimplementationplanswithVietnam,Malaysia,andBruneitoexpeditecomplianceandensurethatthelaws,regulations,andpracticesinthosecountriesareuptointernationalstandards.Underthetermsofthoseimplementationagreements,Vietnamisrequired–amongotherthings–toallowworkerstheautonomytoestablishandoperatelaborunionsthatneednothavegovernmentaffiliation,asiscurrentlyrequired.Malaysia’simplementationplanrequiressignificantlegalandinstitutionalreformstoreducetheincidenceofhumantraffickingandeliminatetheuseofforcedlabor.Brunei’splancommitsitsgovernmenttoapathofcontinuingreformoflawsgoverningtheformation,operation,andactivitiesoflaborunions,includingestablishmentofagovernment-to-governmentreviewmechanismtooverseeimplementationoftheplan.AssessmentWhilelaborchaptersintradeagreementshavebecomegenerallyacceptedaspartofU.S.tradepolicy,therationalefortheirinclusionremainsunconvincing.Thereisaninternationalinstitution,theILO,alreadydevotedtotheseissues.Givingtradeagreementsjurisdictiontoregulateandadjudicatetheseissuesandtoauthorizesanctionsfornon-compliancewithrulesandstandardsappropriateand
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affordableinrichcountriesmightdeprivedevelopingcountriesoftheiradvantagesandraisethecostsofproduction.BeingapartytoatradeagreementwiththeUnitedStatescarriesbigbenefits,includingthecapacitytoattractgreateramountsofinvestmentindomesticvalueaddedactivity.Buttheuncertaintythatcomeswiththeexistenceofrulesthatcanbeconduitsforprotectionistmotivesandtradesanctionstendstodeterinvestmentandretardgrowth.Whyisitappropriate,inthecontextoftradeliberalization,tomandatethatdevelopingcountriesadoptrich-countrystandardsthatmaybesuitableandaffordabletorichcountriesbecausetheyarerichcountries,butarecostlyfordevelopingcountriestoadoptandupholdandwhichmayimpedethepriorityofeconomicgrowth?TheTPPLaborchapterincludesthemostrigorous,enforceableprotectionsoflaborrightsand,byextension,thewidestberthforprotectionistmischiefmasqueradingaslaborconcernsevertobeincludedinatradeagreement.WhilemuchoftheTPPlaborchapterborrowslanguagefromearlieragreements,withcommitmentstofollowcertainrightssetoutintheILODeclarationandanobligationto"effectivelyenforce"domesticlaborlaws,theTPPgoesbeyondtraditionallaborchaptersinanumberofsubstantiveways,includingbyrequiringthatparties"adoptandmaintainstatutesandregulations"withrespecttominimumwages.QuestionsabouttheefficacyofminimumwagerequirementsarethesubjectofconsiderabledebateintheUnitedStates,somandatingthatothercountriesadoptsuchrequirementsseemsrecklessandreeksofculturalimperialism.Mitigatingthatconcernisthefactthatnoguidanceisofferedwithrespecttoestablishingspecificminimumwages,so,theoretically,partiescouldsetthematalowenoughlevelastohavenoimpact.Thereisanasymmetrytothecostsofimplementingtherequirementsofthelaborchapter,whichwillburdenthepoorestcountriesdisproportionately.
Pro• EnunciationoftheILOprinciplesaslegitimateobjectivesofpublicpolicy.
Con• Theprovisionfortradesanctionsinresponsetonon-complianceorinadequatecompliancewill
impedeinvestmentandreducetrade.• RequirementthatallTPPpartiesadoptminimumwagelawscouldhaveaprofoundlyadverse
impactonemployment.• Enforceablelaborprovisionsdonotbelongintradeagreements.• TheprovisionsimposeanasymmetryofcomplianceburdenswiththepoorestTPPparties
bearingthegreatestcosts.ScoringrationaleLaborchaptersintradeagreementsdonotpromoteliberalization.Theyareintendedasconduitsforrichcountryinfluenceoverforeignlaborpractices.Whiletheremaybeapoliticalargumentforincludingthemintradeagreements(thoughthatargumentdoesnotholdforTPP,asorganizedlaborremainsfirmlyopposeddespitegettingnearlyeverythingitwanted),thereisnoeconomicrationale.
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Chapter20:EnvironmentScore:4SummaryTheEnvironmentchaptercommitsthepartiestoenforcetheirownenvironmentallawsandtorefrainfromrelaxingthoselawsforthepurposeofattractinginvestment.PartiesarerequiredtofulfilltheobligationstheyhavemadeassignatoriestotheConventiononInternationalTradeinEndangeredSpeciesofWildFaunaandFlora(CITES),amultilateralagreementcommittedtoprotectingendangeredspecies,andtocombattradeinwildlife,plantsandfish thatmaynotbecoveredunderCITES,buthavebeentakenillegally.Theprovisionsalsorequirepartiestoprotectwildlifeandplantsthroughconservationofwetlandsandthepromotionofsustainableforestmanagementpractices.Partiesarerequiredtoadoptandmaintainmeasurestoinsurecurrentlevelsofcontroloverozone-depletingsubstances,controlpollutionfromshipsintheocean,andensuredueprocessandtransparencyintheenforcementofenvironmentallaws.Thechapteralsocoversanumberofotherissueswithoutimposinganyrealsubstantiveobligationsontheparties.TheseincludecompliancewithotherMultilateralEnvironmentalAgreements,promotionofcorporatesocialresponsibility,appreciationforbiodiversity,andtransitiontoa“lowemissionseconomy.”Similarly,thechapterdoesnotimposesubstantiveobligationsonmembersinprovisionscondemninginvasivealienspecies,sharkfinning,marinebycatch,andwhaling.Oneverysubstantiveprovisioninthechaptercombinesenvironmentalprotectionandtraditionaltraderulestoprohibitfisherysubsidiesthatcontributetooverfishing.AllprovisionsofthechapteraresubjecttotheTPP’sstandarddisputesettlementprocedures,althoughsomeprovisionsarenotbinding.AssessmentTheTPPcontinuesadecades-longtrendofconflatingobligationsthatbelongintradeagreementsandthosethatbelonginenvironmentaltreaties.Freetradersshouldbeopposedtoincludingenforceableenvironmentalprovisionsintradeagreements.Suchruleshavenothingtodowithliberalizingtrade,andonlyprovideleverage(theuseorthreatofsanctions)toenvironmentalcrusaderstoimposecostlymandatesonpoorcountries.Theyalsoreinforcethemyththattradeharmstheenvironmentandthatnocostistoohigh–evenfordevelopingcountries–tomitigatethreatsandpotentialthreatstoenvironmentalquality,evenifthemeasurewouldprovideonlyamarginalbenefit.Inthisparticularagreement,however,theEnvironmentchapterimposesweakerobligationsthanpastU.S.tradeagreementsandcontainsagenuinelyliberalizingprohibitionagainstsubsidiesthatcontributetooverfishing.Inthatregard,thechapterrepresentsanimprovementoverthefourmostrecentU.S.FTAstoberatified,whichincludedmorerigorouscommitmentstoenvironmentalregulationandnothingthatcouldbeconsideredtradeliberalizing.Moreover,asidefromthewildlifetradeprovision,
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noneoftheobligationsmayactuallyalterstatepractice.Thenegativeimpactismostlysymbolicandthereisarealpositiveimpactfromtheadditionofdisciplinesonfisherysubsidies.Althoughthechapter’sprovisionsaresubjecttodisputesettlementthatcouldleadtotradesanctions,theobligationsappeareasytofulfill.Pros
• Thebanonfisheriessubsidies,althoughlimitedtothosethatriskoverfishing,isagenuinelyliberalizingobligationthatcouldbethemostdisciplininganti-subsidyprovisionintheentireagreement.
• ThechapterislessrestrictivethanpreviousU.S.tradeagreements,astheonlyMEAitrequiresadherencetoisCITES.
Cons
• Bringsnewenvironmentalconcerns,suchassharkfinningandcarbonemissions,intotheambitoftradeagreements.
• TakesashotgunapproachtorestrictingtradeinillegalwildlifeinamannersimilartotheU.S.LaceyAct,whichhasbeenusedbytheU.S.lumberindustrytocriminalizeimporters.
ScoringRationaleEnvironmentalprovisionsareputintradeagreementsnottoliberalizetrade,buttorestrictit.Generally,theTPP’sEnvironmentchaptercontinuesthattradition.However,theprovisionrestrictinggovernmentsubsidiestoentitiesthatoverfishisanexceptiontothegeneralrule.Thatprovision,especially,rendersChapter20lessonerousthanenvironmentchaptersinpriortradeagreements.Theagreementwouldhavebeenbetterifitbannedallfisherysubsidiesandbetterstillwithoutanenvironmentchapteraltogether.Butasfarasenvironmentalchaptersintradeagreementsgo,theTPP’sisanimprovementfromafreetradeperspective.
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Chapter21:CooperationandCapacityBuildingScore:NoScoreSummaryWhilenegotiatingtradeagreementsisacrucialpartoftheprocess,implementingthecommitmentsundertakenisatleastasimportantiftradeliberalizationistoensue.Intradeagreements,suchastheTPP,wheresomeofthepartieshavelessadministrativeexperienceandfaceresourceandothershortcomingsthatmayimpedeimplementation,allowancesfortraining,sharingofbestpractices,andtechnicalsupportbetweenandamongthepartiescanhelpmitigatethecapacityconstraints.Chapter21establishesaCommitteeonCooperationandCapacityBuildingtoidentifyareasofneedandtofacilitateinformationexchangeandotherformsofcooperation.TPPisthefirstU.S.agreementtocreateaformalandpermanentframeworkofcooperationtobuildthecapacitytofullyimplementtheagreement,whichincludesaneconomicallydiversegroupofcountriesandisthelargestevertobenegotiatedbytheUnitedStates.AssessmentNone.
ProsNone.ConsNone.
ScoringRationaleNone.
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Chapter22:CompetivenessandBusinessFacilitationScore:NoScoreSummaryThepurposeoftheCompetitivenessandBusinessFacilitationchapteristocreatethearchitecturethatwillallowTPPpartiestoevaluatetheimpactoftheagreementonvariousaspectsoftheireconomies.Itprovidesforestablishmentofacommittee–withinputfromTPPstakeholders–thatwillmeetregularlytoreviewtheagreement’simpactonregionalcompetitivenessandeconomicintegrationandconsiderinputfromstakeholdersabouthowtheagreementmightfurtherenhancecompetitivenessandintegration,andfurtherstrengthenregionalsupplychains.Inlightofthehigh-degreeofdisaggregatedproductionsharingintheAsia-Pacificregion,theTPPisthefirstU.S.tradeagreementtoincludeprovisionsdesignedtomonitorthesuccessandevolutionofthesesupplynetworksandvaluechains.AssessmentNone.
ProsNone.ConsNone.
ScoringRationaleNone.
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Chapter23:DevelopmentScore:NoScoreSummaryThemainpurposeofthechapteristoestablishaTPPDevelopmentCommitteetopromotegreaterawarenessamongthepartiesoftheopportunitiesforgrowthandpovertyeradicationcreatedbytheTPP’sprovisions.TheOfficeoftheU.S.TradeRepresentativeanticipatesthat“theCommitteewillworkwithgovernmentalbodiesaswellascivilsocietygroups,privatecompanies,academicinstitutions,andnon-governmentalorganizations,andpromotejointactivitiestopromoteandaligndevelopmentactivity,expandjointengagementsinscience,technology,andresearch;andfacilitatepublic-privatepartnershipstoenableprivateenterprises,smallandmedium-sizedenterprisestobringtheirexpertisetobeartosupportdevelopmentgoals.”15AssessmentNone.
ProsNone.ConsNone.
ScoringRationaleNone.
15OfficeoftheUnitedStatesTradeRepresentative,“TheTrans-PacificPartnership:LevelingthePlayingFieldforAmericanWorkers&AmericanBusinesses,”Development,https://medium.com/the-trans-pacific-partnership/development-a9869aa451c4#.9tnei6gth.
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Chapter24:SmallandMedium-SizedEnterprises(SMEs)Score:NoScoreSummaryTheTPPisthefirstU.S.FTAtoincludeachapterdevotedtopromotingtheinterestsofsmallandmedium-sizedenterprises.ThechapterrequireseachpartytocreateapubliclyaccessiblewebsitetoprovideSMEswithadescriptionofTPP’sprovisions;alistofgovernmentagencywebsitesandnationallawsthatSMEswouldneedinordertobetterunderstandhowtotrade,invest,andconductbusinessinthatterritory;and,additionalrelevantinformation.ThepartiesalsohaveagreedtoestablishacommitteetooverseetheSMEprovisionsandtofacilitatethegoalsofthechapter.Thecommitteewouldbecomposedofgovernmentrepresentatives.AssessmentNone.
ProsNone.ConsNone.
ScoringRationaleNone.
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Chapter25:RegulatoryCoherenceScore:6SummaryReflectinggrowingrecognitionthatthedivergenceofregulationsandregulatorypracticesbetweencountries,whileexpectedandunderstandable,canalsoservetofrustratemarketintegrationorevenbeovertlyprotectionist,theTPPisthefirstU.S.freetradeagreementtoincludeachapteronregulatorycoherence.Chapter25specifiestwobroadobjectives:first,toimprovethedomesticregulatoryprocess;and,second,tofostercooperationbetweenandamongregulatoryagenciesindifferentcountries.Mostofthechapter’sprovisionsareintendedtopromotebetterinteragencyconsultations,coordination,transparency,andgoodregulatorypractices,includingprovisionstodiscourageadoptionofregulationsdevelopedunfairly,withoutadequatepublicinput,withoutasoundrationale,orforthebenefitofaparticularindustry,company,orstakeholder.Amongthegoodregulatorypracticesencouragedarepublicationofimpactassessmentsofproposedregulations,explanationsforselectionofparticularregulatoryapproachesoverothers,commitmenttocraftingregulationsclearlyandconcisely,commitmenttoperformingcost/benefitorotheranalysestodeterminewhethertheregulationperformedasexpectedandwhetheritremainsthemosteffectiveapproach,andcommitmenttonotifythepublicofexpectedregulatorychangesintheyearahead.TheRegulatoryCoherencechapterdoesnotaddressspecificregulatoryissuesrelatedtotradeandinvestment,butrathertheoverallprocessorsystemthroughwhichTPPmembersdevelopregulations.Itwillalsohelpleverageregulatorybestpractices,whilereaffirmingtherightofeachTPPPartytoidentifyitsregulatoryprioritiesandestablishandimplementmeasurestoaddresstheseprioritiesasitconsidersappropriate.Itisimportanttonotethattheprovisionsofthischapterarewritteninhortatorylanguage,emphasizingtheirnonbindingnature.Indeed,thechapter’sfinalprovision,Article25.11,makesclearthatdisputesettlementproceduresarenotavailablefor"anymatterarisingunderthischapter."AssessmentTheTPPbreaksnewgroundasthefirstU.S.tradeagreementtoincludeaseparatechapteronregulation.Inthatsense,theTPPestablishesthatprotectionistaspectsofregulationarelegitimatetopicstodisciplineintradeagreements,thoughitextractsrelativelyfewcommitmentsfromtheparties.Bycontrast,rulesdealingwithregulatorycoherencearelikelytoconstituteamoresignificantpartofanyprospectiveagreementthatemergesfromtheongoingtradenegotiationsbetweentheUnitedStatesandtheEuropeanUnion.TheTPPRegulatoryCoherencechapterfocusesonimprovingdomesticregulatoryprocesses,includingbetterinteragencyconsultationsandoverallcoordination,andgoodregulatorypractices.Thepotential
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forliberalizingtradebyreducingcompliancecoststhroughharmonizationofregulatorystandardsormutualrecognitionoftheefficacyofdifferentregimesislarge.ButtheTPPmakesonlyveryminorprogresstowardthatpotential.Ofcourse,severalaspectsofregulationaresubjecttothedisciplinesinothersubstantiveTPPchapters.Therulesonintellectualproperty,labor,theenvironment,technicalbarrierstotrade,SPSmeasures,andanumberofotherchaptersalladdressregulationinavarietyofways.Thus,theRegulatoryCoherencechapterisnottheonlyplacewheretheTPPaddressesdomesticregulation.Disputesettlementproceduresarenotavailablefor"anymatterarisingunderthischapter."Thisexclusionmakesthechaptermuchlesssignificantthanitotherwisemightbe.Relatedly,theprovisionsofthischapterarewritteninhortatorylanguage,emphasizingitsnonbindingnature.PerhapsthegreatestachievementintheTPPwithrespecttoregulatorycoherenceisthecreationofawholeseparatechaptercalled“RegulatoryCoherence.”AndtherewillbeaformalCommitteeestablishedtotalkabouttheseissuesgoingforward.Althoughitsimpactwillbelimited,theTPPprovidesanavenueforpursuingtheseimportantissuesininternationalfora.
Pro• FirsttimeaU.S.tradeagreementhasachapteronregulatoryissues,creatingamarkerfor
futureprogressinotheragreements.• EstablishesaformalCommitteetotalkabouttheseissuesgoingforward.Con• Theprovisionsarenotenforceablethroughdisputesettlement,sothechapterisnotlikelyto
havemuchofanimmediateimpact.• Createsanoverlapwithothertradeagreements,suchastheWTO'sTBTAgreement,which
couldleadtoconflictandconfusion.ScoringrationaleDivergentregulationsandregulatoryprocessescanmaskprotectionism,sothecommitmentofthischaptertoreininginthatpotentialisdistinctlytradeliberalizing.Regulatorycoherenceissuesshouldbeincludedintradeagreements.Thefactthatmostofthelanguageinthechapterissuggestive(“should”insteadof“shall”)andthattherealobligationsspelledoutarenotsubjecttodisputesettlementindicatesthattheprovisionscouldhavebeenmoreliberalizing.
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Chapter26:TransparencyandAnti-CorruptionScore:NoScoreSummaryThepurposeofChapter26istoestablishandreinforceeffectivemeasurestocombatcorruptionandpromotegovernmenttransparencystandardssothatdeliveryofthetradeliberalizingbenefitsoftheTPPfacesfewerimpediments.Thechapterincludesprovisionsintendedtopreventcorruptionbypublicofficials,promoteintegrityamongpublicofficials,andrequireadoptionandenforcementofanticorruptionlaws.AssessmentNone.
ProsNone.ConsNone.
ScoringRationaleNone.
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Chapter27:AdministrativeandInstitutionalProvisionsScore:NoScoreSummaryThechapterestablishestheTrans-PacificPartnershipCommission,tobecomprisedofseniorofficialsfromeachTPPparty.Thefunctionsofthecommission,amongothers,include:“anymatterrelatingtotheimplementationoroperationofthisAgreement;”thereviewofeconomicrelationshipsamongparties;theconsiderationofanyproposalsforamendmentsormodifications;andthesupervisionofallcommitteesandworkinggroups.TheCommissionalsomayacceleratetariffeliminationschedules,adjustrulesoforigin,andmodifygoodsandservicescoveredunderthegovernmentprocurementprovisions.TheestablishmentofthecommissionprovidesamechanismfordealingwiththemanyissueslikelytoariseasTPPisimplemented,andwiththepossibleaccessionofadditionalmembers.AssessmentNone.
ProsNone.ConsNone.
ScoringRationaleNone.
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Chapter28:DisputeSettlementScore:8SummaryTheenforceabilityoftheTPPobligationsisofgreatimportancebecauseifgovernmentscannotbeheldaccountabletotheircommitments,thevalueofthosecommitmentsissignificantlydiminished.Accordingly,ifTPPisgoingtohaveasignificantimpactontradeliberalization,itsdisputesettlementprocedureswillhavetoapplybroadly,functionproperly,andbeenforceable.Most,butnotalloftheprovisionsoftheTPParesubjecttodisputesettlement.AttheWTO,disputesettlementhasalong,andhighlyregarded,trackrecord.Over500complaintshavebeenlodgedintheWTO'snearly22yearhistoryand,generallyspeaking,governmentshavebeenprettygoodatcomplyingwithadversedisputesettlementrulings.Incontrast,resorttodisputesettlementinpreferentialtradeagreementshasbeenrare.TheTPPdisputesettlementchapterdevotesmuchefforttofixingtheflawsinpastagreementsthatdeterredpartiesfrompursuingthiskindofrecourseandpreventeddisputepanelsfrombeingestablished.ThechapterlanguageisintendedtomakedisputesettlementfasterthanitisintheWTO,moretransparent,andmoreaccessibleasavenueforresolvingdisputesinagreaternumberofissueareasthanisthecaseunderanyotherdisputesettlementsystems.UnliketheWTOsystem,TPPdisputesettlementlacksanappellatemechanism.AssessmentReasonabledisputesettlementbackedupbythepossibilityofsanctionswillhelpensuretheenforceabilityoftheTPP’sprovisions.TheapplicabilityofdisputesettlementtomostoftheTPPiscommendable.Whilespeedierresolutionmaybeessentialtotheprocess,attemptingtoachievethatoutcomeinthiscasecameatthecostofforgoinganappellateprocess.Thatmightnotbetheworsttradeoffintheworld,buttheabsenceofanappellatemechanismcouldproduceinconsistentjurisprudence,whichcouldultimatelymakeenforcementmoredifficult.AttheWTO,theAppellateBodyhasprovedveryvaluableindevelopingacoherentjurisprudence.WithonlyapanelleveljudiciaryattheTPP,therecouldbeaproblemwithdivergentinterpretations,whichcreateuncertaintyastoexactlywhattheobligationsofatradeagreementmean.OnedifficultythatcouldcomplicateTPPdisputesettlementisArticle28.11,whichstatesthatTPPpanelsmustconsiderinterpretationsbyWTOpanelsandtheAppellateBody.ThegrowingbodyofWTOjurisprudenceiscomplexandevolving,anditsguidancemaynotalwaysbeeasytofollow.TheDisputeSettlementChaptercontainsdetailedproceduresfordeterminingcompliancewithTPPrulesandimposingremedieswhenonepartybelievesanotherpartyisviolatingtheagreement.AlthoughWTOdisputesettlementhasbecomequitecommon,suchrecoursehasbeenrarelypursuedinpreferentialtradeagreements.Onereasonforthatisthattradeagreementpartnersarealmostalways
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WTOmembers,aswell,soforobligationscoveredunderWTOagreements,theWTOdisputesettlementsystemisalmostalwaysused.However,TPPcommitsthepartiestotermsonissuesthatarenotexpresslycovered–ornotcoveredinthesamedetail–bytheWTO,sothereiscertainlyscopeforissuestobeadjudicatedunderTPPdisputesettlementprocedures.Goodintentionsaside,theeffectivenessofTPPdisputesettlementcannotbejudgeduntilthemechanismistestedthroughactualdisputes.TherearesomenewareasoftradelawintheTPP,suchasrulesonstate-ownedenterprises,thefullscopeofwhichwillnotbeunderstooduntiltheyareinterpretedandappliedinactuallitigation.Sotheprocessofhandlingdisputesmustbecredibleandrespected.
Pro• Agreatdealofefforthasbeentakentomakedisputeprovisionsenforceable,toovercomethe
problemsexperiencedwiththeNAFTAandgeneraldisuseinotherFTAs.• Speedierresolutionofissuesshouldhelpensuregreatercompliance,enforcement,andbenefits
fromtheTPP.
Con• Lackofappellateprocesscouldleadtoinconsistentorincoherentjurisprudence.• TherehavebeenfewdisputesunderexistingFTAs,leadingtoquestionsaboutwhetherTPPwill
beenforced.ScoringrationaleInorderfortradeobligationstohavealiberalizingimpact,theymustbebindingandenforceable.TheTPPdisputesettlementchapterdevotesmuchefforttofixingtheflawsinpastagreementsthatdeterredpartiesfrompursuingthiskindofrecourseandpreventeddisputepanelsfrombeingestablished.ThechapterlanguageisintendedtomakedisputesettlementfasterthanitisintheWTO,moretransparent,andmorecomprehensiveinthatitwillbeaccessibleforresolutionofmoreissueareasthanisthecaseunderanyotherdisputesettlementsystems.Ifthereareanydrawbacks,disputesettlementunderTPPlacksanappellatemechanism.Whilethatfeaturewillfacilitatespeedierresolutionofissues,itcouldalsoproduceincoherentjurisprudencethatmakesenforcementdifficult.Ontheotherhand,theTPPinvolvescommitmentsthatdonotexistundertheWTO,soTPP-specificdisputeresolutionmayproveanimportantcomplementtothetradeliberalizingcommitmentsmadethroughouttheagreement.
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Chapter29:ExceptionsScore:NoScoreSummaryTheExceptionschapteraddressesagrabbagofissues,includingprovisionsclarifyingthatgovernmentsdonotcedetheirrightstoregulateinthepublicinterestortoprotectnationalsecurity.ThechapterincorporatesgeneralexceptionsprovidedunderArticleXXoftheGeneralAgreementonTariffsandTradeandArticleXIVoftheGeneralAgreementonTradeinServices,whichspecifythatnothingintheagreement“shallbeconstruedtopreventtheadoptionorenforcement”ofpoliciesto,amongotherthings,protectpublicmorals,protecthuman,plant,oranimallifeandhealth,enforceintellectualpropertyrulesagainstcounterfeiting,enforcelawsrelatingtoimportsofproductsofprisonlabor,andconserveexhaustibleresources.Itprovidesthatpartiesmaytakeanymeasuretheyconsidernecessaryfortheprotectionofitsessentialsecurityinterests.Thechapteralsospecifiesparties’rightstotaketemporary“SafeguardMeasures,”relatedtocontrollingvolatilecapitalflowsundercertaincircumstances;itidentifiestobaccoasaproductposinguniquepublichealthchallenges,whichhastheilliberalimpactofexposingtobaccoproductsandcompaniestosomeofthediscriminatorytreatmentappliedinotherpartsoftheagreement,andopensthedoortheotherformsofdiscriminationagainstotherproductsandindustries.Thechapteralsoprovidesforothergeneralexceptionsregardingtaxation,informationdisclosure,andpoliciesassociatedwithsomegovernments’recognitionofindigenousrightsintheircountries.AssessmentNone.
ProsNone.ConsNone.
ScoringRationaleNone.
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Chapter30:FinalProvisionsScore:8SummaryTPPChapter30setsoutavarietyof"finalprovisions,"dealingwithanumberoffutureevents.Thetwomostprominentonesareentryintoforceandaccession.TheprovisionsonentryintoforcearesetoutinArticle30.5.IfalloftheoriginalnegotiatingpartiesratifytheTPPthroughtheirdomesticpoliticalprocesses,entryintoforceisfairlysimple.However,ifoneormorepartiesisunabletoratify,paragraph2establishescertainthresholdsthatneedtobemetforTPPtoenterintoforcewithfewerthanallgovernmentsonboard.Ifalloftheoriginalnegotiatingpartiescannotratifywithintwoyearsofthedatetheagreementissigned,theTPPcanstillenterintoforceifatleastsixoftheoriginalparties,accountingforatleast85%ofthecombinedGDPoftheseparties,haveratifiedit.Partieswhocouldnotbepartoftheoriginalentryintoforcecanenterlateroncetheycompletetheirdomesticprocess.Anotherimportantaspectofthischapteristheaccessionprocedure.TherehasalreadybeenagooddealoftalkaboutothercountriesintheregionaccedingtotheTPP,mostprominently,ofcourse,China.Article30.4setsoutdetailedrulesonaccession.Paragraph1specifiesthatmembersofAPECmightjoin,butalsonotesthatanyotherstateorcustomsterritorymayalsojoinifthepartiesagree.Ingeneral,FTAsaredesignedtobeexclusivelyforthepartiestotheagreement,andaccessionisnotanticipated.Asaresult,thereisnotalotofexperiencewithaccessionproceduresinthesetypesofagreements.Bycontrast,theGATT/WTOhasalonghistoryofadministeringanaccessionprocessfornewmembers.Thus,forpracticalexperiencewiththeaccessionprocess,theTPPwilllikelylooktotheWTOforguidance.UnliketheWTO,theTPPwillnothaveaSecretariattomanagethisprocess.Instead,TPPwillrequireestablishmentofadhocworkinggroupstomanageindividualaccessions.Ingeneral,theaccessionprocessisdesignedtoextractconcessionsfromtheapplicantgovernmentthatareequivalenttowhattheexistingpartieshaveagreed.Thetermsofaccessionwouldincludetariffconcessions,servicescommitments,procurementliberalizationcommitments,aswellasdiscussionsofthescopeofthesubstantiverulesinotherchaptersthatwillapplytotheaccedingmember.Assessment
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Whentradeagreementsarefoundtobenetliberalizing,thebenefitsincreasewhentheirtermsaremorebroadlyapplied.ThefactthatTPPisa“livingagreement,”opentoaccessionbynewmembers,magnifiesthetradeliberalizingnatureoftheagreementandsignificantlyincreasesitsvalue.ThismaybeoneoftheleastappreciatedaspectsoftheTPP.Currently,manycountriesareengagedinreformstoqualifyforTPPmembership.AsmorecountriesjoinTPP,thewidertheliberalizationnetwillbecast.Moreover,thecostsofremainingoutsidetheagreementwillrise.TherehaslongbeentalkoftheTPPevolvingintoaFreeTradeAreaoftheAsiaPacific.Ifthatweretooccur–withcountriessuchasChinaandIndiaasmembers–theTPPwouldgeneratefarmoresubstantialeconomicbenefitsthanitislikelytodoinitscurrentform.Althoughmultilateraltradeliberalizationremainsthegoldstandard,prospectsforachievingthatoutcomepursuanttotheold,consensus-driven,negotiatingroundapproachareremote.Ithasbeen22yearssincethelastsuccessfulGATTmultilateraltradenegotiatinground–theUruguayRound,whichproducedtheWTO–wascompleted.RepetitivefailurestoadvancetheDohaRoundpointtosystemicweaknessesinthatapproach.TheTPPoffersadifferentapproachtothatend.Byachievingcriticalmass(40%oftheglobaleconomy)andofferingmembershiptothosewhoqualify,theTPPultimatelycouldattractmanymorecountriesbeyondChinaandIndia,includingLatinAmerican,African,andevenEuropeancountries.TheTPPmightbethevehiclethattakestheworldtoanewperiodofmultilateralliberalization.
Pros• Livingagreement• Providesfornewliberalizationandnewmembers
Cons
ScoringRationaleUnlikeotherU.S.FTAs,accordingtothetermsofthischaptertheTPPisalivingagreement.Thatmeansitsscopeforrevisionandexpansionmakesitpotentiallymuchmoreliberalizingthanitisasa12-countryregionalpact.ThisfeatureneedstobebetterappreciatedbyfreetradersandpolicymakersbecauseitequipstheTPPwiththetoolstomakeitavehicleformuchbroader,evenmultilateral,tradeliberalization.ThetermsofthischapterhelptoarticulatetheopportunitycostsofafailuretoratifyandimplementtheTPP.
ConclusionOuranalysisincludesassessmentof22of30chapters.Chaptersearningscoresabove5areconsidered“netliberalizing,”andthosegradedbelow5areconsidered“netrestrictive.”Followingisasummaryoffindings:
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• 15of22chaptersreceivedscoresabove5.• 5of22chaptersreceivedscoresbelow5.• 2of22chaptersreceivedneutralscoresof5.• Thehighestscoreassignedwas8anditwasassignedto5chapters.• Thelowestscoreassignedwas3anditwasassignedto3chapters.• Themedianandmodescoreswereboth6.• Thestraightaveragescorewas5.82(whichassignsequalweighttoeachchapter,whichseems
difficulttojustifygiventhatsomechaptersaremuchmoreimpactfulthanothers).• Theaveragefor“marketaccess”orientedchapterswas6.18.• Theaveragefor“rulesandgovernance”orientedchapterwas5.45.• Theaveragefor“FirstTier”chapters(thosethathavetomostbearingonthequalityofthe
agreement)was6.63.• Theaveragefor“SecondTier”chapterswas5.36.• Theweightedaverage(wheretwiceasmuchweightisassignedtoFirstTierchapters)was6.03.
Obviously,noteverythinginafreetradeagreementisgoingtobetothelikingoffreetraders.Someissuessimplydon’tbelongintradeagreements.Butinourview,everylittlebitofliberalizationhelps.Ifthatliberalizationdoesn’tcomeatacostthatexceedsthebenefits,itisworthyofsupport.Thebottomlineisthat,inourassessment,theTPPwouldbenetliberalizing–itwould,onpar,increaseoureconomicfreedoms.Accordingly,wehopeitwillberatifiedandimplementedassoonaspossible.
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