Two significant and recent developments indicate that the Trans-Pacific Partnership (TPP) could survive the US withdrawal. First, it was recently reported that in March 2017, the remaining 11 TPP members will meet in Chile to discuss the status of the TPP and the possibility of making minor changes to the text of the agreement to allow it to move forward. Specifically, Article 30.5 could be altered so that the agreement may enter into force without the United States.
As currently drafted, Article 30.5 in effect requires both the United States and Japan to ratify the TPP in order for it to enter into force. This is because the two countries represent 85% of the combined GDP of the original signatories. Eighty five percent is the threshold amount stated in Article 30.5 for the TPP to enter into force. Modifying the language in Article 30.5 would allow the remaining 11 to move forward without the United States.
Strengthening the move to meet in Chile, the Australian Parliamentary Foreign Affairs, Defence and Trade References Committee (Committee) recently recommended that the Australian Government should defer undertaking binding treaty action in relation to the TPP until the future of the TPP is clarified through further negotiations with Australia’s major trading partners. The Committee also recommended that the Australian Government expedite widely supported reforms to the treaty-making process in order to assist the completion of future trade agreements. Many of the proposed reforms focus on making the treaty-making process more transparent (eg, the adequacy of consultation with participants in key sectors such as healthcare was a controversial issue for the TPP).
If the TPP were to be renegotiated among the remaining 11 parties, would it be limited to Article 30.5 or would certain concessions, including those made to accommodate the United States, be removed? For example, the TPP set a period of data exclusivity for biologics to be a minimum of five years plus either three years or a comparable measures. The biologics time period was a compromise position made for the United States. Without the United States participating, it is possible that the period could be reduced to five years.
Why is Australia pushing forward with the TPP?
Australia has existing free trade agreements with seven of the remaining 11 TPP parties (the 7 being Japan, Chile, New Zealand, Malaysia, Singapore, Brunei and Vietnam). The TPP could open markets for Australia in Canada, Mexico and Peru. The Committee’s recently issued report on the Proposed Trans-Pacific Partnership (TPP) Agreement (Report) discusses sectors identified to benefit from opening these markets. For example, the Report notes that Mexico was assessed by Wine Australia as providing Australia with “an imported wine market of 61 million litres” as there would be a removal of the 20% tariff on wine going into Mexico.
Australia’s services sector has been assessed as significantly benefitting from the TPP. The Report notes significant opportunities for the services sector under a TPP without the United States. Services such as education, finance, mining related services, professional, telecommunications and transport and logistics will grow as the TPP will open up markets and opportunities. The Report states that for developed nations 70-90 percent of growth is generated by service industries.
Is the TPP meaningless for the remaining 11 parties?
Before the United States formally withdrew from the TPP, Japan’s Prime Minister Abe stated that the TPP would be “meaningless” without the United States. More recently, in a joint statement released by both Prime Minister Abe and President Trump, the two leaders reaffirmed their commitment to trade and investment relations and announced that discussions for a bilateral framework between the two countries are on the table. The joint statement also stated that Japan will continue to “advance regional progress on the basis of existing initiatives,” perhaps signaling that Japan could continue to push for the TPP while at the same time enter bilateral agreement discussions with the United States.
Not all is lost without the United States’ participation in the TPP. Multilateral agreements are beneficial in many ways and the TPP, as one of the largest, has the potential to provide value for the remaining parties. The Australian Trade Minister Steven Ciobo recently stated that the TPP is “absolutely” relevant without the U.S. He also stated that the “hard-fought gains” should not be lost.
Some of the gains include requirements to remove non-tariff barriers to trade, setting higher standards for labor and environment, the creation of investment opportunities by establishing a more predictable and transparent regulatory environment for investment. The harmonization of rules, in particular the regional rules of origin will remain even without the United States. These types of benefits and mechanisms do not disappear with United States withdrawal.