The Joint Standing Committee on Treaties of the Parliament of the Commonwealth of Australia (JSC) has this month released Report 181 on the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (Report 181).

The JSC stated categorically that it ‘supports the ratification of the TPP 11’. This article provides some high level observations of Report 181.

Report 181 follows Report 165 tabled in November 2016. After the date of that report, the United States notified the other parties that the United States would not ratify the Trans Pacific Partnership Agreement (TPP).

The treaty which is the subject of Report 181 is a separate document to the TPP but one which incorporates into it most of the provisions of the TPP. The new document is known as the TPP 11. Notably, the parties to the TPP 11 have agreed to suspend 22 provisions which were incorporated into the TPP (suspended provisions).

What are the suspended provisions?

The suspended provisions include:

  • an obligation on Parties to review the threshold below which customs duties are charged on express packages;
  • provisions allowing companies to use Investor-State Dispute Settlement Provisions (ISDS) claims in relation to private investment contracts with a Government;
  • an obligation on monopoly postal services to refrain from cross subsidising express postal services;
  • an entitlement for foreign investors in financial services to bring ISDS claims in relation to a Government violating the minimum standard of treatment obligation;
  • a commitment to international labour rights as part of Government procurement;
  • a commitment to negotiate for enhanced Government procurement provisions within two years (this commitment has been extended to three years);
  • a requirement that new patents be made available for new uses of a product, new processes using a known product and inventions derived from plants;
  • the ability for a patent holder to extend their patent if there is a delay in approving a patent, or if the sale of a pharmaceutical product is delayed as a result of marketing approval;
  • a provision establishing a five year protection for patent holders on test data supplied to a government as part of the process for approval for pharmaceuticals;
  • copyright protection for the life of the author plus 70 years;
  • the application of civil and criminal penalties for a number of types of changes to protected copyright works;
  • the obligation on online service providers to cooperate with rights holders to deter online copyright infringement;
  • an obligation on Parties to the Agreement to take measures to combat the trade in endangered flora and fauna traded in another jurisdiction; and
  • obligations relating to the timing of entry into force of provisions by specific Parties.

The further enquiry of the JSC was undertaken because:

  • in the absence of the United States, the impact of the TPP will be different;
  • in the time since the Committee reported on the TPP, extensive additional research into the impact of the agreement has been undertaken; an
  • the suspended provisions change the environment for a number of important Australian industries.

What does Report 181 cover?

Report 181 covers, amongst other things:

  • the benefits for Australia now that the United States is no longer involved:
  • the opportunities for Australia in trade in services:
  • an update on the Investor State Dispute Settlement provisions (ISDS): and
  • an examination of the suspended provisions on intellectual property rights.

The report also notes an additional reason for undertaking the enquiry:

  • ongoing uncertainty amongst the Australian community as to the benefits of free trade and the active implementation of protectionist economic policies in a number of economies.

For reference, the countries which are parties to the treaty negotiations are: Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Recommendations

Report 181 contains four recommendations of the JSC. These are that:

  1. In the event that the parties to the TPP 11 agree to reinstate the suspended provisions of the Trans Pacific Partnership Agreement, the reinstatement be treated as an amendment to the Treaty and be subject to an enquiry by the Committee.
  2. The Australian Government review Australia’s bilateral trade agreements with TPP 11 Parties, with a view to withdrawing from those which are no longer beneficial to Australian businesses.
  3. Independent modelling and analysis be undertaken (for example, by the Productivity Commission) to improve assessment of the agreement.
  4. Binding treaty action be taken in respect of the TPP 11.

Trade in goods

Part 2 of Report 181 covers trade in goods. It offers particular commentary on agriculture, resources and forestry and paper products.

In relation to agriculture, the report specifically identifies categories in which tariffs will be reduced and/or eliminated and where quotas will be expanded and/or improved. Wine, dairy, sugar and meat and livestock industries will benefit from the TPP 11.

The export market in resources is significant for Australia and the TPP 11 offers additional market access benefit. However, as Report 181 notes, mineral and energy exports to Australia’s key export markets are already largely tariff free.

The proposed changes to tariffs in the forestry and paper product sector are more controversial with some concerns identified from within industry as to the equality of the proposed measures. The concerns are identified as arising in part from the highly competitive nature of paper markets.

The decision of the United States not to ratify the TPP is observed in Report 181 to provide benefits to certain Australian sectors because of the absence of a bilateral trade agreement between the United States and Japan. As the report notes:

“This means that United States exports to Japan are still subject to tariffs that would have been removed under the original TPP.”

Part 2 of Report 181 also contains a detailed discussion of ‘non-tariff barriers’ (including technical barriers) and alcohol labelling. The conclusion of the JSC in relation to trade in goods is that:

“Support for the tariff reduction measures in TPP 11 is widespread, and the tariff reductions are highly likely to benefit Australian business in general.”

It warns, however, that ‘the Australian Government will need to be vigilant [in policy fields, including anti-dumping] to ensure public support for free trade continues into the future’.

Trade in Services

Part 3 of Report 181 covers trade in services. It its introduction, it summarises:

  • the key commitments in the TPP 11 relating to trade in services as a national treatment obligation;
  • a Most Favoured Nation treatment obligation;
  • a market access obligation; and
  • a prohibition from requiring a provider from another TPP 11 country to establish a local office as a condition of supplying services.

Report 181 identifies some specific industry sectors within TPP 11 countries which will benefit from the proposals and contains a discussion specifically on mineral exploration and technology services.

There is also a sub-section entitled ‘Ratchet mechanism’ which sets out specific concerns of Public Services International (PIS) as to the scope of TPP 11. As Report 181 explains:

“Article 10.5 [of TPP 11] is the relevant article for the ratchet mechanism. This article prevents a party from imposing limits that do not already exist on:

  • the number of service suppliers;
  • the value of service transaction or assets;
  • the total number of service operations or the quantity of service output; and
  • the total number of persons that may be employed in a service.”

The report notes that the PIS has concerns about constraints this ratchet mechanism might impose on the government to regulate certain industry sectors and discusses measures available to Australia to address this concern.

Investment and ISDS

The view of JSC expressed in the report is that ISDS ‘provide an important reassurance of the importance of Australian businesses being able to invest overseas easily and for Australia to be seen as a safe and reliable location for foreign investment’.

Amongst other things, Report 181 identifies the advantages of ISDS from both a country’s and an investor’s perspective and notes that ISDS is now widespread and well established. Report 181 also describes the process for dispute resolution under ISDS and reports on the scope and outcomes of certain ISDS cases. It notes issues raised during the JSC’s enquiries including questions as to whether ISDS favours foreign investors over local investors, the need for an appellate process and the introduction of precedent in ISDS cases.

Movement of persons

Part 5 of Report 181 is concerned with regulatory barriers for persons seeking to do business in other jurisdictions. Australia has made a commitment in TPP 11 in relation to business persons, which is set out in Annex 12-A of the TPP 11. It operates where there is a reciprocal commitment.

The report identifies the following countries which have made the same commitment: Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru and Vietnam.

Intellectual property and copyright

Part 6 of Report 181 covers intellectual property and copyright. It notes, by way of background, that:

“6.1 Chapter 18 of the previous Trans-Pacific Partnership Agreement (TPP) relating to Intellectual Property and copyright, is built on the World Trade Organisation’s Agreement on Trade-Related Aspects of Intellectual Property (TRIPS Agreement).

6.2 Chapter 18 covered copyright, trademarks, geographical indications, patents, industrial designs, confidential information, plant variety protection, and civil, border and criminal enforcement.”

(footnotes omitted)

The report discusses in some detail the provisions of Chapter 18 which are subject to a suspension through the TPP 11 (included in the suspended provisions defined earlier in this note), observing that there have been concerns raised about the uncertain future of those provisions where the TPP 11 countries could, by agreement, reinstate them. The report’s recommendation in light of these concerns is that any reinstatement be treated as an amendment to the treaty.

Other matters

The final Part of Report 181 covers ‘other matters’, described as ‘issues that are not related to specific provisions of the [TPP 11]’. This article considers some of those matters, but not all.

The report observes that key stakeholder groups have identified the TPP 11 as providing real benefits where global trade is now no longer linear, ‘but rather webs of trade in intermediate products, across different sectors, and often involving numerous countries, business trips and data exchanges’. These benefits include regulatory harmonisation (with particular application to small and medium sized businesses).

On the other hand, the report also observes that some industry groups are concerned that the complexity of the TPP 11 will trouble some businesses who already do not have the expertise to make use of existing trade agreements. In particular, it identifies what might be described as the overlaying effect of the TPP 11 on current bilateral trade agreements, recommending that those instruments be reviewed for ongoing utility in light of the TPP 11.

Report 181 contains a discussion of the modelling undertaken for the purpose of TPP 11 and expresses views from both sides of the debate as to accuracy of that modelling. There is a concern that the modelling was limited and overlooks specific impacts. This concern led to a recommendation in the report for further independent modelling by the Productivity Commission or similar organisation.

Finally, the report notes public concerns with the lack of transparency in relation to trade agreement negotiations. It concludes, however, that ‘[r]atification would be an important contribution towards stabilising the current environment, reinjecting momentum into cooperative trade liberalisation and rules-based approaches on a global basis’.