After Trans-Pacific Partnership Deal Reached in Atlanta, Focus Shifts to Ratification

8 October 2015

Ministers from 12 Pacific Rim countries concluded a sweeping trade pact this past Monday, following several days of frenzied negotiations in the US city of Atlanta to bring the agreement across the finish line. With the talks on the Trans-Pacific Partnership (TPP) now completed, participating countries are now gearing up to face their next big challenge: building public support and ratifying the pact’s terms in their domestic legislatures.

The Atlanta ministerial meeting, originally set for 30 September through 1 October following several days of chief negotiators’ discussions, was extended repeatedly as officials worked to reach the long-awaited deal, with the talks finally closing in the early morning hours on 5 October.

“After more than five years of intensive negotiations, we have come to an agreement that will support jobs, drive sustainable growth, foster inclusive development, and promote innovation across the Asia-Pacific region,” ministers for the TPP countries said on Monday morning.

The officials affirmed that the final agreement is one that is “ambitious, comprehensive, high standard, and balanced,” arguing that the terms will be a boon to their countries’ respective citizens, which in total number nearly 800 million people.

The 12 countries involved – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US, and Vietnam – constitute nearly 40 percent of the global economy, making the sheer size of the agreement the largest of its kind outside the World Trade Organization.

The TPP will also set new rules for these 12 participants in areas ranging from environmental and labour protections to the treatment of state-owned enterprises and e-commerce. It is also set to provide significant market access openings, with the deal set to eliminate or reduce tariffs on approximately 18,000 tariff lines.

While much of the details of the outcome are now coming to light, the full terms of the agreement are not yet public, given that the document now must undergo a legal review, verification, and translation. Officials say that they hope to release the text in the near future, noting that the agreement will have to be public for several weeks or months – depending on the domestic requirements of different participating economies – before being considered for ratification.

Automobiles, biologics, agricultural market access

As the negotiations entered the home stretch in Atlanta, ministers were focused particularly on resolving disagreements on a handful of major issues, which had been blamed for stalling an earlier ministerial meet in the US state of Hawaii in July. (See Bridges Weekly, 9 August 2015)

These issues specifically involved automotive rules of origin, sugar and dairy market access, and the data protection period for biologics, with the latter two being the main areas of contention in the final days and hours of negotiation. 

The automobiles issue had involved Japan and the three members of the North American Free Trade Agreement (NAFTA), specifically the US, Canada, and Mexico. Part of the failure of the Hawaii meeting in July was attributed to disagreements on this topic, given that the bilateral terms that had been agreed between Tokyo and Washington prior to the gathering had not been approved by Ottawa or Mexico City.

The concern raised by Canada and Mexico had been that the new rules of origin under TPP could give them worse terms than that agreed under NAFTA regarding automobile manufacturing, which their respective industries had strongly warned against given the highly-integrated nature of the North American automobile industry.

The final outcome on rules of origin reportedly requires that 45 percent of imported automobiles and core parts be made in a TPP country to qualify for tariff-free treatment, with other automobile parts subject to a 40 percent requirement. Under NAFTA, these numbers are 62.5 and 60 percent respectively.

Regarding dairy market access, which had been a key issue for New Zealand – home to Fonterra, the major multinational dairy cooperative – the final outcome eliminates tariffs for some dairy products, but not others.

Canada had been one of the TPP members who had been pressed to provide greater market access in these products. This had proven to be a difficult task for the North American country, given its highly protected supply management system for dairy and poultry products.

According to Canadian Trade Minister Ed Fast, “[Ottawa has] been successful in protecting the three key pillars of supply management, being production controls, price controls, income controls.”

Market access for sugar had also been unresolved ahead of the Atlanta talks, with Australia being one of the main countries calling for better terms from its TPP partners – particularly of the US. Australian officials have now confirmed that the final TPP deal will provide their country with an additional quota of 65,000 tonnes base allocations, together with a 23 percent share of additional allocations in the American market.

Figures released by the office of the Australian trade minister confirmed that this would increase the country’s annual sugar exports from 107,000 tonnes to 207,421 tonnes, noting that the US offer “is the largest made to any FTA partner since NAFTA.” Furthermore, the ministry confirmed, the increased quota will put Australia’s access on par with Brazil, the global leader in sugar exports.

In the area of biologics, which are those drugs derived from a biological background rather than a chemical one, the US had been at odds with many of its TPP partners as to how long to keep in place data exclusivity protections on these particular pharmaceuticals. Examples of biologics can include vaccines, anti-toxins, blood or blood products for transfusion, gene therapies, and cellular therapies, according to the US Food and Drug Administration.

While promising in their potential to treat diseases ranging from cancer to rheumatoid arthritis, such drugs are significantly costly, with the Brookings Institution finding that these can cost up to 22 times the price of chemical drugs. Critics of long data exclusivity periods argue that making it easier to develop “biosimilars” – which are “follow-ons” to an original biologic – could substantially reduce such prices.

While US law currently provides for 12 years, various other TPP partners such as Australia and Chile had been pushing for that number to be much lower. Under American data exclusivity protections, according to Brookings’ analysis, biosimilars cannot be approved during the protected period if they rely on the data used for the original biologic, though the drug can be approved if the data was generated independently.

The final compromise will allow for a minimum standard of five years of data protection, together with the option of employing domestically some additional government measures, such as through regulatory and administrative policies or requirements for more clinical trials, which could add to this number of years.

Through the additional measures, US Trade Representative (USTR) Michael Froman noted, “it may take seven or eight years for the various biosimilars to be approved.” The final outcome on this subject, he said, is “strong and balanced” in a way that both incentivises drug development while facilitating access to medicines.

The US trade chief also noted that the TPP is “the first trade agreement in history to ensure a minimum period of protection for biologics,” telling reporters that this could provide a model for the rest of the region.

Parallel deal on currency forum

The issue of how and whether to address the issue of currency manipulation – a longstanding area of concern for some US lawmakers – had been another lingering question over the trade talks, particularly given concerns over the effects that monetary policy decisions by countries such as Japan could have on exchange rates and trade.

Currency had been a particularly hot topic earlier this year during the process of renewing and revising Trade Promotion Authority (TPA), the legislation which governs the way the US Congress approves or rejects negotiated trade deals.

The terms of TPA ultimately did not include an enforceable currency amendment, despite efforts by some lawmakers to attach such language. Officials such as US Treasury Secretary Jack Lew had warned at the time that including such language would both derail TPP and impose limitations on Washington in terms of its own ability to protect its economy. (See Bridges Weekly, 21 May 2015)

Rather, the TPA text includes as a principal negotiating objective that US partners in trade deals must “avoid manipulating exchange rates in order to prevent effective balance of payments adjustment or to gain unfair competitive advantage.” Responses should this occur could include “enforceable rules, transparency, reporting, monitoring, cooperative mechanism, or other means to address exchange rate manipulation,” which Washington must work to establish.

In the context of the TPP talks, the US had reportedly put forward earlier this year a proposal for a parallel deal on currency that would bring together TPP members to examine exchange rate changes and related issues.

A joint statement released separately on Monday by TPP finance officials confirmed that the group’s participants “are working to strengthen macroeconomic cooperation, including on exchange rate issues, in appropriate fora.”

“The work to be undertaken reflects our common interest in strengthening cooperation on macroeconomic policies, and will help to further macroeconomic stability in the TPP region as well as help ensure that the benefits of TPP are realised.  Keeping in mind the diverse circumstances of the TPP countries, we are currently undertaking a technical review,” the statement confirmed.

Ministers told reporters on Monday that this cooperation will fall under a parallel agreement on how to address currency issues between TPP members, specifically by establishing a forum for discussion on the subject.

According to Australian Trade Minister Andrew Robb, these discussions will involve a “set of principles,” which is what finance officials from TPP countries are currently looking to finalise, with the forum to bring together a “representative group from each country.”

International implications

The TPP deal has been dubbed by many of its proponents – as well as some of its detractors – as being “transformational” not just for the Asia-Pacific region, but also for the global economy.

“Long after the details of this negotiation on things like tons of butter have been regarded as a footnote in history, the bigger picture of what we’ve achieved today will be what remains,” said New Zealand Trade Minister Tim Groser on Monday, praising the result.

“It is inconceivable that the TPP bus will stop at Atlanta. The TPP bus will move on… Our industry structures will change in response to the opportunities of the agreement, and in future years, we can be absolutely certain that the depth of achievement we’ve been able to reach at this point in our collective history will be deepened and broadened and other people will joint this agreement,” Groser told reporters.

Others such as Australian Trade Minister Andrew Robb have also noted that this deal is the “most significant” since the Uruguay Round talks that established the WTO were finalised 20 years ago. 

So-called mega-regional deals like the TPP have, however, also sparked the question over whether these agreements sap away energy needed for multilateral negotiations and potentially create overlapping, confusing systems of rules – or if these processes can instead be complementary to one another.

“A proliferation of different rules and standards could be a drag on business, so this is an important area of work,” said WTO Director-General Roberto Azevêdo last week in a speech at the Graduate Institute in Geneva, Switzerland, referring to major regional trade initiatives.

“But of course, we shouldn’t overstate the issue. The multilateral trading system has always coexisted with regional agreements — and proved to be mutually reinforcing,” the WTO chief said, noting also that some issues such as agricultural and fisheries subsidies can only be addressed successfully at the multilateral level.

Whether the afterglow from the TPP’s completion will help lift other major international trade initiatives – such as multilateral trade talks under the WTO, or the bilateral negotiations between the US and EU for a Transatlantic Trade and Investment Partnership (TTIP) – is now a key question from trade watchers and officials.

Azevêdo, for his part, issued a statement congratulating TPP ministers and negotiators on the result, suggesting that the success of the talks shows that “a diverse group of countries can strike a deal on a broad and complex trade agreement if the political will and determination are there.”

The WTO chief added that he hopes this result “will serve as an inspiration for WTO members as we seek to produce substantial outcomes by Nairobi,” referring to the global trade body’s upcoming ministerial conference in the Kenyan capital city.

Regarding the prospects for TTIP, USTR Froman told reporters on Monday that there is “intense engagement” between Washington and Brussels on the trans-Atlantic talks, highlighting the recent stocktaking meeting he held with European Trade Commissioner Cecilia Malmström. (See Bridges Weekly, 24 September 2015)

Getting even an outline of a TTIP deal by the end of this year, as G-7 leaders urged in June, is expected to be a very big ask, and the talks overall are widely expected to carry through 2016 at the very least. The next round of TTIP talks are scheduled to be held in Miami, Florida, from 9-23 October.

Critics, proponents weigh in

Building public support is also set to be a major challenge in the coming months, as TPP member governments work to demonstrate the benefits from their negotiating trade-offs, along with quelling any concerns over the potential for job losses in some sectors or what impacts the deal’s new rules may have on domestic public policy objectives.

The TPP has been famously controversial since the negotiations began, drawing the scepticism – and, in some cases, ire – of a broad range of groups who question whether the terms of the deal are not sufficient to ensure environmental and labour protection.

“The TPP’s environment chapter might look nice on the surface but will be hollow on the inside, and history gives us no reason to believe that TPP rules on conservation challenges such as the illegal timber or wildlife trade will ever be enforced,” said Sierra Club Executive Director Michael Brune in response to the news of a deal.

Other environmental groups such as the World Wildlife Fund (WWF) have welcomed the TPP’s environment chapter as being one of the most forward-thinking seen in trade deals to date.

“No major trade agreement before this one has gone so far to address growing pressures on natural resources like overexploited fish, wildlife and forests. Now that the negotiations have closed, we expect to see a strong environment chapter that promotes and enforces both legal and sustainable trade,” said WWF US President and CEO Carter Roberts.

Roberts noted that fulfilling TPP’s potential in this area will depend partly on having the right implementation and compliance procedures in place.

The deals provisions on intellectual property have also come under the microscope from humanitarian groups, such as Médicins Sans Frontières’ (MSF) Access Campaign, who question how these rules may affect access to medicines in developing countries.

“MSF expresses its dismay that TPP countries have agreed to United States government and multinational drug company demands that will raise the price of medicines for millions by unnecessarily extending monopolies and further delaying price-lowering generic competition,” said Judit Rius Sanjan, US Manager and Legal Policy Adviser for the organisation.

Other questions have been raised as to the enforceability of the labour provisions in the pact, particularly regarding Brunei, Malaysia, and Vietnam. In the case of Malaysia, the issue of human trafficking is another one that has been raised by civil society groups.

Officials from all three of those countries affirmed on Monday that they are committed to addressing their labour rights problems, with all referring also to their respective memberships in the International Labour Organization as an indication of that commitment.

Froman, for his part, argued that the TPP will set up the “strongest labour standards of any trade agreement in history,” listing provisions such as right of association and collective bargaining, as well as minimum wages and maximum hours, safe working conditions, and prohibitions on forced and child labour.

“With [Vietnam, Malaysia, and Brunei], we have worked very closely and very collaboratively on specific actions to be taken that will help bring their systems into compliance with international labour standards, and including cooperative efforts around capacity building and other measures,” the US trade official said.

Ratification battles ahead

Though the negotiations may be done, the road ahead for TPP remains a difficult one, given that the deal must be ratified by countries’ domestic legislatures before entry into force.

Passing trade deals in the US Congress, for example, has proven to be a notoriously difficult task, with the last three agreements approved by the legislature – those with South Korea, Colombia, and Panama – only passing after significant political haggling among American lawmakers and following a four-year lag between the completion of the trade deal negotiations and the actual ratification.

Notably, the deal with Seoul had to be partially renegotiated in 2010 in order for Washington to obtain better terms on automobiles and beef, after it became clear that the previous deal was not going to pass Congress. (See Bridges Weekly, 9 December 2010 and 12 October 2011)

Renewing and updating the terms of TPA earlier this year again demonstrated the deep-seated divides among US lawmakers and the public over the merits and potential risks of trade deals, with the debate focusing primarily on the Trans-Pacific Partnership. (See Bridges Weekly, 2 July 2015)

USTR Froman pledged that his office will immediately begin work with congressional leadership to determine the best next steps in the ratification process, while acknowledging that under the timelines built into TPA, signing and possible congressional approval of the TPP agreement will not be until 2016.

Meanwhile, the response from key US lawmakers who work on trade, particularly in the Senate Finance and House Ways and Means Committees, has so far been mixed, or in some cases openly sceptical, indicating a tough road ahead.

For example, Orrin Hatch, the Utah Republican who chairs the Senate Finance Committee, said on Monday that the final TPP “appears to fall woefully short,” without specifying what elements of the agreement were sources of concern and acknowledging that not all details are available at this time.

Hatch, along with Democratic Senator Ron Wyden of Oregon and Republican Congressman Paul Ryan, was the architect behind the renewed version of Trade Promotion Authority, and had long advocated for the potential benefits that could come from a completed TPP depending on what is included in the final deal.

Ryan, who chairs the House Committee on Ways and Means, gave a more cautious response, saying that he would be “reserving judgement” on the TPP’s terms until the final text is available for review while stressing that only a “good agreement – and one that meets congressional guidelines in the newly enacted Trade Promotion Authority – will be able to pass the House.”

Wyden similarly confirmed that he would weigh in on the deal’s merits once the full details become available, while commending the news on the currency forum, labour rights obligations on countries such as Vietnam and Malaysia – including enforceable commitments by the latter to address human trafficking – as well as commitments on tackling illegal wildlife trade and conservation.

The Oregon senator also referred to the carve-out in the investor-state dispute settlement (ISDS) clause in TPP for tobacco, saying that it would “ensure that countries that are part of [this deal] can regulate tobacco without fearing intimidation and litigation by Big Tobacco.”

Sandy Levin, the top-ranked Democrat on the House Ways and Means Committee who has long raised concerns over the potential design of the trade pact, welcomed progress made in some TPP areas, including the tobacco ISDS carve-out and the labour rights obligations for certain countries, while arguing that the currency forum plan is “entirely unsatisfactory,” among other criticisms.

While the potential for dramatics in the US legislative process has drawn significant attention, passing the deal in other legislatures is also expected to prove difficult.

Canada, for example, will be holding its general election on 19 October, after which a new Parliament will need to take office. Current polling finds that Prime Minister Stephen Harper’s Conservative Party and the two main opposing parties are currently in a dead heat.

Tom Mulcair, the leader of the opposition New Democratic Party (NDP), has said that should his party win the election, they will not be bound by the terms of the TPP. Meanwhile, Liberal Leader Justin Trudeau has not given a formal position on the deal, citing the need to see its final contents.

Passing TPP through Japan’s parliament, known as the Diet, will also be an uphill battle, analysts say, particularly given the long-standing reticence to open up the country’s agricultural market. The Diet is not likely to begin its consideration for ratification until next year.

ICTSD reporting; “TPP trade deal: Main party leaders stake positions on TPP trade deal,” CTV NEWS, 5 October 2015; “Parties still in three-way tie after federal leaders’ debate: poll,” THE GLOBE AND MAIL, 22 September 2015; “Japan Diet Approval of TPP Unlikely This Year,” JIJI PRESS, 6 October 2015; “Trans-Pacific Partnership: officials claim it’s a win for the auto sector,” CBC NEWS, 5 October 2015.

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