7 October, 2015
The Trans-Pacific Partnership (TPP) is a free trade agreement between twelve countries around the Pacific Rim: the United States, Canada, Australia, New Zealand, Japan, Singapore, Malaysia, Vietnam, Mexico, Chile, Peru and Brunei. It is unrivalled in the breadth of its inter-regional scope, designed to bring together key Asia Pacific countries with North and South American countries and seeking to liberalise trade in nearly all goods and services. The states involved together constitute at least 40% of global GDP, and trade between these states amounts to more than 20% of global trade volume.
A number of other states have expressed interest in signing up to the agreement now that it is finalised, including Taiwan, South Korea, Thailand, India, Costa Rica, Bangladesh, Indonesia, the Philippines, Laos, Colombia and Uruguay.
The TPP is likely to be of enormous significance for the dynamics of global trade flows across almost every industry sector. It is more than an traditional Free Trade Agreement, and encompasses a set of trade rules that will govern cross-border trade and markets well into this century.
The TPP is one route towards a free trade area of the Asia-Pacific.
China is not currently part of the TPP negotiations. Like other regional states, China is actively pursuing trade and investment agreements. The Regional Comprehensive Economic Partnership (RCEP) is not a competing, but a complementary, trade and investment agreement.
The US Congress has given President Obama trade promotion authority, sometimes called ‘fast track authority’. Trade promotion authority defines the US negotiating objectives and priorities for trade agreements and establishes consultation and notification requirements for the President to follow throughout the negotiation process. At the end of the negotiation and consultation process, Congress gives the agreement an up or down vote, without amendment.
Economic impacts
The TPP will result in the removal of the vast majority of tariffs and trade barriers around the Pacific, introducing measures to create a preferential trading environment between the signatory states. Importantly, the Agreement will cover not only trade in goods but also trade in services.
The agreement is relevant to almost every key sector in which our clients operate. It is aimed at reducing – and ultimately eliminating – trade barriers around the Pacific region, going far beyond the commitments made through membership of the World Trade Organisation. According to the negotiators, it is anticipated to increase opportunities for trade in new markets for goods and services, while tackling new trade issues arising from changes in the global economy. Particular impacts are expected to be felt by the energy & resources, agribusiness, TMT, consumer products, financial services, pharmaceuticals, construction and automotive sectors.
Geo-political impacts
Beyond the anticipated economic impacts of the agreement, the TPP is expected to mark a geo-political reorientation towards the Pacific, operating as a framework for enhanced integration and cooperation between the signatory states. The breadth of the coverage of the agreement, connecting major Asia-Pacific economies with North American and Latin American powers, will create a regional bloc of unparalleled significance.
Legal and regulatory impacts
Arguably the most significant feature of the TPP is the substantial commitments made by the parties towards harmonising regulation across the region on a vast range of trade-related issues. These include investment protection mechanisms, labour and environmental standards, intellectual property regulations, data protection rules, government procurement regimes, sanitary and phytosanitary standards, and rules to regulate the behaviour of state-owned enterprises.
Creating a near uniform regulatory regime on particular issues amongst such significant economies may contribute to a new mode of global governance, establishing new, influential regulatory norms with impacts across the region and beyond.
For further information, please contact:
Donald Robertson, Partner, Herbert Smith Freehills
donald.robertson@hsf.com
