TPP Countries Face Legal Issues Over TPP-FTA Coexistence, Entry...

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TPP Countries Face Legal Issues Over TPP-FTA Coexistence, Entry Into Force
Posted: March 14, 2013

SINGAPORE As the Trans-Pacific Partnership (TPP) negotiations advance, negotiators from the 11 participating countries are beginning to face a plethora of difficult legal questions, such as how a final TPP deal will coexist with existing bilateral free trade agreements between the parties, and what process they will use for bringing the TPP into force. On the first question, the U.S. side seems to favor the assumption that TPP will prevail over existing bilateral FTAs except where parties explicitly decide on exceptions to that rule. This issue is generally known in TPP lingo as coexistence. If TPP countries follow this U.S. approach, which is not a given, they will then face the dilemma of whether parties will be required to pay to maintain concessions contained in existing bilateral FTAs instead of accepting the primacy of TPP provisions. The question of whether TPP countries will have to pay in order to maintain concessions in existing FTAs was one of the matters discussed during a trip last month by Deputy U.S. Trade Representative Demetrios Marantis to Peru and Chile, according to informed sources. Both Chile and Peru already have bilateral FTAs with the United States, which has refused to negotiate additional goods market access with those countries in TPP. The second issue of how TPP will enter into force centers on how much power the U.S. should have to determine whether countries have sufficiently complied with their TPP obligations before letting the agreement go into effect. In past FTAs, the U.S. Congress has specified in the implementing legislation that the agreement cannot enter into force until the U.S. president certifies that the other signatory has complied with all of its FTA obligations that go into effect immediately. Some TPP participants such as Chile oppose this approach, which they view as a unilateral certification requirement that gives the U.S. leverage over a sovereign nation and its legislature. The plethora of these difficult legal questions is likely one reason why the negotiating group on legal institutional issues met for the span of the entire round here, on March 5-8 and March 10-12. The only other negotiating groups that met that long were environment and intellectual property rights, which TPP countries openly acknowledge are among the most difficult chapters in the negotiations. One observer said several TPP countries had representatives from the offices of their attorneys general participating in this discussion on legal and institutional issues here. One clear example of countries having to pay for maintaining FTA provisions in TPP would be in the area of market access. For example, the U.S. excluded sugar from a bilateral FTA with Australia by refusing to provide any additional market access for Australian sugar beyond an existing tariff-rate quota negotiated in the Uruguay Round. In the TPP talks, the U.S. has taken the position that will not negotiate with Australia on any additional market access for sugar at this time. That stance clearly contradicts the requirement set by TPP countries and confirmed last month in a joint statement between the U.S. and Japan that participants must be willing to put everything on the table when it comes to goods market access. As a result, Australia could theoretically take the position in the TPP talks that, in order for the U.S. to maintain its exclusion for sugar in TPP, it would have to make a concession to Australia in another area. That tradeoff could be for some specific concession from the U.S. in the TPP disciplines, or it could be in exchange for Australia maintaining an exclusion that it took in the bilateral FTA. The most obvious example of such a tradeoff would be for Australia to stick to its demand that the U.S. accept its refusal to sign on to an investor-state dispute settlement (ISDS) mechanism, also excluded from the bilateral FTA with the U.S. In TPP, the U.S. is seeking to include ISDS for all parties. But the government of Australian Prime Minister Julia Gillard has taken the firm position that it will not seek ISDS in any trade agreements that Australia negotiates.

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But the tradeoff may not be as clear cut when it comes to other existing bilateral FTAs. For instance, Mexico excluded oil and gas production from investment liberalization in the North American Free Trade Agreement (NAFTA). If the U.S. demands that Mexico open up all sectors of its economy to foreign investment in TPP, it could seek payment if Mexico refused. The NAFTA carveout for investment in Mexicos oil and gas sector is due to the monopoly of state-owned oil firm Pemex, which is enshrined in the Mexican constitution. The U.S. could demand that Mexico offer additional concessions when it comes to certain TPP disciplines, or it could seek to preserve an exclusion it took in NAFTA. One observer here even speculated that the U.S. could seek payment in an area outside TPP or NAFTA, such as an agreement by Mexico to end litigation in World Trade Organization disputes over U.S. country-of-origin labeling requirements or the U.S. dolphin-safe labeling regime. But another observer here said it would be hard to imagine that WTO disputes could be viewed as a tradeoff for issues arising in TPP. This observer speculated that such tradeoffs may be limited to issues being discussed in the TPP context. The unilateral U.S. certification requirement has resulted in a situation in which FTA partners have their draft legislation necessary to implement their FTA obligations reviewed by the Office of the U.S. Trade Representative for compliance. This procedure was most recently used in U.S. FTAs with Korea, Colombia and Panama. Sources said this process was not used in the case of the U.S.-Chile FTA, which is one of the reasons why some in the U.S. have continued to maintain that Chile's domestic law for implementing some of its FTA obligations in the area of intellectual property does not fully comply with the terms of the agreement. An alternative approach that could satisfy the critics of the U.S. certification requirement would be to stipulate that TPP would enter into effect a specific period of time such as three months after completion of domestic ratification procedures in each country. A threshold could be set so that TPP would enter into force for the countries that have completed their domestic ratification procedures once a certain proportion -- be it one-half or two-thirds -- of signatories have completed those procedures. A similar approach would be for countries to notify a TPP secretariat that they have completed their domestic ratification procedures through a formal instrument of acceptance or ratification. TPP would go into effect once a certain proportion of signatories had submitted their instruments of acceptance. This is a common approach for bringing international agreements into force, including in the trade arena. For instance, the revised Government Procurement Agreement that parties negotiated in 2012 will enter into effect once two-thirds of signatories have submitted their instruments of acceptance.

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