Opinion

James Brown
Unravelling the Trans-Pacific Partnership Agreement

Its critics describe it variously as a corporate coup against people and planet, a highly secretive process mired in controversy and bitter argument, and a tool that will allow the biggest multinational corporations in the world to circumvent democratically elected leaders.

Proponents argue that it is an essential step to maintain stability in Asia, an unprecedented opportunity to establish widespread trade rules that advance United States values, and a deal that offers the potential for truly regional supply chains that will bring increased prosperity and productivity.

Either way the Trans-Pacific Partnership is a big deal – a “mega-regional trade” as it’s being termed – attempting to fuse the economies of nearly a billion people who together account for 40 per cent of global gross domestic product.

Unravelling the TPP is no easy task. It is an extraordinarily complex endeavour whichever way you analyse it – not only because of the scope of the countries it takes in, but because of the broad range of trade issues it covers and the depth in which it addresses them. A recently leaked draft of the intellectual property provisions of the agreement ran to a chapter of 77 pages, with hundreds of permutations for the final outcome based on the various differing national negotiating positions presented so far.

Determining whether it will ever come to fruition is a complex task, too: there are hundreds of relevant variables from the vagaries of policymaking in Vietnam’s communist government through to the legislative timetable of the US congress. Conventional wisdom is that if it is to happen at all, then the TPP will be completed this year ahead of the congressional morass due to set in as the US turns to the 2016 presidential race.

Because negotiations haven’t yet been completed between the 12 countries involved in the TPP, it’s not precisely clear what could be achieved if this deal is secured. Through it’s modelling the Washington, DC-based think tank, the Peterson Institute for International Economics, estimates that the deal could add $375 billion ($US295 billion) to the income of member countries by 2025. In Australia’s case, Peterson’s analysis shows a likely increase in GDP of 0.6 per cent – a not insignificant amount in the best of economic times, and even more important as the federal government considers a declining revenue base prompted by the high Australian dollar and low iron ore prices, among other things.

TPP origins

The TPP has its origins in the collapse of the Doha round of negotiations led by the World Trade Organisation (WTO) between 2001 and 2008. Essentially, this process sought to forge agreement between the 160 members of the WTO on an expanded set of rules for international trade. A Geneva round of talks between trade ministers in July 2008 broke down when agreement could not be reached between the US, India and China on agricultural trade. The US instead sought to broaden a fledgling trade process under way between Brunei, Chile, Singapore and New Zealand. Australia signed on to the process in late 2008 along with Canada, Japan, Malaysia, Mexico, Peru and Vietnam.

There’s an important historical aspect to the TPP that needs to be understood in order to assess it – that is, the TPP is not an ordinary trade deal. Traditional trade deals have been about securing access for goods and services across international borders, and limiting protectionist national policies such as tariffs and subsidies. But in the past 30 years the work of reducing protectionism has largely, with a few notable exceptions such as the Japanese rice and Canadian dairy markets, been completed in the countries considering adopting the TPP. This is about more than just eliminating obstacles at the border – it is about more fully integrating 12 national economies and the policies that regulate them.

At the risk of sloganeering, the TPP is a modern trade agreement for a modern globalised world in which the production of goods and services is dispersed across specialised sites in multiple countries. The TPP would allow for common rules for property and process across 12 very different countries, providing the long-term stability necessary for business to invest in regional supply chains. That might mean, for example, that an electronics device could be assembled from factories spread around the Pacific, without having to worry about the origin of each part and the separate laws pertaining to it. Regulations on engineering qualifications might be standardised across the TPP countries, allowing a more seamless exchange of people and ideas. And at a simple level, annoyances to international business such as the high cost of international mobile phone roaming might be smoothed out.

Of course, whether this is a good thing depends on your perspective. A more integrated global supply chain might lift productivity within the TPP region, leading to increased economic benefit to the TPP countries. But if you are concerned about the potential for globalisation to undermine national laws, and if the chaos and poor corporate accountability of the 2008 global financial crisis still lingers, then more interdependence and exposure to multinational corporate manoeuvrings is hardly desirable at all.

Broadly, concerns about the TPP in Australia have centred on three issues: the secrecy of the negotiating process, concerns about the risks to Australia’s national scheme of subsidised pharmaceuticals, and a device contained within the agreement known as investor-state dispute settlement or ISDS. Concerns about secrecy have been largely overblown: it simply wouldn’t be practical for such a complex international negotiation to play out in the public domain, as the consumer group Choice has suggested is necessary, and lawmakers in all TPP countries will certainly see the completed text of the agreement before they vote on it. Australians, for instance, will not brook anything that jeopardises the Pharmaceutical Benefits Scheme. Trade Minister Andrew Robb recently acknowledged this in saying, “We’re not going to accept any outcome which would adversely affect our health system, end of story.” Australian negotiators previously successfully defended the PBS in trade negotiations with the US a decade ago.

But the issue of ISDS has been the most incendiary within the US congressional debate on the TPP, and justifiably needs examination. In recent weeks, Massachusetts senator Elizabeth Warren has added to the Democratic Party’s opposition to the TPP in a series of remarks about the potential for ISDS to undermine national sovereignty. Australian Labor and Green senators have echoed these concerns in parliamentary statements on the TPP. ISDS provisions in international trade deals are not new; they have been around since 1959. Australia included them in several recently completed free trade agreements with Asian partners with little noticeable public concern.

Essentially, an ISDS provision allows for a company to take a country to international arbitration – a non-court process managed by one of three main institutions, which can appoint a panel of independent arbitrators to hear the facts of a trade dispute case – if the country does something that alters the basic rules under which an investment was made. In most cases, ISDS has been designed to stop national governments from indirectly appropriating company property in countries with poorly developed legal systems. For that precise reason, Australian companies sought to have an ISDS provision included in the recently completed China–Australia Free Trade Agreement. And for the TPP, Australian companies would want additional tools to protect their investments in places such as Vietnam.

But there remains much concern that the ISDS process could be used to undermine legitimate decisions by national governments. In Australia’s case, these fears have been fuelled by the tobacco company Philip Morris’s decision to use the ISDS provisions of a Hong-Kong–Australia trade agreement to seek compensation for their perceived losses due to Australia’s recently introduced plain packaging laws. That claim looks set to fail, chiefly on technical grounds, but it adds credence to claims that an ISDS provision in the TPP would unfairly expose the Australian government to potentially costly settlements with multinational corporations opposed to legislative decisions. These concerns should be heeded but need not be fatal to the TPP negotiations. Australian trade negotiators might seek to specify, for example, that ISDS cannot be used as a response to legislation passed for legitimate health or environmental reasons.

But for now the toughest negotiating point in the TPP process is securing passage through a gridlocked US congress. Some American trade unions have promised to withhold campaign funding from any Democrat who supports the TPP and, though pro-trade Republicans hold the majority in the house of representatives, some aligned to the Tea Party will waver on a future TPP bill because of concerns trade will take away jobs. It looks likely that the process to pass the TPP will begin next month, but there are many uncertainties to be navigated.

Australia will benefit if a TPP deal is concluded. For a start, access to the Japanese agricultural market will likely be more extensive than under the recently negotiated Australia–Japan Free Trade Agreement. And the TPP will open up deeper trade opportunities in the region – particularly if Korea, Thailand and others join in subsequent rounds. But for now, it’s up to the trade negotiators slavishly poring over hundreds of pages and letter by letter, labouring to determine which national interests must be protected, and which can be negotiated away.

This article was first published in the print edition of The Saturday Paper on Mar 28, 2015 as "Reaching the TPP-ing point". Subscribe here.

James Brown
is the research director of the United States Studies Centre at the University of Sydney.