The Trans - Pacific Partnership Agreement - Commitments above WTO Level - An Analysis

A new promotion of trade liberalization in the Asia-Pacific Region was concluded. Vietnam is counted to be the largest beneficiary of the trade pact among 12 countries of the Trans-Pacific Partnership Agreement by adding an additional increase of 13,6% to its GDP.

The TPP was originally known as the Trans-Pacific Strategic Economic Partnership concluded in 2006 among Singapore, New Zealand, Chile and Brunei (P4 agreement) as a means to promote trade liberalization in the Asia-Pacific Region. The name indicates that the original purpose of the agreement was only to address economic iss-
ues. As the number of participating countries in the P4 agreement increased, starting with the United States (US) in September 2008 and followed by countries such as Australia, Peru, Vietnam, Malaysia, Canada, Mexico and Japan by July 2013, the agreement aims to be “a comprehensive, next-generation regional agreement that libe-
ralizes trade and investment and addresses new and traditional trade issues and 21st century challenges” by TPP Trade ministers.

The TPP will not take effect unless at least six countries accounting for 85% of the bloc’s GDP ratify it. According to the Minister of Industry and Trade of Vietnam Mr. Vu Huy Hoang, the TPP would probably take effect in 2018. Alongside Japan, Vietnam is considered to be one of the largest beneficiaries of this trade pact. According to the World Economic Forum, Vietnam is predicted to have the most significant change in GDP in 2025 (i.e., 28.2%) compared with other TPP economies, RECP econo-
mies and RCEP-only economies.

Vietnam’s real income by 2025 is also forecast to increase by 10.5%, leaving Malaysia as the second highest income rising country out of the TPP members far behind. TPP will help Vietnam to make good use of international cooperation opportunities, balance relationships within key markets, approach larger markets including the US, Japan, Canada, boost import-export, reduce import deficit, and attract foreign investment. In addition, TPP will also help Vietnam’s economy allocate its resources more effectively, enabling active supports to the processes of restructuring, innovation and improving regulations, and for improving administrative reforms.

What makes the TPP the template for next generation trade agreements?

Trade Commitments in Goods

Tariff and non-tariff barriers are reduced and removed substantially across all trade in services and goods under the TPP. Import tariffs are reduced by 100% for goods traded among member states, with more than 90% being eliminated immediately when the agreement takes effect. The TPP also covers issues which have never been addressed in the WTO, including export duties, import duties for re-manufactured goods, market access for re-furbished goods, stricter regulations on import and ex-
port licensing, monopolies and goods in transit.

Lower tariff barriers from the TPP will give Vietnam greater access to large consumer markets in Japan, Canada, Australia and the US. It is estimated that the TPP will boost Vietnam's exports by over 37% until 2025. Notably, Vietnam also concluded a FTA with the EU in August, putting it on course to complete FTAs with three of its four largest export destinations - the EU, Japan and the US.

Trade Commitments in Services and Investment

All 12 member states give consent to a liberalized trade in this area. More sectors such as telecommunications, distribution and manufacturing sectors are opened in the TPP compared with the WTO. In addition, besides incorporating basic WTO principles (national treatment (NT), most-favored nation treatment (MFN), market access, and local presence), the TPP takes a negative approach, meaning that their markets are fully open to service suppliers from other TPP Parties, except otherwise indicated in their commitments (i.e., non-conforming measures).

In order to make such reservations, the member state must prove the necessity of such preservation and negotiate with other member states. If approved, the noncon-
forming measures are only limited to such list, except for measures in certain sensitive sectors which are included in a separate list. Member states are only allowed to adopt policies that are better than what they commit (ratchet principle). The TPP also includes obligations on removal of performance requirements (i.e., no conditions on local content requirements, export conditions, use of certain technology, location of the investment project, etc.) and reasonable requirements on senior manage-
ment and board of directors.

Notably, the TPP Chapter on Investment for the first time makes it very clear and transparent with regards to the MFN principle, that countries operating in multi-state regime must give foreign investors the best investment conditions of all states, regardless of the state where the investment takes place. Investors are also allowed to petition against the Government from the investment registration stage.

Textiles

Textiles are among Vietnam’s core negotiating sectors. According to suggestions by the US, negotiations on textiles were conducted separately from negotiations on market access for other goods. To be qualified for TPP preferential tariff treatment, the TPP applies the yarn-forward principle, meaning textile products must be produc-
ed in TPP countries from yarn forward. However, the TPP includes exceptions that allow (i) certain materials to be sourced from outside TPP (“Short supply list”), (ii) cer-
tain manufacturing phases (for example, dying, weaving, etc.) to be conducted outside TPP; and (iii) one country to be able to use non-TPP materials in exchange for its export of certain textile goods to another country.

Government Procurement

The TPP makes a list of government entities and agencies whose procurement of particular goods and services at a particular amount must be subject to public tender. This chapter includes NT and MFN principles, removes tender conditions favoring local tenders such as using local goods or local suppliers, conditions on technology transfer or two-way trade and investment, etc. These rules require all parties, especially Vietnam, in the context of China’s bidders predominantly win the bids with cheap offer price but low-quality services, to reform their bidding procedures and protect their own interests by disqualifying tenders with poor performance and low capacity.

Investor - State Dispute Settlement

The TPP aims at protecting investors and their investment in the host country by introducing requirements on non-discrimination; fair and equitable treatment; full pro-
tection and security; the prohibition of expropriation that is not for public purpose, without due process, or without compensation; the free transfer of funds related to investments; and the freedom to appoint senior management positions regardless of nationality. TPP also includes procedures for arbitration as means of settling dis-
putes between investors and the host state. It covers new provisions compared with existing agreements such as transparency in arbitral proceedings, disclosure of filings and arbitral awards, and participation of interested non-disputing parties to make amicus curiae (friend of the court) submissions to a tribunal.

Application of the TPP and older / existing agreements

Member states of the TPP acknowledge existing rights and obligations of each member under existing international agreements to which all TPP member states are par-
ties (for example, the WTO Agreement, NAFTA, or bilateral agreements) or at least two member states are parties. In case there is any consistency between a provision of the TPP and a provision of another agreement to which at least two TPP member states are parties, these parties will consult with each other to reach a mutually satis-
factory solution.

Please note that the case where an agreement provides more favorable treatment of goods, services, investments or persons than that provided for under the TPP is not considered as an inconsistency.

Oliver Massmann

Oliver Massmann is the General Director of Duan Morris Vietnam LLC.

Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above.

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