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Vol. 33 No. 1 — Jan/Feb 2016

The TPP is being presented by the Obama administration as a “new, high-standard trade agreement that levels the playing field for American works and American businesses.” It reduces the costs of U.S. goods and services in overseas markets by eliminating or cutting taxes and tariffs, lessens trade barriers, promotes ecommerce and an open internet, and encourages good governance and anticorruption efforts among the TPP countries. It also has protections for labor, the environment, digital freedom, and intellectual property. The U.S.’ goal for the agreement is to make “sure our farmers, ranchers, manufacturers and small businesses can compete ... in some of the fastest-growing markets in the world.”

4,500 Pages

Beyond those laudatory statements, however, the devil is in the details. And the TPP is an incredibly detailed and complex document. Amounting to more than 2,000 pages of text in 30 chapters, along with an additional 2,500 pages of appendixes and supplementary material, the comprehensive document covers a very wide-ranging set of goals and aspirations. As it’s a multi-nation agreement, each country will be required to take on a number of actions, many of which will warrant changes in its domestic law, long-standing policies and practices, and/or respective economic structures.

The leading chapters’ and political emphasis is on enhancing the international trade in goods, while the U.S.’ focus is on improving the markets for the sale of “Made in America” products abroad. One of the most substantial goals of the TPP would be to reduce taxes and tariffs on U.S.-made goods. According to the USTR, the U.S. exported more than $600 billion worth of U.S.-manufactured products to TPP countries in 2013 (the most recent data available). Many of those items are subject to import tariffs of as much as 40% by the receiving country. Tariffs are a common, if controversial, economic tool used by nations to impose a surcharge on imported or exported products. The intent is often to protect domestic producers of a particular item by increasing the cost of imported goods. As countries apply taxes and tariffs to various products, prices may be artificially raised (usually) or lowered (occasionally). Economists often characterize tariffs as inconsistent with free markets, and they are often seen as anti-consumer and leading to higher prices.

‘On the Broadest Possible Basis’

The TPP would target this issue by eliminating or reducing tariffs “on the broadest possible basis.” The TPP’s Annex 2-D lists tariff commitments for all 12 TPP partners, and the USTR emphasized planned tariff reductions on areas in which the U.S. has strong markets, including agricultural exports, industrial machinery, precision and scientific instruments, chemicals and plastics, automobiles and auto parts, and clothing and textiles. These commitments would allow U.S. products to be sold more competitively within the TPP countries, expanding the markets for those goods. Of course, the U.S. has made its own commitments to tariff reductions, although, in general, it has lower tariff rates than many TPP partners. The TPP is also expected to lessen trade barriers through other mechanisms, including reducing non-tariff discrimination such as quotas, trade restrictions, and the advantages often given to state-owned enterprises.

The service sector is also a key focus of the TPP. Some support for services would be achieved by the reductions in tariffs, quotas, and trade restrictions that are applicable to goods. In addition, the TPP would provide for additional levels of transparency, funds transfer, and the liberalization of TPP financial and insurance markets. Service providers would not be required to establish an office in a TPP country in order to do business there, and the TPP would promote the cross-border use of electronic payment services and electronic signatures.

The chapter on intellectual property was leaked a few days after the October agreement was reached and was posted to WikiLeaks. It has been widely reported on. [See “The Trans-Pacific Partnership and Intellectual Property” in the December 2015 issue of IT. —Ed.] The official version largely confirms the WikiLeaks version. The TPP’s intellectual property chapter covers patents, trademarks, copyrights, and the enforcement of intellectual property rights. Among the more critical provisions was broad language that would allow patents to be available for “any invention ... in all fields of technology, provided that the invention is new, involves and inventive step, and is capable of industrial application.” This section is largely seen as following U.S. law, including recent U.S. Supreme Court decisions restricting patents on software and products of nature. The TPP would also mandate that partnership countries implement trademark protections for domain names, including anti-cybersquatting remedies, similar to the U.S. Anticybersquatting Consumer Protection Act.

The TPP’s copyright provisions also largely follow U.S. law. They include a minimum copyright term of life of the author plus 70 years, as is the case for U.S. copyrights, and encourage a better balance between copyright holders and users, with a recommendation—but not a requirement—that countries enact fair use provisions. The TPP would also call for notice and takedown systems and anti-circumvention provisions similar to those in the Digital Millennium Copyright Act to protect copyrights in the digital environment and would provide for the closing of loopholes that facilitate counterfeiting.

Ecommerce

Ecommerce also gets an extensive discussion, with the USTR asserting that the partnership “will put in place the most comprehensive set of rules ever negotiated addressing digital trade and the promotion of Internet-based commerce.” Included among the specific proposals are commitments not to impose customs duties on such digital products as software, music and video downloads, and ebooks, as well as to provide non-discriminatory treatment of digital products transmitted electronically. The proposal also seeks to eliminate barriers to cross-border data transfers, but with concurrent obligations to protect personal information from misuse. TPP countries could not force businesses to maintain a computer infrastructure in each market, but could allow the use of centralized network centers. Nor would businesses be required to provide software’s source codes or encryption technologies as a condition of selling it in the country, with a few exceptions when modifications are needed to comply with local standards. Finally, TPP countries would be required to adopt and enforce legal and technological measures to prevent email spam.

Reflecting concerns about global commerce and the environment, including issues of climate change, air and water pollution, illegal trade in endangered species, and the sustainable use of natural resources such as timber and fish, the TPP has a number of environmental objectives. These include the promotion of alterna- tive energy and environmen tal protection infrastruc ture such as solar panels, wind turbines, and air and water treatment technology through the elimination of tariffs and trade barriers. The agreement also provides for better protections of endangered and threatened species, increased efforts to combat trafficking in illegal wildlife and wildlife products, and more effective enforcement of existing environmental laws, including multi-country treaties.

Fostering Investment

A challenge for several developing TPP countries is fostering investment in domestic operations and facilities, particularly by U.S.-based businesses and investors. The agreement has several objectives that are intended to protect and encourage investment in TPP countries, including “most-favored- nation” treatment of TPP partner investors. This means that investments coming from other TPP countries would be given the same treatment and benefits that domestic investors would get and would receive no worse treatment than the country would give to any non-TPP investors. TPP partners would provide protection against seizure of property without compensation, similar again to that which is required by U.S. law. Investors would not have to appoint senior managers from the host country, absent a particular business need.

There are provisions in many of the chapters for improved transparency and dispute-resolution practices. These include requiring open and public hearings for disputes over investments; objectives to discourage and dismiss frivolous lawsuits; allowing for rights to collectively bargain and provide mediation and neutral arbitration for labor disputes; and the formal publication of laws, regulations, and statutes, especially those that impact trade and investment. Of particular concern was ensuring that state-owned enterprises compete on a level playing field with private enterprise at both the domestic level and within the broader TPP. Specific protections would require that states make purchases and sales based on pure commercial considerations rather than on the basis of state ownership and would provide restrictions on subsidies to state-owned companies.

All of these are the aspirations of the TPP. The reality is still a substantial distance off and also very uncertain. Trade agreements have long been controversial. While often presented as being good for American jobs and businesses by opening up foreign markets to U.S. projects through the reduction of protectionist barriers, they are equally criticized and feared for allowing business interests to be prioritized over local interests. These concerns include the assertion that U.S. jobs will be exported to countries with lower labor costs and that business considerations will negate environmental, privacy, and other social issues. The initial reaction to the TPP shares elements of those ideas. Rep. Mark Pocan (D-Wis.) was quoted in The Washington Post as saying, “In the end the TPP was worse than we thought it would be.”

Copyright-user groups have focused on the provisions of the TPP that mirror U.S. copyright law and that they argue embody the worst of U.S. law, including the life plus 70-year copyright term, the protection of digital rights management, and a provision that recommends, but does not require, the adoption of the copyright user-focused Fair Use doctrine.

Unconstitutional?

Other critics have focused on provisions that would purport to allow foreign investors to use private arbitration panels to resolve disputes. The intent behind the provisions is being presented as laudatory. While courts in the U.S. are seen as open, independent, and transparent, that is not necessarily the case in some other TPP countries. The use of private arbitration panels is viewed as providing security against local court protectionism. However, critics say the flip side of this system is that it could allow foreign companies to sue state and local governments—and win such suits—in cases in which new laws (such as for environmental protection, wages, hours, or antidiscrimination) allegedly undermine the “expectations” of the investors. Such suits would be heard not in U.S. courts but in tribunals. Critics say that these provisions would harm U.S. interests and potentially be unconstitutional.

Notably absent from the TPP is China, which is now the world’s second largest economy by gross domestic product. While China has been identified as having an interest in the TPP and has participated in other multinational trade agreements, it is not one of the 12 parties. There have been arguments that one purpose of the TPP is to provide a collective response to the growing influence of China on the economies of the Pacific Rim, suggesting a strength-in-numbers theory.

Ratification

The realization of the TPP’s goals and aspirations will take extensive time because of actions required by the U.S. government, particularly Congress, and the governments of the TPP member nations as well as some amount of work-in-progress time after it is enacted—if it is enacted. Similar to all international agreements, the TPP must be ratified by the U.S. Senate before it becomes the law of the land. While it has some level of bipartisan support, including from influential Republicans as well as the Obama administration, the concerns and criticisms that have emerged may slow down or stall the ratification process.

Even if the agreement is ratified, Congress may be required to enact new laws and/or amend existing laws to bring U.S. law into compliance with the TPP. More critically, the other member countries will have to do the same, i.e., ratify the TPP according to their own internal processes and then enact new laws or change existing laws in order to implement the agreement. The scope of legal changes required also varies considerably depending on the country.

Trade agreements have a huge impact, and, consequently, are hugely complicated and often hugely controversial. The TPP fits squarely into all three categories.