Trans-Pacific Partnership (TPP) Agreement is a free trade agreement (FTA) seeking to establish new trade and investment opportunities for 12 countries on the Pacific Rim: Australia, the US, Japan, Malaysia, Vietnam, Singapore, Brunei, New Zealand, Canada, Mexico, Chile and Peru.
For Australia, the TPP is intended to break precedents of existing free trade agreements in terms of scope and new market access opportunities for exporters and investors. The TPP sets timelines to cut tariffs and financial levies on goods, and includes a range of agreements to make cross-border investing easier and more frequent.
The Australian Department of Foreign Affairs and Trade (DFAT) states that TPP aims to “address contemporary trade challenges in ways that have not previously been addressed in Australian FTAs, such as commitments on state-owned enterprises” in order for Australian exporters to compete on a level playing field internationally.
While the TPP is planned to come into force with 12 countries, the agreement allows for additional countries to join the agreement in the future. A significant criticism of the TPP is that it is more a security instrument to guard against the perceived economic strength and influence of China, rather than a genuine economic blueprint for trade reform.
An FTA is an international treaty that facilitates strong commercial ties between two or more countries through the removal of barriers to trade. Many countries throughout the globe have networks of FTAs. It is claimed that an effective FTA can provide numerous benefits to the countries participating, such as increasing a country’s gross domestic profit (GDP); growing and strengthening businesses by increasing their export revenue; and providing citizens with access to cheaper imports and new technologies.
Australia currently has 10 FTAs in force, which constitute 67 per cent of Australia’s total trade. The countries within these agreements span: New Zealand, Singapore, Thailand, US, Chile, the Association of South East Asian Nations (ASEAN) (with New Zealand), Malaysia, Korea, Japan and China.
Criticism of Australian FTAs have included the secrecy in which these agreements are negotiated and questions as to whether manufacturers are losing their competitiveness in the Australian market through importing cheaper goods – with opponents to FTAs questioning whether they are better dubbed “import agreements”. Specific clauses within FTAs can also cause concern among citizens due to the power they grant corporations.
FTAs are explicitly allowed for under World Trade Organization (WTO) rules.
On 1 December 2011, the Tobacco Plain Packaging Act 2011 became law in Australia. Philip Morris Asia challenged the tobacco plain packaging legislation under the 1993 Agreement between the Government of Australia and the Government of Hong Kong for the Promotion and Protection of Investments. This was the first investor-state dispute brought against Australia. The arbitration was conducted under the United Nations Commission on International Trade Law Arbitration Rules 2010, and the tribunal was composed of three arbitrators.
On 18 December 2015 the tribunal issued a unanimous decision agreeing with Australia’s position that the tribunal has no jurisdiction to hear Philip Morris Asia’s claim. However, the decision hinged on the fact the tribunal found that Philip Morris Asia’s claim was an abuse of process because Philip Morris Asia acquired an Australian subsidiary, Philip Morris (Australia) Limited, in early 2011 in full knowledge of the government’s decision in 2010 to introduce plain packaging.
The full plain packaging arbitration can be accessed on the Attorney-General’s Department website.
On 5 October 2015, then-Australian Trade Minister the Hon. Andrew Robb issued a summary document that highlighted the industries intended to benefit from the TPP. Below is a summary of the industries and outcomes, the full summary can be accessed here.
Sectors forecasted to benefit
Agriculture: The TPP will eliminate tariffs on more than $4.3 billion of Australia’s dutiable exports of agricultural goods. A further $2.1 billion of Australia’s dutiable exports will receive significant preferential access through new quotas and tariff reductions. Australia exported around $16.7 billion worth of agricultural goods to TPP countries in 2015, representing close to 34 per cent of Australia’s total exports of these products. The industries listed include: beef, sugar, rice, dairy, cereals, wine and seafood.
Resources and energy products: Australia’s exports of resources and energy products to TPP member countries are worth over $38 billion. This includes around $33 billion of resources and energy exports to Japan. While the majority of Australia’s major exports, such as coal, iron ore and liquefied natural gas already enter TPP countries duty-free, the TPP has secured additional market access. These include certain tariff eliminations in Vietnam and Peru.
Manufactured goods: Australia’s exports of manufactured goods to TPP countries were worth an estimated $20 billion. Products that stand to benefit from the elimination of tariffs or duties include: iron and steel products, pharmaceuticals, machinery, mechanical and electrical appliances, automotive parts, paper and paperboard.
Business (general): Australian businesses will now be able to bid for tenders to supply goods (such as pharmaceutical products, electronic components and supplies) used for government purposes in Brunei Darussalam, Canada, Malaysia, Mexico, Peru and Vietnam.
Professional services: The TPP will liberalise key barriers to providing more transparent and predictable operating conditions in TPP countries, and capturing future services sector reforms. Sectors that will benefit include: financial services, education services, transport services, telecommunications services, health services and hospitality and tourism services.
Sectors forecasted to face challenges
Medicines and pharmaceuticals: The treaty gives global pharmaceutical companies the power to extend their patents in order to inhibit competition by shutting out cheaper generic manufacturers and prevent subsidy programs that keep drugs affordable in Australia. Medicines Australia has released a statement saying the outcome of the TPP is disappointing and, “a missed opportunity to stimulate and grow the Australian biopharmaceutical industry”.
Environmental protection: The ISDS provisions have also caused concern among environmental groups, stemming from high-profile international cases where coal and fracking companies have used the ISDS to overturn environmental restrictions.
Local job markets: Tariff elimination under the agreement may make it more appealing for corporations to outsource jobs to TPP countries where wages are lower.
Now that negotiations have concluded, the next step is for the individual countries within the agreement to ratify it according to their national procedures before February 2018. The ratified documents will then be deposited with the Government of New Zealand. In Australia, the final ratification of the agreement will take place after the implementing legislation has been passed by both the House of Representatives and the Senate. The TPP is planned to come into force two months after all the original signatories complete their own domestic ratification procedures.
Negotiations for the TPP started under Labor and have been continued under the Coalition. The Coalition remains confident that the TPP will increase Australia’s economic growth, and provide jobs for Australians. Labor has also welcomed the finalised negotiations but has said it “opposes the inclusion of Investor State Dispute Settlement provisions in all trade agreements.” The Greens oppose the TPP largely on the basis of the ISDS. Independents, such as the Nick Xenophon Team and One Nation, also oppose the TPP, which could mean there will be resistance to ratifying the agreement in the new Senate.
The TPP will come into effect if at least six of the 12 member countries ratify the agreement, and if the ratifying countries have between them at least 85 per cent of the total GDP of the original 12 member countries. Most countries in the agreement have two years to ratify.
The major hurdle that would cause the agreement to fall down is if either the US or Japan do not ratify the agreement. Together, the US and Japan have just under 80 per cent of the total GDP of the signatories.
While President Barack Obama has been a strong force in supporting and progressing the agreement, the future of the US’s support is unclear. Given it is an election year in the US, it is likely there will be no movement with the TPP until after the November elections. US Republican presidential candidate Donald Trump has been vocal in his plans to dismantle the TPP, saying the agreement would ship millions of US jobs overseas, undermine the US economy and undermine the US’s independence.
Democratic presidential candidate Hillary Clinton’s stance is less clear on the agreement. While she has previously supported the idea and said a global economy needs trade, the TPP in its current iteration has led her to state it does not meet her standards. The TPP has largely been left off the agenda of her 2016 campaign, so the US’s future support of the TPP is followed by a question mark.
While there have been some sectors strongly opposing the TPP in Japan – notably farmers who fear the competing prices of US and Australian imports – the government’s support of the deal is predominantly positive. In July 2016 a number of Japan’s top business leaders urged the Japanese Prime Minister Shinzo Abe to seek ratification as early as possible, hoping it would spur the member countries to ratify if Japan ratifies first.
Lowy Institute for International Policy Research Fellow Aaron Connelly says “There is no higher priority for the Obama Administration during the lame duck session than TPP; they have been whipping votes for the agreement for the better part of a year, and they seem confident that it will pass if the leadership in both houses brings it to a vote.
“In the House, Speaker Paul Ryan is strongly pro-TPP, and will certainly bring it to a vote and whip votes for it. In the Senate, the Republican leadership has been less supportive at times… but I think will ultimately be motivated to move the agreement, particularly if they lose their majority in November and thus see a closing window to use passage of the agreement as leverage on other issues.
“It will be difficult to garner Democrat votes for the agreement in either House, because the party has turned so hard against trade over the past decade, and indeed even more sharply over the past year. But a combination of White House pressure, conscience votes by moderate members who are retiring or have lost their seats, and increased information about the agreement — which is one of the most progressive and labor-friendly to come before either house — may attract more Democrat votes for TPP this year than TPA did last year.”
Mr Connelly says, “If TPP does not pass during the lame duck session in November, it is dead. There will be no renegotiation, as Australia and others have said this is not possible from their perspective, and the politics of the issue in the United States will probably not allow Secretary Clinton to agree to it should she become president. The chances of a Trump presidency remain extremely low despite irresponsible media reports to the contrary, but it would likely be dead in that event as well.”
If the TPP is dropped, this would likely lead Australia to looking for other or similar free trade agreements. University of Sydney Law School Adjunct Professor and Herbert Smith Freehills Partner Donald Robertson says “The TPP has never been an end in itself, but always a step towards a larger goal of a Free Trade Area of the Asia Pacific. That larger goal will remain, regardless of the fate of the TPP.
“Australia is actively negotiating many bilateral investment agreements as well as the Regional Comprehensive Economic Partnership which will become, if the TPP is not in effect, the foundation document for other regional integration. That integration continues, with Australia an active participant in the process.
“Regional integration must continue if Australia is to have a role in the Asia Pacific value chain cluster, and of other global clusters. The technological and other economic forces that have been identified will not disappear – like all economic forces, if you hide from them they have a tendency to burst out elsewhere, with unexpected and uncontrollable consequences.
“Australians can remain sceptical about the benefits of such mega-regional deals, but they should not show paranoia about China or any other nation and must demonstrate a global or “cosmopolitan” frame of mind that eschews nationalism and acknowledges the importance to ourselves of the welfare and interest of other nations with whom we trade in the global value chains.”
The release of the TPP Agreement explained follows the February 2016 signing of the proposed agreement. The paper discusses the pros and cons of the free trade agreement, the likelihood the agreement will be ratified, and what Australian's can expect to see from here.