The Trans-Pacific Partnership (TPP) is a free trade agreement between twelve countries around the Pacific Rim: the United States, Canada, Australia, New Zealand, Japan, Singapore, Malaysia, Vietnam, Mexico, Chile, Peru and Brunei. It is unrivalled in the breadth of its inter-regional scope, designed to bring together key Asia Pacific countries with North and South American countries and seeking to liberalise trade in nearly all goods and services.
The states involved together constitute at least 40% of global GDP, and trade between these states amounts to more than 20% of global trade volume.
A number of other states have expressed interest in signing up to the agreement now that it is finalised, including Taiwan, South Korea, Thailand, India, Costa Rica, Bangladesh, Indonesia, the Philippines, Laos, Colombia and Uruguay.
The TPP is likely to be of enormous significance for the dynamics of global trade flows across almost every industry sector. It is more than an traditional Free Trade Agreement, and encompasses a set of trade rules that will govern cross-border trade and markets well into this century.
The TPP is one route towards a free trade area of the Asia-Pacific and cannot be seen in isolation from other regional and global moves towards free trade.
China is not currently part of the TPP negotiations. Like other regional states, China is actively pursuing trade and investment agreements. The Regional Comprehensive Economic Partnership (RCEP) is not a competing, but a complementary, trade and investment agreement.
The TPP will result in the removal of the vast majority of tariffs and trade barriers around the Pacific, introducing measures to create a preferential trading environment between the signatory states. Importantly, the Agreement will cover not only trade in goods but also trade in services.
The agreement is relevant to almost every key sector in which our clients operate. It is aimed at reducing - and ultimately eliminating - trade barriers around the Pacific region, going far beyond the commitments made through membership of the World Trade Organisation.
The TPP is expected to impact on most industry areas and is relevant to almost every key sector of the global economy. This is due to the breadth of the commitments required of the signatory states: the agreement is expected to introduce high-level measures like investment protection mechanisms, as well as detailed, sector-specific reforms, such as harmonising regulation directed at e-commerce and customs regulations relating to agricultural products.
The sectors which will be significantly impacted include:
- Energy, such as through preferential trading arrangements, as well as changes in cross-border service provision, environmental standards and the conduct of state-owned enterprises,
- Technology, media and telecommunications, such as through new intellectual property regulations, data protections rules and access regimes for telecommunications providers,
- Consumer products, such as through changes in e-commerce rules, sanitary and phytosanitary standards and customs regulations,
- Mining, such as through changes in labour standards and environmental standards,
- Infrastructure and transport, such as through changes in government procurement regimes and visa regulations for workers providing technical cooperation,
- Financial services, such as through changes in cross-border service provision, e-commerce rules and data protection regimes, and
- Pharmaceuticals and healthcare, such as through the removal of protectionist domestic regimes and new rules regarding patent recognition.
For further analysis of the text by sector please refer to the impact by sector and issue sections on our TPP hub page.
States will likely be required to amend their domestic legislative and regulatory regimes to be consistent with the commitments in the TPP (although this may happen over the course of a transitional period). They will also be required to take these commitments into account in creating new legislation, regulations and trade policies going forward.
Beyond the anticipated economic impacts of the agreement, the TPP is expected to mark a geo-political reorientation towards the Pacific, operating as a framework for enhanced integration and cooperation between the signatory states. The breadth of the coverage of the agreement, connecting major Asia-Pacific economies with North American and Latin American powers, will create a regional bloc of unparalleled significance.
Legal and regulatory impacts
One of the most contentious chapters in the TPP is found in chapter 9 in relation to Investor-State Dispute Settlement (ISDS) provisions. ISDS provisions allows investors from the signatory states (whether individuals or corporations) to bring a claim for compensation or other relief directly against another signatory state where an investment in the host state has been subject to treatment that breaches the investment protections set out in the TPP. This is a well-established mechanism found in bilateral and multilateral investment treaties that assists investors in safeguarding their investments against certain political, regulatory, judicial and other state-driven risks that are especially significant in cross-border transactions.
Arguably the most significant feature of the TPP, however, is the substantial commitments made by the parties towards harmonising regulation across the region on a vast range of trade-related issues. These include investment protection mechanisms, labour and environmental standards, intellectual property regulations, data protection rules, government procurement regimes, sanitary and phytosanitary standards, and rules to regulate the behaviour of state-owned enterprises.
Creating a near uniform regulatory regime on particular issues amongst such significant economies may contribute to a new mode of global governance, establishing new, influential regulatory norms with impacts across the region and beyond.
One means by which this is done is through the concept of regulatory coherence, by which member states are encouraged (chapter 25) to engage in best practice regulation.
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2021