April 14th, 2016:

http://www.lexology.com/library/detail.aspx?g=9a46cdea-d6d9-4dd3-9439-ca4f170cbde9

Originally published by the Global Trade and Customs Journal

Volume 11, Issue 4, 2016 with permission of Kluwer Law International.

As in many of the other nations who are parties to the Trans-Pacific Partnership Agreement (TPP), the negotiations leading to agreement on the TPP and its subsequent announcement evinced some widely divergent views in Australia. These views ranged from the ‘fear and loathing’ position to the ‘welcome with open arms’ position between which is a large proportion of the population who have little idea on what the TPP means and generally do not care – as has been the case with all of Australia’s Free Trade Agreements (FTA). However, even within that largely disinterested group, there is an increasing level of concern in Australia with some elements of the TPP and the wider FTA agenda more generally which I will discuss in more detail below. The purpose of this article is to provide the briefest of summaries of the Australian FTA agenda generally, how the TPP fits into that agenda and how it will be endorsed and implemented in the Australian context, including how that implementation could be improved compared to what has happened with other Australian FTA.

MY PERSONAL AND PROFESSIONAL VIEWS ON THE TPP

In a number of instances, articles on trade and legal developments are written from an academic ‘distance’. In this case I thought it would be dishonest for me to do so. I am a director of the Export Council of Australia (ECA)1 with responsibility for Trade Policy as well as a director of the Food and Beverage Importers of Australia (FBIA)2 and both organizations have been active and vocal proponents of Australia’s Trade Policy and FTA agenda. In fact, in my ECA capacity I appeared in a number of TV and radiointerviews to discuss the TPP in which I was positive as to the opportunities arising from the TPP. I have expressed similar views in articles in the print media as well as in my own articles and in submissions and appeared before a number of Parliamentary Committees considering aspects of Australia’s FTA agenda. I am also a member of a number of consultative bodies established by government agencies to address legal, compliance and practical issues which touch on trade and our FTA agenda. This has brought me into contact with many from government responsible for negotiating the FTA who I respect and admire (and like!). Professionally, I act for a number ofclients who are importers, exporters and service providers in the supply chain who will benefit from the TPP.

Consequently, it would not be unexpected to surmise that I am a fan of the TPP. Any agreement between twelve trading nations to create a new regional trade deal is more admirable and the TPP needs to be seen as ‘TPP1.0’ which both provides benefits and also sets a framework for a wider and more comprehensive agreement as well as keeping up the pressure to encourage other FTA. Yes, the TPP could be better and every FTA could be better, however it needs to be recognized that, like most commercial deals, no one party gets everything they want and every deal requires the art of diplomatic compromise. I think that the esteemed Peterson Institute for International Economics best summarizes the TPP when it describes it as ‘a notable accomplishment “and” a substantial positive response to slowing world tradegrowth and rising trade barriers and a major contribution towards a rules-based global economy’.3

That said, I am by no means blind to the shortfalls in the TPP and other FTAs. I have been actively engaged in work to improve their implementation and defend those whose use of the FTAs may not have been perfect and whoare facing compliance and enforcement action by the border agencies. I have also been an opponent of the increase in legislation and practices adopted here in our anti-dumping and countervailing regime which have the appearance of being biased towards Australian industry against the legitimate interests of overseas exporters, their Australian importers and Australian consumers who pay more than would otherwise be the case for goods subject to those Trade Remedies.However, all things considered I believe the positives of the TPP far outweigh any negatives both for now and into the future. It is certainly the high watermark of Australia’s FTA agenda to date.So, I would now wish to turn to the Australian TPP experience.

BACKGROUND – THEAUSTRALIAN FTA AGENDA

The Australian Federation has been in place for 115 years, for about half of which time Australia adopted a largely protectionist approach to trade policy.It has only been of relatively recent time that we have embraced a more open trade policy. That has significantly escalated in the last few years.

Current FTA

Putting to one side, the TPP and a very old and rusty form of limited Trade Agreement with Canada, Australia has FTA in place with:

• New Zealand (ANZCERTA).4
• Singapore (SAFTA).5
• Thailand (TAFTA).6
• United States (AUSFTA).7
• Chile (CAFTA).8
• Japan (JAEPA).9
• Korea (KAFTA).10
• China (ChAFTA).11
• The Pacific Islands (PACER).12
• The ASEAN Nations (in conjunction with New Zealand) (AANZFTA).13

FTA under Negotiation

Australia is currently in negotiations or reportedly soon to commence negotiations with the following parties for the following FTA:

• Indonesia (IA – CEPA).14
• India (AI – CECA).15
• The ASEAN nations and those who have FTA with the ASEAN nations, including New Zealand, India and China (RCEP).16
• The Pacific Islands (a revised and improved version of the current FTA) (PACER Plus).17
• The EU.18

AUSTRALIAN OPINIONS AND CONCERNS DURING THETPP NEGOTIATIONS

As I indicated above, there were some diametrically opposed views on the TPP in Australia during the negotiations. I was witness to a number of polite public protests conducted by small groups during consultations undertaken by the Department of Foreign Affairs (DFAT) as our lead negotiating agency. There were more protests conducted during the negotiating round which took place in Melbourne, where the police and security presence far outweighed the numbers of protestors. The concerns of the interest groups raising the protests and other objections in Australia seemed to mirror those who objected elsewhere in the TPP nations, although they were nowhere as strident as in the US. I was in Washington DC in June 2015 along with an Australian- American Chamber of Commerce delegation to talk on trade issues at much the same time as the Trade Promotion Authority passed through Congress and I was somewhat surprised at the vehemence of opposition to the TPP and the prominence of those objections including posters in bus stops and flags draped over buildings. During the course of negotiations, most of the objections to the TPP seemed to focus on the following allegations:

• That Australia would not secure many benefits through the TPP as a relatively minor trading nation compared to the other nations. That reflected some ongoing unhappiness over the perceived lack of gains under the AUSFTA, especially from those in the Australian agricultural industry.
• That the sheer complexity of the deal would detract from the ability to secure any potential benefits.
• The suspicion that the negotiations were deliberately being conducted in secret without the release of negotiating text meaning that there was something to hide. Those concerns escalated when agreement on the TPP was announced without the release of the text.
• The alleged absence of useful and effective consultations.
• That Australia was further relinquishing sovereignty to the other negotiating nations and to their corporations. This was especially framed around fears on the inclusion of an Investor State Dispute Settlement (ISDS) provision and the view that the whole TPP was largely aimed at entrenching the rights of multinationals. The concern on an ISDS provision was driven by examples from overseas jurisdiction and the ‘plain packaging’ arbitration being conducted in Hong Kong against the Australian government by the tobacco industry pursuant to a venerable Investment Agreement after the tobacco industry had lost its legal challenge in our High Court.19
• That the US would overwhelm the Australian opposition to the US position on intellectual property, especially in the pharmaceutical arena with the effect that US Biologics would be granted a longer term of IP protection than that which would otherwise be afforded in Australia, causing an increase in healthcare costs.
• It would allow the unrestricted sale of Australian property and other assets to corporations in other TPP nations with the effect that Australia would ‘no longer be for Australians’.
• It would seriously undermine the position of Australian workers by allowing lesser-paid skilled workers in other TPP nations to more readily secure visas come to Australia.

Many of these arguments and concerns had been expressed in the context of other proposed FTA, most particularly during the political and legal debates over ChAFTA.

The responses to these concerns were predictable yet also legitimate. Many of us pointed to the fact that there had, in fact, been extensive consultation on the TPP, that the absence of the negotiating text was consistent with past practice, that an ISDS provision was a legitimate concession to secure the TPP but would be carefully negotiated, that we would ‘hold the line’ on IP protection for Biologics and, importantly, that any decision to depart from negotiations would be a disaster for the remainder of our FTA agenda so that not being in the TPP would be far worse than being in a reasonable although modest TPP.

AUSTRALIAN RESPONSES TO THE ANNOUNCEMENT ON COMPLETION OF THE TPP

There was a degree of surprise when the final announcement on agreement on the TPP was made. There had been significant speculation that the deal would be struck and announced after the Ministerial meeting in Maui and the failure to reach agreement there was seen as a sign that the deal could not be done in any circumstances. The subsequent meeting was seen as adesperate measure by the opponents of the TPP and others held no optimism that it could be successful. In some ways, the announcement of a deal having been clinched blind – sided a number of parties – which could explain why the media resorted to dragging me in for comment.

The public announcement of the TPP and its ‘highlights’ received responses from Australian interests which followed their previous positions. The absence of a completed text attracted some adverse comment and fed into the conspiracy theories which swirled around the deal and was supported by the lengthy delay between announcement of ChAFTA and the eventual release of its text. My response to that particular conspiracy theory came from many years of legal practice – that given the last minute negotiations, the text was probably covered in hand – written amendments, yellow sticky notes and emoticons and it would take some time to reduce to proper and correct form.

In sweeping and general terms though, the positive outcomes for Australia significantly outweighed the allegedly negative outcomes and focussed on the following aspects:

• The mere completion of the TPP was cause for celebration as it included many of our major trading partners with whom we had FTAs and delivered improvements in our existing deals with those partners.
• The elimination of more than 98% of tariffs among the twelve countries to the TPP.20
• The elimination of USD 9 billion of Australia’s dutiable exports to TPP countries including USD 4.3 billion on Australian agricultural exports.21
• That it improved outcomes with countries with which Australia already had FTA.
• That it effectively delivered FTA with Mexico and Peru (with whom we did not have any deals) and significant new outcomes in our deal with Canada.
• The TPP was, in itself, an achievement and also set a framework for future improvements, such as the admission of other nations, potentially including South Korea and China.
• The regional nature of the deal would deliver real benefits in cumulation of work across the region and was not merely about the US. For example, significant outcomes had been negotiated to accelerate commitments to Australia by Japan and Korea under our JAEPA and KAFTA.
• The completion of the deal would place pressure on other nations outside of the deal to accelerate their own deals and further improve the trading environment.
• While some of the improvements in market access issues may have appeared to be relatively minor they were, in reality, significant. For example, our sugar industry did not get the significant increase in benefits for which it had hoped but ultimately the TPP delivered a doubling in market access which brought us up to and equal to the rights of any other country including Brazil.
• The concession on the ISDS was subject to valid limits and a rigorous regime which should assist against abuse or the types of ‘compensation’ actions which concerned many parties. Particularly there was a specific ‘carve out’ which protected against ‘tobacco litigation’.
• The inclusion of a provision to advance the interests of Small and Medium Sized Enterprises (SME) for the first time in an FTA.
• Significant advances in the chapters aiming to protect against the adverse competition effects of State – Owned Enterprises and on e-commerce which supported many contemporary trade initiatives.
• New opportunities for the energy and resources sector including in oil and gas exploration and the export of Mining Equipment, Technologies and Services.
• Enhancement of the markets for services exports across the TPP countries.
• Introducing consistency and reducing regulations across the countries.
• Significant new commitments on government procurement and environmental protection.
• Improved transparency on customs procedures and new measures to address non-tariff barriers which become so much more important as duty rates are reduced.

The recent release of a review of the TPP by the World Bank has led to some adverse comment especially in the headline comment that it would ‘only’ deliver a 0.7% improvement to Australia’s GDP by 2030.22 However, even then, there are some recognized limits to that review and it also discloses more significant benefits to other participants which, of themselves are invaluable to the region. In any event, “only” a 0.7% increase is still significant. Ultimately, being in the TPP is a superior outcome than being outside the TPP and the advantages will only increase over time.

RATIFICATION BYAUSTRALIA

Unlike some other TPP countries, the Australian Parliament does not need to ratify the TPP itself. However, there is still a process which does involvepublic and Parliamentary scrutiny:

• Following signing in New Zealand on 4 February 2016, the TPP has been submitted to the Joint Standing Committee on Treaties (JSCOT) for review together with a National Interest Analysis.23 JSCOT only reviews and does not ‘pass’ the TPP but its views and recommendations will be watched carefully as a positive report will assist the approval process.
• The TPP will no doubt be subject to review by other Parliamentary Committees in particular those in the Senate dealing with defence, economics and law.
• Legislation and regulation needed to implement the TPP will need to be passed by Parliament. Usually this includes changes to tariff rates and documentary requirements for the claim of preference under an FTA, the increase in investment thresholds before approval is required and, potentially, changes to our migration regime.

This process does permit extensive scrutiny and comment by interested parties and the public more widely. It also allows for extensive political engagement and pressure as that legislation needed to pass Parliament needs to pass both Houses of Parliament and where the government of the day may not control the Senate (our upper house of Parliament). This often requires some sort of political ‘deal’ to ensure the legislation is passed as was the case with our recent ChAFTA where controversy over the labour market provisions required passage of changes to our migration regime to ‘protect’ local skilled employment.

Now that the process has started and hearings have started at JSCOT, we are beginning to get a better view of the compromises which which may be required in Australia to secure public and political approval for the ratification of the TPP. I have already drafted submissions for the ECA and the FBIA and representatives of the service providers in the supply chain will be makingsubmissions. I look forward to that process including appearing in person before many Parliamentary committees of inquiry. There is no set time frame for this Australian process but I would anticipate about six months.

Of course, we then need to await the ratifications of the other TPP parties which may prove to be the more difficult task. The delay and uncertainty can also have the ‘knock on’ effect that those in the supply chain may not take the time to prepare for the TPP until late in the international process which would trigger commencement of the TPP. The busy Australian FTA agenda with a number of deals likely to be completed in the first half of 2016 may well turn attention (and preparation) away from the TPP.

THE IMPLEMENTATION PROBLEM

From the perspective of the ECA, the FBIA and those in the supply chain (including my clients), the implementation of FTA often poses the most problems, especially at commencement. The recent commencement of the ChAFTA has created all manner of practical issues as information was not available on practical border issues until shortly before commencement and there has been evidence of differences of opinion on rules of origin andcertificates of origin. This has not been assisted by comments from the Australian border agencies that they expect a higher level of strict compliance with the ChAFTA and border legislation requirements than may be reasonable to expect, especially in the short term when compared to the actual provisions of the ChAFTA which suggest a more ‘forgiving’ approach to compliance with ChAFTA. Which is why I would reiterate, again, what Ihave included in submissions on other FTA that there be comprehensive engagement on TPP implementation as early as possible to allow for those in the supply chain to properly prepare for implementation matched with asympathetic approach to compliance which does not penalize or prosecute inadvertent breaches of border law.

In fact, I would strongly recommend a moratorium on penalties for inadvertent breach of the law for a six-month period as we had with the AUSFTA.We live in interesting times and I seriously hope that the potential FTA ‘fatigue’ and lack of resources to agencies in implementing the TPP do not detract from its significant benefits.