The Trans-Pacific Partnership

In October, trade ministers from 12 Pacific Rim countries agreed to the largest trade accord in history, the Trans-Pacific Partnership (TPP). The combined economies of its members (the US, Japan, Malaysia, Vietnam, Singapore, Bru¬nei, Australia, New Zealand, Canada, Mexico, Chile, and Peru) account for around 40 percent of the world economy. However, with a trade agreement as encompassing in scope, and with objectives as ambitious as the TPP, it is inevitable that issues regarding implementation and enforcement will arise. Furthermore, with a deal attempting to represent the competing interests of 12 countries, it is inevitable that not all members will derive equal benefit. 

Countries whose primary exports consist of goods and services in the automotive, agri¬culture, clothing and textiles, and electronics sectors are expected to receive significant benefit from the TPP. As a result, the US, Ja¬pan, Vietnam, Australia and New Zealand are touted as the primary beneficiaries of the deal. Whilst many suggest that US farmers and Jap¬anese car manufacturers stand to receive the most benefit from the deal, regional research institutes have indicated that Vietnam is set to prove the biggest “winner” of the TPP. Current¬ly, the US remains Vietnam’s largest market for its primary export, clothing and footwear, with imports of these goods currently taxed be¬tween 17 and 32 percent by the US authorities.

Therefore, a tariff-free access to the US textile market would result in significant commercial gains in Vietnam, with experts anticipating income gains of 14 percent and an export in¬crease of 32 percent. 

Non-TPP members are expected to experience challenges. The main concern stems from the possibility that trade may be diverted away from non-TPP members, given the reduced trade tariffs enjoyed by TPP members. In the case of South Korea, shares in Hyundai Motor Company and Kia Motors Corporation, both South Korea-based car manufacturers, fell by five percent following the TPP agreement an¬nouncement. The drop in share price is widely attributed to concerns over Japan’s new com¬petitive advantage over South Korea within the US automobile market, in the form of reduced export tax. Furthermore, countries such as Bangladesh, Cambodia, Pakistan, Sri Lanka and India are expected to experience increased competition from Vietnam with regards to tex¬tile exports to the US. 

The US government has made much of the pro¬gressive and enforceable nature of the TPP’s proposed labour-related guidelines, anti-corrup¬tion measures, and limitations on state-owned enterprises (SOEs). On labour, TPP-members are required to meet labour standards as set out in the International Labor Organization’s (ILO) Declaration on Fundamental Principles and Rights at Work. US officials have repeated¬ly stressed that these proposed standards on labour are enforceable. TPP members are also required to accede to or ratify the UN Conven¬tion Against Corruption. Additionally, members are required to adopt legislation and regulation which criminalise bribery and deter potential conflicts of interest. Lastly, the TPP includes provisions to reduce the leverage wielded by SOEs when competing for public procurement contracts. Specifically, the US government has stated that the TPP will include the “first-ever disciplines to ensure that SOEs compete on a commercial basis”. 

These provisions are widely regarded as ambi¬tious. For instance, enforcing ILO standards on countries such as Vietnam and Brunei would require a legislative overhaul given the issues of worker exploitation and widespread use of child labour in these countries. Furthermore, this provision may prove challenging for mem¬bers who rely on cheap labour to attract for¬eign investment. On the issue of corruption, the majority of TPP members do not have effective anti-corruption measures in place, particularly in Mexico, Peru and Vietnam. With regards to limitations on SOEs, the TPP is un¬clear on its proposed mechanisms to curb un¬fair advantage maintained by SOEs. Countries such as Malaysia, which rely on the use of its state-funded trade initiatives and SOEs such as Petronas, a state-owned energy company, have stated that their SOEs would be “exempt¬ed” from the TPP. Other member countries have yet to agree. 

Official US documentation on the TPP has re¬peatedly emphasised that these provision will be “enforceable”, especially provisions relating to labour and corruption, but no clear indication has been provided on how contraventions of these provisions will be settled. The invest¬ment chapter of the TPP includes a provision for the use of a private arbitration system to settle disputes between companies and mem¬ber states in the event that a contravention of the TPP results in losses. However, discus¬sions have not started on the composition or location of this private arbitration system. This may prove challenging for members as repre¬sentatives have to pass the TPP through their respective legislatures. This will prove particu¬larly difficult, due to TPP’s apparent implica¬tions on national sovereignty.