Free trade without American characteristics
Since the United States withdrew from the Trans-Pacific Partnership earlier this year, the remaining 11 members have been deciding whether and how to proceed with the U.S.-led agreement without the United States as a member. Last weekend, they formally announced their intent to pursue an agreement and set an agenda for further negotiations. Included in the announcement is a list of 20 TPP provisions they’ve agreed to “suspend” and four other issues they want to work out now that the United States is not at the table.
Despite President Donald Trump’s criticisms, the original TPP text is highly reflective of U.S. trade policy priorities. Suspending some provisions will bring the agreement, which will now be called the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP), more in line with the trade agendas of its remaining members. The suspensions also set the stage for CPTPP members to negotiate with the United States if a future administration wants to accede to the agreement.
The list of suspended provisions and negotiating topics gives us a fascinating look at what impact the United States has on global trade governance. No doubt, U.S. involvement in the original TPP negotiations shaped tariff commitments and the development of rules still contained with the CPTPP in America’s absence. But the differences between the original TPP and the new CPTPP give us a good idea of what features were solely or largely due to U.S. involvement.
Some of the suspensions make the agreement better, by removing provisions that furthered parochial U.S. interests rather than liberalizing trade. But many other suspensions make the TPP less liberalizing by eliminating pro-market rules that other countries were willing to adopt only when the United States was a dominant party. Canada, in particular, is using America’s absence to keep in place certain protectionist programs that U.S. negotiators had targeted in the original negotiations.
Let’s start with the improvements.
A large number of the suspended provisions come from the Intellectual Property chapter. The United States is well-known for its aggressive approach to IP negotiations in trade agreements, seeking to raise the level of protection in foreign countries to match U.S. law. The commitments U.S. negotiators seek are stricter than existing international standards found in IP treaties or World Trade Organization agreements, and are almost universally opposed by our trading partners.
Among the suspended IP provisions are longer patent and copyright terms, strict penalties for modifying digital locks, a notice-and-takedown system for web content and a minimum market exclusivity term for unpatented biologic drugs. These provisions are probably the first thing the CPTPP parties agreed to suspend and might be the first thing U.S. negotiators seek to have reinstated.
Another now-suspended, U.S.-demanded provision that faced staunch opposition was in the Environment chapter. That provision called on members to ban the domestic sale of products harvested in violation of foreign conservation laws. The provision models the U.S. Lacey Act, which in recent years has been abused by the U.S. lumber industry to criminalize the purchase of foreign wood. The policy represents an unsettling alliance between environmental groups opposed to resource extraction and domestic industries who benefit from increasing the legal uncertainty their customers face when buying imports.
Interestingly, while the Obama administration touted numerous innovative environmental provisions in its effort to sell the original TPP as a “progressive” trade agreement, the Lacey Act-inspired provision was the only one that was strongly worded enough to create a real obligation on the members. The only change from the original TPP text is removal of the words “or another applicable law,” but this was enough to thwart U.S. intentions and make the CPTPP Environment chapter significantly less ambitious in regulating trade than past U.S. agreements.
Based on the above suspensions, it’s tempting to claim that the CPTPP is actually better than the original TPP at promoting free trade. But that’s only half the picture.
Some of the other suspended provisions were aimed at eliminating particular anti-competitive and anti-market practices. These include increased transparency and discipline for state-operated drug-buying monopsonies (Chapter 26, Annex A, Article 3), improved procedural rights for parties challenging decisions of telecom regulators (Article 13.21.1(d)) and restrictions on the non-postal, commercial activities of state-sponsored postal monopolies (Chapter 10, Annex B, Paragraphs 5-6).
Many of the suspended provisions also show how, without the United States, other countries have more sway to push their own pet issues. This is particularly true for Canada and New Zealand, both of which have elected new governments since the original TPP terms were negotiated.
The New Zealand government’s main contribution to the suspension list is a change in the Investment chapter. Civil society groups and a growing number of national governments have sought to reform or eradicate an international arbitration system known investor-state dispute settlement. Seeking to make their mark on the TPP, New Zealand secured changes in CPTPP that will limit what kinds of investment claims can be heard by an arbitration panel.
Canada seems intent on making the most of America’s current absence. Earlier reports indicated that Canada would seek to alter TPP’s rules of origin for automobiles at the behest of its NAFTA-dependent auto parts industry. Thankfully, this issue doesn’t seem to have made the final list of negotiating topics, but that doesn’t mean it won’t come up at some point in the future.
One suspension Canada did secure was a provision related to the imposition of customs duties for small shipments. This provision was part of an ongoing dispute between the United States and Canada related to online shopping. Generally, low-value shipments are exempt from customs duties. In the United States, the de minimis level—that is, the value under which shipments can enter duty free—is currently $800. Canada’s de minimis level is an astonishingly low $20. The practical impact of Canada’s policy is to make it harder for Canadians to buy things from U.S. online retailers or auction sites.
The suspended TPP provision would not have changed Canada’s policy, but it did call for parties to regularly review the appropriateness of their de minimis levels based on certain non-protectionist criteria—likely an attempt by the U.S. to increase future pressure on Canada.
The biggest issue Canada is pushing in the CPTPP is for a “cultural exception.” Canada has a longstanding policy of using subsidies and quotas to protect its media industries from U.S. competition. Canada’s “cultural” protections violate the standard national treatment and market access commitments of a free trade agreement, but without the United States at the table, it’s easy to get other countries without a large commercial interest in Canadian media markets to agree to an exception. Canada is probably seeking to copy the approach it took in a recent trade agreement with the EU, which due to France’s similar antipathy toward foreign films, was amenable to Canada’s demands.
From the standpoint of promoting free trade, the transformation of the TPP into the CPTPP is a mixed bag—switching out the liberalization and protections sought by the United States with those of other countries. From the standpoint of promoting the U.S. trade agenda, the transformation represents a major stick in the eye to the Obama administration, which worked hard to get the other members of the TPP to sign on to contentious U.S. priorities that have now been abandoned. In any event, it’s good to see the rest of the world moving forward on trade despite the populist debacle currently preventing the United States from contributing to global progress.
