Wednesday, January 28, 2015

Key Areas Of TPP Talks At Different Stages After 30 Months Of Effort

Posted: September 5, 2012

After roughly 30 months of negotiations, the U.S. and other countries engaged in negotiations to establish a Trans-Pacific Partnership (TPP) agreement have made varying degrees of progress across the different negotiating areas. Below is a summary of where the negotiations stand on some of the key topics. For more details, please see the TPP Special Report compiled by Inside U.S. Trade staff.

State-Owned Enterprises (SOEs)

Thus far, U.S. efforts to establish disciplines on SOEs are making fairly slow progress, in part because TPP partners have been unwilling to substantively engage on this issue. The Office of the U.S. Trade Representative tabled an initial proposal last fall -- after much back and forth with U.S. industry groups – but most of the TPP work so far has consisted of the U.S. explaining its proposal to other partners.

The U.S. proposal is also encountering other obstacles. For instance, Australia is demanding that any attempt to address trade-distorting activities of SOEs must be accompanied by disciplines on agricultural export competition, which would be difficult for the U.S. government to accept. The Singapore state-owned investment firm Temasek has also objected to elements of the U.S. proposal.

U.S. industry groups have worked closely with USTR on its SOE proposal. They have pressed USTR to ensure that SOEs do not nullify or impair the market access provided under the TPP deal; that governments do not provide financing to SOEs on non-commercial terms; and ensure that SOEs follow TPP rules, among other obligations.

Intellectual Property Rights

This has perhaps been the most difficult and controversial area of the talks. The single toughest issue may be the U.S. proposal on "access to medicines," which has received a cool reception from TPP partners as well as from U.S. private-sector and civil society groups. USTR will not hold talks on access to medicines at the 14th round of TPP talks that kicks off this week, and seems to be mulling alternative approaches. At this point, USTR continues to solicit new input from stakeholders on this topic and is also still mulling how to handle IPR protections for biologic drugs; thus far, USTR has not tabled anything on biologics.

Beyond access to medicines -- which covers issues like data exclusivity, patent linkage, and patent term extensions -- the U.S. proposal on copyrights has also proven to be controversial. Earlier this year, USTR tabled a proposal on new limitations and exceptions for copyright protections, which has been praised by Internet companies but still faces significant opposition from other TPP partners, who appear to believe it does not go far enough.

Other areas under discussion include trade secrets, where USTR is pressing for language never before included in trade agreements, and geographic indications (GIs). Concerning the latter, the U.S. is trying to counter a push by the European Union to secure strong GI protections around the globe, and is working in collaboration with New Zealand and Australia. However, U.S. industry groups want USTR to go even further than it has thus far.

Environmental Protections

While not initially expected to be among the most difficult areas, the environment chapter has emerged as a formidable challenge, partly due to disagreement over the U.S. proposal to make environmental obligations binding under the TPP dispute settlement mechanism. Overall, the U.S. is pressing to go further than it ever has when it comes to environmental protections, including through its new proposals related to the conservation of plants and wildlife.

The U.S. conservation proposal has generated opposition in part because Australia considers that it is too prescriptive and does not allow for sufficient variation in national laws. This issue is especially important to Australia because its parliament is currently considering illegal logging legislation, and it wants to be free to develop its own laws.

Another new issue that has emerged in the environment talks is the push by countries such as New Zealand and Peru for language related to climate change. New Zealand's proposal on climate change, which includes a reference to setting up an Asia-Pacific market for trading carbon emissions, faces opposition from environmental groups. They fear such language would undermine global climate change talks taking place under the auspices of the United Nations.

Labor Protections

Compared to the environment talks, the discussions on labor protections have made greater progress. TPP partners are hoping to use the round of TPP talks starting this week to close out the labor chapter except for a handful of the toughest issues, which will have to be resolved at a higher political level. The most significant political issue that is whether labor rights commitments will be subject to dispute settlement provisions.

Also unclear is how TPP labor provisions will interact with labor chapters from previous trade agreements that the U.S. has negotiated. As some of those existing trade agreements have weaker provisions than the U.S. is seeking in TPP, labor unions want to ensure that the stronger TPP disciplines prevail in any potential labor dispute.

The U.S. labor proposal in TPP would require countries to enforce their own labor laws and regulations but also that they reflect the five fundamental labor rights as stated in the 1998 International Labor Organization (ILO) Declaration on Fundamental Principles and Rights at Work and its Follow-Up.

The proposal largely reflects the model included in recent U.S. trade deals with South Korea, Colombia and Panama, although it does have some changes on the margins that have raised the ire of some congressional Republicans.

Goods Market Access: Textiles & Apparel, Footwear, Dairy, Sugar

On textiles and apparel, the U.S. and Vietnam are the major players and both are taking a tough stance. The U.S. is demanding a strict yarn-forward rule of origin for apparel, although it has floated the idea of a list of items that would be subject to a lesser requirement allowing the use of fabric from any country. This does not appear to go far enough for Vietnam, and at this point the talks are essentially deadlocked.

The U.S. and Vietnam also remain at loggerheads on market access for footwear. U.S. companies that produce some of their shoes domestically, such as New Balance, are fighting to convince USTR to maintain high tariffs and strict rules of origin, while companies that manufacture abroad, such as Nike, want USTR to reduce tariffs and agree to a more lenient rule. Thus far, there has been little progress here either.

In light of this lack of progress on two of Vietnam's top priorities, Vietnam has largely rebuffed U.S. demands in the bilateral goods market access talks, including in the agricultural sector.

The U.S. is also making slow progress in its bilateral goods discussions with New Zealand on dairy market access. The U.S. still has not put forward a market access offer that New Zealand considers "serious," although it did float an initial proposal earlier this year. At various points, New Zealand has exerted some pressure on the U.S. to engage more substantively, but for the most part has been content to give the U.S. space on this issue.

On another key market access issue, Australia is demanding additional access into the U.S. market for its sugar exporters. However, USTR refuses to entertain these demands, stating that it is only engaging in goods market access talks with those TPP partners with which it does not already have an FTA.

That said, USTR will enter into new goods discussions with Canada when it joins the TPP later this year, despite the fact that the U.S. and Canada are already linked under NAFTA.


At a political level, Australia's demand that it be excluded from the investor-state dispute settlement mechanism that is expected to be part of a final TPP deal remains one of the major controversies surrounding the investment talks. U.S. business groups are fighting hard to support the USTR demand that Australia agree to be covered by the investor-state provision.

Concerning the details of investment obligations, TPP countries appear to have reached tentative agreement in the investment talks on several core investor rights, including with regard to national treatment, most-favored nation treatment and minimum standard of treatment, according to a copy of the investment text leaked earlier this year.

But that leaked text reveals several areas of disagreement as well. For instance, TPP partners have radically different visions on how to define when a specific government action constitutes "indirect expropriation" of a company's property, which is a key issue for U.S. companies.

The leaked text also reveals disagreement among TPP partners over other issues, including the extent to which TPP members should be allowed to restrict capital flows. TPP partners are also discussing the idea of a partial "exhaustion" requirement, and several innovations included in the revised U.S. model bilateral investment treaty.

Data Flows & Electronic Commerce

For the first time ever in a trade deal, the U.S. is striving to include provisions in the TPP that would ensure the free flow of data across borders as part of an electronic commerce chapter. Overall, this effort is strongly supported by business groups -- even though there is some disagreement between Internet companies and copyright holders on the issue.

In essence, the U.S. proposal would create binding provisions to prevent countries from blocking cross-border data transfers and enacting laws that require companies to locate data servers in a particular country as a condition of doing business there or handling citizens' private data.

Australia and New Zealand are objecting most vocally to elements of the proposal, including the obligations not to place any restrictions on the location of servers. Last May, Australia tabled alternative language to ensure that the data-flow proposal would be consistent with its privacy law, which it aims to reform by placing more restrictions on sending personal information outside the country.

New Zealand is apparently worried that personal data stored in other countries would be subject to foreign laws that could violate the privacy of its citizens. It has already issued domestic guidance that storing business records in data centers in New Zealand is the only way to comply with the country's tax laws.

A U.S. trade official has said that both the U.S. and Australia remain supportive of the broad goals for preventing barriers to cross-border data flows, and that it is a matter of finding language that makes both sides comfortable.

Sanitary and Phytosanitary (SPS) Measures

U.S. negotiators are pushing for new innovations in the SPS chapter of a final TPP deal. Rather than simply reflecting World Trade Organization commitments -- which is essentially what past U.S. bilateral trade deals have done -- USTR is now pressing for TPP commitments that go beyond WTO rules.

This effort is strongly supported by U.S. agriculture groups, who have pushed USTR to be as ambitious as possible in this area. While USTR has largely heeded their demands, one remaining area of controversy relates to the enforceability of SPS provisions, especially the enforceability of the "WTO plus" commitments.

U.S. agriculture groups argue that the "WTO plus" provisions must be enforceable under dispute settlement rules, because they would be of limited value otherwise. The major hesitation on this point within the administration appears to come from outside USTR.

Government Procurement

The United States is moving ahead cautiously in the TPP talks on government procurement by focusing only on central government procurement and requesting that countries delay negotiating commitments to open public contracts at the sub-federal level.

Participation by U.S. states in any international procurement agreement, such as a free trade agreement procurement chapter, is voluntary, and U.S. trade officials typically reach out to state governors during the course of a negotiation to have their states open their procurement to international competition.

Groups such as Public Citizen and the AFL-CIO in the past have worked to gin up opposition to states signing on to international procurement agreements on the grounds that they limit a state's ability to pass procurement measures aimed at achieving certain public policy objectives.

More broadly, the Obama administration has also faced domestic opposition to negotiating any new commitments on government procurement in TPP. Last May, roughly one-third of the House Democratic caucus urged President Obama to exclude procurement obligations altogether from the TPP.

Tobacco-Specific Provisions

USTR has developed a proposal designed to ensure that TPP countries cannot face legal challenges when they put in place certain science-based, origin-neutral regulations designed to drive down use of tobacco products. It was on the verge of tabling the proposal in May, but held off in light of intense pressure from Congress and business groups against such an approach.

Business opponents of the proposal argue that it would undermine the longstanding U.S. assertion that trade agreements already allow governments to pursue public health measures. But anti-smoking groups charge that the U.S. should go further and completely "carve out" tobacco from any TPP obligations, including tariff cuts.

Most observers believe USTR will not make any further moves on this issue until after the U.S. presidential election in November.

Regulatory Coherence

For the first time in a trade agreement, the U.S. has tabled language in the TPP talks that urges countries to set up a mechanism to facilitate coordination and review of new regulatory measures at the central government level. However, a version of the U.S. proposal leaked last year left unclear the degree to which this obligation would be binding.

This provision reflects the longstanding U.S. desire, backed by U.S. business groups, to have TPP countries establish coordinating bodies, similar to the U.S. Office of Information and Regulatory Affairs (OIRA), that would help ensure that different ministries do not impose conflicting regulatory requirements, for example.

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