TPP – Drama in Five Acts

By | October 30, 2015


[A long Way Before the Final Curtain]

Paper presented by me at the Canada-US Law Institute Colloquium, Washington, DC, 29 October 2015

The successful conclusion of the Trans-Pacific Partnership (TPP) negotiations on October 5, 2015, represented a signal achievement in international trade diplomacy, all the more significant in the face of the collapse of the WTO’s Doha Round which, to many, seemed to presage the end of multi-party collaboration in the post Uruguay Round era.

Announcement Just the Opening Prologue

The announcement on October 5th was only the prologue of a longer dramatic presentation, however. We have the agreed summary issued by the negotiating parties. Some governments, including Canada and the US, have issued detailed technical summaries.

But the curtain on Act One has only just been raised, part of a much longer process of getting the agreement operating. There are several acts to come before the final bows. Here is a run-down of the next steps in the drama, a full five acts leading to the hoped-for final curtain-calls at the end of the piece.

Act One – Preparing the Legal Text

While governments announced the ingredients of the deal on October 5th, all we got was a summary of the main terms. In Canada, we got a more detailed “technical summary” While it’s reasonably detailed, it is far removed from the actual treaty, with all I’s dotted and T’s crossed, ready to be signed.

Finalizing the legal text of the treaty is a technically complex and time-consuming process that could take a few more weeks. Maybe more when translation is factored in.

Act Two – It Needs Signature

Once the legal text is ready and translated from English into Spanish, French and Japanese (and possibly other languages), the agreement will be open for signature by representatives from each of the 12 countries.

But signature alone won’t get the deal into force. That requires ratification by the participating governments (or “States” to be legally precise), a distinct aspect of the treaty-making process.

In the US, where all eyes will be glued in the weeks ahead, fast-track authority requires the president to provide Congress with 90 days advance notice before he can legally sign the TPP. It’s pretty certain that no other countries will sign, including Canada, until they see Obama’s name on the dotted line (and see more below).

Obviously, the president can’t send his notice to Congress without the official text. We’ve heard some influential voices in the Congress argue that the notification shouldn’t even be sent until the Congress has had a chance to examine the text and comment on it. A sort of pre-notification notice. So at this point, the timing for that initial 90 day notification stage is somewhat uncertain. This means that the unfolding of Act Two is also up in the air.

Act Three – It Needs Ratification

Signature in Act Two, when fully complete, indicates that the 12 TPP governments are politically committed and legally bound to take the necessary internal domestic approvals to get the treaty approved through their own legislative or constitutional processes.

Signature alone doesn’t bring the TPP into operation. To do that requires that the treaty be ratified by a sufficient number of governments to bring it into force.

We don’t have the details of the required number of ratifications. However, as stated below, ratification thresholds will require countries representing a high percentage of total TTP GDP of the group to get the TPP treaty into operation.

There are numerous cases where a treaty sub spe rati (signed but never ratified) withers on the vine.

Signature and ratification are therefore two very different things. And ratification and entry into force of the TPP are also two different things. The TPP, even with 12 signatures affixed, is in legal limbo until it is approved domestically, officially ratified and enters into force as binding contract among the TPP States.

Understanding this is critical in appreciating the process in which Canada and the other TPP countries will be engaged in Act Three of the piece.

According to summaries released by some of the TPP governments, there will be a two-year window for governments to finish their domestic approval and ratification processes before the curtain comes down in Act Three.

In some countries, like Vietnam, Peru, Chile and Mexico, ratification is fairly straightforward, done through an order of approval by the executive branch followed by a legislative enactment authorizing ratification. Once ratified, it becomes part of the law of the land without the need for separate implementing legislation. This is referred to as a “self-executing treaty.”

Act Four – Implementation

There is a new government in Canada. Nothing Mr. Trudeau and the Liberal Party said on the campaign trail suggests that the new government will not proceed with ratification and implementation of the deal.

There may be more robust examination of the final text by a Parliamentary committee or two but ultimately, and in step with the US, it is expected that the Liberals will pass the necessary legislation to bring the TPP into force for Canada.

The Canadian ratification process is reasonably straightforward, at least in theory. It may be useful to review the basics.

Treaty-making is the prerogative of the federal cabinet (formally, the Governor in Council) under Canada’s constitution, While there have been cases where the provinces were involved in trade negotiations (like in the Canada-EU treaty or CETA), there is no constitutional requirement in this respect.

Once a treaty is negotiated and signed by Canada, there is a need to implement treaty obligations under Canadian law. That normally requires federal legislation. So the TPP will come before Parliament with an implementing bill. This won’t likely happen until spring of 2016 at the earliest, sometime after the final TPP treaty text has been issued and signed by all parties and after the new government gives Parliament a chance to review it in detail.

Given that Mr. Trudeau has a majority in the House of Commons, it is not expected that the approval process and legislative approval will be difficult.

Once the federal government secures the Parliamentary approval and passes the necessary legislation, Canada will be in a position to issue its ratification notice to signal to the other TPP countries that it is bound by the terms of the treaty.

Whether provincial legislation may also be required to fully implement the TPP under Canadian law is not clear. Once the federal government signs on and Parliament approves the deal, most constitutional scholars say the provinces are automatically bound.

In any case, provinces that don’t comply with the obligations in the TPP through provincial legislation or otherwise can be brought to task through the international dispute settlement process, so at the end of the day, one way or another, the provinces have to fall in line.

In the US, the process is extraordinarily complicated, legally and politically. As a legal requirement, Congress has to approve TPP ratification but before it reaches that stage, as noted, the president has to give Congress 90 days’ formal notice of his intention to sign the deal.

Congress will begin its review of the deal once the formal notification is sent by the president. The US International Trade Commission in a parallel process has 105 days to do a separate economic review as well.

After this initial review by Congress and the Commission has been done and the President has signed the TPP, at some point an implementing bill will be sent to the Congress. There is no time limit for the introduction of that bill. Once tabled, however, Congress has a final 90 day time-frame to approve or disapprove the TPP.

All of this makes for intense political jockeying, intensely more complicated given that the 2016 US presidential campaign begins in earnest in early 2016.

Should the Congress approve the TPP and pass the bill – whether in 2016 or even 2017 – and once all other countries’ internal procedures are accomplished, each government will then issue its notice of ratification to signal that it is in a position to fully implement the TPP under its domestic laws. This will not happen simultaneously but will be done as processes are completed in each capital.

The 11 other TPP capitals will be following the ensuing events in Washington very closely. They will all wait to see what happens before completing their own constitutional requirements. This includes Canada.

Some of the developing countries in the TPP group – Vietnam, Peru, Malaysia, for example – may need assistance in getting their domestic measures up to speed to be in a position to implement. This is the old problem of capacity building and technical assistance. It is understood that the US government has made some commitment to assist these less endowed countries, although we await further details.

What About Side Letters?

There are reports that the TPP countries have exchanged numerous so called side-letters among themselves. For example, it’s been reported that at least a dozen side letters will be exchanged between the US and Japan. There are likely to be many side letters between other TPP parties as well. This will be an additional set of bewilderments for lawyers to interpret, once the TPP enters into force.

It is not clear what the legal effect of these side letters will be. They would only be legally binding if that was expressly stated in the treaty or if the side letters themselves stated that they were legally binding between the parties.

But what is uncertain is the effect of side letters on those TPP parties that are not involved. Can side letters remove the MFN rights under the treaty, for example? We’ll have to see them and try to figure out what their effect is.

Act Five – Entry into Force

The TPP will give countries a two year window to secure domestic approval and get their ratifications implementing measures complete so the treaty can enter into force.

One scenario is that the 12 countries notify their ratifications on the same date (most unlikely), in which case the TPP will enter into force 60 days thereafter.

Since it’s highly unlikely that this congruence will occur, information is that the treaty will provide for entry into force after the two year window plus 60 days when six of the twelve have notified ratification, provided these six comprise at least 85% of the combined GDP of the group.

Curtain Calls – Maybe Premature

The new Liberal government in Canada doesn’t appear likely to change course in following through with the TPP exercise. Even though the Trudeau cabinet won’t be named until November 4th, a safe prediction is that there won’t be major substantive differences on completing the drama, whoever the new trade minister turns out to be.

That being said, there is push-back in Canada on certain parts of the deal. A segment of the Canadian auto manufacturers (Ford Canada) has come out against the tariff reductions for Japanese cars. Some of the smaller parts producers are decidedly unhappy with the provisions on non-TPP content allowances.

It’s expected that other interest groups will raise loud concerns once the official treaty text is available. The same in the United States, even now some major associations are starting to pressure Congress and the administration to change key elements.

The concern isn’t with the Canadian position. And reports out of Australia, New Zealand, Malaysia and Japan are reasonably reassuring.

The concern lies in Washington.

While fast-track theoretically doesn’t allow Congress to insist on re-negotiation of the TPP, Congressional sentiment is crucial in ensuring that the deal as negotiated gets the necessary approval. It is possible that, for a whole variety of reasons, as the US election gets into higher gear, many Congressional roadblocks could be thrown up.

For Canada, the key will obviously be to see what happens to that implementing bill. If the final US legislation departs from the negotiated outcomes in one way or another, it will raise serious and possibly insurmountable obstacles for Canada and the other TPP countries to stay in the game.

Concluding Comment – Sustained Applause?

The TPP represents an important advance in international trade diplomacy and should be seen as a triumph of GATT/WTO-based plurilateralism. However, while there are 12 players on stage, the conclusion of this play will depend on the lead actor’s performance, in this case Uncle Sam. Seeing the final curtain come down with sustained applause will be up to him and his cousins in the US Congress.