House of Commons Trade Committee – TPP Presentation

By | May 6, 2016
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Lawrence Herman appeared before the House of Commons Trade Committee, at their request, on 5 May 2016, to present testimony on the Trans-Pacific Partnership Agreement (TPP). The following are notes from Mr. Herman tabled with the Committee.

Lawrence L. Herman

Notes for Presentation, 5 May 2016

Introduction

  • The following are general comments on the TPPA to assist the Committee in its evaluation. Given the broad scope of the Agreement and the limited time available to testify, these notes cover only some of the many key parts and address some selected, albeit important, issues.

Negotiating Context

  • The TPPA is the product of a US-led initiative. During over five years of negotiations, the Americans were the dominant force and in many respects the most determined leaders in the IPP process.
  • The fact is that the TPP treaty is mostly a US-led and US-inspired document doesn’t detract from the role that smaller countries like Canada, Australia and New Zealand played in the negotiations or diminish the potential benefits that can be obtained under the Agreement once it enters into force.
  • Suggestions have been made that Canadian negotiators dropped the ball and that Canada agreed to a final negotiated TPP text that sacrificed Canadian interests. That argument must be rejected.
  • Even though Canada joined the TPP table late, the Canadian team, among the best and most experienced in the world, did a first-class job in pursuing and defending Canadian interests. We should commend them.

Domestic Context

  • The TPP text has elicited some negative comments from a variety of quarters, including organizations and NGOs that seem congenitally predisposed to oppose any and all international trade treaties.
  • That seems odd, given that agreements like the TPPA, inspired by the multilateral system, represent progressive development of international law that has evolved since World War Two.
  • Business organizations like the Canadian Business Council and the Canadian Chamber of Commerce voiced strong support for the TPP. Provincial governments have been strongly supportive across the board.
  • While the Canadian private sector was somewhat less engaged compared to their American counterparts, that doesn’t diminish the value of the TPPA for Canada’s international trade and investment interests at large.

Assessing the Overall Balance

  • Every trade agreement involves concessions. Evaluating the TPPA is not just a matter of compromises made in specific domestic That views the exercise from a defensive perspective only.
  • The proper question is whether, on balance and taken as a whole, the treaty is consistent with and protects Canadian foreign – i.e., offensive – interests, meaning the benefits to be derived for Canadian outbound trade in goods, services and investments.
  • The TPP is a large, ambitious and complex treaty, the most ambitious and complex trade agreement to date, anywhere. It covers a vast panoply of subjects, as a glance at the table of contents reveals.
  • While IP has been the focus of much media commentary, as is evident, the treaty involves much more than patents, trademarks, copyright and e-commence issues.
  • Any assessment must include the potential advantages for Canadian companies in increasingly complex supply-chains – as service providers, suppliers to government procurements, industrial manufacturers and exporters of agricultural products and a host of other foreign business activities.
  • As well as addressing conventional access issues, the TPPA aims to reduce the trade-limiting impact of non-tariff measures (NTMs) and to move closer to some kind of convergence in national regulations of a variety of sorts.
  • The broad scope of the Agreement makes it difficult to encapsulate the costs and benefits of Canadian participation in one analysis. The task is perforce a complicated one that behooves deeper study. These notes address some of the key factors at play.

Grounded in Multilaterally-Tested Rules

  • The TPP is a progressive trade deal, inspired by the rules in the General Agreement on Tariffs & Trade (GATT) and the World Trade Organization (WTO) Agreement. Canada has been a leader in developing those rules.
  • The most fundamental of these GATT based rules – namely MFN treatment and national treatment – run throughout the Agreement.
  • Rights and obligations of non-discriminatory treatment (subject to some carefully-defined limitations) are of great benefit to Canadian suppliers of goods and services, but equally to Canadian exporters of capital under the investment provisions.
  • Non-discriminatory treatment is of particular advantage to Canadian businesses in countries such as Japan, Vietnam, Singapore and Malaysia, with whom Canada does not have trade agreements.
  • But it also means that Canadian suppliers will not be disadvantaged in TPP markets vis-à-vis competitors from other participating countries.

Preferential Treatment

  • The essence of the TPPA is that it is preferential in nature. It means that Canadian suppliers get better treatment in TPP countries than the MFN-level treatment these countries provide to non-TPP member countries under the WTO Agreement.
  • In respect of the US market, the TPPA covers a wider range of subject areas than under the NAFTA. Because it is preferential, the benefits for Canadian suppliers into the US market will be better than under the NAFTA. Key examples are financial services and government procurement.
  • Should Canada not join the TPPA, it will of course retain its NAFTA benefits. However, suppliers from TPP participating countries will be accorded a higher degree of preference than Canadian suppliers because of the broader reach and preferential basis of the TPPA.

Environment and Labour

  • While not supplanting the UN Framework Convention on Climate Change (UNFCCC) and the recent Paris Agreement, the ground-breaking provisions on environmental protection (Ch. 20) are arguably the most robust and extensive in any trade agreement (even if no hard targets are specified).
  • The TPPA advances labour rights well beyond existing trade agreements, requiring Parties to adopt and maintain international standards for workers’ rights based on the ILO Declaration of 1998. There are a host of other labour standards in the Agreement
  • These provisions become State-to-State obligations binding under the treaty. They reinforce the legal relationship Canada has with other countries, such as Japan. Like other parts of the TPPA, it means Canada can bring State-to-State claims against any other TPP Party that fails to live up to these obligations.

Investor-State Dispute Settlement

  • Provisions on ISDS (Ch. 9) follow the standard model, including under the NAFTA, with important adjustments to clarify treaty obligations and to reduce somewhat the coverage for which investor claims will be allowed.
  • The concepts of minimum standard of treatment and fair and equitable treatment are given additional clarity and are drafted so as to comport with international law and not just a matter of what a panel thinks is fair under the circumstances. There must be a breach of a “general and consistent practice of States” based on recognized legal obligations.
  • Measures merely inconsistent with an investor’s expectations are deemed to not constitute a breach of the Agreement.
  • Non-discriminatory measures to protect legitimate public welfare objectives such as public health, safety and the environment are not subject to ISDS as long as they are not disguised trade restrictions.
  • Other carve-outs are included to clarify what is in the NAFTA and bilateral FIPAs, such as the non-applicability of the investment chapter to government procurement or to local training requirements (important for Canada in term of aboriginal issues).
  • Other provisions ensure greater transparency and public access to arbitration proceedings.
  • It is important to consider the benefits of ISDS for Canadian investors abroad, not only the likelihood of claims by foreign investors against Canada.

IP Provisions

  • The IP provisions (Ch. 18) are not radical or revolutionary but, with a few modern adjustments, essentially reinforce the status quo. They are designed to bring the TPP area as a whole up to current international standards as codified in multilateral treaty obligations.
  • Some claim that the TPP provisions are a sell-out of Canadian interests but most knowledgeable commentators agree with the former Conservative government’s commentary that the TPP is “in-line” with Canada’s exiting IP regime and that all exceptions under the WTO TRIPS Agreement will continue to be available “in line” with Canada’s existing laws.
  • The TPP incorporates rules under existing patent treaties to which Canada is already a party, such as the WTO TRIPS Agreement, the Paris Convention, the Patent Cooperation Treaty and the Budapest Treaty.
  • It thus ensures international standards of patent protection and guarantees rights of the patent owner thorough the TPP area, just as existing international treaties do. This is of benefit to Canadian innovators.
  • With respect to copyright, the TPP incorporates the principles of the Berne Convention, to which Canada is also a party, and requires protection for 70 years following the death of the creator, as opposed to Canada’s current system of 50 years.
  • Experts have said this will have minimal if any economic impact, other than ensuring that the estates of Canadian artists receive royalties over an extended period.
  • These provisions will not limit access by Canadians to artistic works (music, art, literature) whether in physical or digital format.

Economic Impact

  • Some economic studies, such as one recently issued by the C.D. Howe Inst., suggest that the direct GDP gains for Canada will be relatively modest. Those models are based largely on assumptions from industrial exports based on performance under existing treaties (the NAFTA and the WTO Agreement).
  • Not adequately addressed are the gains for the Canadian services sector, for example, in Japan and in other Asian economies. As well, revenue impacts for Canadian corporate headquarters derived from organizing and directing supply chain activity may not be reflected in these models.
  • Even if the conclusions from these data can be supported, the real question is the magnitude of loss and market disadvantage from Canada not participating in a preferential trade agreement as vast as the TPP.
  • In other words, can Canada realistically rely on WTO level and NAFTA level market access provisions (and the limits of sectoral coverage in those agreements) while TPP participants gain superior preferential treatment into the US as Canada’s major market, but also in Japan?

Strategic Factors

  • Other factors that have a major bearing on any evaluation of the TPP entails an assessment of Canada’s strategic interests in TPP accession.
  • With Canada’s objectives in the Asia-Pacific region, the long-term strategic implications of Canada not being a party to the Agreement that includes the US, Japan, Australia, New Zealand, Indonesia and other Pacific states must be carefully considered.
  • Finally, the Canadian position on ratifying TPP must be looked at in terms of the situation in Washington. Failure of the US Congress to approve the TPP or, should it be approved, if US treaty obligations are somehow conditioned in the US implementing bill or in the Executive’s Statement of Administrative Action, will have a bearing on Canada’s ultimate position.