Author Archives: Lawrence Herman

About Lawrence Herman

Counsel on International trade and investment, global business transactions & public policy

The Canadian International Trade Tribunal — 2015 in Review

The following is adapted from the 2015 update to my book, Canadian Trade Law: Practice & Procedure (Thomson Carswell 2007), which reviews the decisions of the Canadian International Trade Tribunal on an annual basis, summarizing important elements in its decisions under the Special Import Measures Act, R.S.C. 1985, c/ S-15 (“SIMA”),

The Tribunal celebrated its 25th year of existence in 2015, a year in which the Tribunal was fully occupied with proceedings under SIMA. From the final quarter of 2014 up to the time of preparation of this release, the Tribunal held three final injury inquiries, four preliminary injury inquiries, six expiry reviews and one public interest inquiry (http://www.citt.gc.ca/en/dumping-and-subsidizing). This was indeed a busy period for the Tribunal in the exercise of its SIMA jurisdiction.

While 2015 data are not yet available, according to the Trade Remedies Investigation Branch of the Secretariat to the Tribunal, as of 31 December 2014 there were 53 anti-dumping and countervailing measures in place under SIMA. They affected $8.0 billion in Canadian shipments, $0.5 billion in investments, and nearly 22,000 jobs in the domestic industries directly benefitting from the measures. In addition, the measures affected $1.4 billion in imports.

While the number of Canadian anti-dumping and countervailing measures decreased by approximately 59 percent from 1989 to 2014, according to the CITT staff paper, the importance of each measure in terms of its impact on Canadian shipments, investments, jobs and imports has increased. From 1989 to 2014, the average impact per measure on shipments, jobs and imports has increased by approximately 493 percent, 186 percent and 350 percent, respectively. Between 1995 and 2014, the average impact per measure on investments increased by approximately 80 percent.

Those figures do not include the impact of orders issued in the 2014-2015 period, during which the Tribunal was heavily engaged in SIMA inquiries and reviews, as noted.

Injury Inquiries and Expiry Reviews

Final injury inquiries under section 42 of SIMA in 2015 were held in Concrete Reinforcing Bar (NQ-2014-001), Oil Country Tubular Goods (NQ-2014-002) and Photovoltaic Modules and Laminates (solar panels) (NQ-2014-003), the two latter cases of particular significance given the large sectors of the Canadian economy that were involved.

It is worth noting that in each of those three cases, the Tribunal found that the evidence failed to establish past injury due to imports but concluded that the domestic industry faced a threat of injury from imported goods in the future. SIMA duties were ordered in all three cases. These decisions are reviewed below in various sections in this update.

The Tribunal was also busy on SIMA expiry reviews in 2015, holding hearings and issuing decisions in: Certain Fasteners (RR-2014-001); Hot-Rolled Carbon and Alloy Plate (RR-2014-002); Oil Country Tubular Goods (RR-2014-003); Whole Potatoes (RR-2014-004); Greenhouse Bell Peppers (RR-2014-005) and Refined Sugar (RR-2014-006). Several of these cases are also discussed in this update.

Looking ahead into 2016, three existing orders will expire: Copper Pipe Fittings (RR-2011-001); Pup Joints (NQ-2011-001); and Stainless Steel Sinks (NQ-2011-002). This foretells another busy year for the Tribunal, not counting potential new SIMA complaints that may be filed.

Public Interest Matters

Following the Tribunal’s injury finding in Concrete Reinforcing Bar (NQ-2014-001), the British Columbia government and the BC Independent Contractors and Business Association applied for a public interest inquiry under section 45 of SIMA. The Tribunal acceded to the request, one of the rare instances in the last decade where such a proceeding was held. Given the special regional circumstances, the hearing was held in Vancouver, again an infrequent instance where Tribunal proceedings were conducted outside of Ottawa.

The Tribunal’s opinion and reasons were released on 22 December 2015 (PB-2014-001). It decided that, even though SIMA duties would increase the cost of dumped and subsidized Chinese rebar, the overall economic impact would be minimal. As a result, the public interest did not warrant a reduction or elimination of the anti-dumping and countervailing duties applied in NQ-2014-001.

Administration

2014-2015 saw significant changes on the administrative side of the Tribunal’s operations with the entry into force in late 2014 of the Administrative Tribunals Support Service of Canada Act, S.C. 2014, c. 20, and transfer of the CITT’s budget and its entire administrative support, legal and research staff from the Tribunal (as well as10 other federal tribunals) to the single new centralized administrative organization, appropriately named the Administrative Tribunal Support Services Canada (ATSSC).

The result of these changes are that the secretariat, administration and research staff formerly under the supervisory authority of the CITT Chairman are now performed by the ATSSC, including staffing and human resources matters.

The ATSSC is headed by a Chief Administrator responsible for all services covering these eleven federal tribunals. These services include: corporate services (e.g. common functions of human resources, information technology, financial services, accommodations and communications); registry services; and core mandate services (e.g. research, analysis, legal and other case-specific work).

The ATSSC is divided into separate branches for each of the tribunals under its mandate. In the case of the CITT, an Executive Director and General Counsel (Nick Covelli) is responsible for the operations of the Canadian International Trade Tribunal Secretariat, which is further divided into three branches: Communications and Registry; Legal Services; and the Trade Remedies Investigations Branch (comprising the economic research staff) under his/her responsibility.

As practical matter, the staff in these branches are not subject to assignments to other tribunals under the ATSSC umbrella but are dedicated to serving the Tribunal in its various areas of jurisdiction. This ensures staff continuity and ongoing expertise in SIMA matters.

The first year of this reorganization and transfer of function appeared to proceed relatively smoothly, although there were some adjustment issues that had to be ironed out between the ATSSC and the Tribunal. As from 2015 on, the CITT’s continued success is, to a large extent, dependent on the ATSSC’s performance as a service provider.

The challenge in the years ahead is to ensure that the new system functions well and allows the Tribunal to continue to discharge its mandate under SIMA in the most efficient and seamless manner possible.

Procedural Matters

The Tribunal is currently reviewing a number of its Guidelines and Practice Notices. The current versions of these documents have been included in previous releases and can be found at http://www.citt.gc.ca/en/guidelines and http://www.citt.gc.ca/en/dumping-and-subsidizing-practice-notices.

It issued two new pilot Practice Notices in 2015:

  • Measures to Improve Investigative Procedures During SIMA Inquiries and Expiry Reviews;
  • Introduction of Measures to Improve the Tribunal’s Procedures During Preliminary Injury Inquiries

As part of the Tribunal’s efforts to up-date and improve its procedures, the Chairman inaugurated a new internal governance structured within the CITT and appointed a new CITT Advisory Committee in 2015, consisting of representatives of the trade bar, federal government departments and business associations, replacing the Bench and Bar Committee of the Canadian Bar Association as the Tribunal’s consultative organ.

The Tribunal is a court of record under the Canadian International Trade Tribunal Act, R.S.C. 1985, c. 47 (4th Supp.). The current Tribunal membership consists of: Stephen A. Leach, Chairperson, with members Jean Bédard; Peter Burn, Jason W. Downey; Ann Penner; Daniel Petit and Rose Ritcey. Serge Frechette, a member whose full term expired in 2014, was appointed as an interim member in 2015 for a one-year period. The organization, mandate, biographical information and other matters respecting the Tribunal are found on its web-site at http://www.citt.gc.ca/en/organization-0).

References

The Impact of Canadian Anti-Dumping and Countervailing Measures on Domestic Shipments, Investments, Employment and Imports, 1989-2014: Report of the Trade Remedies Investigation Branch, Administrative Tribunals Support Service of Canada, November 2015, p. 3. http://www.citt.gc.ca/en/effects_paper_e.

Keeping Up With Sanctions – a Challenge

The Problem

In concert with its western allies, Canada has instituted a series of trade and economic sanctions against Iran, Syria, Russia, plus about twenty other countries and failed states. These can be tricky seas to navigate for Canadians, doubly treacherous because of the criminal penalties involved when sanctions are transgressed.

The challenges are compounded because these sanctions are in constant flux, meaning Canadian businesses with interests in targeted countries need to be extra vigilant. Businesses with US exposure need to be especially careful in not crossing the line when it comes to American measures. All of this makes for tough navigating.

True, there are all sorts of navigational aids put out by the consulting community and by law firms. Business organizations such as the Canadian Association of Importers and Exporters and the Canadian Manufacturers and Exporters have excellent programs and provide useful information on the state of these Canadian, US and other measures.

The real concern, however, is that while Global Affairs Canada (formerly  Foreign Affairs, Trade and Development or DFATD) provides black-letter factual information on Canada’s sanctions, there is a complete lack of policy guidance for the business community in this area. There is no avenue for seeking even informal views from Ottawa on whether a particular dealing or other activity may be covered, directly or indirectly, by Canada’s sanctions.

Basically, the Canadian private sector is on its own in deciding whether a given transaction is or is not going to run afoul of these measures. This should be changed.

Suggestions for the New Minister

While sanctions and trade embargos aren’t mentioned in the PM’s mandate letter to Foreign Minister Stephane Dion, the letter does talk a lot about openness and engagement. It’s likely that at some point Mr. Dion will take a closer look at how those values apply to Canada’s sanctions regime.

That will be forced on him sooner rather than later. The government has to respond soon to the July 2015 nuclear deal with Iran, approved by the UN Security Council, which calls for a phasing down of western sanctions against that country.

When he does undertake that review, I suggest he make serious improvements by requiring his Department to publish regular policy guidance and compliance notices and initiate outreach programs to assist Canadian business in navigating its way through these sometime treacherous waters.

It’s not being suggested that the government should or could advise companies on the legalities of a specific business decision. That is up to business and their legal counsel. However, compared with the virtual silence now existing in Ottawa, the Canadian sanctions regime would be improved immeasurably by some kind of policy guidance on aspects of sanctions compliance and enforcement. This would be a plus for the private sector.

Need for Policy Guidance

Some ideas for filling this vacuum can be gleaned from looking at the active programs provided to American companies by the US Office of Foreign Assets Controls (OFAC) in the US Treasury Department. They regularly issue interpretive guidance on specific issues related to the application and enforcement of US sanctions. Canada should take a leaf out of the US book.

Here are some areas where policy guidance would be appropriate, without fettering the actions of Canadian enforcement agencies. First and foremost would be informational and outreach programs to supplement those available in the private sector in explaining the background, enforcement criteria and other intricacies of the Canadian system of sanctions to Canadian business. All in the name of openness and engagement, referred to in the PM’s letter.

Second would be publishing regular bulletins and policy guidance on such matters as,

  • How the government applies ambiguous terms in sanctions laws where the meaning is elusive. An example is the prohibition on “financial services”, a term frequently found in the regulations. What is meant by the term? How far does it reach? Does it include all manner of bank transactions and insurance coverage?
  • Cases where remote or indirect business or commercial relations would not be considered within the scope of the sanctions. An example is where personal real estate in a third country is subject to a mortgage held by a bank, financial institution or other person in a sanctioned country;
  • Where Minister’s authorization permits are available to permit a transaction, clarification of the kind of information to be supplied to the Minister and an indication of the wait times for a response to an application;
  • How Canadian and US sanctions in targeted countries work in tandem and where Canadian companies should be aware of critical differences;
  • Hypothetical examples to show when a given transaction or dealing would be considered as running afoul of a particular prohibition; and, most usefully,
  • Information notices on enforcement actions, for example when charges are laid or when a conviction is registered in specific cases.

The above are obviously subject to the caveat that the federal government does not give legal advice on specific transactions. For understandable reasons, government agencies cannot be fettered and their discretion circumscribed in the enforcement of Canada’s sanctions laws. That being said, these are some areas where statements of policy and guidance, with the appropriate caveats, would be of great help to Canadian companies with foreign business ties.

Surely, Canadian companies should have the same advantages as their American counterparts in navigating through our government’s sanctions policy.

 

Trans-Pacific Trade and the Intellectual Property Challenge

Controversy

The IP provisions in the TPPA have been the source of some controversy, not only in Canada but in other countries. In Canada, some say these are responsive to corporate interests and will inhibit local innovation and entrepreneurship. The focus seems to be on the patent provisions in the Agreement, less so on the trademark and copyright parts.

While incorporating existing patent treaties into the TPPA, there is no doubt that the Agreement increases patent protection and enhances the monopoly rights of the patent owner. The question is whether those enhancements work to the benefit of Canadian innovators and inventors or detract from it and put Canada at disadvantage, mostly vis-à-vis the US, the most direct source of competition and aggressive litigation in the patent field.

In its October 5th summary of the TPPA IP provisions – before the actual text was available – the former Conservative government said that the TPP was “in-line” with Canada’s exiting patent regime and that all exceptions under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) will continue to be available “in line” with Canada’s existing laws.

Reading the actual TPP text, it can be seen that the patent provisions are among the most complex in the entire Agreement, comprising dozens of intricately woven articles, annexes and footnotes. It will be a challenge to apply these when the Agreement enters into force.

Where are the concerns focussed about the impact on Canadian innovation?

Data Exclusivity

The data exclusivity issue revolves around the right of a patent applicant to protect proprietary clinical data filed with its application and to prevent third parties having access to or using that data. There is a great deal of money at stake for both sides.

The concern centres on TPPA provisions on data exclusivity specifically directed to biologics – medicines, vaccines and the like based on sugars, proteins or nucleic acids, at the leading edge of pharmaceutical innovation. Some have argued that these data protections will stifle the development of biosimilar pharmaceuticals, causing drug price to increase over time.

Article 18.52 of the TPPA gives Parties two options for protecting such data: the first is to provide eight years of data protection; the second is less precise but allows parties to provide only five years of protection plus unspecified “other measures”, recognizing that “market circumstances also contribute to effective market protection to deliver a comparable outcome in the market”.

Canada currently allows eight years of data exclusivity for biologics. This aspect of the TPP seems correctly described as “in line” with Canadian law, as the Conservative government has said.

One particular concern voiced during the negotiations was that if the data exclusivity provisions were cast too broadly, they could be used to claim data protection for products that were merely derivative and not truly innovative, hence stifling competition. This concern may be covered off by a proviso to Article 18.52 which says no data protection is required for any pharmaceutical that is or contains a previously approved biologic.

Extension of Patent Terms

The second area of concern is about what’s called “patent term adjustment”, giving additional time for the patent to run where the marketing of the product encounters delays in regulatory approval. Those delays can, in effect, negate the value of the monopoly period available to the patent owner.

Article 18.46 of the TPPA requires Parties to extend the patent period if there are “unreasonable delays” in the issuance of a patent, defined as more than five years from the filing date or more three years from the request was for examination by the patent office, whichever is longer.

No time is specified in the TPPA for the length of that adjustment. Article 18.46 simply requires the adjustment to “compensate” for such delays. The Article does allow Parties to exclude in any adjustment period delays “not directly attributable” to the granting authority.

The purpose of Article 18.46 is to encourage Parties to weed out inefficiencies in the patent approval process and maintain as much as possible the integrity of the twenty-year patent term.

The extension provisions in Article 18.46 leave a fair degree of flexibility to the Party concerned. It’s not clear how any change to Canadian law to meet these provisions, if indeed required, would in itself stifle Canadian innovation.

Patent Litigation

The third area of concern has been n the so-called “patent linkage” issue. Patent linkages are laws that tie marketing authorization of a generic drug to the expiration of an existing patent, thereby denying market entry to less expensive medicines.

Linkage also allow patent owners to pursue action in the courts where a competing product seeks regulatory approval and the patent owner claims that the product infringes its existing patent.

Some say that because it allows, indeed encourages, patent litigation, patent linkage further delays cheaper generic drugs from reaching the market. Critics say it gives a license to patent owners to use the linkage option to forestall generic competition by resorting to endless infringement litigation.

Canada together with the US and Japan employs a patent linkage system. Before Health Canada can grant marketing approval to a generic version of a brand-name drug, the generic company must demonstrate that all relevant patents on the brand name product have expired.

TPPA Article 18.51 requires Parties to provide for patent linkages in the sense of “adequate time and opportunity” for a patent holder to pursue, prior to the marketing approval of a competing product, judicial or administrative proceedings for alleged infringement.

However, some have described this provision as merely “soft” linkage, because it requires notification of the competing application to the patent holder but doesn’t compel Parties to hold off granting marketing approval pending the outcome of any litigation.

While the issue of patent linkage is controversial and has many opponents, Article 18.51 does not likely require changes to Canada’s current patent linkage system. As the previous government said, these TPPA provisions seem generally in line with Canada’s existing patent laws.

As a result, it’s not clear how the Agreement in and of itself inhibits innovation in Canada. One possible argument may be that by becoming party to the TPPA, Canada would be preventing from amending those measures to remove patent linkage from regulatory approval.

Careful Evaluation

It will be up to the new Liberal government and any Parliamentary committee examining the TPPA to take a close look at these provisions and get the best expert advice to ensure that the TPPA doesn’t have detrimental impact on Canadian enterprise, innovation and entrepreneurship.

There are two main conclusions to all of this.

The first is that these issues will continue to be controversial in Canada, since all are part of Canadian law now, quite apart from what is in the TPPA.

The second is that, rather than focusing only on the impact in Canada, it is important to consider the benefits of increased patent protection the TPPA will give to Canadian patentees in foreign markets.

Trans-Pacific Trade and Cyber Security

There’s been concern expressed in some quarters about whether the TPP Agreement will limit the ability of governments to take public safety measures, in particular, to require disclosure of encryption information for national security reasons.

The discussion has been focused on provisions on Chapter 8 of the TPPA covering Technical Barriers to Trade. Some are interpreting Annex 8-B, Section A.3 of Chapter 8 as preventing law enforcement or intelligence authorities from compelling companies like Apple or Google from turning over encryption keys to decipher communications used on their devices.

Section A.3 of the Annex says, in a nutshell, that no TPP Party may impose a technical regulation or conformity assessment that requires a manufacturer or supplier of a product to

“. . . transfer or provide access to a particular technology, production process, or other information (such as a private key or other secret parameter, algorithm specification or other design detail), that is proprietary to the manufacturer or supplier and related to the cryptography in the product, to the Party or a person in the Party’s territory.”

According to a recent issue of World Trade On-Line,

“. . . the issue is that these companies are increasingly using so-called ‘end-to-end’ encryption — in which they themselves do not possess the key — and lawmakers and law enforcement authorities are weighing whether to craft new measures to prohibit this technology to foster better intelligence-gathering. Some experts said it is an open question whether TPP would prevent such measures, while others rejected the notion that this was the case.”

It is hard to see how the TPP under Chapter 8 or other provisions of the Agreement can apply prevent any of the TPP countries from taking steps, including requiring disclosure of encryption keys or from controlling or preventing end-to-end encryption where national security interests are involved.

TPP negotiators, especially the United States, were careful to ensure that the treaty did nothing to jeopardize national security enforcement measures. Article 29.2 (Security Exceptions) of the Agreement states that,

Nothing in this Agreement shall be construed to:

(b)     preclude a Party from applying measures that it considers necessary for the fulfilment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.

It doesn’t take lengthy legal analysis to see that the effect of this provision – with the underlined words – gives full scope to governments to make their own national security decisions. As the chapeau of Article 29.2 says, nothing in the Agreement precludes Parties from enacting and applying these national security measures. And to be certain, nothing in Chapter 8 of the TPPA in any way qualifies the scope of these National Security Exceptions in that Article.

Trans-Pacific Trade – A Primer in Treaty Law

A note – many years ago I was head of the Treaty Law Section in the old Department of External Affairs. What follows deals with the kinds of issues I covered on a daily basis, coming back into prominence so many years later.

Signing the Agreement – What Does That Do?

There’s been a fair amount of media reporting on signature of the TPP Agreement, some of which resulted from comments in Manila by President Obama that he welcomes Prime Minister Trudeau’s commitment to sign the Agreement on behalf of Canada.

There’ve also been many reports on the signing of the deal by the US President under so-called fast track authority, which requires 90 days’ advance notice to be given to the Congress before he can do that.

With all this discussion about who signs and when, it’s important to be clear about the concept of treaty signature in international law.

Believe it or not, there’s even an international treaty on the subject, concluded in Vienna decades ago. Not surprisingly, it’s called the Vienna Convention on the Law of Treaties. Canada and the US are parties to that Convention.

For years, the Vienna Convention was an obscure instrument reserved for academic discussion or arcane application by public international lawyers toiling away in foreign ministries, far outside the hurly-burly of international politics. In recent years, however, the VCLT has become much more prominent as a feature in international relations.

The Convention deals with the legalities of signature, ratification and entry into force of international agreements – treaties – like the TPPA. The key point is that each of these are separate acts and each has separate significance under international law.

Take signature. The Vienna Convention says that States can be legally bound when its representatives sign a treaty – but only if that’s what the treaty says. The TPPA doesn’t say anything about signature.

When a treaty is silent on signature but requires other steps to be taken before takes effect legally, the Vienna Convention says that, in such case, signature means the country must refrain from doing anything that would “defeat the object and purpose” of the treaty pending its entry into force.

That means that when representatives of Canada, the US or other States sign the final text of the TPPA – which isn’t even officially ready yet – these countries are not bound by the TPPA but only have to behave as set out in the Vienna Convention.

What Happens Next?

The Vienna Convention says that you then have to look to the terms of the treaty to find out what follows after signing. In the case of the TPPA, Article 30.5 says that it will enter into force when signatory States have notified the Depository that they have completed all their applicable internal legal procedures. That step is generally called ratification.

By the way, a Depository is the country or organization that has been designated as the record keeper of a treaty. In many cases, the UN or some other international organization is the designated Depository. In the case of the TPPA, the designated Depository is New Zealand.

So where do we go from here?

Signing Ceremony in New Zealand

There’s discussion among the 12 TPP governments to have an official signing ceremony in New Zealand early next February. That’s the appropriate place since it’s the Depository. But before that occurs, the final, official legal text, translated into Spanish and French, will be needed.

Once the official text is ready, what’s called the Final Act of the TPP negotiations will be prepared. That’s the official document that will record the results of the process and append the final TPP Agreement for signature. There will be a lot of hype in the lead-up to the signing ceremony and a media flurry when 12 representatives march to the podium, pens in hand.

Then Back to Capitals

Once the signature ceremony is over, the process reverts to the 12 participating countries to complete their internal legal procedures to bring the TPPA into effect – i.e., to complete the steps needed to ratify the treaty.

The Canada’s case, that will mean a thorough review by at least one Parliamentary committee (I’ve previously recommended a joint Commons-Senate committee) and full debate in the House of Commons. Who knows?

The Trudeau government may even commission cross-country hearings on the TPPA After all that there will be a report to Parliament and legislation introduced and a bill passed to make the necessary changes to Canadian law to implement the TPPA’s obligations.

The point is, even after Canada signs the deal next February, there is a long way to go before Canada is in a position to be bound by it and before the TPPA enters into force as an international treaty.

The same applies in the US, where the Congress will have several months to debate the TPPA after Obama signs it. Once that debate is over, or possibly before, the Administration will present Congress with a draft implementing bill. The Congressional debate over that bill will take many months, possibly extending beyond the presidential election in 2016. After that, it’s anybody’s’ guess.

Bottom Line

It’s important not to be too fixated on signature of the TPPA. That’s only a station along the way to ratification and entry into force. As I’ve said before, the American government drove the TPP process all along and before any country commits to the treaty, they’ll want to see what the US Congress will be doing about it.

Tip-Toeing Through the TPP Tulips

The release of the TPP text has spawned a vast cyber-literature, as law firms and consultants compete to provide the hottest insights on what’s really in the agreement and its many hidden traps. There are many. This note doesn’t try to do that. Rather, it looks at the structure of the agreement to shed some light of how it’s been put together.

The most obvious thing about the TPPA is that it is the broadest and most detailed trade and investment treaty the world has known, much larger in scope and vastly more complex than the World Trade Organization Agreement or any existing regional and bilateral agreement, far beyond the NAFTA and the recently concluded Canada-EU trade agreement (or CETA).

The NAFTA has 22 chapters and covers something like 800 pages of text, including annexes. The CETA has 34 chapters and covers just over 1,600 pages, including annexes. TPPA contains 30 chapters and, by one count, covers over 2,700 pages of text and about the same number of pages of annexes, about 5,500 pages in all. Quite a difference.

Quite apart from its wide scope and extremely broad coverage, the TPPA is full of side-deals, exemptions, exclusions, individual undertakings and vast array of party-specific annexes.

Separate undertakings and commitments by parties to trade agreements is not in itself unusual or unexpected, like those in the WTO Agreement, where each WTO member sets out its separately bound tariff rates on imports and its duty-reduction commitments over time. Or the WTO Government Procurement Agreement, which allows WTO members to list those procuring agencies subject to the obligations in the Agreement. A degree of asymmetry is not usual in trade agreements.

The TPPA takes this much further, however, with hundreds of special or exceptional provisions that qualify or reserve on the legal obligations of this or that that participant or limit the obligations that apply to this or that subject.

Take Canada’s carve-out from the investment dispute chapter of all investment reviews under the Investment Canada Act. Or the duty phase-out on automobiles, where Canada has agreed to eliminate duties on Japanese imports over five years, whereas the US duty phase-out period is twenty-five years. Or the many special provisions and exemptions for individual countries in the market access, investment, services and IP chapters. And on and on.

The TPPA is full of these kinds asymmetrical elements in the form of reservations, caveats and side-deals by individual countries. You could say, with only slight exaggeration, that the TPPA is as much an amalgam of bilateral deals and negotiated exemptions cobbled together under a treaty umbrella, as it is a treaty of general application with only limited or narrow exemptions or exclusions.

Another aspect of the TPPA that is different from previous trade deals are the number of cases where treaty provisions are modified by understandings, affirmations and statements of intention. In the Financial Services chapter, as an example, the right of parties to maintain certain measures for “prudential reasons” is subject to an “understanding” in a footnote as to the meaning of that term.

These expressions can give rise to interpretive difficulties. What is the legal effect of an “understanding” among the parties regarding a particular term or a statement of intention contained in a footnote?

The fact that the TPPA was put together in this way just reflects the enormous challenge in achieving consensus on so many items and issues among such a disparate group of countries. At this juncture, the better view is that these are not a serious obstacle to implementing the agreement.

But the pervasive number of these carve-outs and bilateral deals, combined with understandings and expressed intentions on the meaning of so many treaty terms, will make for unusually difficult challenges and complexities in the TPPA’s implementation, interpretation and application down the road.

TPP – Drama in Five Acts

THE TPP – DRAMA IN FIVE ACTS

[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.

 

Canada, TPP and NAFTA – It’s All About Preferential Treatment

Here is the link to my op-ed piece in the Financial Post, 8 October 2015, explaining what the implications are if Canada was to reject the TPP Agreement. We would retain all our MFN rights under the WTO Agreement and all the advantages under the NAFTA – but we would lose access to the better treatment accorded all TPP countries. This would really disadvantage Canadian suppliers of goods and services in places like the US and Japan. See my piece here http://bit.ly/1VGUBrG

Whatever its contents, Mulcair’s against the TPP deal

Here is an op-ed of mine published in the Globe & Mail, on line on 5 October 2015 and in the 6 October print version. You can also see it here. http://bit.ly/1MbGaqt

Lawrence Herman is a principal at Herman and Associates. He practises international trade law and is a senior fellow of the C.D. Howe Institute in Toronto

Like papal smoke appearing from the roof of the Sistine Chapel, we finally got a deal in the Trans-Pacific Partnership trade negotiations.

What’s been tabled in Atlanta is a large and complicated document, not surprising after five years in the making. It can’t be explained in quick sound bites. It will take time to examine it and make a reasoned assessment of Canada’s gains and compromises.

We do know that Canada has agreed to open up a relatively small part of its protected dairy market – about 3.25 per cent – as well as modest percentages of its poultry and egg markets, all of which are currently protected by high tariffs and low quotas. There will be a five-year phase-in.

Hardly the cataclysmic predictions we had heard. To the contrary, the dairy farmers’ reaction to the deal has been surprisingly positive. Who wouldn’t be with a $4.3-billion compensation package?

None of that will matter for New Democratic Party Leader Thomas Mulcair. He made it clear that the NDP would oppose the agreement, whatever it contained. It reminded me of theGroucho Marx song in the 1932 movie Horse Feathers:

I don’t know what they have to say, It makes no difference anyway. Whatever it is, I’m against it. No matter what it is or who commenced it – I’m against it.

Maybe Mr. Mulcair should talk to the dairy farmers to see if they really want Canada to reject the deal now.

In the auto sector, Canada managed to keep the percentage of total value of TPP content at 45 per cent for autos and higher-valued parts and 40 per cent for other parts, a drop from NAFTA thresholds but far better than the backroom deal cooked up by the United States and Japan last month.

Mr. Mulcair’s position that Canada should have taken itself out of the talks until after the election was a peculiar take on the federal government’s duties in critical international negotiations where events beyond Canada’s control require full participation.

By opting out, Canada would have been a hapless bystander. Getting back in would have posed enormous difficulties – it probably wouldn’t have been possible without making even more concessions.

By their nature, trade negotiations involve compromises. It’s naive to think that Canada could insist on the deal’s benefits without having to concede something on foreign access.

Too much attention has been focused on the issue of supply management. As many others have said in this paper and elsewhere, the Atlanta agreement is far broader and more extensive – covering 40 per cent of the global economy but extending well beyond tariffs, opening new markets for Canadian goods and services, all of which will support exporters across our economy. Not something Canada could walk away from.

Like all trade and investment agreements, this is really just a framework and a set of rules. Nothing happens automatically. Realizing newly opened market opportunities will be up to Canadian business. That also applies to dairy.

The formal text of the TPP treaty will be released when all the bugs are ironed out and the technical legal drafting is complete. In the meantime, all 12 governments have signed on, pledging to take the necessary internal steps to implement in the months ahead.

With the Atlanta marathon over, Canadians can judge the full package for themselves and decide whether it meets the national interest. They can look at the benefits and compromises and assess the deal on its merits. As Conservative Leader Stephen Harper said, Parliament will ultimately decide.

But that won’t make any difference to Mr. Mulcair. Whatever its contents, no matter what the gains, whatever it is, he’s against it.