2.1
The Trans-Pacific Partnership Agreement (TPP) is a landmark free trade agreement in both its coverage and its scope. This chapter will explain that coverage and scope in more detail.
Background
2.2
The TPP is a plurilateral free trade agreement containing a core of measures across all countries, and a series of side letters that constitute bi-lateral agreements between parties on specific aspects of the TPP.
2.3
Negotiations for the TPP commenced in Melbourne in 2010 and concluded five years later in Atlanta on 5 October 2015.
2.4
In its scope and ambition, the TPP is the most significant international trade agreement since the completion of the World Trade Organisation (WTO) Uruguay round twenty years ago.
Coverage
2.5
The original signatories to the TPP are:
the United States of America; and
2.6
The signatories include three of the largest economies in the world – the United States, Japan and Canada. The signatories also include five of Australia’s top 10 goods export markets – Japan, the United States, New Zealand, Singapore, and Malaysia.
2.7
Australia already has free trade agreements with all but three of the TPP parties–Canada, Mexico and Peru. Under the TPP, these three countries will enter into free trade arrangements with Australia for the first time.
2.8
In relation to the other TPP parties, the TPP builds on and supplants the previous free trade agreements.
2.9
The Australian Government hopes that other South East Asian economies, such as South Korea, the Philippines, Indonesia and Thailand, will join the TPP after it comes into force, increasing the economic benefits generated by the agreement.
Current status
2.10
At the time of writing, all twelve originating parties have signed the TPP. Progress towards ratification is as follows:
the United States will require a vote of support from Congress before the President can ratify;
Japan’s Parliament voted to ratify the TPP on 4 November 2016;
Vietnam will need to amend its labour protection laws before it can ratify, and has not yet done so;
Singapore has not yet ratified, but has committed to do so;
Brunei Darussalam has not indicated whether it will ratify;
New Zealand has not yet ratified, but has committed to do so;
Canada is engaging in an extended public consultation process before making a decision whether to ratify;
Mexico will make a ratification decision after the United States Presidential election;
Chile is likewise awaiting the outcome of the United States Presidential election; and
Peru has not yet ratified the Agreement but has committed to do so.
2.11
The National Interest Analysis (NIA) advises that Australia will ratify the TPP as soon as practicable after the consideration of the agreement by this Committee and the passage of any relevant amending legislation.
Entry into force
2.12
The TPP will come into force either:
60 days after all original parties have deposited their documents of ratification; or,
in the event that not all original parties have ratified, 60 days after the second anniversary of the signature of the agreement, provided at least six original parties that together account for at least 85 per cent of the combined gross domestic product of the original signatories have ratified the agreement.
2.13
These requirements mean that both Japan and the United States must ratify the TPP for it to come into force.
TPP Scope
2.14
The TPP is intended to be a comprehensive agreement.
2.15
In addition to chapters that are generally regarded as part of free trade agreements, including those relating to the removal of tariff barriers, rules of origin and non-tariff barriers, access for business persons, investment, and intellectual property, the TPP includes commitments on:
labour and environment standards;
competition with state owned enterprises;
transparency and anti-corruption; and
small and medium enterprises.
Specific outcomes
2.16
Because of the complexity of the TPP, it is not possible to examine and detail all of its outcomes within this report. However, to frame discussions in the rest of the Report, a number of outcomes are summarised in this section.
Tariffs – agriculture
2.17
According to the NIA, Australia exported around $15bn worth of agricultural goods to TPP parties in 2014. This represents about 33 per cent of Australia’s total agricultural exports.
2.18
The TPP will eliminate tariffs on more than $4.5bn of these exports and increase access to markets through the reduction of non-tariff barriers upon entry into force. Specifically, the TPP will:
reduce and eliminate tariffs on beef exported to Japan, Mexico and Canada, and improve access to the United States market;
allow access for sugar exports to the United States, and reduce tariffs and levies in Japan and Canada;
expand the quota for rice exports to Japan, and eliminate tariffs on exports to Mexico and Peru;
eliminate tariffs on cheese exports to Japan, improve butter and skim milk quotas for Australian exports to Japan, eliminate tariffs on milk powders, ice cream, infant formula and selected cheeses in the United States, and allow preferential access for all dairy produce in Mexico and Canada;
eliminate tariffs on wheat and barley on exports to Mexico and Canada, and reduce the tariffs and non-tariff barriers applied in Japan;
eliminate tariffs on the export of wine to Mexico, Canada, Peru and Vietnam; and
eliminate tariffs on seafood exports to Canada, Peru, Vietnam, Mexico and Japan.
Tariffs – resources, energy and manufacturing
2.19
The NIA states that the TPP will eliminate all remaining tariffs on Australian exports of non-agricultural products to TPP parties.
2.20
In relation to resources, the TPP has secured:
the removal of tariffs on iron ore, copper, and nickel exported to Peru; and
the elimination of tariffs on butane, propane, refined petroleum and liquefied natural gas to Vietnam.
2.21
In relation to manufacturing and other goods, the TPP will, according to the NIA:
eliminate tariffs on iron and steel in Canada and Vietnam;
eliminate ship tariffs in Canada;
eliminate tariffs on pharmaceuticals, machinery, mechanical and electrical appliances and automotive parts exported to Mexico;
eliminate tariffs on paper and board exported to Peru;
eliminate tariffs on automotive parts to Vietnam;
oblige Malaysia to cease providing tax credits to local automotive parts manufacturers; and
permit Australian manufacturers to bid for government contracts on the supply of pharmaceuticals, electronic components and other supplies in Brunei Darussalam, Canada, Malaysia, Mexico, Peru and Vietnam.
Services and temporary entry for business persons
2.22
According to the NIA:
TPP countries account for 24 per cent of the world’s trade in services, with Australian services exports to TPP countries worth over $20 billion in 2014 (almost 35 per cent of total Australian services exports).
2.23
In relation to services, the NIA states that the TPP will:
liberalise Mexico’s and Peru’s energy sectors;
permit mining investment in Vietnam;
change Vietnam’s and Brunei Darussalam’s local content requirements on supplies for mining, oil and gas exploration;
remove Malaysian restrictions on foreign legal, architectural, engineering and surveying professional services;
guarantee cross border access in relation to investment advice, portfolio management, collective investment, maritime insurance, and international commercial aviation and freight brokerage;
guarantee access for secondary and tertiary education providers to Brunei Darussalam, Japan, Malaysia, Mexico, Peru and Vietnam;
integrate logistics and supply chains to support transportation services;
phase out of foreign equity limits on telecommunication services in Vietnam;
allow greater access for private health providers to Malaysia, Mexico and Vietnam; and
guarantee access for Australian tourism operators to Brunei Darussalam, Canada, Chile, Japan, Mexico and Peru.
2.24
The temporary entry for business persons provisions in the TPP expand on previous free trade agreement to include preferential temporary entry for Australian professional business persons and their spouses with a number of TPP parties on a reciprocal basis.
2.25
Annex 12-A of the TPP details Australia’s commitments in relation to the entry of business persons. The commitments are as follows:
business persons and service sellers from all parties may gain temporary entry into Australia for business purposes provided their remuneration and financial support is sourced outside Australia;
installers or servicers of machinery or equipment who are remunerated from outside Australia may gain temporary entry for business purposes from other TPP parties that have similar commitments in relation to installers or servicers;
intra-corporate transferees who are either executives, or technically or professionally employed in TPP parties which have made similar commitments, may gain temporary entry to Australia for business purposes provided their organisation has an ongoing presence in this country and, in relation to the professional and technical transferees, they meet the necessary Australian skills requirements;
independent executives or people seeking to invest or establish a business office in Australia from all TPP parties may gain temporary entry into Australia;
contractual service suppliers, including professionals and technical professionals, from other TPP parties making similar commitments, are entitled to temporary entry into Australia provided they meet the necessary Australian skills requirement and are sponsored by an employer in Australia.
2.26
The temporary entry for business persons arrangements in the TPP were subject to considerable debate during the inquiry and are discussed in more detail in Chapter 8 of this Report.
Environment and Labour Standards
2.27
Chapter 20 of the TPP relates to protection of the environment. It is an extensive chapter, linking the TPP with existing international environmental agreements in fisheries management, migratory species, and trade in endangered species, amongst others. The Chapter also recognises the role played by non-tariff barriers such as phytosanitary barriers in the protection of each party’s environment.
2.28
According to the Australian Government:
The levels of environmental protection set out in the TPP are the most extensive ever agreed to by Australia in any trade agreement, including ensuring that TPP parties effectively enforce their domestic environmental laws.
2.29
The Chapter obliges parties to ‘strive’ to ensure their environmental laws provide for and encourage high levels of environment protection.
2.30
While recognising the entitlement of each party to regulate on environmental matters within its jurisdiction, the Chapter states that parties may not fail to effectively enforce their environment laws in a manner affecting trade or investment between the parties.
2.31
The Chapter further states that it is inappropriate for parties to encourage trade with other parties through a reduction in environmental standards.
2.32
In relation to labour standards:
The labour chapter is also the broadest ever agreed to by Australia in a trade agreement and requires of all TPP parties enhanced compliance with internationally recognised labour rights, such as elimination of forced labour, abolition of child labour, freedom of association and the right to collective bargaining.
2.33
Specifically, Chapter 19 commits the parties to the obligations of the International Labour Organisation’s Declaration of Fundamental Principles and Rights at Work and Its Follow Up (1998). The Declaration provides for:
the elimination of forced labour;
the abolition of child labour;
the elimination of discrimination in employment;
acceptable wages, hours of work, and occupational health and safety.
Government procurement
2.34
Chapter 15 deals with Government procurement by TPP parties. It obliges TPP parties to ensure suppliers from other TPP parties are afforded the same treatment as domestic suppliers in relation to Government procurement.
2.35
In general, Chapter 15 will ensure that Government procurement is conducted through a competitive tender that will not disadvantage tenderers from other TPP parties.
2.36
The Chapter also contains provisions preventing corruption, bribery and fraud, along with an obligation on each party to establish an independent authority to hear challenges and complaints about government procurement decisions.
Intellectual Property
2.37
The TPP contains a common set of rules on intellectual property protection and enforcement, building on the provision in the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
2.38
In relation to intellectual property, the TPP is consistent with Australia’s current copyright and patent laws and will not require legislative change in these areas. The TPP will not require new civil remedies or criminal penalties for copyright infringement in Australia.
2.39
The TPP is one of the first FTAs to contain measures applying to biologics, a new class of medicines intended to cure diseases such as cancer. The NIA states:
…the TPP will not require changes to be made to Australia’s existing five year of data protection for biologics or any other part of our health system and will not increase the cost of medicines for Australians under our public health system.
Investment and ISDS
2.40
Australian investment in TPP parties was $868bn in 2014, representing 45 per cent of all Australian overseas investment. In financial terms, overseas investment is the single most significant Australian sector covered by the TPP.
2.41
The TPP is expected to liberalise investment regimes in sectors in which the TPP parties account for the majority of global investment. This includes energy, mining and telecommunication.
2.42
The TPP should also encourage growth in foreign investment into Australia by liberalising the screening threshold at which private foreign investment in non-sensitive sectors are considered by the Foreign Investment Review Board (FIRB). The threshold for FIRB review will increase from $252m to $1.094bn.
2.43
The TPP’s investment obligations contain, according to the NIA:
…high quality, modern rules governing the treatment of investors and their investments, balanced with robust safeguards to preserve the right of the Government to continue regulating in the public interest.
2.44
The Investor-State Dispute Settlement (ISDS) provisions of the TPP generated considerable debate during the inquiry. The ISDS provisions are examined in detail in Chapter 6.
2.45
In summary, in relation to ISDS, the NIA states:
A number of important safeguards are built into the rules guiding ISDS, making this one of the most protective treaties in existence worldwide in terms of its protections for legitimate regulation.
2.46
According to the NIA, the new provisions include:
enhanced levels of transparency in the management of ISDS claims;
specific Australian carve outs for social services such as education, social welfare, health and public utilities; and
measures to respect the creative arts and indigenous traditional cultural expression.
2.47
In addition, the NIA states Australia will lodge a notification preventing any and all ISDS challenges to Australia’s tobacco control measures under the TPP.
Electronic Commerce
2.48
The TPP is the first free trade agreement to ensure service providers and investors can transmit information by electronic means.
2.49
Chapter 15 of the TPP also contains a number of other protections for service providers and investors, including prohibiting parties from:
requiring service providers and investors to use locally built data centres as a requirement for doing business within the country; and
requiring access to or transfer of source code owned by a person of another party as a condition for the importation and sale of software.
2.50
Chapter 15 also permits parties to impose conditions and restrictions on cross border electronic transfers where there is a public interest (such as privacy).
2.51
Finally, the Chapter reinforces the accepted practice of not imposing customs duties on electronic transmissions.
Rules of origin and non-tariff barriers
2.52
One advantage of a plurilateral free trade agreement is in establishing regional rules of origin. This permits the development of regional supply chains, where value adding can take place across a number of parties while the product remains tariff free.
2.53
Regional rules of origin also permit businesses to trade more efficiently, as they will be dealing with a single set of customs rules across all TPP parties.
2.54
The TPP contains a mechanism for Australia to address concerns about non-tariff barriers in other TPP parties. In particular, non-tariff barriers should become more transparent, more evidence based and more cooperative.
2.55
The TPP’s approach to non-tariff barriers was a particular focus of attention for Australian agricultural exporters participating in the inquiry. The issue is discussed in more detail in Chapter 10.
Specific state outcomes for Australia
2.56
Under the TPP, Australia will overcome a number of specific barriers to trade it currently faces in TPP parties.
2.57
The TPP will grant Australia Most Favoured Nation status with Canada, Mexico and Peru for the first time.
2.58
In addition, the TPP will result in following benefits for Australia in relation to specific TPP parties.
significant reductions and elimination of tariffs on beef and beef products;
tariff elimination and levy reduction for high polarity sugar;
a quota increase for rice;
elimination of tariffs on a range of cheeses;
a quota increase for butter and skim milk power;
a quota increase for wheat and barley;
elimination of tariffs on seafood;
guaranteed access to Australian educational services;
guaranteed access for tourism services; and
access to tenders for government education services.
elimination of tariffs on beef and beef products;
elimination of refined sugar tariffs;
elimination of tariffs on wheat and barley;
elimination of tariffs on wine;
elimination of tariffs on seafood;
elimination of tariffs on iron and steel products;
elimination of ship tariffs;
access to government tender processes in:
accounting, auditing and taxation services;
telecommunications services;
environment protection services;
health and social services; and
guaranteed access for tourism services.
elimination of tariffs on beef and beef products;
elimination of tariffs on rice;
elimination of tariffs on wheat and barley;
elimination of tariffs on wine;
elimination of tariffs on seafood;
elimination of tariffs on pharmaceuticals;
elimination of tariffs on machinery, electronic appliances and automotive parts;
liberalisation of energy sector;
permitting mining equipment, technologies and services to be imported;
permitting TPP party business to tender for contracts with state owned enterprises;
guaranteed access to Australian educational services
access for private health services;
guaranteed access for tourism services; and
access to tenders for government services in:
accounting, auditing and taxation;
agricultural engineering;
environment protection; and
elimination of beef safeguards;
increased access for sugar;
elimination of tariffs on selected dairy products, including ice cream, infant formula, selected chesses and milk powders; and
a quota increase for Australian cheeses.
elimination of tariffs on rice;
elimination of tariffs on wine;
elimination of tariffs on seafood;
elimination of tariffs on iron ore, copper and nickel;
elimination of tariffs on paper and paper board;
guaranteed access to Australian educational services;
guaranteed access for tourism services; and
access to tenders for government services in:
accounting, auditing and taxation;
agricultural engineering;
land and water transport;
health and social services.
elimination of tariffs on wine;
removal of excise tax credits for locally produced automotive parts;
reformed access to legal, architectural and service sectors;
guaranteed access to Australian educational services;
trade and investment protections for transport companies;
access for private health services;
greater certainty concerning access and operating conditions for tourism services; and
access to tenders for government services including:
accounting, auditing and taxation services;
agricultural engineering;
land and water transport;
health and social services.
elimination of tariffs on wine;
elimination of tariffs on seafood;
elimination of tariffs on butane, propane and liquefied natural gas;
elimination of tariffs on petroleum;
elimination of tariffs on iron and steel products, and automotive parts;
the opening of mining investment;
reforming local content regimes in mining, oil and gas;
permitting TPP party business to tender for contracts with state owned enterprises;
guaranteed access to Australian educational services;
trade and investment protections for transport companies;
phasing out of foreign equity limits on telecommunications services;
access for private health services;
greater certainty concerning access and operating conditions for tourism services; and
access to tenders for government accounting, auditing and taxation, and environmental protection services.
guaranteed access for tourism services.