The 12-nation Trans-Pacific Partnership (TPP) should be a building block in a region-wide agreement involving China, rather than the end game, proponents have said.
The free trade agreement, which will cover 40% of global GDP and 30% of world trade, is expected to be finalised this year, with US policymakers keen to get it over the line ahead of the electoral primaries which take place in 2016.
However, at GTR’s Australia Trade and Supply Chain conference in Sydney, speakers urged negotiators not to rest on their laurels and to pursue a bigger agreement involving the world’s second largest economy, which has thus far observed discussions from the sidelines.
Niels Marquardt, the CEO of the American Chamber of Commerce, Australia, told the conference that the TPP should be used as a template for an agreement across the Pacific region, one that will necessarily involve China.
China would have to accept the rules of the agreement, especially when it comes to tariff lowering, anti-dumping and rules of origin, but could do so on a staggered basis, following a similar timetable to the one pursued by some of the current, lesser-developed negotiating parties, such as Vietnam, Marquardt said.
China, for its part, is trying to rally support for the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement of its own, in which Australia is also involved.
Marquardt urged on supporters of the TTP to make their voices heard, but also addressed the concerns of opponents by suggesting that a final agreement will provide some flexibility around the potentially toxic investor-state dispute settlement (ISDS) clause.
ISDS is the trade instrument that grants a foreign investor the right to initiate dispute settlement proceedings against a foreign government, in a private tribunal. It is commonly included in free trade agreements, but opponents say it could leave local level policymakers vulnerable to legal action from overseas investors, should local laws interfere with their ability to turn a profit.
It has become a stick with which many opponents of free trade have beaten negotiators, arguing that it threatens countries’ sovereignty. Australia, for example, was sued by Philip Morris International using ISDS when it introduced plain packaging for tobacco products, which the tobacco giant claimed damaged its investments in the country.
“The way out is to make sure there are exclusions and opt-out clauses that allow a country to say: ‘it’s not used for this issue’,” Marquardt said, pointing out that Australia has in the past proven that there is room to manoeuvre when it comes to the provision of ISDS. The clause is included in Australia’s free trade agreements with China and South Korea, respectively, but not in those with the US and Japan.
The implication is that in cases when the judicial systems between two negotiating parties are relatively harmonised and developed, the need for ISDS is not so great. However, in order to protect the assets of investors overseas, it was important that it be included in the deal with China. In the same vein, Marquardt said that he could not envisage a TPP without ISDS, but that it should be reserved for sectors which do not threaten public health and services.