July 15, 2013
Global Trends by MARTIN KHOR
What to expect in TPPA talks
The nature and effects of free trade agreements has become a topic of public discussion, especially with the round of talks of the Trans Pacific Partnership Agreement (TPPA) about to take place in Malaysia (in Kota Kinabalu, Sabah).
Not much is known about the TPPA drafts. But with some of its chapters leaked on the Internet and since much of the TPPA is likely to be similar to bilateral FTAs that the United States has already signed, we can have a good idea of its main points.
As can be expected, there are many contentious issues to consider, especially for developing countries like Malaysia.
On trade itself, the TPPA countries will have to remove tariffs on almost allproducts coming from one another. Perhaps only one or two products can still be protected. The main implication is that local producers and farmers would have to compete with tariff-free imports from other TPP countries.
Ironically, agricultural subsidies which is the main trade-distorting practice of developed countries like the United States, have been kept out of the TPPA, thus depriving developing countries of what would have been their major gain.
On Services and Investments
On services and investments, we can expect the TPPA countries to be pressured into opening all their industrial and services sectors.Exclusion of any sector will have to be listed and this is subject to negotiations.
In the investment chapter (0f TPPA),the country will have to commit not only to liberalise the entry of foreign companies but also to protect the foreign investors’ rights in an extreme way that goes far beyond what is recognised in national laws and courts. For example, the foreign investor includes any person or company who has an asset (factory, land, shares, contract, franchise, intellectual property, etc). “Fair and equitable treatment” to be given to them has been interpreted in past cases to include a standstill on (no changes in) regulations.
Thus any new law or change to existing laws and regulations that a foreign investor claims will affect its future revenues can be challenged in an international tribunal for monetary compensation. The regulations could be economic, social, health and environment related.
TPP countries have agreed to allow foreign companies to sue governments in any international court( usually ICSID, based in Washington DC) for compensation. Expropriation is defined as not only confiscation of property (for eample, nationalisation) but also reduction of revenues due to regulatory changes.
These investor-state disputes can cause countries a lot. A court award an American oil company USD2.3 billion (RM7.1 billion) against Ecuador’s government in 2012. Indonesia is being sued for USD2 billion (RM6.2 billion) for withdrawing a contract that a state government made with a British oil company.
The TPPA will also open up government procurement, with foreigners being allowed to bid on similar terms as locals for goods, services and projects above a threshold value. Existing preferences for local companies will be affected,as will be the ability to use government spending to boost the domestic economy and as a major social and economic policy instrument.
Since government procurement contracts are considered investments, the foreign supplier can sue the government at an international tribunal by claiming unfair treatment including a renegotiation of contract.There is also a sub-chapter on state owned enterprises (SOEs). The United States and Australia are proposing disciplines on the operation of SOEs in which the government has a share.
This would restrict the state to state’s ability to government to govern or manage government-linked companies, or provide incentives and preference. For Malaysia, this would affect the New Economic Policy programmes and activities, which are deemed to be discriminatory . This would also have serious implications for developing countries whose success is based on the role of the state in the economy and on public-private partnership.
On Intellectual Property
The chapter on Intellectual Property has generated public debate because it obligates the TPP countries to have IP laws far beyond WTO rules. Longer patent terms and restriction of the state’s policy freedom to promote generic medicines are expected to raise the prices of medicines and other pharmaceutical products.
Tight copyright rules would affect dissemination of knowledge including books. periodicals and journals and digital information.Local producers in industry may find it more difficult to upgrade their technologies and local farmers could have less access to agricultural inputs including seeds.
There are many benefits to foreign investors and companies. Local companies would lose a lot of their present preferences and incentives. They cannot stake a claim to “fair and equitable treatment” or sue the government in a foreign court, like a foreign company can.
Naturally, there are pros and cons to any agreement. Any potential gain for a country in exports or investments should be weighed against potential loss to domestic producers, and especially the loss to the government in policy space and potential payout to foreign investors claiming compensation.