26 October 2015
The 12 member countries of the Trans-Pacific Partnership (TPP) announced conclusion of negotiations at the Atlanta Ministerial on October 5, 2015. This came after five years of intensive, and sometimes acrimonious, negotiations on a trade agreement which is expected to affect trade, investment and economic development of about 40 percent of the global economy.
The TPP countries are currently undertaking legal scrubbing of the text. By most accounts, the final TPP agreement is expected to be made publicly available in early November. Then, the domestic ratification process will begin.
Four ASEAN countries, Brunei, Malaysia, Singapore and Vietnam, are participating in the TPP. The ratification processes in Brunei, Malaysia and Singapore are relatively similar. The Executive arms of the three countries are vested with the authority to approve/ratify an international treaty, while their respective legislature will need to make or change domestic laws to implement specific parts of the treaty. For Vietnam, a treaty may be executed by either the Government or the State, and different procedures would apply depending on the executing body.
The ratification process in Singapore is expected to be relatively simple and smooth, as the Singapore economy is already quite open and the country already has free trade agreements with all of the TPP countries except Canada and Mexico. There is a similar expectation for Brunei. However, given the controversial nature and sensitivities of the TPP for Malaysia and Vietnam, the normal domestic procedures in these two countries may be enhanced. In Malaysia, unlike other trade agreements which did not go through Parliamentary process, the Government will likely table the TPP in Parliament for deliberation before making its final decision. In Vietnam, it is likely that the President will submit the TPP to the National Assembly for ratification, even though the President has the right to ratify a treaty himself.
We highlight a few of the issues which will likely be closely scrutinized during the four countries' ratification process:
- Market access-labor linkage – According to reports, Vietnam has apparently agreed to link enforcement of its labor regime (i.e., full freedom of association to independent unions) to preferential access to the U.S. market. This assessment may be attributed to the purported application of the TPP dispute settlement procedure to the Labor (and Environment) Chapter. Vietnam's exports of apparel and footwear products to the United States will be the likely pressure points.
This issue may also be controversial in Malaysia. The country was removed from the US' list of worst offenders in human trafficking only in July this year, in a move which some attributed to a political play to remove an obstacle to Malaysia signing onto the TPP. Brunei may also carefully scrutinize the TPP text for possible human rights "linkage"; there have been loud protests, especially from the United States, against Brunei's recent adoption of strict penal code based on Sharia law.
- State-owned Enterprises (SOEs) – This is a sensitive issue for Malaysia and Vietnam as they have many SOEs in both sensitive and "non-sensitive" areas/industries. The TPP will likely impose provisions circumscribing the behaviour of SOEs, for example, requiring SOEs to conduct their business on commercial terms. Given that SOEs is a red-line issue with Malaysia (and to a certain extent, Vietnam), debate on this issue will be intensive.
- Government Procurement – Both Malaysia and Vietnam are not signatories to the WTO Government Procurement; in other words, the TPP will be the first time the two countries open up their government procurement markets to foreign companies. This is especially sensitive for Malaysia which maintains bumiputera and SME preferences in its government procurement regime.
- Access to Medicines – Strong TPP patent protections have inflamed fears that the price of medicines will rise astronomically, thus affecting access to affordable drugs and health care.
- Investor-State Dispute Mechanism – The TPP will have an investor-state dispute mechanism, which may open up government actions to challenge by TPP investors. Concerns revolve around the country's sovereign right to regulate and the potential for frivolous challenges by investors. In Singapore, the fear is that the TPP will grant transnational corporations the power to challenge the country's public health and environmental laws, regulations or court decisions, resulting in adverse effects on Singapore's public health, environment and natural spaces.
Despite the loud voices opposing the TPP, the chances of TPP being ratified in Malaysia and Vietnam (and Singapore and Brunei) appear positive. As such, it would be timely for businesses to prepare themselves and develop a strategy to identify and capitalize on TPP opportunities. Our suggestion is for businesses to undertake a detailed assessment on (1) how TPP will change the regulatory and business environment; (2) what are the implications of such changes on the industry/business, the challenges and opportunities; and (3) what can the business do to respond effectively to such changes, challenges and opportunities.
For more information on the TPP ratification in Vietnam, please click here to refer to the Mayer Brown JSM Legal Update on the subject issued on October 14, 2015.