Living with the Trans-Pacific Partnership (TPP)

The standard response to many questions about possible shortcomings in the Trans-Pacific Partnership (TPP) negotiations is likely to be some variation of the following, “Don’t worry—your concerns will be addressed later, because the TPP is a living agreement.” 

This sounds great.  Who doesn’t want an agreement to remain living?  But, in practice, the idea is going to be very difficult to implement, particularly if it is not tied to a Secretariat to carefully monitor the agreement.  Several key issues need to be considered as well, particularly the extent to which change will be allowed in the future.

The TPP, a 12 party trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam, has been under negotiation for more than 5 years.  As deep and broad as the coverage will be in this deal, officials have not been able to resolve every possible issue satisfactorily for every member. 

Even if officials were amazingly capable of nailing down every possible point of concern, trade agreements can still become out of date relatively quickly as technology changes and markets shift.  New issues are constantly being added to the agenda of each ambitious deal.

Existing trade agreements, however, are relatively hard to amend.  Most require a “protocol of amendment” to be negotiated with the parties for each requested change.  Even if the parties agree to let the deal be amended, it does not guarantee that all sides will agree to incorporate specific changes. 

The mechanism for considering amendments in most standard trade agreements is also challenging to use.  Most preferential trade agreements (PTAs) are structured with a set of committees that are meant to meet from time to time to discuss the deal.  For example, a PTA may specify that the trade in goods committee will meet every year while a committee on services may be scheduled every two years. 

We can’t be sure yet, as the explosion in PTA numbers is a relatively recent phenomenon.  But for many agreements, it is highly likely that the required committees will not meet or will meet only intermittently.  Even if they do meet, officials are not likely to put their best efforts into the review meetings.  For a government like Singapore, with more than 20 active preferential trade agreements with bilateral and regional partners, just scheduling times for officials to meet during each review is likely to be a challenge. 

Thus, counting on the standing committees to resolve issues may provide false comfort.  Other than serious or significant obstacles and major or minor disasters, very few changes are likely to result from the standard operating procedures in trade agreements.     

We do have experience with the downsides to having agreements that cannot be easily amended.  The most obvious example comes from the World Trade Organization (WTO) where officials have been wrestling for years with how to alter an existing agreement for electronic goods. 

The Information Technology Agreement (ITA) at the WTO is an agreement that lowered tariffs to zero on a wide range of IT products.  The reduction in tariffs for electronic goods helped stimulate the growth of “factory Asia,” in particular, as companies found it easier to break apart supply chains for these types of products and to disperse production of different elements of complex products into different WTO member states.

The problem is that the agreement was negotiated on the basis of a “positive list.”  Under this method of liberalization, any product that appeared on the list was covered, with tariffs scheduled to drop.  But any product that did not appear on the list was not covered—tariffs would remain unchanged.  The idea was most definitely to amend the list as required over the years to reflect changing technology.  After all, IT cycles quite rapidly. 

But the list proved impossible to revise.  Hence the ITA might lower tariffs to zero on record players but still does not cover smart phones or tablets at all.  Members of the ITA agreement at the WTO continue to labor over creating new lists of items eligible for tariff cuts in an “ITA2.”

By contrast, the TPP would not face similar issues.  In addition to using a different method of market opening for services and investment (the so-called “negative list” where everything not listed is automatically opened for competition including new sectors), the TPP would become a “living agreement” that would never go out of date.  It could be simply and easily altered in the future.  Finally, any incomplete or insufficiently developed ideas, rules or coverage could be addressed without the major hassle of convening new negotiations or complicated committee meetings.

This sounds great.  Surely a living agreement beats a dead one?  But the devil, as happens so often, lies in the details.  How, precisely, can an agreement be brought to life?

Remember that the TPP has the same committee structure (at the moment, at least) as every other PTA.  Why would any committee member suggest an amendment in its area of purview?  (At least for items that do not rise quite to the level of catastrophe.)  The negotiating teams will have been disbanded and the institutional memories of the agreement are likely to vanish with retirements and promotions.

Sensitive issues will likely need political engagement to adjust or negotiate.  If it turns out to be difficult to amend the TPP, then this automatically negates the idea of a “living agreement” which was intended to be continuously revised and updated as events on the ground change.

Essentially, the TPP will face the same challenges as the WTO members in amending the ITA—the practical consequence will be to force a renegotiation of the agreement or of a portion of the deal. 

My solution, as regular readers may recall, is to create a TPP Secretariat.  This would not entirely fix the problem, but would at least keep changes out of the hands of indifferent trade officials racing from PTA review to PTA review.  It would put someone in charge of getting people together to consider possible amendments.  It would, most likely, have a built-in mechanism for engaging political leaders to sort out sensitive issues. 

The Secretariat staff would be most familiar with the agreement and the obligations of members.  They could serve as neutral brokers and help members manage necessary changes to the texts and commitments. 

A Secretariat does not solve all the problems associated with a living agreement, of course.  But the right institutional structure is needed in general and certainly represents a huge improvement over the traditional committee mechanisms.  Such a complicated trade deal requires the best possible institutional structure to run effectively.

One issue that will have to be considered by members directly in a living agreement is the extent of renegotiation that is allowed as part of the living deal before it triggers some sort of re-ratification or new approval process by members.  There must be, surely, some baseline level of change that is acceptable as part of the continual upgrading needed in a rapidly changing economic environment. 

But at a certain point, member governments will surely argue that they should be consulted again or give direct approval for changes.  What is the appropriate trigger point?  Is it the percentage of the text that is altered?  Officials on the ground can change one percent of the texts without a problem, but when they reach, say, 10 percent, this is the trip wire? 

Is the trigger the economic impact of changes?  In this scenario, officials can make minor adjustments to the texts, but if the result is more than $50 million, this is a problem?

For some TPP members (now and into the future), it is possible to imagine that no changes at all will be allowed without re-ratification of the deal. 

What if a member wanted to scale back commitments?  In a “21st century, high quality” deal, such a thing will likely not be countenanced.  But the idea of a living agreement, at least, suggests that alterations should be allowed both forward and backwards.  All adjustments, of course, would be subject to negotiation and not simply allowed to take place unilaterally.

It is possible to imagine a scenario under which a member might want to retreat from some element of the deal in the future.  Many people will strongly disagree here, but recall that one of the selling points for a living agreement is the ability of the agreement to handle a range of concerns after the TPP comes into force.  If a living agreement only allows upward ratchets on the level of commitment in the deal, it will not really allow for continual adjustment to meet the needs of members.

An additional benefit of an effective living agreement is that it could also create a mechanism for new members to adjust the text of the agreement.  Given that new entrants into the TPP are likely to be allowed limited (or even no) room for altering texts, a living agreement provision could provide a “back door” mechanism for alterations.  Such flexibility may be critical in getting new entrants to join.

Finally, if the living agreement idea is not made a reality, it is likely that the TPP will become just as difficult to amend as existing trade deals.  It may get out of date and become less and less relevant.   Getting the structure right for “living” is a necessary element of making sure that the final agreement does not rapidly become dead.

***Talking Trade is a blog post by Deborah Elms, Executive Director, Asian Trade Centre, Singapore***

Creating The TPP Secretariat

As the chief negotiators meet again this week in Hawaii, one issue needs to move quickly up the list of priorities—setting up the right institutional framework for the Trans-Pacific Partnership (TPP).  The TPP requires a robust Secretariat to ensure the long-term health and success of this trade agreement.

This is not a topic that excites very many people.  Everyone is much more interested in discussing what is or is not included in the agreement, getting the deal done, and discussing the timing of it all. Yet if the right framework is not chosen for the TPP as a whole, the entire agreement will swiftly fade into irrelevance.  More than 5 years worth of hard bargaining could be lost along with most of the promises of future benefits.

Oddly, this is one area where people outside the trade and diplomatic universe have a much better grasp of the issue than officials.  Whenever I describe the implementation and enforcement challenges to business leaders or the general public, people immediately understand that it is not possible to keep track of an agreement that binds together 12 members in three continents at diverse levels of economic development without some sort of robust management system.

The option currently on the table in the TPP consists of a set of standing committees, similar to what has been used in different bilateral trade agreements in the past. 

Yet anyone who has ever worked in a large business or volunteer organization immediately grasps the problem of leaving important tasks to a committee.  Not all committees are hopeless, of course.  But the success of many committees relies on finding committed and determined individuals who have (or create) the time to focus relentlessly on committee tasks.

This single-minded attention to detail is unlikely to be found among the mostly overworked desk officers of the current TPP members.  Dumping implementation monitoring and future tasks on the shoulders of the Asia desk trade officials is more likely to be a recipe for drift. 

The first phase of TPP implementation will stretch to more than a decade, with constantly shifting commitments every year for each member.  Just keeping an eye on the promises made by different countries and ensuring that these commitments are properly implemented across 29 different chapters is not going to be easy.

Under most trade agreements, changes and monitoring are set to take place in various committees—for goods, services, etc. as well as an overall coordinating committee group.  But even in most regular deals, the committee structure rarely works as promised.  The groups do not meet as originally planned.  National level trade desk officers in charge of attending the committees do not really have time to pay attention to the agreement in between review periods at all.   

The reality is that very little change ever happens in the review sessions.  To even get members in a bilateral agreement to make a change often requires parties to agree on a protocol of amendment in the first place.   No good bureaucrat is likely to argue for drafting a new protocol of amendment unless the issue under discussion is extremely critical.

So existing agreements quickly get out of date.  This is not supposed to happen in the TPP, because it is meant to be a “living agreement.” (More on this idea in a future post.)  But without a dedicated group of people monitoring the deal, it is not at all likely that the TPP will actually be amended as necessary over time. 

For these reasons alone, the TPP needs a standing Secretariat to keep track of the agreement. 

But the argument for a specialized set of experts to manage the agreement gets even more compelling when you realize the TPP is supposed to expand again in the near-term.  The current teams of negotiators are likely to be disbanded as soon as the TPP agreement is concluded.  Many of these folks will be heading off to a well-earned retirement or new careers entirely after five grueling years of continual travel and hard bargaining.

There are already a number of countries like South Korea, Taiwan, Columbia and the Philippines that have expressed interest in joining the TPP as soon as possible.  By 2018, the TPP could have 19 countries working together to craft accession terms and market access commitments.  Managing all these diverse interests will require a dedicated Secretariat.

There have been some muted calls to let the current APEC Secretariat handle the task.  The TPP is officially one of the pathways to the Free Trade Area of the Asia Pacific (FTAAP) that will bring together all 21 APEC economies.  But the current APEC Secretariat is not in a position to manage the legally binding TPP commitments very well among a subset of its members and still manage to complete its own full slate of activities. 

It seems clear that the TPP requires a dedicated Secretariat.  Current negotiating members are not enthusiastic about this idea, as it requires deciding on budgets, staffing and the identification of a suitable host.  But in the absence of a Secretariat, it is likely that many of the benefits of the TPP will be lost or will not be fully exploited.  It would be a shame to finally get a deep, broad and important agreement completed and watch it crumble for want of a decent institutional framework.

*******Talking Trade is a blog series by Deborah Elms, Executive Director, Asian Trade Centre, Singapore******