Corporates Rush To Decipher Landmark Trade Agreement

Corporate executives have been following the Trans-Pacific Partnership trade negotiations closely. The TPP is a groundbreaking mega trade agreement among 12 nations (Australia, New Zealand, Singapore, Vietnam, Canada, United States, Japan, Malaysia, Mexico, Peru, Chile, Brunei Darussalam). In October, Indonesia indicated that it too would join the TPP, which covers approximately 40% of global economic output.

The TPP eliminates more than 18,000 tariff lines and introduces trade rules in innovative and emerging areas such as state-owned entities, e-commerce and information flows. Following several years of negotiations, the TPP governments finally announced the conclusion of the negotiations in October 2015.

Yet executives have found themselves in regulatory limbo. First, details of the TPP deal were not available during negotiations. The concluded text was released only recently, forcing the market to examine its consequences following years of misinformation and inconsistent versions.

“Generally, companies need to figure out what the TPP says that is relevant to their business and how it may shape it, to which countries it applies, to which products it applies, how it applies, and when,” says Dan Harris, a lawyer specializing in international trade. “The odds are pretty high that, if it passes, it will pass in a form very similar to what we are seeing now,” Harris adds.

Second, the TPP agreement needs to be ratified by each TPP member country, which raises serious political challenges. For example, the United States is in presidential election mode, and both the Democrats and Republicans use anti-TPP rhetoric as a political tool. Elections in other TPP member countries have led to new leadership that might change key trade policies.

Corporations’ business decisions depend on regulatory certainty, but as the passing of TPP legislation faces various hurdles, corporate decision-making processes will need to remain flexible.

“Businesses make decisions in a world of economic, business and legal uncertainty every day,” says Harris. “This is not really any different. The big uncertainty is whether it will pass at all.” Any uncertainty as to how countries will ratify the TPP may delay corporate decisions to expand into markets or industries where specific new tariff eliminations play a big role. The impact on companies from TPP countries with already-existing bilateral trade treaties would be limited. But the TPP chapter that allows companies to sue governments directly for violation of investment protection, if passed, would change the way companies decide on their litigation strategy.