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Trans-Pacific Partnership Agreement Covers a Lot of Ground

Trade ministers of 12 Asia-Pacific countries announced October 5, 2015, that they had completed negotiations on the Trans-Pacific Partnership Agreement (TPP). The TPP links together the U.S., Canada, Mexico, Australia, New Zealand, Japan, Chile, Peru, Malaysia, Singapore, Vietnam, and Brunei in a broad trade agreement among countries that represent about 40 percent of the world’s GDP. The trade pact includes 30 chapters dealing with traditional trade issues such as market access and tariffs, while significantly expanding the purview of trade agreements with chapters focusing on such issues as labor, the environment, intellectual property, electronic commerce, and others.

As summarized on the U.S. Trade Representative’s website and elsewhere, the agreement does provide some definite positives: It eliminates or reduces tariffs on a broad range of industrial and agricultural goods; it takes steps to open up the Canadian and Japanese dairy markets to more imports; it allows more sugar to be imported into the U.S. to help sweetener users meet demands stifled by the U.S. sugar program; it phases out over a very long period U.S. tariffs on Japanese autos and makes inroads into Japan’s non-tariff restrictions on U.S. auto imports; it addresses other non-tariff trade barriers by affirming that restrictions on imports in the name of safety or environmental harm have to be based on science; it streamlines customs procedures for more timely deliveries.

What’s unique about TPP, among many issues, is the fact that labor and environment disputes among the parties are subject to the same dispute settlement procedures as commercial disputes. Subjecting commitments in the Labor and Environment chapters to dispute settlement—the same enforceability mechanism available for other chapters of the TPP Agreement—including the availability of trade sanctions. Subjecting commitments in the Labor and Environment chapters to dispute settlement—the same enforceability mechanism available for other chapters of the TPP Agreement—including the availability of trade sanctions.Subjecting commitments in the Labor and Environment chapters to dispute settlement—the same enforceability mechanism available for other chapters of the TPP Agreement—including the availability of trade sanctions.Thus, these non-trade issues are raised to the level of traditional trade issues, which marks a new incursion into using trade as a vehicle for special interests.

While the road to this trade agreement wasn’t easy—it was six years in negotiations—the path beyond to Congressional ratification will be even more contentious. Even before the text has been released (it’s still being finely tuned, will be getting legal review, will be translated into numerous languages, and then reviewed), opponents have already taken fierce positions, especially some players in the presidential primaries, such as Senator Bernie Sanders (I-Vt.), who has condemned the deal as “disastrous” and Donald Trump, hot on the campaign trail, who also attacked TPP. Senate Finance Committee Chairman Orrin Hatch (R-Utah), one of the strongest trade supporters who also led in pushing for Trade Promotion Authority, did not sound enthusiastic about TPP. In a press release, he expressed concern that “the deal appears to fall woefully short.”

One of the most contentious issues in TPP negotiations was the U.S. position on patent protection for biologics or medicinal products from biological sources. The U.S. was earlier asking for 12 years of market exclusivity after regulatory approval of biologics, but in the final agreement as reported, that has been reduced to five years.

The U.S. position is that developing biologics is a risky endeavor that requires vast research and development costs—estimated at $1.2 billion—before regulatory approval. By the time a new biologic gets to the market, about half of its patent life has been used. So the increased market exclusivity would allow firms to recoup some of those costs before a competitor can introduce a generic product and would provide incentives for innovation so that new biologics will continue to be introduced.

Under the rules established in the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (also called Trade Promotion Authority), a rigid timeline has to be followed: the president has to notify Congress and the public of his intention to sign the agreement 90 days before he does. At least 60 days before he signs it, the text of the agreement has to be released to the public. Then within 60 days of signing, the president has to provide Congress with a listing of the needed changes to U.S. laws to be in compliance with the agreement. He also has to send Congress a copy of the final legal text at least 30 days before submitting the implementing legislation. That legislation is what Congress debates and then decides to vote it up or down without amendment.

Once the negotiators’ text is released—probably within a month—and people learn exactly what has been agreed to, the debates over whether it’s good or bad for the U.S. will accelerate, especially during an election cycle.