Global Trends by Martin Khor

Monday 26 February 2018

The new CPTPP is much like the old TPP

The new CPTPP that replaces the TPP trade agreement is like old wine in a new bottle --- without the US but retaining most of its controversial elements


The TPP (Trans-Pacific Partnership Agreement) seemed to have died when President Donald Trump pulled the United States out of it early this year.

But the remaining 11 members, including Malaysia, seem to have rescued it almost intact, with a new agreement to be signed on 8 March in Chile.

Last week, the text of the treaty was released.  Originally nicknamed the TPP11, it is now called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).       

The old TPP had been pushed along most adamantly by the US before Trump became President, with Japan as the next big advocate. They succeeded in getting controversial chapters and provisions on investment, government procurement, state-owned enterprises (SOEs), intellectual property (IP) and e-commerce into the TPP text.

For the developing countries in TPP, such as Malaysia, Vietnam, Singapore, Brunei, Peru and Chile, the attraction was to get more open markets for their exports, especially to the US, which has the biggest market in the world.  With the US now out, the main benefits for them in the CPTPP would be lost.

The developing countries generally dislike the other aspects, especially procurement, state owned enterprises and IP, as these intrude into their domestic arena and seriously restrict what policies they can retain or introduce.  But they were willing to swallow these in exchange for more exports to the US and other TPP countries.

With the US out of the picture, the cost-benefit balance has shifted.  The benefits have reduced, but the costs remain as long as the controversial issues are retained.

The CPTPP text released last week shows that 22 provisions (out of the over 1,000 total provisions) of the TPP have been “suspended”, rather than removed.   This is in anticipation that the US might return.  The chances of that are quite good, as Trump announced in Davos that the US may reconsider its decision to withdraw.

If the US re-joins, the suspended provisions would make a comeback and the CPTPP would in effect become the TPP again.   

The suspensions are mainly in the IP chapter.  Some of the extreme clauses which the US insisted on (but which many others were unhappy over) will not come into effect in the CPTPP.

Suspended are some provisions that adversely affect access to medicines, including obliging the TPP countries to allow patents for a second use of a medicine, new methods for using the medicine; and to allow an extension of the patent term if there are delays in granting a patent for a new medicine.

But some other TPP provisions on IP remain.  In particular, countries must join a new international treaty known as UPOV (International Union for the Protection of New Varieties of Plants), under which farmers will not be able to save and exchange seeds that are protected, but have to buy new seeds for new planting of crops.

Most other suspensions are of minor importance, and much of the original TPP remains.  The most problematic issues retained in the CPTPP include:

·         Investment liberalisation:  Countries have to open up to other CPTPP members’ companies and investors to enter and invest in their territory.  They could take over the business of some domestic producers and service providers.   

·         Investor protection: Foreign investors can bring host governments to an international tribunal for loss of present and future profits or value of assets if government introduces new economic, social or environmental policies that affect their business or even their business expectations.

·         Government procurement: Most developing countries including Malaysia give preferential treatment to local companies when granting projects and purchase of materials and services.  This boost to the local firms and the economy would be eroded when foreign firms have to be given equal treatment in government procurement under the CPTPP.

·         SOEs: In many countries including Malaysia, SOEs play multiple significant economic and social roles.  Under CPTPP, these roles will be much constrained by new rules that prohibit or make it more difficult for SOEs to obtain financing or preferential treatment from government, and prevent SOEs from giving preferential treatment (for example in their procurement) to local firms.  The aim is to enable foreign companies to better compete with the SOEs.

·         Intellectual property: Despite some provisions being suspended, the CPTPP has remaining clauses that can have negative effects such as higher costs for medicines, educational materials and farm inputs.

Policy makers should have done new cost-benefit analyses of the CPTPP, especially since the main TPP benefit of US market opening is now lost in the CPTPP.

Would it really be worthwhile losing so much policy space (i.e. the ability and freedom of a country to formulate its own policies in accordance with its own priorities and national goals), to gain new but limited export opportunities?

This question is made more pertinent because of two factors.  One, the new opportunities are limited because of the absence of the biggest player, the US.  Two, the extra exports are offset by inflow of new imports, so that the gains may be meagre, or even negative if the extra imports exceed the extra exports.    

But then, some decisions including whether to join a trade agreement are made without careful study.  Or if such a study is done, its conclusions may be overridden by other factors, such as geo-politics or something unknown to the public.