TPP: The Fine Print—A Look at the Mechanics of the Treaty
The core commitments of the Trans-Pacific Partnership (“TPP”) are established by the TPP’s 30 chapters. However, to fully understand the implications of the TPP, companies also must consult the TPP’s various annexes and side letters, which provide country- and industry-specific details of how these core commitments will be applied, as well as exceptions to these core commitments. This article explains each of the instruments that comprise the 12 TPP parties’ legal obligations under the treaty.
Chapters. The TPP’s 30 chapters establish a comprehensive trade framework for a wide range of economic and regulatory components relating to goods and services, cross-border investment, intellectual property, the environment, and many other topics of critical importance. Generally, the core commitments contained in the chapters apply equally to all TPP parties, unless either an annex or a side letter creates an exception.
Chapter Annexes. In addition to the core text of the chapters, many TPP chapters include annexes that provide further details on the application of the chapters’ core commitments. Most of these chapter annexes fall into the following broad categories:
- • Extensions of the Core Commitments. Certain chapter annexes serve as extensions of that chapter’s core commitments. These chapter annexes list exceptions to or delay the application of the chapter’s provisions (e.g., Annexes 3-C and 10-C), define terms and describe the chapter’s provisions in greater detail (e.g., Annexes 1-A, 11-B, and 17-B), explain how the chapter’s provisions relate to other domestic or international laws or agreements (e.g., Annexes 9-A and 18-B), or provide for future negotiations between the TPP parties (e.g., Annex 17-C).
- • Country-Specific Schedules. Certain chapter annexes are country-specific schedules that explain how a particular TPP party will apply that chapter’s core commitments. For example, Annex 2-D contains each TPP party’s tariff elimination schedule, along with other country-specific documents related to tariffs, and Annex 15-A contains country-specific lists of the government entities whose procurements are covered by the chapter’s core commitments, subject to certain financial thresholds.
- • Product- or Sector-Specific Rules. Certain chapter annexes are product- or sector-specific and explain how that chapter’s core commitments will apply to a particular good, service, or industry. For example, Annexes 3-D and 4-A provide product-specific rules of origin for products exempted from the general rules of origin established by Chapter 3. Similarly, each of the eight annexes to Chapter 8 focuses on a particular industry—such as wine and distilled spirits, cosmetics, or medical devices—and addresses industry-specific issues that may arise in implementing the chapter’s core commitments on technical barriers to trade.
Nonconforming Measures Annexes. In addition to the chapter annexes, the TPP includes four annexes—Annexes I–IV—that list each country’s nonconforming measures. Essentially, these are country-specific lists of TPP provisions to which a TPP party has taken exception, often due to conflicting domestic laws or international agreements.
Both Annex I and Annex II relate to cross-border trade in services and investment; however, Annex I involves measures that the TPP party agrees not to make more restrictive in the future, whereas Annex II involves measures over which the TPP party retains full discretion in the future. Annex III involves financial services, and Annex IV involves state-owned enterprises and designated monopolies.
Side Letters. The TPP parties also have engaged in bilateral and trilateral exchanges of side letters, generally to confirm the parties’ agreement on the interpretations of specific TPP provisions. The United States has participated in more than 50 such side letter exchanges, which fall into the following 10 categories: (1) market access; (2) textiles and apparel; (3) sanitary and phytosanitary; (4) intellectual property; (5) services, financial services, and e-commerce; (6) temporary entry; (7) government procurement; (8) state-owned enterprises; (9) environment; and (10) pharmaceutical products and medical devices. Certain letters are binding and enforceable under the TPP’s dispute resolution procedures.
U.S.–Japan Bilateral Outcomes. In conjunction with the broader TPP negotiations, the United States and Japan conducted bilateral negotiations concerning motor vehicle trade provisions and other non-tariff measures (“NTMs”). These bilateral negotiations resulted in numerous provisions in the TPP’s chapters and annexes, as well as side letter agreements. During the bilateral negotiations on motor vehicles, the United States and Japan agreed to long-term phase-outs of U.S. tariffs on motor vehicle imports and to provisions designed to reduce NTMs that increase the cost of motor vehicle imports into Japan. During the bilateral negotiations on other NTMs, the United States and Japan agreed to provisions designed to reduce Japanese NTMs in numerous sectors, including insurance, government procurement, express delivery services, and intellectual property.
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When evaluating the TPP’s effect on a company’s business, it is important to review all relevant materials, including chapter annexes, nonconforming measures, and side letters, rather than the chapter text alone.