While Philippine Trade Gains In TPP Are Theoretical, The US Power Of Certification Will Actually Trump Philippine Laws

CURRENT TRADE CONCERNS
Elpidio V. Peria
16 May 2015

The US Senate reversed course in a span of less than a week this past week , first rebuking US President Barack Obama by denying him fast-track trade negotiations authority on Tuesday (12 May) but later agreeing the next day to consider debating the trade promotions authority (TPA) bill that clarifies US negotiating objectives and lays down Congressional guidelines to enable the US President to conclude negotiations on a 12-nation Trans-Pacific Partnership (TPP) trade agreement.

The debate of the US Senate on this TPA bill may be an extended affair, and its prospects in the US House of Representatives is more uncertain given that there is scepticism in the Republican-dominated chamber to give authority to President Obama to negotiate trade deals.

According to the US Senate Committee on Finance Report on the TPA Bill (2015):

The TPP is a proposed regional free trade agreement being negotiated among the US, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. US negotiators describe the TPP as a “comprehensive and high-standard” FTA that aims to liberalize trade in nearly all goods, including agriculture, and services, and contain rules-based commitments beyond those currently established in the World Trade Organization (WTO). The negotiations have been underway since 2010, and a broad outline of an agreement was announced in November 2011. If concluded as envisioned, the TPP potentially could significantly reduce tariff and non-tariff barriers to trade and investment among the parties and could serve as a template for a future trade pact among Asia-Pacific Economic Cooperation (APEC) members and potentially other countries.

The Philippines, if news reports are to be believed, is aching to be part of this deal and several trade economists, like Orden and Cororaton (2014), using theoretical trade models, estimate that if the Philippines joins the TPP, its exports will improve annually starting by US$0.25 billion in 2015 and increasing to US$3.0 billion in 2024. Additional inflows of foreign capital will result in Philippine real exchange rate appreciation starting by 0.1 percent in 2015 and increasing to 0.5 percent in 2024. The appreciation of the real exchange rate reduces the effects on Philippine exports. However, the additional inflows of foreign direct investment generates scale production effect that will improve output of key sectors in the Philippines in 2024, such as textiles, petroleum products and services, but crops, mining, food manufacturing, metal products, transport and machinery equipment, and construction, will be negatively impacted.

There is however another aspect to the TPP that the Philippines and other TPP negotiating partners should be wary about and this is the power of certification by the US President that such trading partners have complied with their commitments under the trade agreement it just negotiated with the US.

According to a legal memorandum prepared by Prof. Jane Kelsey, Faculty of Law, University of Auckland, New Zealand and Sanya Smith of Third World Network, certification involves:

The US President withholds formal written notification to another party to a trade agreement that the US has satisfied its domestic approval processes until the US certifies the other party has altered that party’s domestic laws and policies to satisfy US expectations of what is needed to comply with the free trade agreement (FTA).

This means that, even if the US Congress has approved the Trans-Pacific Partnership Agreement (TPPA) and that other country has satisfied its own domestic approval processes, it won’t come into force between the US and another country unless and until the US certifies the other country’s implementation.

This certification process potentially gives the US leverage to rewrite the bargain the parties reached during the negotiations and secure additional concessions after the pact has been signed.

According to Prof Kelsey and Sanya Smith (2014), this has happened in the previous free trade negotiating partners of the US :

a) El Salvador had to hold at least three rounds of negotiations (two in the US). That included sending a high level delegation, plus the agriculture and economic ministers, to the US over a demand to accept US meat and poultry inspections that was not included in the text of the Central America Free Trade Agreement (CAFTA);

b) The US approved the language of seven laws before they were adopted by Costa Rica. The laws related to intellectual property rights, copyright, telecommunications, customs, agriculture, penal procedure, and distribution arrangements for foreign companies. The US reviewed the final versions to ensure there were no changes;

c) Nicaragua sent the law that implemented CAFTA to the US for review before Nicaragua’s President signed it. The US demanded that the law was published to ensure Nicaragua had completed the entire implementation process. The US apparently sought clarification of a number of administrative measures in the Bill;s

d) Panamanian officials referred to ‘working closely’ with the Office of the USTR;

e) For the Dominican Republic’s CAFTA certification, the US government pre-approved the language of seven CAFTA implementing laws and then reviewed the final legislation again to ensure no changes had been made before agreeing to certification;

f) Guatemala passed its legislation to implement the CAFTA in late May 2006 after intensive consultations with the USTR but waited for months to receive an assurance from USTR that the legislation met U.S. conditions.

The recent TPA bill being considered for further debates in the US Senate floor further complicates the process of certification since before, the US Trade Representative merely consults with Members of Congress and the relevant Congressional committees but now Congressional Advisory Groups will also have input on how a US trade partners’ laws may need to be amended to suit US and advisory groups’ interests. This is a very high hurdle and a slap many times over to the face of a country’s sovereignty, just to gain US market access which gains may not even be enough to offset the losses in the specific sectors and the diminution and demeaning of state sovereignty.

As what had happened with other US trading partners as analyzed by Prof. Kelsey and Sanya Smith (2014), certification also delays the effectivity of the trade agreement, which ultimately delays the benefits of the potential gains of increased US market access. Their review has shown that  certification can extend for years after each country has fulfilled its constitutional requirements for ratification. For example, Panama’s legislature approved the US-Panama FTA in 2007, and the US Congress eventually approved it more than four years later. But the US withheld notification for another year because Panama had not changed all of its laws and policies on patent, copyright, finance, telecommunications, procurement, customs, and trade remedies, among others, to satisfaction of the US.

As Philippine officials prepare to host the TPP Ministerial in Boracay later this month, perhaps they should think hard whether the potential gains in trade is worth the costs in changing important laws in cheap medicines, environmental regulations, state trading enterprises like the National Food Authority, and the like.

oOo

REFERENCES :

Caesar B. Cororaton and David Orden (2014), Potential Economic Effects on the Philippines of the Trans-Pacific Partnership (TPP), GII Working Paper 2014-1, revised February 2015, from http://www.gii.ncr.vt.edu/docs/GII_WP2014-3.pdf, accessed 16 May 2015

Prof. Jane Kelsey and Sanya Smith, (2014), Q&A On The Us Legal Requirement For ‘Certification’ Of
Trade Partners’ Compliance Before An Agreement Like The TPPA Goes Into Effect, University of Auckland, New Zealand and Third World Network, from http://tppnocertification.org/wp-content/uploads/2014/08/Certification-memorandum.pdf, accessed 16 May 2015

US Senate Committee on Finance (2015), Report, as filed, on S. 995, the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, from http://www.finance.senate.gov/legislation/details/?id=09a8e24a-5056-a032-52c2-e543475d6f92, accessed 16 May 2015

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