TPP trumped, new deals floated

Donald Trump’s surprise victory in the US election two weeks ago is already having ramifications for world trade, with his confirmation today he will withdraw from the Trans Pacific Partnership likely to spark a recalibration of plans among nations in the region.

The president-elect’s campaign focused heavily on opposition to deals such as the North American Free Trade Agreement and TPP, and his threat to impose a 45 per cent tariff on imports from China could have major consequences.

The 12-nation TPP deal, which Australia and the US signed in February, has not yet passed the US Congress.

Without approval by the US legislature, the treaty will fail to meet the member country GDP threshold required to activate it.

Clifford Chance counsel Sam Luttrell said that left Australia with a number of options.

One, he said, was for the 11 remaining countries involved in the agreement to pursue another arrangement through the Asia Pacific Economic Cooperation.

That could include all 21 APEC member countries, albeit likely after the end of Mr Trump’s term.

A less likely option was that the TPP could remain dormant until it received minimum subscription – 85 per cent of the combined GDP of signatories.

TPP members could also opt to try to reduce that threshold, but that was unlikely, Mr Luttrell said.

Another option was the Regional Comprehensive Economic Partnership, consisting of the Association of Southeast Asian Nations plus six others, including China and India.

Perth USAsia Centre chief executive Gordon Flake said the RCEP agreement didn’t include many of the broader measures of the TPP.

It was good, but fundamentally different, he said, and ideally Australia would have both agreements.

“It is worse than apples and oranges, it is apples and cats, it’s a totally different beast,” Professor Flake said.

RCEP was an effort to build liberalisation mostly by harmonising standards, he said, although it would be more consensus-based and would package up some things that had already happened organically.

Professor Flake predicted there would be a renewed push for RCEP, led by China, although it would lack pieces such as the investor-state dispute settlement clause.

Investment treaty

Mr Luttrel, who has acted in numerous investor-state disputes (ISD), said the inclusion of an ISD clause brought two benefits for Australia.

“ISD clauses are a very important way of ensuring that businesses do not face the risks of home-town justice – actual or perceived – in the courts of the country where they make their investment,” Mr Luttrell said.

“Essentially what these clauses are designed to do is to make it possible for the investor, the private party, to enforce the protections granted to it under the applicable investment treaty without the need for the diplomatic representation of its home government.”

One benefit was that it protected the interests of Australian companies investing overseas without requiring diplomatic intervention, he said.

In fact, of the 13 legal battles that had involved Australian interests and taken place under similar clauses in other treaties, only one featured Australia as a respondent.

That was the Phillip Morris plain packaging case, which was eventually resolved in favour of the Commonwealth government.

There had been 12 cases were Australian investors had made claims against foreign governments, however.

It was particularly relevant to mining companies, he said, because it would affect their rights over intellectual property such as drilling data.

“Intellectual property investments are really important in WA because a lot of mining companies go exploring for natural resources in foreign countries, and one of the most important contributions they make is to provide the drilling data and the technical information on the resources that they have found,” Mr Luttrell said.

“The classic form of IP investment there is really the treasure map of the project.”

A further benefit of the clause was to give incoming investors certainty, because perceptions about injustice would influence risk premiums.

“So perceptions are what matter in international investment because it is perception that determines the cost of capital,” Mr Luttrell said.

The TPP agreement had had wide support in the business community.

Speaking at the Wesfarmers annual general meeting last week, chairman Michael Chaney said reversal of free trade would lead to economic stagnation.