Jurisdiction - Singapore
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Asia Pacific – The Trans Pacific Partnership.

10 April, 2014

 

Legal News & Analysis – Asia Pacific

 

The Trans Pacific Partnership (TPP) is a landmark regional free trade agreement that has been under negotiation since March 2010. The agreement includes twelve states across the Asia-Pacific region – namely Brunei Darussalam, Chile, New Zealand, Singapore, Australia, Canada, Japan, Malaysia, Mexico, Peru, the United States and Vietnam. It builds upon the existing Trans-Pacific Strategic Economic Partnership Agreement between Brunei Darussalam, Chile, New Zealand and Singapore, and will consist of a single undertaking covering all key trade and trade-related areas. It is intended that the TPP will eventually evolve into an APEC-wide agreement, with countries such as Korea, Thailand, India, Costa Rica, Bangladesh, Indonesia, the Philippines, Laos and Colombia having expressed interest in participating in negotiations to date.

 

The agreement will be one of the most significant free trade agreements entered into to date, covering approximately 26% of world trade (resulting in a trade block second only to the European Union in the size of its total trade value), with member states’ GDP amounting to 39% of the world’s GDP in 2012.

 

The TPP aims to reduce barriers to trade and investment between member states, and facilitate economic integration, growth and innovation across the Asia-Pacific region, thereby offering lucrative new foreign investment opportunities across the Asia-pacific rim. In addition, the TPP is expected to govern regional competition issues, capacity building, cross-border services, customs, e-commerce, environmental issues, financial services, government procurement, intellectual property, investment, trade, dispute resolution mechanisms, market access for goods, rules of origin, telecommunications and trade remedies. In this way, the TPP is intended to deal with ‘behind the border’ barriers to trade and investment, such as domestic regulatory regimes with respect to labour, local investment procedures and competition policies, in addition to cross-border impediments, such as tariffs.

 

Negotiators most recently met in Singapore in February 2014. While the ‘Statement of the Ministers and Heads of Delegation’ stated that negotiators have “agreed on the majority of the landing zones identified at our last meeting”, reports suggest that the intellectual property chapter, and provisions surrounding the environment, state owned enterprises, competition and rules of origin remain under heavy negotiation. At the conclusion of talks in Singapore, there was no definite timeframe for the conclusion of the agreement but the countries are keen to reach agreement as soon as possible.

 

The conclusion of the TPP will be of particular significance for companies in the energy sector, given the substantial volumes of trade in energy products between states negotiating the TPP. Oil and gas are the most traded products in the Asia-Pacific region,1 and, at the aggregate level, oil and gas, primarily crude oil, are the largest category of American imports from TPP countries.2 Many such energy products are currently subject to tariffs, particularly as between nations within the TPP region that are not already parties to free trade agreements. For example, each of Australia, Singapore and the United States apply import duties to certain petroleum products,3 and Mexico applies import duties to all foreign goods, equipment and materials (subject to exemptions under certain free trade agreements).4 By reducing or removing such tariffs in their entirety, the TPP promises to introduce a more competitive market for energy products across the Asia Pacific making multi-national energy companies’ products more attractive in their respective export markets within the TPP region. Further, beyond eliminating tariffs, the TPP may also overcome behind-the-border barriers to trade in energy products, such as American restrictions on exports of unconventional gas resources through congressional control over export licences.

 

More generally, one of the biggest benefits for energy companies looking to invest in the TPP region will be the likely inclusion of ISDS provisions in the TPP. ISDS provisions protect against political risks associated with investing overseas. Such protections are of significant benefit to cross-border investors, whose projects must often weather considerable changes to the host country’s government policies over the lifetime of the investment. This is particularly so for companies looking to invest in energy projects, which often require significant sunk capital and which can span decades. The shelter form political risk provided by ISDS provisions maybe crucial in rendering such an investment viable.

 

ISDS provisions provide both substantive and procedural protections. Substantively, such ISDS provisions generally set out the standards by which host countries must treat foreign investors – namely fairly and equitably, with discrimination against foreign investments compared with domestic investments being prohibited. Procedurally, if a dispute arises, ISDS provisions allow investors to bring claims against the relevant government (rather than having to rely on their home government to take action on their behalf) and to have their dispute resolved before a familiar and independent arbitration tribunal, rather than by recourse to the local courts of the host country.

 

End Notes:

 
  1. Prospects for Transpacific Energy Trade
  2. Trans-Pacific Partnership (TPP) Countries: Comparative Trade and Economic Analysis
  3. Global oil and gas tax guide 2013
  4. Global oil and gas tax guide 2013

 

herbert smith Freehills

 

For further information, please contact:

 

Leon Chung, Partner, Herbert Smith Freehills

[email protected]

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