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Thursday, December 22, 2016

The TPP is dead! Or is it…?

By Isobel Carmody, Vacation Clerk, and Adrian Chang, Associate

Based on his presidential campaign strategy, we are not surprised that before taking office, US president-elect Donald Trump continues to shake the world with his pronouncements. One of his first? The Trans-Pacific Partnership (TPP) is fired! So is this the end of this grand, highly controversial trade deal? Or can it survive despite the Donald's dramatic declaration?

Entry into force

Negotiations on the multinational trade deal began in 2010 and the agreement was signed in February 2016 by 12 countries – the 'original signatories'. But simply signing an international agreement is not enough to make the agreement binding on its signatories. Each country must ratify the treaty in accordance with its political procedure. In the US, the President has the authority to ratify treaties subject to advice and consent of two-thirds of the Senate which leads to the common assumption that the TPP is gone for good.

Under the Vienna Convention on the Law of Treaties (Vienna Convention), where a treaty expressly provides for a manner and time of entry into force, it will enter into force between its parties according to those provisions (Article 25(1)).

According to its provisions, the TPP enters into force:

  • 60 days after all original signatories have notified of the completion of their ratification procedures (Article 30.5(1)); or
  • if this has not occurred within two years of the date of signature (that is, by February 2018), 60 days after at least six of the original signatories which together account for at least 85 per cent of the combined gross domestic product of the original signatories (as measured in 2013) have notified of the completion of their ratification procedures (Article 30.5(2) and (3)).

Where sufficient signatories ratify the agreement, the TPP could enter into force as between those ratifying parties. However Article 30.5 means that a country or group of countries with sufficient combined GDP (as measured in 2013) could block the entry into force of the TPP altogether by refusing to ratify the agreement even if every other nation chose to ratify. Based on the GDP test, of the original signatories, two countries could single-handedly prevent the TPP from coming into force by refusing to ratify. They are Japan, with approximately 17 per cent of the combined GDP, and the US, with just over 60 per cent of the combined GDP.

Although the US has signed the TPP, it has yet to ratify. With the incoming President hostile to the TPP, the only window in which it could be ratified is the remaining 'lame duck session' – i.e. the government session after the election in November but before the inauguration of the President-elect on 20 January 2017. However the US Senate Majority Leader has indicated that a vote on the TPP in this session is very unlikely, preferring to put it to the next President for consideration and changes. Therefore, without a vote before inauguration, the prospect of the US ratifying the TPP in the next four years is practically non-existent.

So, although a number of the States signatory to the TPP have already made progress in their ratification procedures, the refusal of the US to ratify will (at best) delay the entry into force of the agreement and withdrawal by the US may cause the whole agreement to fail.

US withdrawal?

But what if Mr Trump doesn't keep the Presidency for a second term? The procedure for entry into force contained in Article 30.5(3) appears to not be time limited so,  theoretically, the TPP could be ratified by US in the future and at that stage come into force (assuming the GDP threshold is otherwise met). Could this save the TPP?

Unfortunately, the Don is too canny a businessman to let that get past him - he has also stated his intention to issue a notice to withdraw from the TPP as one of his first acts in office.

States generally cannot withdraw from treaties they are party to unless the treaty expressly provides for withdrawal (Article 56, VCLT). The TPP does expressly provide such a mechanism (see Article 30.6). This procedure involves issuing a notice of withdrawal to the depositary (an administrative function that is being handled by New Zealand) and the other parties.

The TPP provides that, where a party withdraws, the agreement will remain in force for the other parties to the treaty (Article 30.6(2)). However, the likely failure of the treaty to ever enter into force in the first place means that this provision will not have the opportunity to operate in the event of withdrawal by the US. Unless the TPP is already in force when the US withdraws, it cannot remain in force for the other parties.

But, there's more. The withdrawal procedure contained in the TPP is only applicable where the treaty has already entered into force. So to effect a withdrawal, the US will probably have to rely on general principles of international law, which provides that withdrawal before ratification can be achieved via 'a diplomatic note to the depositary that the signature of the State "shall be considered as having been withdrawn"' (Aust, Modern Treaty Law and Practice (3rd edition), p108).

Normally, after signing of the treaty and before it enters into force, a State is obliged by Article 18 of the Vienna Convention not to defeat the purpose and object of the treaty. However, that obligation does not prohibit States from withdrawing from treaties as that obligation relates to the substance of the treaty rather than its procedures. The only scenario in which withdrawal of a signature might not be a possibility is where the State has agreed to be bound on signature alone (i.e. not subject to ratification) and all other parties had already signed it.

Effect of US withdrawal

So, if the US withdraws as a signatory of the TPP before ratification, is the US still an 'original signatory' for the purposes of Article 30.5 of the TPP? Yes, in the sense that it originally signed the agreement. Therefore, although approximately 60 per cent of the combined GDP has exited the agreement, the GDP threshold for entry into force does not decrease.

In summary, in the event of withdrawal by the US, the TPP will never be able to enter into force, even as between the other signatories.

Other signatories to the TPP have started to consider refusing to ratify due to the expected withdrawal of the US. Vietnam in particular has been vocal about not pursuing ratification of the TPP, though this is more likely pragmatism regarding the fate of the TPP without the US rather than a refusal to ratify if the US does not.

Can the TPP be salvaged?

There are no alternative mechanisms by which the TPP in its present form could enter into force without US ratification. However, because the TPP has not entered into force and likely never will, the signatories are not bound by the agreement in its current form. Therefore, theoretically, the signatories to the agreement could renegotiate and the TPP could, in some modified form, enter into force.

Whether such a renegotiation is a political possibility is another issue altogether.  The TPP may not be valuable enough to many of the signatory States without the involvement of the US. If the US decided to have a second bite …, well we've seen Mr Trump's negotiating style… any renegotiation of such a large agreement would be expected to be difficult and lengthy.

Therefore by signing but refusing to ratify (and possibly withdrawing from) the TPP, the US may have finally ended the controversial agreement that so many criticised as too favourable to the US.

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