Much of the fireworks and rancor around U.S. Presidential campaign politics in this 2016 election year has been directed at the issue of international trade. At the center of this debate is the Trans-Pacific Partnership (“TPP”) signed on February 4, 2016 by the United States and eleven of its trading partners in Latin America, Southeast Asia and Australia. The TPP is the most extensive multilateral free trade initiative ever pursued and, if ratified by participating countries, is expected to be in force by early 2018.
Chapter 20 of the TPP contains the first ever, enforceable environmental provisions in any international trade agreement. The Obama Administration lauded the TPP as nothing short of “the most ambitious, highest-standard trade agreement on the environment in history.” With almost 75% of global timber exports and 50% of global seafood trade originating in TPP countries, protecting endangered or threatened species and sustaining and conserving ocean and wildlife habitat is central to the TPP’s environmental provisions. Chapter 20 also includes commitments to combat wildlife trafficking, illegal logging, and harmful fishery subsidies.
Beyond these conservation measures, the TPP imposes the following requirements on TPP partners with respect to the environment:
- Overt commitment by TPP partners to enforce their own country’s environmental laws;
- Agreement of participating nations to comply with existing Multilateral Environmental Agreements (“MEAs”), for example, the Convention on International Trade in Endangered Species of Wild Fauna and Flora (“CITES”) and the Montreal Protocol on Ozone Depleting Substances;
- Cooperation on transitioning TPP partner countries to a low emissions economy through energy efficiency, green technology and the development of renewable energy sources; and
- Access to international tribunals by governments and private entities to enforce each country’s environmental obligations.
Since passage, the TPP environmental provisions have met with mostly criticism. The Sierra Club blasted the TPP as an assault on global climate change policy. At the heart of this criticism is the TPP’s endorsement of global exports of liquified natural gas which the group contends will both expand natural gas use around the world and create renewed viability for U.S. coal as global natural gas prices increase with expanding international markets. Environmental group dissatisfaction is also focused on the investor-state dispute settlement (“ISDS”) process which they suggest will allow private industry to challenge government efforts to strengthen environmental programs and impose limitations on fossil fuel development projects – see the current NAFTA challenge by TransCanada Corporation over the Obama Administration’s rejection of the Keystone Pipeline project as an example of potential ISDS disputes that may more frequently arise under the TPP.
U.S. industry has their own concerns about the TPP’s environmental provisions. U.S. manufacturers had hoped that the TPP would begin to level the playing field by requiring TPP partner countries to strengthen their environmental regimes and actively police non-compliance. While the TPP requires partner countries to enforce their own laws, the final language includes highly negotiated language allowing each country to nonetheless exercise its own “enforcement discretion.” Nothing in the TPP environmental provisions mandate partner countries to bring their environmental standards up to U.S. environmental standards, still the most stringent in the world. Additionally, the consensus is that companies will need to remain vigilant and continue to protect their own interests and assert their own rights under the ISDS process and other enforcement mechanisms.
So what will the TPP likely hold for U.S. multinational industrial enterprises operating in TPP partner countries? This will inevitably play out over time and we are focused on watching emerging trends and directional shifts carefully. Potential consequences, though, could include:
- More stringent environmental regulations and controls. Certainly, the TPP provides a framework for partner countries to justify further tightening of environmental regulations. Without a formal mandate, the path forward has been left to the individual countries to chart for themselves. Companies operating in TPP countries would be well served to pay attention to and continue to assess the direction countries take on the environmental regulatory front and the extent that they embrace this TPP mandate.
- Greater TPP country enforcement of environmental requirements. The TPP touts the expected increase in enforcement of in-country environmental laws that will result from the trade pact. With countries free to retain their enforcement discretion, questions remain as to whether this will be business as usual. Despite the uncertainties in application, companies operating in TPP countries should take steps to ensure that current operations conform to existing legal requirements.
- Heightened enforcement of TPP supply chains. The TPP arguably elevates the importance of environmental compliance throughout the global supply chain, especially for companies sourcing raw materials and products from Latin America and Southeast Asia.
- Careful attention to TPP country environmental requirements and potential impacts on trade. The TPP ISDS process empowers companies to challenge regulations impacting their trade opportunities. This self-policing mechanism, however, puts the onus on companies to monitor and assess the implications of new regulatory developments on commerce and trade in TPP member countries.
- Proactive enforcement of rights by industry under the TPP will be required to protect corporate interests. Early engagement in TPP ISDS claims will be required to ensure fundamental fairness in the adjudication process and the establishment of essential precedent. We likewise expect the ISDS process to be more actively used to protect industrial interests under any final TPP pact.
Whether the TPP environmental provisions will be transformative or inconsequential must await, first, ratification, and, second, implementation and socialization within and across TPP countries. Certainly the possibility exists for these provisions to be a game changer for systemic change in regulatory burdens and industry activism to protect commercial interests. Ratification of the TPP by the U.S. is by no means assured, however, especially in a hostile political environment where Obama Administration trade pacts, including the TPP, are being universally painted by the presidential campaigns – both Democratic and Republican – as bad for American workers and the struggling U.S. economy. Stay tuned as the politics and intrigue around the TPP is far from over.