Trans-Pacific Partnership – Industry Focused...

This presentation has been prepared for clients and professional associates of Baker & McKenzie. Whilst every effort has been made to ensure accuracy, this presentation is not an exhaustive treatment of the area of law discussed and no responsibility for any loss occasioned to any person acting or refraining from action as a result of material in this presentation is accepted by Baker & McKenzie.

Baker & McKenzie (Vietnam) Ltd., a limited liability company, is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organisations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm.© 2013 Baker & McKenzie (Vietnam) Ltd.

Trans-Pacific Partnership – Industry Focused Updates

Logistics, Shipping, Textiles, Garments

Supply Chain Community

by Fred Burke

April 22, 2014

HFRBDMS#148413

© 2013 Baker & McKenzie (Vietnam) Ltd. 2

TPP – Parties and Background


Australia, New Zealand, Singapore, United States, Peru, Chile, Vietnam, Brunei, Canada, Malaysia and Mexico. Latest: Japan (#12). Later : ?


– GDP of TPP-12 is $27.5 trillion, 40% of global output, $5.4 trillion in exports, 33% of global exports

– Formal “Rounds” done; Now at the “Political Level”,

– Searching for “Landing Zones” – HCMC Talks coming

– Stakeholder events

– USTR targeting Q2 2014 signing

– Items “in brackets” down to fewer, toughest issues.

– What happens to those who can’t reach agreement?

– Ratification process – can lead to delay.

Background


– ASEAN FTAs traditionally focused on trade in goods

– Focus has since expanded to areas such as trade in services, investment protection, capital, skilled labour, intellectual property rights, competition …

Background on ASEAN FTAs


WTO Requirements

The purpose of a customs union or of a free-trade area should be to facilitate trade between the constituent territories and not to raise barriers to the trade of other contracting parties with such territories.

An FTA must result inthe duties and other restrictive regulations of commerce (with certain permitted exceptions) being eliminated on substantially all the trade between the constituent territories in products originating in such territories.

Trade Creation vs. “Trade Diversion”


– Primacy of the WTO, but…

Regional and multilateral integration makes sense, especially since

Doha is mired

USTR lacks capacity for BITs, FTAs

TPP can progress notwithstanding WTO holdouts (India, China)

Creates a Trade Block of substance

All roads may lead back to Geneva (Bali Package helped)

Why the Interest in TPP


– ASEAN + 6 (Australia, China, India, Japan, Korea, New Zealand) pursuing Regional Comprehensive Economic Partnership (RCEP).

– RCEP aims to broaden and deepen ASEAN + 1 pacts with the other 6 by end of 2015; like AEC.

– Why are ASEAN countries also interested in TPP? Bigger payoff from TPP reforms and concern about cost of non-participation in terms of trade and investment diversion.

– RCEP less ambitious, gives China the option to continue incremental reforms that would improve readiness to join more comprehensive regional pacts in the future.

TPP is not the only game in town : RCEP


–What’s the TPP likely to cover?


– Reference point: the parties’ existing trade and investment agreements (e.g., KORUS)

– Stakeholders’ input vital, but texts not public until agreement is final

– US was not among four TPP founders, any member can propose text, consolidated with brackets

– Mutuality of benefit among participants is necessary –trade offs needed for success

So what’s in the TPP?


1. Initial Provisions and Definitions

2.National Treatment and Market Access for Goods

3. Agriculture

4. Textiles and Apparel

5. Pharmaceuticals and Medical Devices

6. Rules of Origin and Origin Procedures

7. Customs/Regulatory Coherence

8. Sanitary and Phytosanitary Measures

9. Technical Barries to Trade

10. Trade Remedies

11. Investment

12. Cross Border Trade in Services

13. Financial Services

14. Telecommunications

15. Electronic Commerce

16. Competition-Related Matters

17. Government Procurement

18. Intellectual Property Rights

19. Labor

20. Environment

21. Transparency

22. Institutional Provisions and Dispute Settlement

23. Exceptions

24. Final Provisions

Reference Point : KORUS FTA Coverage


–Quantitative Assessment


VN-US Trade after BTA, WTO

$-

$5

$10

$15

$20

$25

$30

$35

$40

Vietnam-U.S. Trade, 2001 - 2015e ($bil)

VN Imports frUSA

VN Exports toUSA

Total Trade

VN ApparelExports


– Large global benefits

Income up $223 billion (0.7 percent)

Exports up $305 billion (4.6 percent)

Imports up $315 billion (4.2 percent)

FDI stocks up $255 billion (2.5 percent)

– Moderate trade diversion effects

$67 billion of $290 billion gains (23 percent)

– Comparisons with other agreements

Benefits bigger with RCEP (roughly 3x)

Benefits much bigger with FTAAP (roughly 9x)

Global effects of the TPP

Source: Petri, Plummer, Zhai, www.asiapacifictrade.org


Scenario assumptions

Source: Petri, Plummer, Zhai, www.asiapacifictrade.orgc

© 2013 Baker & McKenzie (Vietnam) Ltd.

Largest income gains in TPP

16



Vietnam: income gains(US$ bill.)

0

10

20

30

40

50

60

70 FTAAP

TPP & RCEP

TPP only

RCEP only



Why such large gains?

18

– More exports of manufactures (34%)*

– More imports of consumer and production goods (27%)*

– More inward FDI due to investor optimism

– Stronger links to international supply chains

– Productivity gains from competition

– Momentum for reforms boosting growth and opportunity

* Source: Petri, Plummer, Zhai, www.asiapacifictrade.org


Major Variable – Textiles & Garments

19

Rules of Origin for Garments

The “Yarn Forward Rule” and the “Short Supply Compromise”

Textile Investment Opportunity?


RCEP v TPP


TPP vs. RCEP : Membership

21


Regional Comprehensive Economic Partnership

22

– ASEAN + 6 : Australia, China, India, Japan, New Zealand and South Korea

– More than 50% of global population

– 27% of world’s GDP


TPP or RCEP? (in 2025, $2007 bill)

24

.. but why not both?Source: Petri, Plummer, Zhai, www.asiapacifictrade.org


ASEAN: AEC 2015


ASEAN Integration


What Matters to You?


Bedrock FTA Rule

National treatment

Provide foreign companies selling or buying goods and services with the treatment no less favorable than that accorded to any domestic company.

Market Access

Subject to the Market Access limitations in the Services Schedule (only), provide NT to listed service suppliers and modes of supply.

29


TPP Selected Provisions of Interest

30

– Goods—limits on remaining protection

Duties generally eliminated or phased out

Subject to safeguards, trade remedies (AD, CVD)

Textiles and apparel

Rules of origin

– Services – from “Positive List” to “Negative List”

– Agriculture – tarriff reductions

– Government procurement

– Protection of intellectual property rights


Textiles and Apparel

31

– Bilateral emergency actions

Where increased imports cause serious damage, or threaten it

Duration of measure – 2 years, + 2 years

– Special Rules of Origin

Enforcement – deny preferential treatment

“Yarn forward” rule of origin, but “Short Supply” compromise.


Investment

32

– National treatment

– Most-favored-nation treatment (cf. with non-Parties)

– Minimum standard of treatment

In accordance with customary international law

Including fair and equitable treatment, and

Full protection and security

– Freedom of transfers of capital

– Performance requirements not allowed

– Limits on expropriation, required compensation

– Investor-State dispute settlement


Protection of Intellectual Property (IP)

33

– Baseline: adherence to all relevant international IP agreements

– National treatment

– Transparency - publish laws and rulings

– Update IP protection and enforcement to prevent unauthorized use of works through Internet and other global communication media

– Secure deterrent enforcement against piracy, counterfeiting, cyber squatting and other infringements through significant improvements in civil and criminal remedies and penalties

– Prohibit industrial policies that discriminate against foreign IP rights holders, including through use of local content requirements

– Protect unregistered well-known trademarks in use with dissimilar goods and services; allow owners to oppose the registration or seek cancellation of marks that are identical or similar.


Government Procurement

34

– Supplements WTO Government Procurement Agreement (GPA)

– Applies to procurement for governmental services

Of goods, services, including leases

By a covered entity for non-excluded goods

Above thresholds: contract for procurement of goods and services >US$[58,550]; construction services >[US$6,725,000] (Australia/U.S.FTA)

– Limits on conditions that can be imposed

With respect to capacity, history, terms for bids

– But procuring entity may take into account

conservation of natural resources

rights at work, and

conditions of work


What’s New about TPP?


– Environment

– Labor

– Regulatory coherence

– Cross border data flows

– State-owned enterprises engaged in commercial competition

New Areas – the 21st Century FTA


Environment

37

– Parties free to establish own level of environmental protection, consistent with international commitments, while striving for higher standards

– Each shall maintain and enforce its laws to fulfill multilateral environmental treaties

– But with justifiable prosecutorial and administrative discretion

– No Party can enforce another Party’s laws

– Special provisions for wildlife, marine fisheries, and illegal logging.


Environment

38

– Interested persons can request authorities to investigate alleged violations

Domestic judicial and administration proceedings will be available with sanctions and remedies for violations

Proceedings must be fair, equitable, and generally open

– Rights of private action shall exist against persons violating laws

– The public should be encouraged to support environmental goals

– State-to State dispute resolution with sanctions available


Labor

39

– Parties reaffirm obligations in ILO Declarations

– Parties’ laws must provide rights for

Freedom of association

Collective bargaining

Elimination of forced labor

Abolition of child labor

Elimination of discrimination

– Derogations must not affect trade or investment

– Countries should take measures to reduce trade in products made through forced or child labor


Labor

40

– Parties must effectively enforce their labor laws

With adequate resources

No other Party can intervene to do so

– Must assure adequacy of access to domestic independent tribunals to enforce laws

– With due process, public hearings, right to appear, with decisions with justification based on the evidence, appeals

– Must create a national labor advisory committee;

– Parties participate in Labor Cooperation Mechanism


Labor

41

– Countries must apply their national labor laws in export processing zones and free trade zones

– State-to State dispute resolution with sanctions available


Regulatory Coherence - Concept

42

– Trade and investment can be impeded not just because a measure is intentionally a nontariff barrier but simply because the systems that generate measures differ.

– Businesses seek improvement of regulation within borders, greater procedural fairness and transparency


Regulatory Coherence - Guidelines

43

– Have a process or mechanism to facilitate central coordination and review of new regulatory measures at the central leval of government

– Consider establishing and maintaining a national coordinating body for this purpose, and collect information centrally, and disseminate it


Cross Border Data Flows - Concept

44

– The digital economy creates vast new opportunities for small and medium enterprises (SMEs) to trade, innovate and create jobs even with limited access to capital.

– TPP can help secure access to online distribution and marketing platforms throughout the region – for entrepreneurs and small businesses to access and serve international customers via e-commerce platforms, or to manage sales via online customer relations management services, from anywhere in the region.


Cross Border Data Flows -- Rules

45

– Permit cross-border information and data flows, while ensuring that privacy and intellectual property rights are protected

– Allow business enterprises from the TPP parties to transact business through e-commerce platforms without establishing a commercial presence in each country

– Prohibit requirements to use local computing infrastructure, such as servers, as a condition for doing business or invesment in a TPP country or engaging in e-commerce or cross-border trade.


State-Owned Enterprises (SOEs) - Concept

46

– Limitation: trade agreements cannot dictate the organization of an economy – whether commercial activities are to be wholly private or a mixture of private and SOE activity.

– Objective: To create and maintain a level playing field as between SOEs and private companies when engaged in commercial competition

– Obligations: To govern only conduct where there is competition with private companies.


State-Owned Enterprises (SOEs) - Rules

47

– Require FTA signatories to ensure that their SOEs

Comply with the signatories’ nondiscriminatory treatment obligation

Act “in accordance with commercial considerations” when buying or selling goods and services

Respect intellectual property laws, and anti-bribery rules

Are regulated as rigorously as the private firms with which they compete

Do not receive preferential financing.


What did the WTO do for you?


Phase-ins: Import & Distribution

But: (1) Cigarettes and cigars, books, newspapers and magazines, video recordings, precious metals and stones, pharmaceutical products and drugs, explosives, processed oil and crude oil, rice, cane and beet sugar are excluded from these commitments.

(2) Circular 9: “Single Licensed Distributor Rule” rescinded by Circular 5 (2008).

Sub-Sector

Distribution

–Wholesale

–Agency

–Retail

2007: 49% JV 2008: 51% JV 2009: 100%

“ENT” for Retail

(Indefinite)

Warehousing 2007: 51% JV 2014: 100%

Freight Agency 2007: 51% JV 2014: 100%

Marketing 2007: 51% 2009 on: any JV 100% NEVER


Retail – WTO “Market Access”

– Limit to One Foreign Owned Retail Shop, then:

– Further shops each subject to an “Economic Needs Test” (normally banned by the General Agreement on Trade in Services).

– Three factors: (1) Number of existing service establishments in the geographic area, (2) stability of the market, and (3) geographic scope.


Other New Commitments– Insurance – 100% now

– Veterinary Services

– Urban planning and landscaping services

– R&D Services on Natural Sciences

– Management Consulting

– Technical Testing

– Sewerage, Waste Disposal

– Entertainment

– BUT: Most of these subject to some form of condition


Limits on Services Opened

Licensed Partner Only

– Advertising

– Facilities based and non-facilities based telecoms services

– Electronic Games

– Motion Picture Production

Any Local Partner

– Securities Services

– Courier Services

– Tourism Services

– Distribution Services

– Franchising

– Education

– Environmental Impact Assessment Services

Logistics Services


WTO Services Schedule Covered:

1. Maritime Freight Transportation Less Cabotage

2. Maritime Auxiliary Services:

i. Customs Clearance Services

ii. Container Station and Depot Services

3. Internal Waterways Freight Transportation

4. Rail Freight Transportation

5. Road Freight Transportation

6. Services auxiliary to all Modes of Transport

i. Container Handling Services (except services provided at airports)

ii. Storage and Warehouse Services

iii. Freight Transport Agency Services

iv. Other services


Maritime Freight Transportation Less Cabotage (CPC 7212)

Sub-sector CPC Definition

Transportation of frozen or refrigerated goods

• by seagoing vessels • in specially refrigerated compartments

Transportation of bulk liquids orgases

• by seagoing vessels • in special tankers(These vessels may also be refrigerated)

Transportation of containerizedfreight

• by seagoing vessels • in specially constructed shipping containers designed for

ease of handling in transport

Transportation of other freight • by seagoing vessels

Including

“Less Cabotage”: Not including along coastal/inland waters


Maritime Freight Transportation Less Cabotage (CPC 7212)

MA Limitations NT Limitations Additional Commitments

(1) • For international freight

transportation: No limitation• Others: Unbound

(1) • For international freight

transportation: No limitation• Others: Unbound

Services available to international services suppliers on reasonable and non-discriminatory terms and conditions:1. Pilotage;2. Towing and tug assistance;3. Provisioning, fuelling and

watering;4. Garbage collecting and ballast

waste disposal;5. Port Capatain’s/Habour

Master’s services;6. Navigation aids;7. Shore-based operational

services essential to ship operations including communications, water and electrical supplies;

8. Emergency repair facilities;9. Anchorage, berth and berthing

services;10. Access to maritime agency

services.

(2) No limitation (2) No limitation

(3) • Establishment of registered

companies for operating a fleet under the national flag of Vietnam: 49% legal capital JV

• Other forms of commercial presence: 100%

(3) No limitation

(4) Unbound, except as indicated in the horizontal section



Maritime Auxiliary Services

Sub-sector Definition

Customs Clearance Services(Customs House Brokers’ Services)

• activities consisting tin carrying out customs formalities concerning import, export or through transport of cargoes

• on behalf of another party

Container station and DepotServices

• activities consisting in storing containers, in both port areas and inland

• with a view to their stuffing/stripping, reparing and making them available for shipments

Including


Sub-sectors MA Limitations NT Limitations

Customs Clearance Services (1) Unbound (1) Unbound


(3) JV unlimited (3) No limitation



Container station and Depot Services

(1) Unbound (1) Unbound


(3) 100% (3) No limitation



Maritime Auxiliary Services


Internal Waterways Freight Transportation



• by non-seagoing vessels • in specially refrigerated compartments


• by non-seagoing vessels • in special tankers(These vessels may also be refrigerated)

Transportation of other freight • by non-seagoing vessels

Including


MA Limitations NT Limitations



(3) 49% legal capital JV (3) No limitation



Internal Waterways Freight Transportation


Rail Freight Transportation

Including



• by railway • in specially refrigerated compartments


• by railway• in special tankers(These vessels may also be refrigerated)


• by railway• in specially constructed shipping containers designed for


Mail transportation • by railway• on account of national and foreign postal authorities

Transportation of other freight • by railway





(3) 49% legal capital JV (3) Unbound



Rail Freight Transportation


Road Freight Transportation

Including



• by road • in specially refrigerated compartments


• by road• in special tankers(These vessels may also be refrigerated)


• by road• in specially constructed shipping containers designed for


Transportation of funiture • by road over any distance

Mail transportation • by any land mode of transport other than railway

Freight transportation by man- oranimal-drawn vehicles

• by vechicles drawn by man or animal

Transportation of other freight • by land modes of transport other than railway





(3) 51% JV – subject to the needs of the marketAll drivers of the JV must be Vietnamese citizen.

(3) No limitation



Road Freight Transportation

The needs of the market will be determined based on: creation of new jobs; positive foreign currency balance; introduction of advanced technology; reduced industrial pollution; professional training for Vietnamese workers; etc.


Services auxiliary to all Modes of TransportIncluding

Sub-sector Definition

Container Handling Services (exceptservices provided at airports) (CPC7411)

Activities provided for freight in special containers: services of freight terminal facilities on a fee or contract basis Including: stevedoring services (i.e. loading, unloading and discharging of vessels’ containerized freight, at ports)

Storage and Warehouse Services(CPC 742)

• storage of services of frozen or refrigerated goods• bulk storage services of liquids or gases• other storage or warehousing services

Freight Transport Agency Services(CPC 748)

• freight brokerage services• freight forwarding services: organizing and monitoring shippment

operations on behalf of shippers• ship and aircraft space brokerage services• freight consolitation and break-bulk services

Others (part of CPC 749) • bill auditing• freight brokerage services• freight inspection, weighing and sampling services• freight receiving and acceptance services• transportation document preparation servicesProvided on behalf of cargo owners


Sub-Sector MA Limitations NT Limitations

Container Handling Services(except services provided atairports)



(3) 50% JV (3) No limitation



Storage and WarehouseServices


(2) No limitation (2) No limitations




Services auxiliary to all Modes of Transport


Sub-Sector MA Limitations NT Limitations

Freight Transport AgencyServices






Others (1) Unbound (1) Unbound


(3) JV unlimited (3) No limitation



Services auxiliary to all Modes of Transport


Variations in Implementation

‒ MOIT vs. MPI interpretation for Freight Forwarding Agents

‒ Current Position


What would the TPP do differently?


Positive List to Negative List

– The Investment Law, Enterprise Law and the Services Schedule as Positive List

– Real Impact?

– TPP Approach –“Negative List”

70

Manufacturing Services


WTO Commitments Covered:

1. Production management consulting services

2. Services incidental to manufacturing


Production management consulting services(CPC 86505)

‒ Advisory, guidance and operational assistance services concerning methods for improving productivity, reducing production costs and improving the quality of production.

‒ Production consulting assignments include:

effective utilization of materials in the production process

inventory management and control

quality control standards

time and motion studies

job and work methods

performance standards

safety standards

office management

planning and design and other matters related to production management

Excluding: advisory services and design for plant layout and industrial processes normally offered by consulting engineering establishments








Production management consulting services(CPC 86505)


1. Manufacture of food, beverages and tobacco, on a fee or contract basis

2. Manufacture of textiles, wearing apparel and leather products on a fee or contract basis

3. Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials, on a fee or contract basis

4. Manufacture of paper and paper products; publishing and printing, on a fee or contract basis

5. Manufacture of coke, refined petroleum products and nuclear fuel, on a fee or contract basis

6. Manufacture of chemicals and chemical products, on a fee or contract basis

7. Manufacture of rubber and plastics products, on a fee or contract basis

8. Manufacture of other non-metallic mineral products, on a fee or contract basis

9. Manufacture of furniture; manufacture of other articles n.e.c.; recycling, on a fee or contract basis

Services incidental to manufacturing (CPC 884)


1. Manufacture of basic metals on a fee or contract basis

2. Manufacture of fabricated metal products, except machinery and equipment, on a fee or contract basis

3. Manufacture of machinery and equipment n.e.c., on a fee or contract basis

4. Manufacture of office, accounting and computing machinery, on a fee or contract basis

5. Manufacture of electrical machinery and apparatus n.e.c., on a fee or contract basis

6. Manufacture of radio, television and communication equipment and apparatus, on a fee or contract basis

7. Manufacture of medical precision and optical instruments, watches and clocks, on a fee or contract basis

8. Manufacture of motor vehicles, trailers and semi-trailers, on a fee or contract basis

9. Manufacture of other transport equipment, on a fee or contract basis

Services incidental to manufacture of metal products, machinery and equipment (CPC 885)





(3) 100% (3) Unbound



Services incidental to manufacturing(CPC 884-885)


Conclusions


Conclusions

79

The TPP is still a Work in Progress, but likely it will:

– provide an immediate «bump» to Vietnam’s GDP

– sustain long-term growth

– set standards for future trade and investment

– converges with AEC, RCEP, EU-FTA, etc.

– put Vietnam at the vortex for trade.

Stakeholders running out of time to make their case:

– on rules of origin (yarn forward vs. short supply)

– on market access and national treatment issues.

– HCMC talks coming – last chance?


Baker & McKenzie

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Vietnam

Tel: 84-8 3829-5585

Fax: 84-8 3829-5618

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Cau Giay District

Hanoi, Vietnam

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Website: www.bakernet.com

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