Legal Perspective of the United States’ Withdrawal from the Trans-Pacific Partnership (TPP) Agreement and the Possibility of the "TPP11"

KAWASE Tsuyoshi Faculty Fellow, RIETI

Holding true to his campaign promises and his America First Foreign Policy, Donald J. Trump, who took office as the 45th president of the United States on January 20, 2017, signed a presidential memorandum directing the U.S. Trade Representative (USTR) to withdraw the country as a signatory to the Trans-Pacific Partnership (TPP) and from TPP negotiations. Ironically, on the very day of his inauguration, Japan officially completed its domestic procedure for the ratification of the TPP. Predictably, on January 30, 2017, the USTR notified New Zealand as the depositary of the intention of not becoming a party to the TPP, whereby the United States officially withdrew from the framework of the TPP.

Considering the U.S. withdrawal from the TPP from a legal point of view

Using the platform of RIETI, I have been exploring the meaning of the TPP as a legal agreement (Kawase 2016b). Taking this opportunity, I would like to clarify what this "withdrawal" means in legal terms. The answer to that question can be found in the Vienna Convention on the Law of Treaties (hereinafter VCLT), which governs the lifecycle of treaties from their inception to termination, since the TPP was agreed on as a legal instrument in the form of a treaty.

On February 4, 2016, ministers from the 12 member countries signed the TPP in Auckland, New Zealand, to finalize their negotiated legal text. The agreement, however, remains pending as not enough countries have ratified to bring it into force. For withdrawal under such circumstances, Article 18 of VCLT provides as follows:

Article 18. Obligation not to defeat the object and purpose of a treaty prior to its entry into force

A State is obliged to refrain from acts which would defeat the object and purpose of a treaty when:

(a) It has signed the treaty or has exchanged instruments constituting the treaty subject to ratification, acceptance or approval, until it shall have made its intention clear not to become a party to the treaty;

Based on how the text of the heading, the chapeau, and subparagraph (a) reads, this article provides that during the time between the signing of a treaty and its entry into force, countries involved may not engage in any act that would defeat the object and purpose of the treaty. At the same time, however, we can also see from subparagraph (a) that in the case of a treaty requiring ratification, signatory countries may express their intention not to become a party to the treaty after signing and before ratifying it. Therefore, withdrawal from the TPP—which was already signed but has yet to take effect—can be understood as the expression of an intent under Article 18, subparagraph (a).

Now, what does this "withdrawal," as declared by the United States, mean in legal terms? One possible meaning is that a signatory to a treaty withdraws its signature. Although undoing a signature physically (crossing out or covering with correction fluid?) has no effect, it is possible for a signatory country to have the legal effect of its signature nullified by conveying the depositary of its intention to withdraw the signature via exchange of notes or other forms of diplomatic documents (Aust 2014, p108). In the case of the U.S. withdrawal from the TPP, the presidential memorandum dated January 23, 2017 directs the USTR to "withdraw the United States as a signatory to the Trans-Pacific Partnership (TPP)." To the extent that this holds true, we should deem that the United States has withdrawn its signature.

When a signatory withdraws its signature, it is giving up its status as an original signatory referred to in Article 30.5 of the TPP. In the case of the TPP, all of the 12 negotiating countries signed it and thus became original signatories. Article 30.5 calls for ratification by all of the original signatories for the TPP to take effect within two years from the date of signature, and by at least six of the original signatories, which together account for at least 85% of the combined gross domestic product (GDP) of the original signatories in 2013, for its entry into force thereafter. If the United States ceases to be an original signatory, it would be excluded in determining whether these requirements—i.e., ratification by all of the original signatories or the 85% of GDP threshold—are satisfied. This gives rise to the possibility the remaining 11 countries could bring the TPP into force without amending Article 30.5, hence the emergence of the so-called "TPP 12 minus one" (hereinafter referred to as the "TPP11"), if they satisfy either of the requirements set forth therein.

Another possible meaning of "withdrawal" is that a signatory to a treaty will keep its signature but will not become a party (i.e., it will neither ratify nor accept the treaty). This is more in line with the text of Article 18 of VCLT, which prohibits signatories from defeating the object and purpose of a treaty "until it shall have made its intention clear not to become a party to the treaty." In this regard, the U.S. letter of withdrawal notification to New Zealand as the depositary reads as follows:

"[T]he United States does not intend to become a party to the Trans-Pacific Partnership Agreement. Accordingly, the United States has no legal obligations arising from its signature on February 4, 2016."

Of particular note is the first sentence, in which the United States, without touching on its status as an original signatory, declares to the other original signatories its intention not to become a party to the TPP. Based on this, we should assume that the United States would continue to refuse to ratify the TPP without giving up its status as an original signatory and that "the United States' status as one of the original signatories has not changed," as Chief Cabinet Secretary Yoshihide Suga told a news conference on January 31, 2017.

As such, the presidential memorandum and the notification letter are not necessarily consistent. However, as Professor Shotaro Hamamoto of Kyoto University points out (In Japanese), the presidential memorandum is no more than a "domestically-issued document" and what matters in international law is "the wording used in the letter of notification to the government of New Zealand as the depositary or to all of the other original signatories." Therefore, we should understand the U.S. "withdrawal" in the latter sense, and the legal consequence of this is that the TPP cannot enter into force under the current requirements, so long as the United States continues to refuse to ratify the agreement while maintaining its status as an original signatory.

Toward the TPP11

Now that the TPP has failed in its complete form, the development of international trade rules in the coming years will likely revolve around bilateral free trade agreement (FTA) negotiations led by the United States, which will inevitably cause multilateral and mega-regional free trade initiatives to stagnate. However, a noteworthy fact is that there are some moves seeking to negotiate the TPP11. In November 2016, Mexico's Secretary of Economy Ildefonso Guajardo Villarreal and New Zealand Ambassador to the United States Tim Groser (formerly minister of trade) mentioned the possibility of pursuing such an agreement in their immediate responses to then President-elect Trump's announcement of his intention to withdraw from the TPP (November 17, 2016 Nihon Keizai Shimbun). Experts in Japan and the United States also expressed views in support of the idea (Tanaka 2017 and Schott 2016). Then, following the formal withdrawal announcement of the United States, Australian Minister for Trade and Investment Steve Chiobo and New Zealand Prime Minister Bill English expressed their intention to pursue the possibility of the TPP11 (January 24, 2017 BBC News).

Needless to say, it is not easy to realize this. As aforementioned, since the United States has chosen to withdraw from the TPP by means of not ratifying it while keeping its status as an original signatory, it is necessary to amend Article 30.5 of the TPP in order to realize the TPP11. However, the remaining 11 signatory countries are not monolithic in political will. Vietnam and Malaysia, which made commitments to reforming domestic regulations under the highly ambitious FTA in exchange for gaining access to the U.S. market, are expressing reservations (January 21, 2017 (In Japanese)).

In view of these circumstances, some people are skeptical about the emerging TPP11 initiative, calling it "optimistic" (Nakagawa 2017). Still there are good reasons to give it a try and good chances for success. First, technically speaking, amendments to the text of the TPP are not subject to provisions requiring decision-making by consensus (Articles 27.2.1(c) and 27.3.1) and therefore it is possible for the 11 countries to amend Article 30.5 of the TPP. There should be no objection on the part of the United States because President Trump has instructed the USTR to "permanently withdraw the United States from TPP negotiations." If amending the text proves to be too difficult, the 11 countries may choose to apply the TPP as is on a provisional basis, following the example of the General Agreement on Tariffs and Trade of 1947 (Schott 2016).

Second, politically, the U.S. announcement of its withdrawal from the TPP is a domestic issue. As evident from the foreign policy guidelines referred to at the beginning of this article as well as from the Cabinet appointees made by President Trump, the top priority of U.S. foreign policy under his administration is the Middle East, not Asia (Yasui 2017). Given such circumstances, those who believe that it is possible to turn things around by explaining the economic benefits of the TPP for the United States and advocating the importance of the Asia-Pacific region would better deserve the term "optimistic." An important aspect of the TPP is its geopolitical significance as an attempt to counter the formation of a new economic order centered on China in the Asia-Pacific region. If so, Japan would be better off concluding this pro-U.S. liberal framework—even in the form of the TPP11—ahead of the Regional Comprehensive Economic Partnership (RCEP) led by China. In particular, Australia, Chile, New Zealand, and Peru are beginning to explore the possibility of bringing China into the TPP (Reuters January 25, 2017; Inside U.S. Trade (Daily News) February 3, 2017; The New Paper January 25, 2017; The Guardian January 23, 2017). If realized, this would turn the TPP into a framework that is, in substance, infinitely close to that of the RCEP. It would make the possibility of the United States returning to the TPP even more remote.

From the pragmatic viewpoint, the prospect of finding itself at a disadvantage in securing market access to the member countries of the TPP11 in the event of its coming into force would serve as a good incentive for the United States to ratify the TPP. For Japan, having the TPP and improving market access among its member countries, even without the United States, would give a boost to its ongoing efforts to negotiate FTAs under various frameworks including the RCEP and the Japan-EU Economic Partnership Agreement (EPA). Even if the Trump administration pursues a bilateral FTA with Japan, it would not contradict the TPP11. In a joint statement issued following the Japan-U.S. summit on February 10, 2017, the two countries reaffirmed the importance of their efforts in promoting trade, economic growth, and high standards through the Asia-Pacific region through a bilateral framework as well as by "continuing to advance regional progress on the basis of existing initiatives." This seems to indicate the U.S.' green light for the promotion of the TPP11. Provisions of the TPP will probably serve as the basis for negotiating a Japan-U.S. FTA, and if so, the bilateral FTA will become a passage through which the United States will join the TPP11 in the future.

Last fall, Prime Minister Shinzo Abe decided to go ahead to have the TPP ratified by the Diet, despite President-elect Trump's announcement to withdraw. If his decision is truly based on the firm belief in and commitment to the formation of a U.S.-led order in the Asia-Pacific region, Japan should make all-out efforts to bring the TPP into force, albeit in an incomplete form. At the recent Japan-U.S. summit, the two leaders agreed to establish a bilateral economic dialogue led by Japan's Vice Prime Minister Taro Aso and U.S. Vice President Mike Pence. However, they failed to provide any specific vision for a post-TPP world. On February 8, 2017, shortly before the Japan-U.S. summit, Nobuteru Ishihara, Japan's minister in charge of the TPP, met with New Zealand's Trade Minister Todd McClay but they did not discuss the TPP11. The forthcoming meeting of trade ministers from TPP signatory countries, slated for March 15, 2017 in Chile, is the next focal point. It is hoped that Japan will demonstrate its leadership in such a forum.

Postscript to English Version: The TPP Signatories except for the United States held a ministerial meeting at Vina del Mar, Chile on March 15, 2017. The Joint Statement issued at that occasion only reconfirmed their commitment to continuous efforts of market opening and free trade, without presenting any clear future direction of the TPP. Meanwhile the Government of Japan reportedly has started to give serious consideration to the TPP11, with a view of specifying this option in a joint statement issued at the next TPP ministerial meeting in Vietnam, May 2017 (Sankei Shimbun (In Japanese), April 1, 2017).

February 16, 2017

April 5, 2017