Realization and Provisional Application of "TPP11"

KAWASE Tsuyoshi
Faculty Fellow, RIETI

My previous article published in this column on February 20, 2017 discussed the possibility of bringing into force the Trans-Pacific Partnership (TPP) agreement without the United States, namely, "TPP11." Subsequently, trade ministers from the remaining 11 signatories of the TPP met in Chile on March 15, 2017 (with those from the United States and China joining as observers) but failed to set a clear future direction in their joint statement. Meanwhile, more recently in Japan, a series of heavyweight Cabinet ministers have made remarks suggesting the possibility of pursuing the TPP11 initiative (April 19, 2017 Mainichi Shimbun (morning edition); April 15, 2017 Nihon Keizai Shimbun (morning edition); April 15, 2017 Chiba Nippo), clearly signaling changing tides in the government from a negative to positive stance toward the TPP11. Then, in a speech delivered in New York on April 19, 2017, Finance Minister Taro Aso said that TPP trade ministers would discuss the possibility of pursuing the TPP11 on the sidelines of the forthcoming Asia-Pacific Economic Cooperation (APEC) ministerial meeting in May 2017 (April 20, 2017 Nihon Keizai Shimbun (evening edition)). With this, Japan's policy shift became official. I would like to express my strong appreciation for the government's decision to make this flexible and bold policy shift over a short period, discarding the unrealistically optimistic idea of trying to persuade the United States to reverse its decision, a policy option held just a few months ago.

Possibility and merits of applying the TPP agreement on a provisional basis

Regarding this new development, the Japanese government is reportedly considering pursuing the TPP11 by way of provisional application, following the example set by the General Agreement on Tariffs and Trade of 1947 (GATT 1947), the predecessor to the World Trade Organization (WTO) Agreement (April 1, 2017 Sankei News). The possibility of such an approach was pointed out as early as fall 2016, immediately after then U.S. President-elect Donald Trump expressed his intention for the United States to withdraw from the TPP and the related negotiations (Schott 2016). In my view, the approach is worthy of consideration as a policy option to increase the chance of realizing the TPP11.

There are several reasons for this. First, as I explained in my previous article, it is necessary to amend the requirements for the agreement's entry into force (Article 30.5 of the TPP) in order to realize the TPP without the United States. However, provisional application will allow the 11 countries to move ahead with the TPP as is, skipping the politically difficult task of changing the legal text of the agreement.

Second, while Japan, Australia, and some other countries taking a positive stance on the TPP11 initiative are seeking to maintain the current TPP agreement as is, other signatories have different ideas. Vietnam and Malaysia are calling for reviewing the agreement to adjust the balance of concessions, while Latin American signatories may attempt to bring China into the TPP process as an alternative giant market substituting for the United States (April 21, 2017 Nihon Keizai Shimbun). In this regard, too, provisional application will pave the way forward. As what is to be discussed later, granting grandfather rights will provide signatories with an option to implement their respective concessions only to the extent deemed balanced under the TPP11 framework, at least for the time being. By giving such leeway, it will become possible to encourage hesitant countries to join the TPP11 initiative without renegotiating the original agreement, or, at least, it will pave the way for like-minded signatories to move ahead and apply the agreement on a provisional basis.

What is the meaning of provisional application of a treaty?

Article 25 of the Vienna Convention on the Law of Treaties (VCLT) provides for the provisional application of treaties as follows: "A treaty or a part of a treaty is applied provisionally pending its entry into force if: (a) the treaty itself so provides; or (b) the negotiating States have in some other manner so agreed." However, as the International Law Commission (ILC) points out, VCLT does not contain a definition of "provisional application," and there is no explicitly agreed-upon international consensus on the conditions under which treaties may be applied provisionally or the legal effects of the provisional application of treaties (Note 1).

Also in the realm of international economic law, Article 45 (1) of the Energy Charter Treaty provides for the provisional application of the treaty as follows: "Each signatory agrees to apply this Treaty provisionally pending its entry into force for such signatory... to the extent that such provisional application is not inconsistent with its constitution, laws or regulations." However, this particular provision has been subject to investor-state dispute settlement (ISDS) procedures on several occasions, and decisions rendered by arbitral tribunals have prompted many to once again question the definition and substance of provisional application (Arsanjani & Reisman 2011; Ishikawa 2016). In response to these developments, the ILC since 2012 has been undertaking studies on national practice concerning the provisional application of treaties, with an eye on the development of a model clause. However, the ongoing discussion has not yet converged into any specific direction (see the relevant ILC website for further details).

Provisional application of GATT 1947

Given the fact that there exist no established general principles for the provisional application of treaties, I would like to provide an overview, focusing on the provisional application of GATT 1947 cited in some media reports.

Following the end of World War II, Allied countries led by the United States and the United Kingdom drafted the Havana Charter in an attempt to establish the International Trade Organization (ITO), which, together with the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), would serve as pillar institutions of the Bretton Woods system. In tandem with this, negotiations took place to reduce high tariffs and preferences, the legacy of protectionist policies introduced in the post-Great Depression period. In order to ensure the viability of negotiated tariff concessions and put them into force, a separate agreement was drafted as GATT, composed mainly of trade-related rules contained in the draft Havana Charter (Irwin et al. 2008). The initial plan of negotiating countries was to bring GATT into force upon completion of the 1947 Geneva Conference ahead of the Havana Charter, but they found it difficult to make necessary changes to domestic laws—particularly those concerning non-tariff barriers—in time. Provisional application was the solution they came up with to deal with this dilemma (Jackson 1969, pp.60-63).

According to the Protocol of Provisional Application (PPA) of GATT, Part I, i.e., general most-favored-nation (MFN) treatment (Article I) and schedules of concessions (Article II), and Part III consisting mainly of procedural provisions (Article XXIV et seq) were to be applied as is. However, pursuant to the grandfather clause, contracting parties have obligations to apply Part II (Articles III through XXIII) only to the fullest extent not inconsistent with their existing legislation. Provisions contained in Part II include key principles such as the principle of national treatment (Article III) and the general elimination of quantitative restrictions (Article XI); significant exceptions such as anti-dumping and countervailing duties (Article VI), safeguard measures (Article XIX), and general exceptions (Article XX); and dispute settlement procedures (Articles XXII and XXIII). Domestic laws grandfathered under PPA did not have to be amended even after the provisional application of GATT and any inconsistency between them and Part II provisions was not considered to constitute violation. PPA was not meant to set out detailed provisions, except for those defining the number of days of advance notice prior to withdrawing provisional application and the timing at which provisional application would take effect for overseas territories.

Thus, the grandfather clause was the key element of the provisional quality, with the interpretation and operation of the clause left to subsequent clarification by relevant bodies and dispute settlement panels under GATT (Hansen and Vermulst 1989; WTO 1995, vol. II, pp.1071–84). For instance, a panel decision in Norway—Restrictions on Imports of Apples and Pears (1989) showed that in order to be eligible as "existing legislation" grandfathered under PPA, such legislation must: (a) be legislation in a formal sense, (b) predate PPA (Note 2), and (c) be mandatory (i.e., administrative authorities have no discretion to apply the legislation in a GATT-consistent manner). Another panel decision in The United States Manufacturing Clause (1984) ruled that while there is no prohibiting contracting parties from making changes to their existing legislation grandfathered under PPA in a way to reduce the degree of inconsistency with GATT, there should be no backpedaling. The panel said that once a contracting party had reduced the degree of inconsistency of existing legislation, there could be no justification for a subsequent move to increase the degree of GATT inconsistency, albeit to a level not exceeding that which had existed prior to the first revision.

Toward the provisional application of the TPP agreement

The case of GATT 1947 serves as a good reference for the TPP agreement, as both are trade agreements and given the fact that the founding contracting parties to GATT managed to overcome the difficulty of immediately bringing the agreement into force by means of provisional application. Meanwhile, international law for the provisional application of treaties remains generally underdeveloped, except for the very limited provisions set forth in Article 25 of VCLT. This provides some flexibility in designing rules on the provisional application of the TPP agreement by taking into consideration the circumstances unique to this particular agreement. Although there are numerous factors to consider, I would like to cite some important ones that immediately come into my mind.

Sunset rule: In principle, the provisional application of the TPP agreement should remain effective until the United States ratifies the agreement and the requirements for entry into force under Article 30.5 are satisfied. However, keeping the provisional status infinitely could undermine the momentum for the official entry into force of the agreement. It is also necessary to encourage the United States to rejoin by setting a certain time limit. Thus, there should be provisions calling for reviewing, after a certain period of time, the provisional application as well as the merit of amending Article 30.5 to bring the agreement officially into force without the United States.

Grandfather rights: If the purpose of the TPP11 is to maintain the momentum, despite the United States' withdrawal, for the formation of a free trade regime led by the United States and Japan in the Asia-Pacific region, it is important to realize as quickly as possible provisional application involving all of the 11 countries by flexibly granting grandfather rights. In this sense, the provision of the grandfather clause should be simple, just like that under Article 45 (1) of the Energy Charter Treaty. Any attempt to set detailed requirements could trigger bargaining battles and prolong the negotiations for provisional application.

As aforementioned, in the case of GATT's provisional application, the implementation of the MFN provision and tariff concessions were outside the scope of grandfather rights, and efforts to improve non-discriminatory market access continued throughout the period of provisional application. However, unlike those under GATT 1947, tariff reductions under the TPP agreement constitute an inseparable part of a complex package deal that also contains various other rules and commitments to services and investment liberalization. Thus, implementing only those provisions concerning tariff reductions is not a practical option. For this reason, too, the provision of the grandfather clause must be simple.

Meanwhile, it is essential to ensure, through the provisional application of the TPP agreement, that each country fulfill its "standstill" obligation, i.e., no backpedaling on trade and investment liberalization. Therefore, as in GATT 1947, it should be made clear that future changes to grandfathered existing legislation will be subject to a "ratchet," meaning that once legislation is improved, the improved legislation will become the benchmark for the standstill requirement.

Assurance of implementation: The introduction of a simple grandfather clause could result in making it a non-binding target to implement provisional TPP obligations. In order to avoid falling into such a situation, it is necessary to make continuous efforts to provide information and exchange opinions among the 11 countries on the voluntary implementation of obligations, not only those outside but also within the purview of the grandfather clause. In particular, the implementation of those falling outside of the scope of the grandfather clause must be ensured by providing a dispute settlement mechanism.

However, I have already pointed out that unlike those under GATT 1947, it is difficult to have specific obligations under the TPP agreement implemented immediately by excluding them from the purview of the grandfather clause from the beginning. One way to address this problem is to reduce the scope of grandfather rights gradually through negotiations to make grandfathered obligations subject to immediate implementation in a stepwise manner.

* * *

In the first round of the U.S.-Japan economic dialogue on April 18, 2017, the United States showed clear willingness to conclude a bilateral free trade agreement (FTA) with Japan. In order to be better prepared for the forthcoming negotiations with Washington, Japan should seek to realize the TPP11 initiative in a viable form at an early date. Provisions to be included in the resulting bilateral FTA, for which the TPP agreement will serve as the starting point, would not contradict the realization of the TPP11 initiative. Also, the possibility for the U.S.-Japan relations to converge into the TPP—whether via a bilateral FTA or not—will always remain open.

April 26, 2017
  1. ^ Report of the International Law Commission: Sixty-third Session (26 April–3 June and 4 July–12 August 2011), 330–35, U.N. Doc. A/66/10 (2011).
  2. ^ The reference date is October 30, 1947 for the original signatories to GATT 1947, such as the United States and the United Kingdom. For the remaining signatories including Japan, the reference date is the date of their respective accession protocols.
  • Kawase, T. [2017] "Legal Perspective of the United States' Withdrawal from the Trans-Pacific Partnership (TPP) Agreement and the Possibility of the ‘TPP11’" RIETI column
  • Arsanjani, Mahnoush H., and W. Michael Reisman [2011] "Provisional Application of Treaties in International Law: The Energy Charter Treaty Awards." In Enzo Cannizzaro (ed.), The Law of Treaties Beyond the Vienna Convention. Oxford University Press.
  • Hansen, Marc, and Edwin Vermulst [1989] "The GATT Protocol of Provisional Application: A Dying Grandfather?" Columbia Journal of Transnational Law Vol.27: 263–308.
  • Irwin, Douglas A., Petros C. Mavroidis, and Alan O. Sykes [2008] Genesis of the GATT. Cambridge University Press.
  • Ishikawa, Tomoko [2016] "Provisional Application of Treaties at the Crossroads between International and Domestic Law." ICSID Review Vol.31(2): 270-289.
  • Jackson, John H. [1969] World Trade and the Law of GATT. The Bobbs-Merrill Company.
  • Lefeber, René [2012] "Treaties, Provisional Application." Max Planck Encyclopedia of Public International Law Vol.X: 1–5.
  • Schott, Jeffrey [2016] "TPP Could Go Forward without the United States." Trade and Investment Policy Watch (Peterson Institute for International Economics, Nov. 15, 2016).
  • WTO [1995] GATT Analytical Index: Guide to GATT Law and Practice 1947-1994, 6th ed., 2 vols. WTO.

April 12, 2018

Article(s) by this author