Regulatory coherence in TPP

NST, September 18, 2013

By Khor Eng Hee

CONCERN: No country will want another country to be involved with its policy-making, writes Khor Eng Hee.

RECENTLY leaked details about the Trans- Pacific Partnership (TPP) have uncovered a chapter on "Regulatory Coherence" that could prove to be a major concern to countries involved in the proposed trade pact.

A law professor in New Zealand, Jane Keyler, has given a preliminary analysis of the proposal. It is available on the Internet.

Rules and regulations are tools of government to carry out policy objectives. Countries use different approaches or methodology in their regulations. This is because of different systems of government and cultures.

Regulations may act as barriers to trade, particularly in services trade and investment. Non-tariff barriers to trade in goods also arise from regulations. Proper regulations and their coherence are good for the country.

In the context of international agreements, regulations are also required to carry out one's commitments, rights and obligations.

With agreements, however, once countries decide to reduce or eliminate the barriers identified, the responsibility falls on each party to fulfil its obligations. This is the modus operandi in international relations.

How this is done in each country is fundamentally a matter of sovereign right and independence.

The proposed regulatory coherence has a number of components.

At the level of interactions among contracting parties, there shall be a Committee on Regulatory Coherence with two principal functions.

One is to consider implementation and operation of the chapter agreement.

The other function is to receive notification of information from member parties of their central mechanism of coordination, the scope of their regulatory measures, point of contact that each can get in touch with to find out how their practices of regulations work out with the approaches suggested in the chapter agreement, etc.

This concept of regulatory coherence becomes a mandate that the parties shall follow in its provisions, some of which are obligatory while others are voluntary.

The concept itself, not to mention some of its provisions, is unusual in a free-trade regime.

It is beyond the practices of international trade organisations such as the General Agreement on Tariffs and Trade (GATT) and the World Trade Organisation (WTO).

One of these is to invite private individuals and enterprises to participate in the Committee on Regulatory Coherence to consider regulatory coherence in other chapters of the TPP as well as the domestic practices of contracting parties.
By allowing foreign influence to determine how a contracting party should carry out its regulations exposes a country to uncertain and unnecessary risks.

Rules and regulations are made to carry out policy objectives. No country will want another country to be involved with its own policy-making.

The committee makes decisions by consensus. What is consensus is not defined. This could be given in another chapter of the TPP.

If the committee follows the dispute settlement mechanism of WTO, commonly called "reverse consensus", it will practically face no hindrance in making decisions. This could pave the way for the strong and powerful to have what they want.

According to the draft, failure to set up domestic mechanisms to facilitate central coordination and review of new regulatory measures within each party becomes ipso facto a violation of the obligation.

The article on "Dispute Settlement" goes further to explain what is actionable breach of this obligation. The party that claims violation must show two things -- there is violation of the obligation and that such violation adversely affects trade and investment between the parties.

The first is clear enough. What follows next is vague.

How is a country to know exactly that another member's trade and investment is adversely affected just because it does not fulfil its obligation to establish some mechanisms or processes for coherence and review of regulations?

It is also true the other way around. How is the affected country as claimant going to prove to the dispute settlement panel that adverse trade or investment effect has actually taken place in concrete terms?

In the dispute settlement for the chapter on investment, a claimant is required to give the amount of damage incurred.
One may ask, what purpose can regulatory coherence as proposed serve in trade liberalisation? Will it be worth its likely costs?

The potential impact of outside interference is that it is more likely to create unnecessary burdens and problems than benefits.

The committee can become a potential pressure point for the strong to work on weaker countries as well as an opening to influence their policy-making.

Countries can learn from each other's experience in establishing coherence in government regulations. Technical co-operation about this aspect of administration can be arranged between governments. Officials can be sent to internationally well- known schools of public administration.

It is difficult to believe that a routine administrative matter of this nature is pertinent and necessary in a regional free-trade regime. If coherence in a country's regulations is lacking, even when implementing international obligations, it is not for an international or regional agreement to provide the solution. That is basically a domestic concern.

Regulatory coherence as structured in the proposal looks like a legal instrument with a number of apparent loopholes.
Despite this shortcoming it can work against the interests of lesser countries.

The writer is a former ambassador and member of the United Nations Association Malaysia Governing Council.