TPP and its Impact on NAFTA


The Obama Administration recently released the signed text of the Trans-Pacific Partnership (“TPP”), which represents an important advancement in trading relations among 12 Pacific countries:

Australia Japan Peru
Brunei Darussalam Malaysia Singapore
Canada Mexico United States
Chile New Zealand Vietnam

Trade among TPP members is estimated to account for 24 percent of global exports. These countries have an aggregate gross domestic product of $88 trillion (40 percent of the world total) and a market size of 793 million consumers. Latest data on trade among the TPP member countries show $1.5 trillion in goods (2012) and $242 billion in services (2011).

U.S. goods exports to TPP countries totaled $698 billion in 2013, representing 44 percent of total U.S. goods exports. U.S. exports of agricultural products to TPP countries totaled $63 billion in 2013, 42 percent of total U.S. agricultural exports. U.S. private services exports totaled $172 billion in 2012, 27 percent of total U.S. private services exports. America’s small- and medium-sized enterprises alone exported $247 billion to the Asia-Pacific region in 2011.

One important area of the TPP is the deepening of economic relations between the United States and Mexico, commenced under the North American Free Trade Agreement (“NAFTA”) and now proposed to be strengthened under the TPP. Proponents of free trade point under NAFTA to the increased industrial integration and trade flows, higher value-added work in the United States and better integrated supply chains that have contributed to an improved ability to compete with Asian production.

Under the TPP, the Obama Administration argues that NAFTA has been strengthened by expressly banning workplace discrimination and other labor abuses and by mandating that signatories set minimum wage rates and safety policies, and allow workers to form unions and bargain collectively – all areas that were covered under Mexican domestic legislation and now strengthened via the proposed multilateral treaty. The TPP also provides trade sanctions for violations of labor rights.

In the environmental sphere, the TPP prohibits wildlife trafficking, overfishing, illegal logging and activities that pollute the oceans. For environmental protections, as with labor rights, the TPP provides a new mechanism to impose trade sanctions for violations.

The TPP also addresses other issues not covered by NAFTA, including restrictions on activities of state-owned enterprises, protections for digital freedom by preserving free flows of information across borders and, of particular help to small and mid-sized exporters, prohibitions on rules that force businesses to locate infrastructure in the markets they seek to penetrate.

Negotiation of the TPP has, of course, involved numerous trade-offs and concessions by the parties. For example, Mexico accepted the above-described labor law changes. It also agreed to a rule of origin on auto parts that will lower the necessary TPP country content to 45 percent. On the other hand, Mexico, as every TPP signatory, has been afforded a schedule of “non-conforming measures” that restrict or exempt sensitive areas of its economy from the general market-opening strictures of the TPP.

Annexes I to IV of the TPP comprise “Non-Conforming Measures” and set out in some detail the current (and in some cases future) legal and regulatory regimes of particular countries that are not subject to the TPP. For example, the TPP allows Mexico to maintain those elements of its Foreign Investment Law that prohibit foreign nationals and foreign enterprises from acquiring property rights over land and water in a 100-kilometer strip along the country’s borders or in a 50-kilometer strip inland from its coasts. Mexico also is permitted to keep its limits on certain foreign investments and on participation in Mexican cooperative production enterprises. Mexico reserves the right to adopt or maintain any measure restricting the acquisition, sale or other disposition of bonds, treasury bills or any other kind of debt security issued by its federal, state or local governments.

With respect to the exploration and production of oil and other hydrocarbons and the public service of transmission and distribution of electricity, the TPP acknowledges that Mexico allows private investment exclusively through contractual arrangements. The TPP also affirms Mexico’s right to impose additional restrictions on private investment if changes are made to its hydrocarbon or electricity laws in the future. Foreign investment in Mexico’s banking sector is likewise in many respects limited. The TPP also comprises numerous restrictions on foreign participation in a wide range of other Mexican industries and services, such as agriculture, aviation, broadcasting, telecommunications, education, law, ground transport and maritime transport.

The TPP now faces significant hurdles before it is approved in each House of Congress in an up or down vote pursuant to the President’s Trade Promotion Authority (“TPA” of “Fast Track”), as authorized by Congress earlier this year. These votes will follow several months of public and Congressional review and publication of a U.S. International Trade Commission report on the likely impact of enactment on the U.S. economy. Moreover, even if the U.S. Congress approves the TPP sometime in the middle of 2016, it will not go into effect until a critical mass of other countries approves as well. If the TPP does become law, there will be no shortage of complex questions regarding the extent certain products, transactions or services are covered. Haynes and Boone, with lawyers in both Mexico City and Washington, D.C., welcomes questions on specific areas of concern to its clients.

For additional information, please contact one of the Haynes and Boone lawyers below.

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