TEXTUAL ANALYSIS OF THE TREATMENT OF MALAYSIA AND VIET NAM IN SELECTED CHAPTERS OF THE TRANS-PACIFIC PARTNERSHIP MARCUS HENRY Prepared for the World Bank Jakarta, June 2016 TABLE OF CONTENTS S Abbreviations.......................................................................................................i Treaties................................................................................................................ii EXECUTIVE SUMMARY iv INTRODUCTION vi INVESTMENT 1 Malaysia 2 Viet Nam 3 Conclusions for Indonesia 6 CROSS-BORDER TRADE IN SERVICES 8 Malaysia 9 Viet Nam 9 Conclusions for Indonesia 10 COMMITMENTS UNDER ANNEXES I AND II 12 Malaysia 13 Viet Nam 15 Conclusions for Indonesia 16 FINANCIAL SERVICES 17 Malaysia 18 Viet Nam 20 Conclusions for Indonesia 22 TEMPORARY ENTRY OF BUSINESS PERSONS 23 Malaysia 24 Viet Nam 25 Conclusions for Indonesia 27 GOVERNMENT PROCUREMENT 29 Malaysia 30 Viet Nam 32 Conclusions for Indonesia 34 STATE-OWNED ENTERPRISES 38 Malaysia 39 Viet Nam 40 Conclusions for Indonesia 41 COMPLEMENTARY COMMITMENTS 44 ELECTRONIC COMMERCE 47 Malaysia 48 Viet Nam 48 Conclusions for Indonesia 49 INTELLECTUAL PROPERTY 50 Malaysia 51 Viet Nam 53 Conclusions for Indonesia 54 APPENDIX A: NOTE ON SERVICES AND INVESTMENT COMMITMENTS A-1 APPENDIX B: TABLE OF DIFFERENTIAL PROVISIONS B-1 LIST OF FIGURES Figure 1: Summary of selected commitments on Temporary Entry of Business Persons 28 Figure 2: Government procurement value thresholds over time: Central Government Entities 36 Figure 3: Government procurement value thresholds over time: construction services 37 Figure 4: Summary of Annex IV schedule: Malaysia 42 Figure 5: Summary of selected Annex IV schedule entries: Viet Nam 43 Figure 6: Examples of complementary commitments: Malaysia 45 Figure 7: Examples of complementary commitments: Viet Nam 46 ABBREVIATIONS S CPC Central Product Classification (produced by the United Nations Statistics Division) EIF Entry Into Force FTA Free Trade Agreement GP Government Procurement IP Intellectual Property ISDS Investor-State Dispute Settlement MFN Most-Favoured Nation NCM Non-Conforming Measure NT National Treatment SME Small or Medium Enterprise SOE State-Owned Enterprise SDR Special Drawing Right (used in the TPP in lieu of a national currency) TPP Trans-Pacific Partnership WTO World Trade Organisation i TREATIES S AANZFTA ASEAN-Australia-New Zealand Free Trade Agreement Cha-am, 2009 ACIA ASEAN Comprehensive Investment Agreement Cha-am, 2009 ASEAN-China Framework Framework Agreement on Comprehensive Agreement Economic Co-operation Between the Association of Southeast Asian Nations and the People’s Republic of China Phnom Penh, 2002 ASEAN-China Investment Agreement on Investment of the Framework Agreement on Comprehensive Economic Co- operation Between the Association of Southeast Asian Nations and the People’s Republic of China Bangkok, 2009 ASEAN-China Services Agreement on Trade in Services of the Framework Agreement on Comprehensive Economic Co-operation Between the Association of Southeast Asian Nations and the People’s Republic of China Cebu, 2007 ASEAN-India Framework Framework Agreement on Comprehensive Agreement Economic Co-operation Between the Republic of India and the Association of Southeast Asian Nations Bali, 2003 ASEAN-India Investment Agreement on Investment under the Framework Agreement on Comprehensive Economic Co- operation Between the Republic of India and the Association of Southeast Asian Nations Nay Pyi Taw, 2014 ASEAN-India Services Agreement on Trade in Services under the Framework Agreement on Comprehensive Economic Co-operation Between the Republic of India and the Association of Southeast Asian Nations Nay Pyi Taw, 2014 ASEAN-Korea Framework Framework Agreement on Comprehensive Agreement Economic Co-operation among the Government of the Member Countries of the Association of Southeast Asian Nations and the Republic of Korea Kuala Lumpur, 2005 ii ASEAN-Korea Investment Agreement on Investment under the Framework Agreement on Comprehensive Economic Co- operation among the Government of the Member Countries of the Association of Southeast Asian Nations and the Republic of Korea Jeju-Do, 2009 ASEAN-Korea Services Agreement on Trade in Services under the Framework Agreement on Comprehensive Economic Co-operation among the Government of the Member Countries of the Association of Southeast Asian Nations and the Republic of Korea Singapore, 2007 GATS General Agreement on Trade in Services Marrakesh, 1994 INDO-JP Agreement Between Japan and the Republic of Indonesia for an Economic Partnership Jakarta, 2007 MAFTA Malaysia-Australia Free Trade Agreement Kuala Lumpur, 2012 MAJP Agreement between the Government of Malaysia and the Government of Japan for an Economic Partnership Kuala Lumpur, 2005 MANZ Malaysia-New Zealand Free Trade Agreement Kuala Lumpur, 2009 TRIPS Agreement on Trade-Related Aspects of Intellectual Property Rights Marrakesh, 1994 VN-EU Free Trade Agreement between the European Union and the Socialist Republic of Vietnam Not yet signed; references in this report are to the agreed text published January 2016 at http://trade.ec.europa.eu/doclib/press/index .cfm?id=1437 VN-US Agreement between the United States of America and the Socialist Republic of Vietnam on Trade Relations Washington DC, 2000 iii EXECUTIVE SUMMARY ? Y Commonality of treatment is a defining feature of the Trans-Pacific Partnership (“TPP” or “the Agreement”). At its heart lies a strategic judgment among the Parties on the value and importance of creating a baseline of common rules for trade and investment joining many of the most significant economies on both sides of the Pacific. The TPP seeks to avoid differentiation that would place one Party in a substantively more favourable position than other parties, notwithstanding the economic differences between them. Although Viet Nam has the lowest GDP per capita of the TPP Parties and Malaysia the fourth lowest,1 they are subject to all core non-discrimination obligations analysed in this report. This includes provisions on national treatment, most-favoured nation treatment and market access, as well as the basic prohibitions against discrimination in Chapter 14 (Electronic Commerce), Chapter 15 (Government Procurement) and Chapter 17 (State-Owned Enterprises and Designated Monopolies). 2 Indonesia should expect the same if it decides to accede. However the TPP is not rigid. Parties can exempt particular measures, sectors or activities from obligations not to discriminate, provided the other Parties agree. In doing so, they can structure their obligations in ways that suit their domestic circumstances and accommodate their policy priorities. Most obviously, Parties put forward their own commitments with respect to investment, cross-border trade in services, financial services, temporary entry of business persons, government procurement and state-owned enterprises (as well as a range of other issues not covered this report). This enables individual Parties to bargain for flexibilities they consider essential for economic, social, political or strategic reasons. There is also scope to ensure commitments on different issues, for example government procurement and state-owned enterprises, are mutually reinforcing. Malaysia and Viet Nam have secured broad exemptions through this process. They have been able to preserve substantial latitude to pursue domestic 1 According to World Bank data Viet Nam’s GDP per capita in 2014 was USD 2052. Malaysia’s was USD 11,307, ahead of Peru at USD 6541 and Mexico at USD 10,325. Indonesia’s was USD 3491 which would put it second lowest among the TPP Parties. Accessed at http://data.worldbank.org/indicator/NY.GDP.PCAP.CD 2 See Article 14.4 (Non-Discriminatory Treatment of Digital Products); Article 15.4.1-3 (General Principles: National Treatment and Non-Discrimination); Article 17.4 (Non- Discriminatory Treatment and Commercial Considerations). iv policy priorities such as price controls for staple goods, support for SMEs, assistance to remote regions and disadvantaged communities, continued state control over oil and gas-related activities, and others. Indonesia will have scope to investigate similar approaches. Other mechanisms used by Malaysia and Viet Nam and available to Indonesia are: • Transitional periods: Malaysia and Viet Nam benefit from grace periods for implementing certain obligations, either because further domestic regulation is required or due to the risk of economic disruption. These are used extensively with respect to government procurement, state-owned enterprises and intellectual property. • Bilateral side letters: Side letters set out bilateral arrangements between two Parties that differ from or clarify the impact of applicable TPP provisions. Malaysia and Viet Nam use them extensively, as do a number of other Parties. The side letters are a flexible tool; they can be binding or non-binding, and can address specific issues (for example Viet Nam’s side letters on electronic payment services) or far-reaching issues of public policy (for example Malaysia’s side le tter with the U.S. on compulsory licensing of pharmaceuticals). • Country-specific annexes: Unlike side letters, annexes apply between all Parties. They can provide flexibilities or impose additional obligations. Examples for Malaysia include Annex 9-K which excludes certain claims relating to government procurement from investor-state dispute settlement, and Annex 17-F which exempts certain state-run fund managers from obligations on state-owned enterprises. For Viet Nam the prime examples are Annexes 9-I, 10-C and 11-C which aim to ensure Viet Nam can only liberalise, and not tighten, its commitments on investment, services and financial services respectively. In accession negotiations, the Parties’ willingness to accommodate Indonesia’s interests will be conditioned by the need to ensure all Parties enjoy a broadly equivalent legal and trading position under the Agreement. The more essential an issue for Indonesia, the more flexibility the other Parties might be willing to consider. However they are unlikely to agree to exemptions for Indonesia that could systemically weaken the non-discriminatory regional trade and investment regime that the TPP seeks to create. v INTRODUCTION N The Government of Indonesia has expressed interest in the possibility of acceding to the TPP. It has commenced consideration of the potential implications of such a step, and has asked the World Bank to provide analytical support. This report analyses the treatment of Malaysia and Viet Nam under the TPP from a legal perspective. It focuses on areas where Malaysia and/or Viet Nam are subject to provisions or rules that differ from those that apply to other Parties. The report aims to help the Government of Indonesia assess the legal mechanisms through which Malaysia and Vietnam were able to preserve and advance key interests, and which may be available to Indonesia should it enter into accession negotiations. It includes examples of more flexible treatment, and examples where one or both have taken on more stringent obligations than other Parties. Importantly, it includes only provisions and commitments that are specific to Malaysia and/or Viet Nam. It does not seek to assess how provisions that apply to the whole membership reflect the interests or demands of one or more Parties. The report should be read with an important caveat: that it is not possible to accurately predict the outcomes of accession negotiations for Indonesia based on treatment previously secured by other TPP Parties. Indonesia’s economy is substantially larger than Malaysia’s and Viet Nam’s in absolute terms3 and it makes greater use of protectionist measures.4 It will have its own priorities and expectations, and other Parties’ interests with respect to Indonesia will differ from their interests with respect to Malaysia and Viet Nam. Moreover, there will be a political dimension to the discussions which will influence the compromises that Parties are prepared to make. Scope of the report Based on the Government of Indonesia’s request, the report covers the following Chapters: 3 According to World Bank data, when measured by purchasing power parity Indonesia’s GDP is nearly four times that of Malaysia and approximately five times that of Vietnam. See http://data.worldbank.org/indicator/NY.GDP.MKTP.PP.CD 4 See World Bank (2015) Indonesia Economic Quarterly, December 2015: Reforming Amid Uncertainty, p. 35. vi Chapter 9: Investment Chapter 10: Cross-Border Trade in Services Chapter 11: Financial Services Chapter 12: Temporary Entry of Business Persons Chapter 14: Electronic Commerce Chapter 15: Government Procurement Chapter 17: State-Owned Enterprises and Designated Monopolies Chapter 18: Intellectual Property The report also covers the non-conforming measures and other commitments listed by Malaysia and Viet Nam under these Chapters. These are contained in Annexes I and II of the Agreement (Investment and Cross-Border Trade in Services), Annex III (Financial Services), Annex IV (State-Owned Enterprises and Designated Monopolies), Annex 12-A (Temporary Entry of Business Persons) and Annex 15-A (Government Procurement). The report does not assess Chapters or commitments relating to trade in goods. For each Chapter the report notes briefly the key provisions and the extent to which these represent new FTA practice for Malaysia and Viet Nam. It examines flexibilities for each country in the text of the Chapter and, where applicable, key aspects of the commitments each has made in the relevant Annex or Annexes. The report offers brief conclusions for Indonesia with respect to each Chapter. In the section entitled “Complementary Commitments” t he report highlights how Malaysia and Viet Nam have retained substantial regulatory space for key policy priorities through complementary commitments under multiple disciplines. This is particularly visible with respect to government procurement and SOEs, but applies also to the non-conforming measures for investment, services and financial services listed in Annexes I to III. Indonesia will need to consider similarly broad exemptions. The Indonesian state currently plays a substantial, interventionist role in the country’s economic development, and the Government will need to be sensitive to domestic concerns over the prospect of increased foreign involvement in Indonesia’s economy. The relationship between the Chapters 9 to 12 and their associated schedules of commitments is among the most complex aspects of the TPP. Appendix A sets out how these elements of the Agreement fit together. Appendix B lists all instances of differential treatment for Malaysia and Viet Nam throughout all Chapters of the Agreement and the side letters signed by vii both countries. It is intended as a ready reference to supplement the analysis in the body of the report. Scheduling of commitments: the ‘negative list’ approach Parties to the TPP have scheduled their commitments on investment, cross- border trade in services and financial services (among other issues) on a ‘negative list’ basis. Under this approach countries agree to maintain no competitive restrictions except those that are listed in their schedules. This differs from, for example, the scheduling approach under GATS, in which countries specify whether or not restrictions exist in all sectors and sub- sectors of their services trade. Important implications flow from the negative list approach. Legally, there is substantial risk to a country in omitting a desired restriction from a negative list. It can often be very difficult, or impossible, to add it subsequently. In practice this prompts countries to take conservative approaches to listing their commitments. Countries often seek to exclude particular measures, sectors or activities from multiple obligations. There are examples of this in the schedules of Malaysia and Viet Nam in Annexes I and II. The impact of the negative list approach is discussed further in the section entitled “Commitments Under Annexes I and II”. Comparison of Parties’ commitments Where Parties have recorded their specific commitments in individual schedules, this report does not attempt detailed comparative analysis. This would require detailed examination of domestic legal regimes not only in Malaysia and Viet Nam but in all TPP Parties, which is beyond its purpose and scope. Rather, the report notes key commitments of Malaysia and Viet Nam to illustrate options that would be open to Indonesia in formulating its own commitments. viii INVESTMENT T Chapter 9: Investment Annex I: Existing Non-Conforming Measures Annex II: New or More Restrictive Non-Conforming Measures Chapter 9 applies to investors of another Party and their investments in the territory of a Party. This includes the supply of a service by a covered investment.5 With respect to Articles 9.10 (Performance Requirements) and 9.16 (Investment and Environmental, Health and other Regulatory Objectives) it applies to all investments in the territory of that Party. Chapter 9 Section A sets out basic investment obligations in terms that bear close resemblance to established U.S. investment treaty practice.6 One key liberalising aspect is the inclusion of establishment and acquisition of an investment within the scope of the Chapter. Malaysia and Viet Nam have experience of this approach. 7 Malaysia has no specific flexibility under Section A. Viet Nam has differential treatment for expropriation of land by virtue of Annex 9-C. In schedules in Annexes I and II Parties list non-conforming measures (NCMs) against Articles 9.4 (NT), 9.5 (MFN), 9.10 (Performance Requirements) and 9.11 (Senior Management and Board of Directors). A selection of these for Malaysia and Viet Nam that relate solely to obligations under Chapter 9 is listed below. Viet Nam is subject to a ‘ratchet mechanism’ which prevents it from amending NCMs in ways that decrease their conformity with Articles 9.4, 9.5, 9.10 or 9.11. The ratchet applies for three years after the TPP enters into force for Viet Nam. Viet Nam is subject to an equivalent mechanism for its commitments under Chapters 10 (Cross-Border Trade in Services) and 11 (Financial Services). It is the only Party subject to these arrangements. 5 See Article 10.1. This has the effect of making services supplied through GATS Mode 3 (commercial presence) subject to Chapter 9 and not Chapter 10 (Cross-Border Trade in Services). 6 One study concludes that 82 per cent of the text of Chapter 9 is identical to the US-Colombia FTA, which in turn borrowed heavily from the 2012 U.S Model Bilateral Investment Treaty. See Alschner, W. & Skougarevskiy, D. (2015) The New Gold Standard: Empirically Situating the TPP in the Investment Treaty Universe, The Graduate Institute Geneva, Center for Trade and Economic Integration, Working Paper Series. 7 For example AANZFTA, ASEAN-Korea Investment, MAFTA, MANZ. 1 Chapter 9 Section B sets out a detailed and comprehensive procedure for investor- state dispute settlement (ISDS). Malaysia and Viet Nam are party to a range of regional agreements with ISDS mechanisms of varying stringency and procedural detail, including AANZFTA, ASEAN-Korea Investment, ASEAN-China Investment, ASEAN-India Investment and ACIA. Each is also party to a large number of bilateral investment treaties that include ISDS provisions. Malaysia and Viet Nam, among other Parties, have flexibilities with respect to certain aspects of the ISDS process. These are set out below. MALAYSIA A Annex I – existing NCMs Malaysia’s NCMs relating only to Chapter 9 are as follows:8 Sole proprietorship or partnerships: • Only Malaysians can register 9.4 (NT) Annex I – Malaysia – 2 • Foreigners cannot establish or join cooperative societies. Motor vehicles: • 49 per cent foreign equity cap in investments in 9.4 Annex I – Malaysia – 3 manufacture or assembly of certain vehicles. Petrol refining and palm oil (among others): 9.10 (Performance • Export performance and internal supply Annex I – Malaysia – 4 Requirements) requirements. Annex II – sectors or activities where existing or new or more restrictive NCMs are permitted Malaysia’s sectors or activities relating only to Chapter 9 are as follows:9 National and State unit trusts: 9.4 (NT) Annex II – Malaysia – 6 • Reserves right to adopt or keep any measure. Dealings in land: • Acquisition or dealings by foreigners must have 9.4 Annex II – Malaysia – 1 State approval. Hazardous waste: • Measures relating to collection, treatment and 9.4 Annex II – Malaysia – 13 disposal. 8 Those in italics apply to all sectors. 9 Those in italics apply to all sectors. 2 ISDS – Annex 9-K In Annex 9-K Malaysia stipulates that it does not consent to an ISDS claim in respect of an alleged breach of a government procurement contract with a covered investment below the value thresholds set out in its schedule of commitments on government procurement in Annex 15-A. 10 This carve-out is for three years following entry into force for Malaysia. In practice, this is designed to ensure Malaysia bears no risk in these years of being subject to an ISDS claim arising from breach of a contract to supply construction services to the government worth up to 63 million SDRs, 11 which is Malaysia’s initial value threshold for such procurements. Malaysia’s value thresholds for goods and services procurements are substantially lower, reducing the risk of litigation. 12 Malaysia has no other flexibilities with respect to the operation of the ISDS mechanism. VIET NAM A Annex I – existing NCMs Whereas Malaysia lists most of its NCMs against obligations in both Chapter 9 and Chapter 10, Viet Nam more often uses exemptions under Chapter 9, in particular Article 9.4 (NT), to regulate foreign supply of services in its territory. Examples include:13 Foreign investment in land: 9.4 (NT) Annex I – Viet Nam - 24 • Domestic legal requirements continue to apply. Foreign investment to establish presence through a branch: Not permitted except in – • Legal services 9.4 Annex I – Viet Nam – 26 • Computer and related services • Management consulting and related services • Construction and related engineering services • Franchising services 10 See Annex 15-A – Malaysia – 1 to 2. 11 As at 28 June 2016 1 SDR = USD 1.396. See http://www.imf.org/external/np/fin/data/rms_sdrv.aspx 12 See Figures 2 and 3. 13 This list is not exhaustive. Those in italics apply to all sectors. 3 JV requirements and foreign equity caps in: • Marine and rail transport Annex I – Viet Nam – 8, • Freight handling and road transport 9.4 17, 18, 20, 21, 22, 23 • Various recreational and cultural services • Agriculture, hunting and forestry services Retail services: 9.4 Annex I – Viet Nam – 6 • Restrictions on establishment of outlets. Educational services: 9.4 Annex I – Viet Nam – 13 • Foreign investment prohibited in various fields. Oil and gas exploration, prospecting and 9.4, 9.5 (MFN), 9.10 exploitation: (Performance Annex I – Viet Nam – 35 • PETROVIETNAM the sole authorised company. Requirements) Annex II – sectors or activities where existing or new or more restrictive NCMs are permitted Selected sectors or activities relating only to Chapter 9 are as follows:14 Disadvantaged minorities and ethnic groups: 9.4 (NT), 9.5 • Reserves right to adopt or keep any measure. (MFN), 9.10 (Performance Requirements), Annex II – Viet Nam – 1 9.11 (Senior Management and Boards of Directors) Privatisation of SOEs: • May limit disposal of any interest in a SOE to 9.4, 9.5, 9.10, 9.11 Annex II – Viet Nam – 2 Vietnamese nationals. Investment in shares: • Subject to any equity limitations set out in Annex I 9.4 Annex II – Viet Nam – 3 or Annex II Land ownership: 9.4, 9.5, 9.10, 9.11 Annex II – Viet Nam – 4 • Reserves right to adopt or keep any measure. Co-operatives, household businesses and sole proprietorships: 9.4 Annex II – Viet Nam – 9 • Reserves right to adopt or keep any measure relating to establishment and operation. 14 This list is not exhaustive. Those in italics apply to all sectors. 4 Secondary education services: • Reserves right to adopt or keep any measure 9.4 Annex II – Viet Nam – 15 relating to investment in these services. Mass communication: Reserves right to adopt or keep any measure on press 9.4, 9.5, 9.10, 9.11 Annex II – Viet Nam – 19 and news gathering, publishing and broadcasting. Power development: Reserves right to adopt or keep any measure relating 9.4, 9.10, 9.11 Annex II – Viet Nam – 22 to hydroelectricity and nuclear power. Annex 9-I: NCM Ratchet Mechanism Annex 9-I is specific to Viet Nam. It provides that for three years following entry into force for it, Articles 9.4 (NT), 9.5 (MFN), 9.10 (Performance Requirements) and 9.11 (Senior Management and Boards of Directors) will not apply to any amendment to an NCM scheduled by Viet Nam in Annex I, to the extent that the amendment does not decrease the measure’s conformity with these Articles. During this period, Viet Nam is not to withdraw a right or benefit from an investor or covered investment of another Party that it had acted in reliance on through an amendment that decreases the conformity of an NCM. Viet Nam is also to provide details to the Parties of any amendment that would decrease the conformity of an NCM at least 90 days before making the amendment. The key additional obligation for Viet Nam in Annex 9-I is the prohibition against withdrawing a right or benefit that an investor or covered investment of another Party has relied upon. This provides investors with increased legal protection against the risk of government action that affects their investment. It is designed to ensure that Viet Nam only amends NCMs in ways that increase, rather than, decrease, their conformity with the key obligations in Chapter 9. The requirement for Viet Nam to notify Parties of any amendment that would decrease the conformity of an NCM is further encouragement towards increasing conformity. Viet Nam is subject to equivalent ratchet mechanisms under Chapters 10 (Cross- Border Trade in Services) and 11 (Financial Services). 5 Annex 9-C: Expropriation Annex 9-C clarifies the operation of Article 9.8 (Expropriation and Compensation) with respect to expropriation of land in Viet Nam. It provides that any such expropriation shall be for a purpose in accordance with applicable domestic legislation, and upon payment of market compensation. Singapore is the only other Party to have provided similar clarification. Annex 9-C suggests elevated concern at the risk to investors from expropriation of land in these Parties. Annex 9-J: limitation on submission of ISDS claims In Annex 9-J Viet Nam, along with Chile, Mexico and Peru, stipulates that an investor may not bring an ISDS claim against it if the investor has already submitted its claim before a domestic court or tribunal. As a result, the investor’s choice as to where it submits its claim will be definitive and exclusive. The effect of Annex 9-J is to preclude an investor that has commenced domestic legal action in any one of these Parties from commencing ISDS arbitration against that Party in respect of the same matter. This restriction does not appear in the text of Chapter 9; Article 9.21.2(b) merely requires a claimant to waive any right to continue domestic legal action as a condition of submitting a claim to arbitration. Under Article 9.21.3 a claimant also has the right to seek interim injunctive relief before the courts of the host Party to preserve its rights and interests while arbitration is pending. Given that Annex 9-J addresses substantive claims for breach of obligations under Chapter 9, this right would seem to be preserved so long as the proceedings for injunctive relief do not examine the merits of the claim. CONCLUSIONS FOR INDONESIA A Indonesia’s commitments under Chapter 9 will be a matter for negotiation with the Parties. A threshold issue will be the extent to which Indonesia seeks to reflect domestic measures that currently restrict foreign investment, in particular the Negative Investment List. Were Indonesia simply to transpose the current Negative Investment List 15 into its commitments under Chapter 9 it would comprise the most restrictive package of NCMs of any Party. It is likely that the other Parties would seek stronger commitments than this. They may also seek 15 Presidential Decree 44/2016, 12 May 2016. 6 concessions in other areas in exchange for Indonesia retaining some of its current restrictions. ISDS presents another challenge for Indonesia, given its current policy of disengaging from its current investment treaties in favour of a revised bilateral investment regime. 16 It may be possible for Indonesia to obtain equivalent flexibilities to those of other Parties17 should it wish. However, it is unlikely the Parties would agree to exemptions that would place Indonesia in a substantively different legal position to other Parties with respect to investments in its territory, especially given the domestic sensitivity towards ISDS that many have experienced. 16 For a Ministerial statement of this policy see H.E. Retno Marsudi, Minister for Foreign Affairs, Annual Press Statement, 8 January 2015. For a detailed explanation of Indonesia’s approach by a current senior Indonesian trade negotiator, see Jailani, A. (2015) “Indonesia’s Perspective on Review of International Investment Agreements” Investment Policy Brief No. 1, July 2015. 17 In addition to those outlined above, see Annexes 9-E and 9-F (affirming Chile’s right to take certain measures relating to transfers), Annex 9-H (excluding investment screening decisions by Australia, Canada, Mexico and New Zealand from dispute settlement) and Annex 9-L, Part C (limiting Mexico’s consent to ISDS arbitration so as to avoid inconsistency with certain domestic legislation). 7 CROSS-BORDER TRADE IN SERVICES S Chapter 10: Cross-Border Trade in Services Annex I: Existing Non-Conforming Measures Annex II: New or More Restrictive Non-Conforming Measures Chapter 10 sets out relatively standard-form obligations on cross-border trade in services with which Malaysia and Viet Nam are largely familiar. The key provisions are Articles 10.3 (NT), 10.4 (MFN), 10.5 (Market Access) and 10.6 (Local Presence). Two points of difference from previous FTA practice for Malaysia and Viet Nam are: • Article 10.6 prohibits Parties from requiring a supplier to establish local presence as a condition for cross-border supply of a service. Malaysia and Viet Nam have addressed this issue through market access commitments in their previous FTAs. • Chapter 10 does not include a safeguards provision enabling consultations in the event that a Party’s services commitments cause damage to another Party. This has been common for Malaysia and Viet Nam to date.18 The text of Chapter 10 contains no flexibilities for Malaysia, and only one relatively minor flexibility for Viet Nam relating to monopoly postal services. However Annex 10-C imposes additional requirements on Viet Nam with respect to its NCMs. Annex I and II commitments for Malaysia and Viet Nam that relate solely to obligations under Chapter 10 are summarised below. 18 See AANZFTA Chapter 8 Article 19, ASEAN-China Services Article 9, ASEAN-Korea Services Article 10, MAFTA Article 8.13, MAJP Article 106, MANZ Article 8.12. 8 MALAYSIA A Annex I – existing NCMs Malaysia’s NCMs relating only to Chapter 10 are as follows: Patent and trademark agent services 10.6 (Local • Limited to natural persons registered with Annex I – Malaysia – 6 Presence) Malaysia’s IP authority and residing in Malaysia. Customs agents and brokers 10.3 (NT) Annex I – Malaysia – 17 • Foreigners may not provide these services. Tourist guide services 10.3 (NT) Annex I – Malaysia – 18 • Foreigners may not provide these services. Annex II – sectors or activities where existing or new or more restrictive NCMs are permitted Malaysia does not list any sectors or activities solely against obligations in Chapter 10. VIET NAM A Annex I – existing NCMs Viet Nam’s only NCM that relates solely to Chapter 10 is: Auditing services: 10.6 (Local Annex I – Viet Nam – 4 • Foreign suppliers must be present in Viet Nam. Presence) 9 Annex II – sectors or activities where existing or new or more restrictive NCMs are permitted Viet Nam’s sectors or activities that relate only to Chapter 10 are:19 GATS market access commitments: 10.5 (Market • Reserves right to adopt or keep any measure not Annex II – Viet Nam – 36 Access) inconsistent with its GATS obligations.20 Accounting and taxation services: • Reserves right to adopt or keep any measure not 10.6 (Local Annex II – Viet Nam – 35 consistent with Article 10.6 relating to cross-border Presence) trade in these services. Annex 10-C: NCM Ratchet Mechanism Annex 10-C is specific to Viet Nam. Its intention and terms are identical to Annex 9-I and Annex 11-C except that it applies to service suppliers of another Party. It protects the position of service suppliers of other Parties that are present in Viet Nam, or have taken steps to establish a presence there. It is designed to ensure that Viet Nam only amends its NCMs under Chapter 10 in ways that increase, rather than decrease, their conformity. Monopoly postal services Viet Nam has a three-year grace period from the requirement in paragraph 5 of Annex 10-B (Express Delivery Services) not to allow a supplier covered by a postal monopoly to cross-subsidise its own or any other supplier’s express delivery services with revenues derived from its monopoly postal services. Paragraph 5 is intended to enable suppliers from other Parties to compete with state-run postal monopolies. CONCLUSIONS FOR INDONESIA A Indonesia’s commitments under Chapter 10 will be a matter for negotiation among the Parties. At a basic level the Parties will expect Indonesia to offer GATS-plus commitments as Viet Nam has done on market access. 21 The Parties 19 Those in italics apply to all sectors. 20 In Appendix II-A Viet Nam lists commitments improving on its GATS commitments in a range of sectors. 21 See Annex II – Viet Nam – Appendix II-A. 10 will also use Indonesia’s commitments under its existing FTAs such as AANZFTA, ASEAN-China Services and ASEAN-Korea Services as reference points. The examples of NCMs above show some of the ways in which Malaysia and Viet Nam have been able to preserve policy flexibility in key services sectors. Indonesia will be able to decide whether to list many of its services-related NCMs against obligations in Chapter 10 or Chapter 9 (Investment), or both. It will need to base these decisions on an assessment of its current NCMs, as well as sectors or activities where it would like to retain the ability to introduce more restrictive measures in future. It will also need to bear in mind the potential implications should it omit restrictions that it may have wished to maintain or impose in future. Given its current policy settings on foreign investment it may look to schedule many of its measures against obligations in Chapter 9, as Viet Nam has done. 11 COMMITMENTS UNDER ANNEXES I AND II A Annex I: Existing Non-Conforming Measures Annex II: New or More Restrictive Non-Conforming Measures As noted above, Parties list many of their commitments in Annex I and II against obligations in both Chapter 9 (Investment) and Chapter 10 (Cross-Border Trade in Services). The primary cause for this is the use of the ‘negative list’ approach to scheduling commitments under these Chapters. Under the negative list approach, Parties schedule only the NCMs that they wish to maintain, and the sectors or activities in which they may wish to impose NCMs in future. From a legal perspective, in areas that are not affected by the schedules no restrictions apply. By virtue of provisions such as Article 9.12 (Non-Conforming Measures) and Article 10.7 (Non-Conforming Measures), a Party may not add a new NCMs except if it has reserved the right to do so through its schedule. In addition, any amendment to an NCM cannot decrease its conformity with key non- discrimination obligations. This is known as a ‘ratchet’ mechanism. It is designed to set Parties on a course of continuous liberalisation, using the schedules as a baseline. The more traditional approach to scheduling commitments on services and investment is the ‘positive list’ approach, used in GATS. Under this approach countries set out whether or not they are making commitments across all sectors and sub-sectors in their services trade (or for foreign investment). Malaysia and Viet Nam had only used this approach prior to the TPP. Negative listing is often associated with greater levels of liberalisation than the positive list approach. 22 However, in practice countries take conservative approaches to scheduling commitments under a positive list, because the consequences of omitting an NCM are substantial. Due to the ratchet mechanism it can be very difficult or impossible to add an NCM once an FTA is in force. One way that Malaysia and Viet Nam (as well as other Parties) have sought to minimise this risk is by scheduling many of their restrictions against obligations in Chapter 9 and Chapter 10 simultaneously. In the sectors affected, this approach 22 There is an ever-expanding literature on the relative merits of the listing approaches. An excellent overview of their merits which touches on the practice of many TPP Parties is Fink, C. & Molineuvo, M. (2008) “East Asian Free Trade Agreements in Services: Key Arc hitectural Elements” Journal of International Economic Law 11(2), pp. 263-311. 12 leaves room for measures that restrict investment in ways that may impact supply or services, or that may impact services trade by restricting investment. In practice, if a Party lists against both Chapters there is less onus on it to know the precise impact of a measure, or its future policy objectives in a given sector. A selection of such exemptions for Malaysia and Viet Nam are summarised below. These provide examples of how the two Parties have excluded significant areas of activity from some or all of the non-discrimination provisions on investment and cross-border trade in services. MALAYSIA A Annex I – existing NCMs Selected Malaysian NCMs relating to Chapters 9 and 10 are as follows:23 Legal services 9.4 and 10.3 (NT), • Restrictions on foreign law firms and foreign 10.5 (Market Annex I – Malaysia – 9 lawyers practising in Malaysia. Access), 10.6 (Local Presence) Communications services • Foreign companies require Ministerial 9.4, 10.3, 10.6 Annex I – Malaysia – 12 permission to apply for telecoms licenses. Education services • Foreigners cannot supply primary, secondary or 9.4, 10.3, 10.6 Annex I – Malaysia – 14 religious schooling. Private healthcare and allied health services Foreigners cannot: • establish various private healthcare facilities; or 9.4, 10.3, 10.6 Annex I – Malaysia – 15 • provide pharmacy or various allied health services. Retail trade 9.4, 9.10 • Foreigners cannot operate various retail outlets (Performance • Major outlets with foreign equity must be locally Requirements), 9.11 incorporated, have Malaysian directors and staff (Senior Management Annex I – Malaysia – 22 and stock quantities of Bumiputera SME goods. and Boards of A range of related restrictions. Directors), 10.3, 10.5, 10.6 23 This list is not exhaustive. 13 Construction and related engineering services Providers must be locally incorporated and 10.3, 10.6 Annex I – Malaysia – 26 registered, with majority local management. Oil and gas Sets out Prime Minister’s authority to make NCMs 10.3, 10.5, 10.6 Annex I – Malaysia – 29 for the upstream oil and gas sector. Annex II – sectors or activities where existing or new or more restrictive NCMs are permitted Selected Malaysian activities or sectors relating to Chapters 9 and 10 are as follows:24 Privatisation of SOEs 9.4 and 10.3 (NT), 9.5 • Reserves right to adopt or keep any measure. and 10.4 (MFN), 9.10 (Performance Requirements), 9.11 (Senior Management Annex II – Malaysia – 4 and Boards of Directors), 10.5 (Market Access), 10.6 (Local Presence) Support for Bumiputera economic participation 10.3, 10.5 Annex II – Malaysia – 5 • Reserves right to adopt or keep any measure. Treatment of Parties to ASEAN agreements • Reserves right to adopt or keep any measure according 10.4 Annex II – Malaysia – 7 differential treatment. Non-internationalisation of the ringgit25 9.4, 10.4 Annex II – Malaysia – 17 • Reserves right to adopt or keep any measure. Supply of staple foods and other products • Reserves right to adopt or keep any measure 9.4, 10.3, 10.6 Annex II – Malaysia – 12 relating to wholesale and distribution services for rice, sugar, flour, liquor, tobacco and cigarettes. Censorship of film and print products 9.4, 9.5, 9.10, 9.11, • Reserves right to review for decency standards. Annex II – Malaysia – 11 10.3, 10.4, 10.5 Foreign artists require approval for performances. Oil and gas 9.4, 9.10, 9.11, 10.3, PETRONAS to decide on form and conditions of Annex II – Malaysia – 3 10.5, 10.6 contractual arrangements for foreign participation. 24 This list is not exhaustive. Those in italics apply to all sectors. 25 Malaysia also schedules this carve-out against its MFN and cross-border trade obligations for financial services: Annex III – Malaysia – 22. 14 VIET NAM A Annex I – existing NCMs Viet Nam’s NCMs that relate to Chapters 9 and 10 are as follows: 26 Legal services • Restrictions on foreign law firms and lawyers 9.4 and 10.3 (NT) Annex I – Viet Nam – 2 practising in Viet Nam. Telecommunications services • Foreigners cannot supply satellite-based services except through commercial arrangements with 9.4, 10.3 Annex I – Viet Nam – 9 licensed Vietnamese suppliers. • Foreign equity caps on JVs for supply of facilities-based services. Supply of electronic games services • Foreign equity caps on JVs for supply of these 9.4, 10.3 Annex I – Viet Nam – 16 services. Services incidental to energy distribution 9.4, 10.3 Annex I – Viet Nam – 32 • Foreign suppliers and investment are prohibited. Annex II – sectors or activities where existing or new or more restrictive NCMs are permitted Selected Vietnamese sectors or activities that relate to Chapters 9 and 10 are as follows:27 Treatment of Parties to other agreements 9.5 and 10.4 • Reserves right to adopt or keep any measure Annex II – Viet Nam – 5 (MFN) according differential treatment. Assistance to SMEs • Reserves right to adopt or keep any measures relating 9.4 and 10.3 (NT) Annex II – Viet Nam – 7 to a wide range of assistance excluding direct financial subsidies. 26 Note that many of Viet Nam’s exemptions from Article 9.4 (NT), will prevent or limit supply of services from other Parties. 27 This list is not exhaustive. Those in italics apply to all sectors. 15 Services in exercise of government authority 9.4, 9.5, 9.10 • Reserves right to adopt or keep any measure, (Performance when such services are opened to the private Requirements), sector. 9.11 (Senior Management and Annex II – Viet Nam – 37 Boards of Directors), 10.3, 10.4, 10.6 (Local Presence) Wholesale and retail trade in services • Reserves right to adopt or keep any measure on sales services for commercial use products. 9.4, 10.3 Annex II – Viet Nam – 11 • Reserves right to adopt or keep any measures relating to cross-border trade in services and investment re: a range of sensitive products. Business services 9.4, 9.5, 9.10, • Reserves right to adopt or keep any measure on 9.11, 10.3, 10.4, Annex II – Viet Nam – 23 a wide range of listed business services. 10.6 Health and social services • Reserves right to adopt or keep any measures on 9.4, 9.5, 9.10, 9.11, Annex II – Viet Nam – 25 non-hospital residential health facilities, other 10.3, 10.4, 10.6 human health services and social services. Transport services • Reserves right to adopt or keep any measures on 9.4, 9.5, 9.10, 9.11, maritime cabotage, internal waterway transport, Annex II – Viet Nam – 27 10.3, 10.4, 10.6 space, pipeline and rail transport, road cabotage and pushing and towing services. CONCLUSIONS FOR INDONESIA A Indonesia has not previously used the negative list approach. It will need to exercise care to ensure it does unintentionally omit restrictions from its schedules in Annexes I and II that it would have wished to retain. Indonesia should assume that if accession negotiations progress, other Parties will transpose its existing commitments under GATS and ASEAN’s FTAs into the negative list format in order to assess the strength of its offers under Chapters 9 and 10. 16 FINANCIAL SERVICES S Chapter 11: Financial Services Annex III: Non-Conforming Measures relating to Financial Services Chapter 11 sets out obligations that apply to cross-border trade in financial services, as well as investors and investments of another Party in financial institutions in the Party’s territory, and financial institutions themselves. The key provisions are Articles 11.3 (NT), 11.4 (MFN), 11.5 (Market Access for Financial Institutions) and 11.6 (Cross-Border Trade). In Annex III each Party schedules existing NCMs against these obligations and Article 11.9 (Senior Management and Board of Directors), as well as sectors in which it may maintain existing NCMs or introduce more restrictive measures. In this way Annex III combines the functions of Annexes I and II with respect to financial services. Parties make specific commitments with respect to cross-border trade in Annex 11-A, and detail further specific commitments in Annex 11-B. Previous FTAs for Malaysia and Viet Nam have typically applied obligations in the services chapter (and in some cases the investment chapter) to financial services. In many of their agreements financial services commitments have been placed in broader services schedules. 28 The agreements have often had a brief annex on financial services covering framework issues such as recognition of domestic financial regulation. 29 There are no country-specific flexibilities for any Party in the text of Chapter 11. In Annex 11-A (Cross-Border Trade) Malaysia and Viet Nam do not have particular flexibilities relative to the other Parties. In Annex 11-B (Specific Commitments) Viet Nam establishes arrangements on electronic payment cards that are consistent with its domestic regulations. Viet Nam affirms these arrangements in side letters with a number of Parties (see below). As with Chapters 9 (Investment) and 10 (Cross-Border Trade in Services), Viet Nam is subject to a country-specific ratchet mechanism for NCMs under Chapter 11. This is set out in Annex 11-C. 28 For example MAFTA, MANZ, MAJP, AANZFTA, ASEAN-China Services, ASEAN-Korea Services, ASEAN-India Services (though Malaysia has yet to make financial services commitments under this agreement). 29 For example MAFTA, MAJP, AANZFTA, ASEAN-Korea Services. 17 The Parties list their commitments under Chapter 11 in their schedules in Annex III. Key carve-outs for Malaysia and Viet Nam are summarised below. To illustrate their impact the tables address: • NCMs imposing mandatory legislative requirements on foreign suppliers, investors, investments or financial institutions; • NCMs that grant the government discretion to determine the treatment of foreign suppliers, investors, investments or financial institutions; and • Key activities that either country has excluded from its obligations under Chapter 11. These may provide reference points for Indonesia in considering how Chapter 11 should operate with respect to its financial sector. MALAYSIA A Annex III – selected NCMs Examples of NCMs containing mandatory requirements are:30 Financial institutions: 11.5 (Market • Must be locally incorporated under Malaysian laws. Access for Annex III – Malaysia – 2 Financial Institutions) Locally incorporated foreign banks: 11.3 (NT), 11.4 Annex III – Malaysia – 10 • Caps on new branches and ATMs. (MFN), 11.5 Insurance: 11.6 (Cross- • Can only buy insurance or takaful cover abroad for Annex III – Malaysia – 12 Border Trade) property liability if unavailable locally. 30 This list is not exhaustive. 18 Malaysia has retained the authority to determine participation from other Parties in the following: Operating a financial institution: 11.5 (Market • Requires a license from the central bank. Access for Annex III – Malaysia – 6 Financial Institutions) Acquisition of shares in financial institutions: • No natural person to hold more than 10 per cent. • Acquisition and exemption from the 10 per cent 11.3 (NT) Annex III – Malaysia – 831 requirement needs approval of Finance Minister or central bank. Capital market activities: • Requires authorization by Securities Commission 11.5 Annex III – Malaysia – 20 Malaysia, based on a national interest test. Malaysia has carved out the following activities from one or more of its obligations under Chapter 11:32 Development of the pension system: • Reserves right to adopt any measure. These will 11.3 (NT) Annex III – Malaysia – 16 cease to apply 3 years after EIF. Non-internationalisation of the ringgit: 11.4 (MFN), 11.5 • Reserves right to adopt any measure. (Market Access for Annex III – Malaysia – 2233 Financial Institutions) Purchase abroad of financial services: • Subject to domestic legal requirements via the 11.6 (Cross-Border Annex III – Malaysia – 23 Notices on Foreign Exchange Administration Trade) Rules. Domestic economic development: • Reserves right to advantage a range of financial 11.3 Annex III – Malaysia – 2434 institutions involved in financing economically significant projects. 31 Given this carve-out applies to the NT obligation it can be assumed that it is targeted at acquisitions by natural persons of other Parties and does not apply to Malaysian nationals, although this is not made explicit. 32 This list is not exhaustive. 33 Malaysia also schedules this carve-out against its NT obligations under Chapters 9 (Investment) and 10 (Cross-Border Trade in Services): Annex II – Malaysia – 17. 34 Malaysia reserves the right to provide assistance to these same institutions in its commitments on SOEs: Annex IV – Malaysia – 8. 19 Orderly functioning of the capital market: • Reserves right to grant subsidies and 11.3, 11.5 Annex III – Malaysia – 28 advantages to financial institutions which Malaysia deems integral to this goal. SMEs • Reserves right to support supply of any financial 11.3, 11.5 Annex III – Malaysia – 28 services deemed necessary for SME development. Supply of financial services to Malaysian enterprises 11.3, 11.5 Annex III – Malaysia – 28 • Reserves right to support supply of financial services to cover supply gaps. VIET NAM A Annex III – selected NCMs Examples of NCMs containing mandatory requirements are:35 Foreign credit institutions: • Limits on the form of commercial presence in Viet Nam 11.3 (NT), 11.5 • Limits and conditions on establishment JVs and (Market Access for Annex III – Viet Nam – foreign-invested finance companies Financial 2,5,6,8 • Rules for establishment of local offices, branches Institutions) and ATMs. • Limits on activities of foreign bank branches Insurance agency services: • Foreign natural persons not allowed to supply 11.3 Annex III – Viet Nam – 9 insurance agency services. Cross-border insurance services: • Foreign insurance companies supplying these 11.6 (Cross-Border Annex III – Viet Nam – 10 services must do so through a licensed local Trade) insurance broker. 35 This list is not exhaustive. 20 Viet Nam has retained the authority to determine approval of the following: Foreign ownership in Vietnamese banks: • Total may not exceed 30 per cent unless authorised. 11.3 (NT), 11.5 • Individual foreign institutions that are (Market Access Annex III – Viet Nam – 4 strategically significant can own up to 20 per cent. for Financial • Prime Minister can approve higher levels in cases Institutions) of restructuring weak institutions for sound operation of the banking system. Foreign securities and fund management companies: Annex III – Viet Nam – 20, • Operation and services subject to govt. approval. 11.3 21 • Foreign ownership above 49 per cent subject to approval. The following are examples of activities that Viet Nam has carved out from one or more of its obligations under Chapter 11:36 Activities for a public purpose: 11.3 (NT), 11.4 (includes SME development, social welfare, (MFN), 11.5 (Market development and housing, education, health, poverty Access for Financial reduction and one-off support for equitisation, among Institutions), 11.6 Annex III – Viet Nam – 16 others) 37 (Cross-Border • Reserves right to provide financial support and Trade), 11.9 (Senior other assistance. Management and Boards of Directors) Equitisation of state-owned banks: 11.3, 11.4, 11.5, 11.9 Annex III – Viet Nam – 12 • Reserves right to adopt any measure. Regulated securities markets and associated infrastructure: 11.3, 11.5 Annex III – Viet Nam – 22 • Reserves right to adopt any measure. Annex 11-C: NCM Ratchet Mechanism Annex 11-C is specific to Viet Nam. Its intention and terms are identical to Annex 9-I and 10-C except that it applies to financial institutions, investors and investments in financial institutions and cross-border suppliers of financial services. It is designed to ensure that Viet Nam only amends its NCMs under 36 This list is not exhaustive. 37 Many of the policy objectives in this list are reflected in Viet Nam’s commitments elsewhere in the Agreement. See Figure 4 [p. xx] for examples. 21 Chapter 11 in ways that increase, rather than decrease, their conformity. It protects the position of financial institutions, their investors and financial service suppliers of other Parties that are present in Viet Nam, or have taken steps to establish a presence there. Electronic payment services Through Annex 11-B, Section D, paragraph 4(l)(ii) and side letters with all Parties except Chile, Peru and Singapore, Viet Nam has preserved its requirement that cross-border suppliers of electronic payment services into Viet Nam supply their services through a gateway approved by the State Bank of Viet Nam. This enables Viet Nam to collect data on cross-border transactions that utilise electronic payment services. CONCLUSIONS FOR INDONESIA A Indonesia has previously scheduled commitments with respect to supply of financial services and foreign investment in its financial services sector38 but it has not taken on a comprehensive suite of financial services obligations such as those in Chapter 11. In formulating its commitments under Chapter 11 Indonesia will need to consider the extent to which it wishes to further open its banking sector to foreign participation. It may also wish to preserve the ability to regulate foreign currency transactions as Malaysia has done. The Annex III listings of Malaysia and Viet Nam provide examples of NCMs which retain legislated rules applying to foreign participants and which reserve discretion for governments to decide on, for example, foreign investment applications, using national interest criteria. Indonesia will also be able to give consideration to ensuring its commitments under Chapter 11 complement its commitments with respect to investment, services, SOEs and government procurement. 38 See AANZFTA, Indonesia – Schedule of Specific Services Commitments, pp. 18 – 27; INDO-JP, NCMs of Indonesia, Annex 6, Part 2, pp. 899-904. 22 TEMPORARY ENTRY OF BUSINESS PERSONS S Chapter 12: Temporary Entry of Business Persons Chapter 12 serves to provide context for the schedules of commitments inscribed by Parties in Annex 12-A. It contains no flexibilities for any Party. The only provisions containing mandatory obligations are Articles 12.3 (Application Procedures), 12.4 (Grant of Temporary Entry) and Article 12.6 (Provision of Information). These obligations are familiar to Malaysia, Viet Nam and Indonesia through AANZFTA. 39 Equivalent provisions also appear in MAFTA,40 MANZ41 and VN-EU.42 AANZFTA, MAFTA, MANZ and VN-EU also contain schedules of specific commitments with respect to the movement of natural persons. 43 In Annex 12-A each Party except the United States sets out its specific commitments with respect to the temporary entry of business persons. 44 The schedules vary in scope but all address entry of natural persons seeking to supply a service (GATS Mode 4), or seeking to establish an investment in the host Party. The commitments in Annex 12-A are designed to ensure Parties do not administer their immigration requirements, such as visas and work permits, so as to undermine their commitments on services and investment. Three key aspects of the schedules in Annex 12-A are: • the extent to which Parties extend their commitments to individuals engaged in non-services trade; • the application of Parties’ commitments to services sectors; and • the Parties’ commitments on entry for investment -related purposes. The approaches of Malaysia and Viet Nam relative to other Parties are detailed below. Figure 1 shows key elements in the commitments of all Parties except the United States. 39 See ANNZFTA Chapter 9 (Movement of Natural Persons). 40 See MAFTA Chapter 10 (Movement of Natural Persons). 41 See MANZ Chapter 9 (Movement of Natural Persons). 42 See VN-EU Chapter 8 (Trade in Services, Investment and E-Commerce). 43 In the case of VN-EU these commitments relate to Mode 4 supply of services only. 44 The United States’ commitments with respect to temporary entry of business persons are incorporated into its schedules of commitments under Chapters 9 (Investment) and 10 (Cross- Border Trade in Services) in Annexes I and II. 23 MALAYSIA A Non-services trade Under the category of “Business Visitors” Malaysia includes goods sellers and persons visiting the country to attend meetings or engage in business consultations with associates. These visitors can enter for up to 90 days. 45 This is the only commitment Malaysia offers to visitors engaged in non-services trade. It also includes service sellers, installers and servicers and investors in this category (see below). With respect to “Intra-Corporate Transferees”, Malaysia seemingly limits entry to individuals engaged in supply of services. 46 This effectively excludes companies that do not supply services from Malaysia’s commitments in this category. Viet Nam, Brunei and Peru are the only other Parties to take this approach. Application to services sectors Specific to services trade, Malaysia lists commitments for visitors who are “Contractual Service Suppliers” and “Independent Professionals”. For both categories it lists sectors (using United Nations CPC codes) and professions in which entry will be allowed. Entry is for 12 months or the duration of the contract, whichever is less. 47 The lists are narrow and make Malaysia’s commitments for these categories of visitor among the most restrictive of any Party. However Malaysia takes a more flexible approach to other categories of visitor. Under the category of “Business Visitor” Malaysia imposes no sectoral restriction on services sellers or installers and servicers. 48 In addition Intra-Corporate Transferees are granted access in all sectors and sub-sectors except legal services, custom agents and real estate agents.49 Malaysia allows entry to Intra-Corporate 45 Annex 12-A – Malaysia – 1. 46 In Malaysia’s definition of intra-corporate transferees, “specialists” are defined as employees of a service supplier but “senior managers” are not, leaving some uncertainty over Malaysia’s intentions: Annex 12-A – Malaysia – 3. 47 Annex 12-A – Malaysia – 6 to 10. 48 Annex 12-A – Malaysia – 1. 49 This is consistent with Malaysia’s NCMs with respect to these sectors, which either ban or heavily restrict foreign participation. See Annex I – Malaysia – 9 (legal services); Annex I – Malaysia – 17 (customs agents) and Annex I – Malaysia – 11 (real estate agents). 24 Transferees for up to two years, extendable up to 10 years for senior managers and five years for specialists or experts.50 This is comparable to other Parties. Investors Malaysia and New Zealand are the only Parties that treat those seeking to establish investments in their territory as “Business Visitors”.51 Malaysia permits these visitors to stay for 90 days. For investors, this is longer only than Singapore, which permits a stay of 30 days. 52 The majority of Parties offer investors a minimum stay of one year or longer, extendable based on need. Malaysia applies this approach to all investors, not only those engaged with service suppliers. Reciprocity Malaysia does not condition its commitments on being granted equivalent commitments by other Parties. Brunei, Japan and Singapore are the only other Parties that take this approach. All others, including Viet Nam, demand reciprocity to some extent. VIET NAM A Non-services trade Alone among the Parties, Viet Nam makes no commitments in its schedule for temporary entrants engaged in non-services trade. Application to services sectors Viet Nam extends the following commitments to visiting service suppliers: • Service Sales Persons” can be in any sector and are allowed entry for a maximum of six months.53 • “Contractual Service Suppliers” are restricted to certain sectors listed using United Nations CPC codes. 54 Like Malaysia, Viet Nam’s list is 50 Annex 12-A – Malaysia – 3. 51 Annex 12-A – Malaysia – 1; Annex 12-A – New Zealand – 1. 52 Annex 12-A – Singapore – 1. 53 Annex 12-A – Viet Nam – 1. 54 Annex 12-A – Viet Nam – 6. 25 narrow and among the most restrictive of the Parties. These visitors can enter for six months or the duration of their contract, whichever is shorter. • “Intra-Corporate Transferees” can only work for an ent erprise that supplies services in sectors in which Viet Nam took commitments under GATS upon its accession to the WTO. These entrants are permitted for an initial period of three years, which is one of the longest periods of stay permitted by any Parties. 55 • “Other personnel” are employed by a service supplier outside Viet Nam with a view to participating in its activities in Viet Nam. They can stay for an initial period of three years or the duration of their contract, whichever is shorter. They entry is subject to no Vietnamese national being available for the position. 56 Investors Viet Nam is the only party that limits its commitments with respect to investors to those seeking to invest in supply of services. Under the category of “Persons Responsible for Setting up a Commercial Presence” Viet Nam stipulates that its commitments apply to managers and executives responsible for setting up a commercial presence of a service supplier of another Party.57 These persons can enter for up to one year. This means for persons seeking to establish commercial presence for a business not engaged in the supply of services, Viet Nam makes no commitments with respect to entry or length of stay. Reciprocity For all categories of visitor in its schedule Viet Nam stipulates that its commitments extend only to Parties that have made commitments in respect of equivalent categories of visitor. Viet Nam includes all categories commonly used by other Parties, so its reciprocity requirements do not significantly narrow the scope of its commitments. However it means the scope will adjust automatically should other Parties extend or remove commitments towards Viet Nam. 55 Annex 12-A – Viet Nam – 2. 56 Annex 12-A – Viet Nam – 5. 57 Annex 12-A – Viet Nam – 4. 26 CONCLUSIONS FOR INDONESIA A It is important to recall that under the TPP Indonesia would retain the full ability to regulate the entry of natural persons of any Party into its territory. This is affirmed in Article 12.2.3. Indonesia would therefore not be obliged to alter existing conditions attached to temporary entry, including any requirements for employer sponsorship relating to work permits. Some of the key considerations for Indonesia in designing its commitments under Chapter 12 will include: • whether it wishes to use its commitments on temporary entry of business persons to complement its commitments on trade in goods as well as services; • the extent to which it may wish to use arrangements for temporary entry to facilitate the establishment of investments in Indonesia by natural persons or enterprises of other Parties; • whether it wishes to limit the sectors in which visiting service suppliers may participate; and • whether it wishes to make its commitments conditional on reciprocal treatment by other Parties. In any accession negotiations, Parties are likely to treat Indonesia’s schedule of commitments on the movement of natural persons under AANZFTA as a baseline for its commitments. 27 Figure 1 28 GOVERNMENT PROCUREMENT T Chapter 15: Government Procurement Annex 15-A: Country-specific schedules Chapter 15 sets out comprehensive obligations on government procurement (GP). It aims to ensure Parties implement procurement practices that provide fair access to government contracts for qualified suppliers of other Parties. In addition to basic obligations of non-discrimination through MFN and NT, Parties are required to maintain processes for advertising tenders, setting and administering selection criteria and assessing bids that do not provide undue advantage to domestic bidders. Each Party schedules commitments under Chapter 15 in Annex 15-A. Malaysia has not previously taken on GP obligations in its FTAs. None of its bilateral FTAs contain a GP Chapter, and nor do ASEAN’s FTAs with Australia and New Zealand, China, Japan, Korea or India. For Viet Nam, VN-EU will contain GP obligations broadly comparable to those in Chapter 15 when it comes into force.58 It currently has no similar obligations with other countries. Article 15.5 provides that a “developing country Party” to the TPP may, with the agreement of other Parties, adopt transitional measures that allow it additional time to implement obligations under Chapter 15.59 These are to be listed Section J of that Party’s schedule. Malaysia, Viet Nam and Brunei are the only Parties to list such measures. Relative to other Parties, Malaysia and Viet Nam also list substantial exemptions and carve-outs from Chapter 15 elsewhere in their schedules. There are no substantial differences in the coverage of procuring entities of Malaysia and Viet Nam (listed in Sections A to C of the schedules) relative to other Parties, though both list detailed exclusions relating to procurements by their defence ministries and Viet Nam lists further exclusions for its Ministry of Public Security. Coverage of goods and services (listed in Sections D and E of the schedules) varies widely among the Parties. An empirical assessment of the flexibilities negotiated by Malaysia and Viet Nam relative to other Parties would require analysis of trade data for exempted goods and services and is beyond the scope of 58 See VN-EU Chapter 9 (Government Procurement). 59 Article 15.5.2 provides that there can be no transitional measures with respect to the MFN obligation in Article 15.4.1(b). 29 this report. Therefore the analysis below focuses on the following areas where Malaysia and Viet Nam have obtained differential treatment: • Value thresholds for procurements • Cross-cutting exclusions • Transitional measures MALAYSIA A Value thresholds for procurements A value threshold is the level below which GP obligations do not apply. The higher the threshold, the more procurements will be exempt from Chapter 15. Malaysia has negotiated extended phase-in arrangements for value thresholds for goods, services and construction services, second only in generosity to those of Viet Nam. These apply to Central Government Entities (listed in Section A of Malaysia’s schedule) and Other Entities covered by the Chapter (listed in Section C). The thresholds for Central Government Entities are illustrated in Figure 1 (goods and services) and Figure 2 (construction services). Malaysia’s thresholds for Other Entities are nearly identical.60 These phase-in periods will provide an advantage to domestic suppliers of goods and services for small to mid-range procurements, but for procurements over the thresholds Malaysia will be subject to the obligations in Chapter 15. The most pronounced impact will be with regard to government construction projects, where the transitional thresholds are most generous. For projects up to the value threshold Malaysia will not be obliged to accord suppliers of other Parties the protections set out in Chapter 15. This will advantage domestic bidders. Cross-cutting exclusions – Section G Malaysia’s list of cross-cutting exclusions is among the most extensive of any Party. The list suggests an intention on Malaysia’ part to ensure it can continue to determine its own GP practices with respect to matters central to its economic and social development. 60 For Malaysia’s value thresholds see Annex 15-A – Malaysia – 1. 30 The most significant are for Public Private Partnership (PPP) contractual arrangements including Build-Operate-Transfer (BOT) and public work concessions, and for Bumiputera suppliers. 61 The Ninth Malaysia Plan (2006) 62 and Tenth Malaysia Plan (2010) 63 established PPPs as Malaysia’s preferred funding model for public works projects. Dozens of large-scale PPP contracts have been let over the past decade, covering roads, rail, mass transit, power stations, educational institutions and other developments.64 One study puts the market capitalisation of Malaysian firms involved in PPPs at RM 234 billion (USD 56.4 billion) by the end of 2012.65 The Eleventh Malaysia Plan (2016)66 extended the use of PPPs into areas of social policy. The exemption for PPPs ensures domestic Malaysian suppliers will enjoy continued advantages in competing for these projects. Section G also includes measures promoting participation by Bumiputera (ethnic Malay) businesses in procurements in line with Malaysia’s domestic affirmative action policies in favour of ethnic Malay businesses and entrepreneurs. It provides for 30 per cent of the total annual value of covered construction projects to be set aside for Bumiputera companies. It also sets out a sliding scale of price preferences for Bumiputera companies that produce goods themselves or provide goods and services originating in another Party or a non-Party. 67 These provisions will advantage eligible domestic businesses over competitors from other Parties. Malaysia is also the only Party to provide exemptions for procurement in relation to rural development programs in remote areas and for poverty eradication programs.68 61 See Annex 15-A – Malaysia – 17. 62 Government of Malaysia, Economic Planning Unit (2006) Ninth Malaysia Plan (2006 – 2010) Accessed at http://www.epu.gov.my/epu-theme/rm9/html/english.htm 63 Government of Malaysia, Economic Planning Unit (2010) Tenth Malaysia Plan (2011 – 2015) Accessed at https://www.pmo.gov.my/dokumenattached/RMK/RMK10_Eds.pdf 64 PriceWaterhouseCoopers (2012) Public-Private Partnerships in Malaysia, p. 4ff. Accessed at http://www.pwc.com/my/en/assets/services/ppp-projects-in-malaysia.pdf 65 Jones, D. S. (2015) Malaysia’s Public-Private Partnerships in the Trans-Pacific Partnership Agreement: Alternatives to Complete Carve-Out, Institute for Democracy and Economic Affairs, Policy IDEAS No. 20, June 2015, p. 4. 66 Government of Malaysia, Economic Planning Unit (2016) Tenth Malaysia Plan (2016 – 2020). Accessed at http://www.micci.com/downloads/11MP.pdf 67 Annex 15-A – Malaysia – 17 to 18. 68 Ibid. 31 Transitional measures – Section J Malaysia uses transitional measures under Article 15.5 to further soften the initial impact of Chapter 15. Key measures are: • An exemption for any procurement funded by an economic stimulus package in response to a severe nationwide economic crisis within 25 years from entry into force of the TPP for Malaysia. 69 • A three-year delay following entry into force to implement Article 15.19 (Domestic Review), which mandates detailed processes for handling complaints by suppliers. During this period Malaysia may use its existing processes, potentially reducing foreign suppliers’ access to redress for grievances.70 • For five years following entry into force Malaysia is exempt from dispute settlement under Chapter 28 with respect to its obligations under Chapter 15.71 • For 12 years following entry into force Malaysia is exempt from applying Article 15.4.6 on offsets. During this period Malaysia may impose conditions on procurement aimed at encouraging domestic development, such as local content requirements and licensing or transfer of technology, in accordance with a sliding scale of annual contract values.72 VIET NAM A Value thresholds for procurements Viet Nam has the most generous phase-in periods for value thresholds on procurements of goods and services, and the second most generous for construction services. 73 These are set out in Figures 2 and 3. As with Malaysia, these phase-in periods will provide an advantage to domestic suppliers of goods and services for small to mid-range procurements, and to 69 Section J, paragraph 2. Annex 15-A – Malaysia – 24. 70 Section J, paragraph 3. Annex 15-A – Malaysia – 24. 71 Section J, paragraph 4. Annex 15-A – Malaysia – 25. 72 Section J, paragraph 5. Annex 15-A – Malaysia – 25. 73 For Viet Nam’s value thresholds see Annex 15-A – Viet Nam – 1. 32 domestic construction firms. For procurements over the thresholds Viet Nam will be subject to the obligations in Chapter 15, except to extent that exemptions in Section G (see below) apply. Cross-cutting exclusions – Section G Viet Nam lists a range of exemptions in Section G. They are less far-reaching than those of Malaysia and there is no obvious common theme. Similar to Malaysia, Viet Nam lists Build-Operate-Transfer and public works concession contracts.74 Viet Nam has promoted BOT arrangements as a preferred method of partnering with the private sector (including foreign investors) on infrastructure projects. To this end it has pursued legislative reform and provided tax incentives. 75 By exempting contracts of this nature Viet Nam has retained discretion over its procurement practices in this area. Alone among the Parties, Viet Nam stipulates that the market access arrangements established under Section G of its schedule will only apply to original signatories of the TPP. 76 It may therefore seek to negotiate alternative arrangements with any country that seeks to join subsequently, including Indonesia. Transitional measures – Section J Viet Nam lists a package of transitional measures that exempt it from various procedural obligations pending implementation of its ‘e -procurement’ system. These are: • An exemption from the requirement in Article 15.7.2 that notices of intended procurement accessible electronically should be free of charge. 77 • An exemption from the requirements in Articles 15.7.3(g) and (h) that notices of intended procurement describe any conditions on participation and limits on the number of qualified suppliers to be invited to tender. 78 74 Section G, paragraph 1(a): Annex 15-A – Viet Nam – 34. 75 See International Business Publications (2015) Viet Nam: Business and Investment Opportunities Yearbook Volume 1: Strategic, Practical Information and Contracts, Washington DC. 76 Section G, paragraph 2(g): Annex 15-A – Viet Nam – 35. 77 Section J, paragraph 1: Annex 15-A – Viet Nam – 38. 78 Section J, paragraph 2: Annex 15-A – Viet Nam – 38. 33 • An exemption from the requirement in Article 15.14.3 to provide 40 days for final submission of tenders. Viet Nam may establish a period of not less than 25 days from publication of notice of intended procurement or invitation to tender. 79 • An exemption from the requirement in Article 15.16.3(f) that post-award information describe the circumstances justifying use of a limited tendering procedure. 80 In common with Malaysia, Viet Nam shall not be subject to dispute settlement under Chapter 28 with respect to its obligations under Chapter 15 for five years after entry into force.81 Viet Nam is also allowed to use offsets in any form on up to 40 per cent of the annual value of total covered procurement. This falls to 30 per cent after 10 years and is eliminated in the 26th year after entry into force.82 These allowances are more generous than those for Malaysia and will help Vietnamese suppliers adjust to greater competition from suppliers from other Parties. CONCLUSIONS FOR INDONESIA A There are several mechanisms and precedents that would be available to Indonesia with respect to Chapter 15. Like Malaysia Viet Nam and Brunei, it would be able to make use of the transitional measures provided for developing country Parties under Article 15.5. Subject to other Parties’ agreement t hese would enable it to phase in implementation of its obligations under Chapter 15 (except the MFN obligation in Article 15.4.1(b)), providing domestic suppliers time to adjust to greater competition. Indonesia could soften the impact further by seeking delayed application of Article 15.4.6 on offsets. If needed, it could also use transitional measures while it develops any necessary revisions to its GP processes and legal framework as Viet Nam has done. The length of any phase-in period would be a matter for negotiation among the Parties. More broadly, Indonesia could expect a degree of latitude to structure its obligations under Chapter 15 to help advance core economic and social development objectives. Malaysia and to a lesser extent Viet Nam have both done this. Both exclude their preferred contract types for capital-intensive public works 79 Section J, paragraph 3: Annex 15-A – Viet Nam – 38. 80 Section J, paragraph 4: Annex 15-A – Viet Nam – 39. 81 Section J, paragraph 6: Annex 15-A – Viet Nam – 39. 82 Section J, paragraph 8: Annex 15-A – Viet Nam – 39. 34 projects. Together with their high value thresholds for construction services, this enables them greater flexibility than otherwise to preference domestic suppliers if they wish. They are also the only two Parties to exclude procurement of essential food and energy goods from Chapter 15. Both list rice; Malaysia lists electrical energy and water while Viet Nam lists oil. 83 Indonesia could examine similar means to help ensure stable supply of basic products. 83 See Annex 15-A – Malaysia – 13; Annex 15-A – Viet Nam – 29. 35 Figure 2 36 Figure 3 37 STATE-OWNED ENTERPRISES S Chapter 17: State-Owned Enterprises and Designated Monopolies Annex IV: Non-Conforming Measures with respect to State-Owned Enterprises and Designated Monopolies Chapter 17 represents the most extensive attempt in any FTA to apply competitive disciplines to state-owned enterprises (SOEs). It is premised on the recognition that the activities of SOEs can distort markets significantly and diminish the value of commitments on trade in goods, trade in services and investment.84 There is no equivalent in Malaysia’s FTAs. Once in force, VN-EU will contain similar obligations for Viet Nam.85 The key provisions in Chapter 17 are: • Article 17.4 which requires Parties to ensure their SOEs accord non- discriminatory treatment to local and foreign suppliers and act in accordance with commercial considerations • Article 17.6 which prohibits Parties from causing adverse effects or injury to each others’ interests through provision of non-commercial assistance to an SOE. Article 17.6 applies to the SOE’s production and sale of goods, cross-border supply of services and supply of services in another Party through a covered investment in that Party. In addition Articles 17.7 and 17.8 define “adverse effects” and “injury” for the purposes of Article 17.6, and Article 17.10 imposes detailed transparency obligations on Parties with respect to their SOEs. However Chapter 17 is subject to multiple exceptions. In Annex 17-D Parties list provisions that will not apply to their sub-central (i.e. provincial or municipal-level) SOEs. All Parties list Articles 17.4 and 17.6, meaning these provisions do not apply to any sub-central SOEs among the TPP membership. In Annex IV all Parties except Singapore and Japan schedule their non- conforming activities for the purposes of Chapter 17. Many listings, including some by Malaysia and Viet Nam, are extremely broad and leave entire sectors or categories of SOE outside the scope of the Chapter. 84 See Willemyns, I. (2016) Disciplines on State-Owned Enterprises in TPP: Have Expectations Been Met? Leuven Centre for Global Governance Studies, Working Paper No. 168. 85 See VN-EU Chapter 9 (Government Procurement). 38 The following analysis includes flexibilities for Malaysia and Viet Nam in the Chapter text and relevant annexes. Commitments under Annex IV are set out in Figure 4 (Malaysia) and Figure 5 (Viet Nam). MALAYSIA A Phase-ins Malaysia has secured the following phase-in periods: • Under Article 17.2.5 Malaysia is not subject to dispute settlement under Chapter 28 for two years following entry into force with respect to non- commercial assistance provided to or by its sovereign wealth fund, Khazanah Nasional Berhad. • Article 17.10.1, requiring Parties to publish a list of its SOEs within six months of entry into force, will not apply to Malaysia for five years from entry into force. Within six months of entry into force Malaysia is to publish a list of its SOEs with annual revenue from commercial activities of more than 500 million SDRs in one of the three preceding years, and shall update it annually. • Under Article 17.13.5, for five years after entry into force Articles 17.4 and 17.6 will not apply to a Malaysian SOE with annual revenue from commercial activities of less than 500 million SDRs in any one of the three previous fiscal years. The latter two also apply to Viet Nam. Sub-central SOEs – Annex 17-D For Malaysia the following provisions do not apply to sub-central SOEs: • Article 17.4 (see p. 38 above) • Article 17.5.2, which requires Parties to ensure that any administrative body that regulates a SOE does so impartially. • Articles 17.6.1(a)-(c) and 17.6.2(a)-(c) (see p. 38 above) • Article 17.10, which sets out transparency requirements. 39 Annex 17-F Annex 17-F is specific to Malaysia. It provides that Chapter 17 does not apply to Permodalan Nasional Berhad, which invests in and administers unit trust funds for small Malay shareholders, and Lembaga Tabung Haji, a savings institution helping Muslims finance the Hajj pilgrimage. The Annex provides for partial application of Article 17.6 with respect to enterprises owned or controlled by these entities. Annex IV Malaysia’s commitments under Annex IV are summarised in Figure 4. Malaysia’s commitments relating to Bumiputera enterprises, enterprises located in Sabah and Sarawak, SMEs, PETRONAS and “Development Financial Institutions” reinforce commitments it has made elsewhere in the TPP, including its GP commitments in Annex 15-A and its financial services commitments in Annex III (see Figure 6). VIET NAM A Phase-ins Viet Nam has secured the following phase-in periods (which also apply to Malaysia): • Article 17.10.1, requiring Parties to publish a list of its SOEs within six months of entry into force, will not apply to Viet Nam for five years from entry into force. Within six months of entry into force Viet Nam is to publish a list of its SOEs with annual revenue from commercial activities of more than 500 million SDRs in one of the three preceding years, and shall update it annually. • Under Article 17.13.5, for five years after entry into force Articles 17.4 and 17.6 will not apply to a Vietnamese SOE with annual revenue from commercial activities of less than 500 million SDRs in any one of the three previous fiscal years. 40 Sub-central SOEs – Annex 17-D For Viet Nam the following provisions do not apply to sub-central SOEs: • Article 17.4 (see p. 38 above) • Article 17.5.2 (see p. 39 above for Malaysia) • Articles 17.6.1(a)-(c) and 17.6.2(a)-(c) (see p. 38 above) • Article 17.10 (see p. 39 above for Malaysia). Annex IV The exemptions listed by Viet Nam in its Annex IV schedule are broader than Malaysia’s, and among the broadest of any Party. Figure 5 summarises those with greatest economic and political significance. As with Malaysia, there are substantial links between Viet Nam’s commitments under Annex IV and its commitments under other parts of the TPP. The most prominent of these are set out in Figure 7. CONCLUSIONS FOR INDONESIA A Given the central role of SOEs in Indonesia’s economy, it would need phase- in periods and substantial exemptions in Annex IV in order to comply with Chapter 17, particularly the key obligations in Articles 17.4 and 17.6. Any such flexibilities would be subject to agreement with the other Parties. Indonesia could expect similar phase-ins to Malaysia and Viet Nam with respect to Articles 17.10 and 17.13.5, should it need them. With respect to Annex IV, Indonesia would need to determine its desired exemptions by reference to its policy priorities at the time of accession, and an assessment of which of its SOEs undertake activities whose competitive impact could be caught by the definitions of “adverse effects” and “injury” in Articles 17.7 and 17.8. There is precedent in the schedules of Malaysia and Viet Nam for broad exemptions that enable SOEs to contribute towards a key policy objective (for example provincial development for Malaysia or price controls for Viet Nam) or that exempt an important SOE from obligations that would otherwise constrain its activities (for example PETRONAS for Malaysia or Viet Nam Electricity for Viet Nam). Both approaches are relevant for Indonesia. 41 Figure 4 42 Figure 5 43 COMPLEMENTARY COMMITMENTS S Disciplines on investment, cross-border trade in services, financial services, government procurement and state-owned enterprises can overlap, and commitments in two or more of these areas can reinforce each other. For example a SOE that is exempt from competitive obligations under Chapter 17 will typically have greater capacity to serve a nominated policy objective if its procurement activities are not subject to Chapter 15. Similarly, that SOE may be better able to serve state aims if the sector in which it operates is excluded from investment obligations by virtue of an NCM in Annex I or Annex II. Figures 6 and 7 provide examples of where Malaysia and Viet Nam have structured their commitments under multiple parts of the Agreement to help achieve a particular policy priority or objective. The tables are not exhaustive. They focus on the most economically or politically significant policy areas where this has occurred and, to avoid speculative comment, they include only the clearest examples of commitments that work in this way. Nonetheless they illustrate areas where the two countries have been able to exclude activities from a range of competitive disciplines and preserve substantial latitude for domestic policy and regulation. Indonesia has not previously taken on substantive obligations regarding SOEs or government procurement. In addition the TPP sets relatively stringent standards in investment, cross-border trade in services and financial services. Indonesia would therefore benefit from examining closely how it could structure commitments that are mutually reinforcing across the Agreement. All Indonesia’s commitments will be a matter for negotiation, but it will be better placed if it has a strategy for preserving domestic policy flexibility in the areas of most need through all means available under the Agreement. 44 Figure 6 45 Figure 7 46 ELECTRONIC COMMERCE E Chapter 14: Electronic Commerce Chapter 14 contains a range of obligations that Malaysia and Viet Nam have not previously taken on. Among the most significant of these are Article 14.13 (Location of Computing Facilities) which prohibits Parties from requiring covered investors, investments or service suppliers to locate computing facilities in their territory except for legitimate public policy purposes; and Article 14.17 (Source Code) which prohibits requiring the transfer of source code as a condition for the import or sale of software. Malaysia and Viet Nam have previously taken on several other significant obligations in Chapter 14 through AANZFTA and/or MAFTA. These include the prohibition in Article 14.3 (Customs Duties) against imposing customs duties on electronic transmissions between the Parties, 86 the requirement in Article 14.6 (Electronic Authentication and Electronic Signatures) to enable parties to a transaction to determine electronic authentication methods,87 and the requirements in Article 14.7 (Online Consumer Protections) and Article 14.8 (Personal Information Protection) to adopt laws promoting confidence in electronic commerce.88 Once in force, VN-EU will contain basic e-commerce obligations for Viet Nam.89 Malaysia and Viet Nam have flexibilities as to implementation of some obligations under Chapter 14, but no exclusions from the obligations themselves. This reflects common practice in the Electronic Commerce chapters of FTAs, which have often had to accommodate parties that require further domestic legislative action in order to implement their commitments. 90 86 MAFTA Article 15.4. 87 AANZFTA Chapter 10 Article 5, MAFTA Article 15.6. 88 AANZFTA Chapter 10 Article 7, MAFTA Article 15.8. 89 VN-EU Chapter 8 (Trade in Services, Investment and E-Commerce) 90 AANZFTA Chapter 10, Article 6.2 (regarding online consumer protection) is an example to which Malaysia and Viet Nam are parties. 47 MALAYSIA A Dispute settlement – Article 14.18.1 With regard to existing measures, Malaysia is not subject to dispute settlement under Chapter 28 regarding its obligations under Articles 14.4 (Non-Discriminatory Treatment of Digital Products) and 14.11 (Cross-Border Transfer of Information by Electronic Means) for two years after the date of entry into force for it. VIET NAM A Dispute settlement – Article 14.18.2 For existing measures, Viet Nam is not subject to dispute settlement under Chapter 28 with respect to its obligations under Articles 14.4 (Non- Discriminatory Treatment of Digital Products), 14.11 (Cross-Border Transfer of Information by Electronic Means) and 14.13 (Location of Computing Facilities) for two years after the date of entry into force for it. No countries apart from Malaysia and Viet Nam have flexibilities under Chapter 14 with respect to the application of dispute settlement. Personal information protection – Article 14.8 Article 14.8 requires Parties to adopt or maintain a legal framework that provides for the protection of personal information of users of electronic commerce. It also contains non-mandatory provisions on adopting non- discriminatory practices in protecting electronic commerce users from personal information protection violations, publishing information on personal information protections for electronic commerce users, and encouraging development of mechanisms to promote compatibility of relevant laws. Viet Nam (and Brunei) are not required to apply Article 14.8 before they have implemented their domestic legal frameworks on protection of personal data of electronic commerce users. 48 CONCLUSIONS FOR INDONESIA A There are relatively few flexibilities for Malaysia or Viet Nam in Chapter 14, and none that provide permanent exemption from an obligation. Given Indonesia has not previously taken on such comprehensive obligations with respect to electronic commerce it may wish to seek longer implementation periods in some areas, as have Viet Nam, Malaysia and Brunei. The Parties would consider any such proposals case-by-case, and would be least likely to agree to proposals that would weaken key protections for suppliers and investors such as those in Article 14.13 and 14.17. 49 INTELLECTUAL PROPERTY Y Chapter 18: Intellectual Property Chapter 18 of the TPP contains the most comprehensive set of intellectual property (IP) obligations that Malaysia or Viet Nam has taken on. It includes detailed and wide-ranging disciplines on trademarks, geographical indications (GIs), patents and undisclosed test or other data (including specific provisions on agricultural chemical products, pharmaceutical products and biologics), copyright protection and enforcement. The provisions relating to pharmaceuticals proved most controversial and difficult to conclude during negotiations. Once in force, VN-EU will provide the closest point of comparison for Viet Nam. It contains broadly comparable provisions on trademark protection (with a particular focus on GIs reflecting the EU’s interests in this issue ), on copyright and on enforcement. 91 Viet Nam has also taken on robust IP obligations in VN-US,92 particularly on trademark and patent protection and enforcement. Malaysia has not taken on comparable obligations in any of its bilateral FTAs to date. Of ASEAN’s FTAs, only AANZFTA contains IP disciplines and these are limited. In its agreements with China, 93 Japan, 94 India 95 and Korea, 96 ASEAN commits only to cooperation and/or consultations on IP issues. Given their relative lack of experience in implementing obligations of this kind, the primary flexibilities applying to Malaysia and Viet Nam under Chapter 18 are phase-in periods for certain obligations. The two countries may also apply specific arrangements with respect to pharmaceuticals, including biologics, and they reached separate understandings with the US on GIs. 91 See VN-EU Chapter 12. 92 See VN-US Chapter II. 93 ASEAN-China Framework Agreement, Article 7.2. 94 ASEAN-Japan Framework Agreement, Article 5.1(3). 95 ASEAN-India Framework Agreement, Article 3.3(d). 96 ASEAN-Korea Framework Agreement, Article 3.1(j); Annex paragraph 10. 50 MALAYSIA A Transition Periods – Article 18.83.4(b) Along with Viet Nam, Brunei and Peru, Malaysia has the benefit of extended transition periods that give it additional time to implement a range of provisions after the TPP enters into force for it. The issues covered and time extensions are listed under Chapter 18 in Appendix B to this report.97 Pharmaceuticals (including biologics) and public health Malaysia has sought to balance protection of pharmaceutical patents against its public health needs in several ways. The first is by seeking to ensure rapid access to new medicines developed in other TPP Parties. Under Annex 18-C, which is specific to it, Malaysia may require an applicant for marketing approval for certain pharmaceutical products to commence the process of obtaining approval in Malaysia within 18 months of that product first being granted approval in any country. 98 This applies to: • a new pharmaceutical product; • a new variant of a previously approved pharmaceutical product; and • a new pharmaceutical product that is or contains a biologic. If the applicant does not do so, the protections for undisclosed test or other data in Articles 18.50 and 18.51 no longer apply. Therefore Malaysia would no longer be obliged to protect any such data that it may have required the applicant to submit as a condition of being granted marketing approval for that product, or to prevent third parties from marketing an equivalent product on the basis of approval received in another country. This would enable Malaysian firms to manufacture and sell the product in Malaysia under its own branding. In this way Annex 18-C provides Malaysia with two means of obtaining prompt access to new medicines: by encouraging the rights holder to commence obtaining marketing approval in Malaysia promptly; and if it does not, reserving Malaysia’s right to facilitate marketing of t he same medicine by another firm. 97 See page B-17. 98 Annex 18-C, paragraph 1. 51 The second is by affirming Malaysia’s rights to grant compulsory licenses for pharmaceutical products, consistent with its WTO obligations. Malaysia does this through a side letter with the U.S. affirming that it may apply Article 31 of TRIPS, as well as the Declaration on TRIPS and Public Health99 and any waiver to any provision of TRIPS granted by WTO Members under the Declaration, to the protection of undisclosed test or other data under Articles 18.50 and 18.51, regardless of the patent status of the product in question. Article 31 of TRIPS sets out the rights and obligations of WTO Members relating to the issuance of compulsory licenses, including the right to waive some of the requirements for granting a compulsory license in cases of national emergency or extreme urgency. The Declaration confirms that WTO Members are free to determine the grounds for granting compulsory licenses and that public health crises such as epidemics can constitute cases of national emergency or extreme urgency. The side letter does not grant Malaysia additional legal rights with respect to U.S-made pharmaceuticals to those enjoyed by other TPP Parties. Article 18.41 provides that nothing in Chapter 18 limits a Party’s rights and obligations under TRIPS Article 31, while Article 18.50.3 provides that a Party may take measures to protect public health in accordance with the Declaration. The letter merely affirms Malaysia’s rights in this regard. Geographical indications and international agreements – Article 18.36 A separate side letter between Malaysia and the U.S. confirms that both will refrain from acts which would defeat the object and purpose of the TPP, including Article 18.36, until the TPP enters into force or they express an intention not to join it. Article 18.36 provides for the protection of GIs that a Party protects or recognises pursuant to an international agreement but for which it does not have in place the domestic protection or recognition processes prescribed by Articles 18.31 or 18.32. The letter provides no additional legal right to either country. Under customary international law all signatories to a treaty have an obligation to refrain from actions that would undermine the treaty in the period between signature and ratification. 99 Doha Declaration on the TRIPS Agreement and Public Health , Doha, 14 November 2001. 52 VIET NAM A Transition periods – Article 18.83(f) Along with Malaysia, Brunei and Peru, Viet Nam has the benefit of extended periods to implement a range of provisions in Chapter 18. Viet Nam’s list of provisions is the most extensive of the four Parties. The issues covered are listed in under Chapter 18 in the Appendix to this report.100 Pharmaceuticals, including biologics Through a side letter Viet Nam and the U.S. agree that Viet Nam will apply Article 9.6 of VN-US to any new pharmaceutical product that is, or contains, a biologic. The effect of this letter is to reduce the amount of time that Viet Nam is required to retain confidentiality over test or other data submitted for the purposes of obtaining marketing approval. Under Article 18.51.1 the relevant time periods are at least eight years from the date of first marketing approval in that Party,101 or at least five years subject to the Party taking other measures to deliver a comparable outcome in the market. 102 Article 9.6 of VN-US provides for a period of not less than five years in normal circumstances. The letter applies to U.S. applicants only. Through another side letter Viet Nam has provided U.S. pharmaceutical companies the right to establish entities in Viet Nam to import pharmaceuticals and sell them to officially authorised distributors within Viet Nam. The companies may also build their own storage facilities, advertise to healthcare practitioners and perform clinical testing within Viet Nam. This provides U.S. pharmaceutical firms with more favourable conditions in Viet Nam than firms from other TPP Parties, but also provides the Vietnamese public with readier access to drugs protected by U.S. patents. Geographical indications and international agreements – Article 18.36 Similar to Malaysia, Viet Nam and the U.S. have confirmed through a side letter that both will refrain from acts which would defeat the object and 100 See page B-17. 101 Article 18.51.1(a). 102 Article 18.51.1(b)(i) to (iii). 53 purpose of the TPP, including Article 18.36, until the TPP enters into force for each country. The letter provides no additional legal right to Viet Nam or the United States. Under customary international law all countries have an obligation to refrain from actions that would undermine a treaty that they have signed but not yet ratified. CONCLUSIONS FOR INDONESIA A Aspects of Chapter 18 are likely to be challenging to implement for Indonesia. However, it would be able to seek phase-in periods under Article 18.83.4 for provisions it could not implement immediately, as Malaysia, Viet Nam, Brunei, Peru and Mexico have done. The scope and duration of these phase- ins would need to be agreed by the Parties. At a minimum Indonesia could expect a phase-in for any provision for which domestic legislative action or ratification of an international treaty is required. Should it wish, Indonesia would also be able to pursue public health policy objectives such as access to medicines preparedness for public health emergencies in similar fashion to Malaysia and Viet Nam. The arrangements reached by those countries reflect the understandings reached by WTO Members that patent protection should not limit Parties’ ability to address legitimate public health concerns. Should Indonesia pursue its own individual arrangements its primary negotiating partner will be the U.S. which is the largest holder of pharmaceutical patents among the TPP Parties. 54 APPENDIX A: NOTE ON SERVICES AND INVESTMENT COMMITMENTS The structure of the services and investment obligations in Chapters 9 (Investment) and 10 (Cross-Border Trade in Services) is nuanced. This note provides a concise explanation of how the chapters work together and their relationship to Chapter 11 (Financial Services) and Chapter 12 (Temporary Entry of Business Persons). • Chapter 9 applies to the supply of services in the territory of a Party by a covered investment, as well as investors of another Party and covered investments. This includes supply of services through GATS Mode 3 (commercial presence). Articles 10.5 (Market Access), 10.8 (Domestic Regulation) and 10.11 (Transparency) also apply to GATS Mode 3. • Chapter 10 applies to the supply of services through GATS Modes 1 (cross-border supply), 2 (consumption abroad), and 4 (natural persons). • Each Party schedules its specific commitments under Chapters 9 and 10 in Annexes I and II. Annex I contains existing non-conforming measures (NCMs). Annex II lists sectors or activities in which the Party reserves the right to maintain existing NCMs or introduce more restrictive measures. • Parties can decide whether to list many of their services-related commitments against obligations in Chapter 9 or Chapter 10, or both. The use of the negative list approach is a key factor as it may prompt a Party to take a conservative approach and list against both sets iof obligations to ensure policy flexibility. The choice is most significant for Annex II NCMs, where exemptions have the potential to cover broad areas of policy and legislative activity. • Chapter 12 (Temporary Entry of Business Persons) contains Parties’ commitments on entry requirements and work permits, through which they will implement their commitments on the supply of services through GATS Mode 4 as well as entry for other purposes under the Agreement. There are no obligations of non-discrimination in Chapter 12 and Parties are free to maintain their own immigration measures. A-1 • Chapter 11 (Financial Services) covers cross-border trade in financial services, financial institutions and investors and their investments in financial institutions. There is minimal overlap with Chapters 9 and 10. Parties list their financial services commitments in Annex III. Annex III contains existing NCMs as well as sectors and activities, effectively combining the functions of Annexes I and II. A-2 APPENDIX B TABLE OF DIFFERENTIAL TREATMENT FOR MALAYSIA AND VIETNAM This table lists all instances of differential treatment, both more flexible and more onerous, applicable to Malaysia and Vietnam in the chapter text and side instruments of the TPP Agreement. It does not assess the commitments made by Malaysia and Viet Nam in Annexes I – IV of the Agreement, or in other parts of the Agreement where each Party has attached a separate schedule of its commitments. Those within the scope of this report are covered above. COUNTRY PROVISION BASIC OBLIGATION COUNTRY-SPECIFIC FLEXIBILITY (where applicable) CHAPTER 2: National Treatment and Market Access for Goods A Party shall not require a person of another Party to Does not apply to importation or distribution of rice and Malaysia 2.10.8 establish or maintain a contractual or other relationship paddy. with a local distributor as a condition of importation. A Party shall not apply prohibitions or restrictions on Does not apply to the goods listed by Vietnam in Annex Viet Nam 2.11.2 the import of used goods to remanufactured goods. 2-B (see below). Side letters Viet Nam and Malaysia shall recognise Tennessee Whiskey and Bourbon Whiskey as distinctive products Viet Nam, with US re: of the US and not permit sale of any product with these Malaysia distinctive names unless made in the US. Does not create any right products relating to a trade mark or geographical indication. Side letter with As above, for Canadian Whisky and Canadian Rye Canada re: Whisky. Viet Nam distinctive products B-1 Side letters US and Canada intend to facilitate training and with US and education for Vietnamese producers seeking trademark or similar protection in the US or Canada for products Canada re: Viet Nam that are recognised as geographical indications in Viet training for Nam. Vietnamese producers Side letter with Malaysia shall not apply any quantitative limit on imports of originating motor vehicles from Canada, or Malaysia Canada re: impose any new or additional charge on such imports. motor vehicles (See also Chapter 5, below.) Malaysia shall not apply any quantitative limit on imports of originating motor vehicles from the US, or impose any new or additional charge on such imports. Malaysia will consider if compliance with US safety and emissions standards is acceptable as an alternative to complying with Malaysian standards. Side letter with Starting 1 January 2021 Malaysia shall not provide Malaysia US re: motor excise tax credits for motor vehicles based on export vehicles performance, local content or local value added. Any new excise duty by Malaysia will be introduced transparently and in accordance with Malaysia’s WTO commitments. Malaysia shall publish a draft of any such measure and give opportunity for comment. See also Chapter 5, below. B-2 Side letter with TPP not to affect operation of Article 3.13 of the Chile- Malaysia Chile re: wine Malaysia FTA which affirms Malaysia’s recognition of ‘Chilean pisco’ as a GI under TRIPS Article 22. and spirits GIs Side letter with Affirms Malaysia has registered Pisco as a GI under its Malaysia Geographical Indication Act 2000. Peru re: Pisco ANNEX 2-A: National Treatment and Import and Export Restrictions A Party shall not restrict or prohibit imports or exports Does not apply to the products listed by Viet Nam in its 2.10.1 except in accordance with GATT Article XI. entry in Annex 2-A: viz. some or all manufactured Incorporates GATT Article XI into the TPP. goods in the following sectors: motor vehicles, engines Viet Nam and parts; IT; electrical; timber; furniture; medical Affirmation of Parties’ understanding of prohibitions equipment; refrigeration; bicycles and tricycles; and 2.10.2 household goods made from porcelain, rubber, plastic, contained in GATT Article XI. glass, clay, metal and resin. ANNEX 2-B: Remanufactured Goods A Party shall not apply prohibitions or restrictions on Annex provides that 2.11.2 does not apply to Viet Nam the import of used goods to remanufactured goods. for three years after entry into force of TPP for Viet Nam. Thereafter, applies to measures of Viet Nam Viet Nam 2.11.2 except in respect of imports of products listed by HS code in Table 2-B-1. Annex applies only to Viet Nam. ANNEX 2-C: Export Duties, Taxes or Other Charges No Party shall adopt or maintain any duty tax or other Paragraph 2 of the Annex permits Malaysia to maintain charge on goods for export except if maintained on that export duties on the goods, and at or below the rates, Malaysia 2.15 good when destined for domestic consumption (i.e. NT listed in Section 1 to the Annex. for exports). B-3 Paragraph 3 of the Annex sets out a phase-out schedule Viet Nam 2.15 As above for products listed by Viet Nam in Section 2 to the Annex. CHAPTER 3: Rules of Origin and Origin Procedures Malaysia, Each Party shall provide that an importer can make a Have up to five years after respective dates of entry into Vietnam claim for preferential tariff treatment based on force to implement 3.20.1 with respect to certification by 3.20.1 certification of origin completed by the exporter, the importer. (also Brunei, producer or importer. Mexico, Peru) CHAPTER 4: Textile and Apparel Goods Set out additional obligations for Viet Nam to monitor Side enterprises exporting textiles to US and Mexico and instruments provide certain information to their respective Viet Nam with US and authorities. Agreements differ slightly in their terms, Mexico under including additional arrangements with Mexico on items in the Short Supply List and babies’ garments. The Article 4.5 US side letter is subject to TPP dispute settlement. Malaysia to establish a monitoring mechanism, including registration of relevant enterprises, for export Side instrument of textiles and apparel goods to US. Malaysia to require Malaysia with US under relevant enterprises to keep records of production Article 4.5 capacity, staffing, export shipments etc. that can be verified by either country’s officials. Subject to TPP dispute settlement. B-4 CHAPTER 5: Customs Administration and Trade Facilitation For valuation of imported new motor vehicles, from 1 Side letters January 2021 Malaysia shall accept transaction values with Canada submitted by importers as per Agreement on Article VII of Malaysia and US re: the GATT. Canada and US intend to facilitate technical motor vehicles cooperation and capacity-building in areas of mutual interest in the automotive sector. Side letter with Malaysia and Mexico agree to establish an Agreement Mexico re: on Cooperation and Mutual Assistance in Customs Malaysia Matters to enter into force at time of TPP’s entry into customs force for Malaysia and Mexico respectively. administration CHAPTER 7: Sanitary and Phytosanitary Measures Nothing in Chapter 7 prevents a Party from adopting or This provision applies to all Parties. It was a key N/A 7.3.2 maintaining halal requirements for food and food demand for Malaysia and Brunei as the only Muslim- products in accordance with Islamic law. majority countries among the TPP Parties. Side letter with Viet Nam confirms no current import prohibition on offal imports from US, and all such products from US Viet Nam the US re: offal that comply with Viet Nam’s laws, including SPS, can imports be imported. Parties to consult at either’s request on implementation Side letter with by US of its final rule regarding inspection of imports of certain fish species. US confirms consideration of Viet Nam the US re: fish transitional period for implementing the rule. US will exports provide technical assistance to interested parties on the requirements of the final rule. B-5 CHAPTER 8: Technical Barriers to Trade Annex 8-A: Wine and Distilled Spirits No Party shall prohibit imports of wine purely because Malaysia is not required to apply paragraph 17 in a way of the use of certain words to describe varietal or other that would be inconsistent with its Regulation 18(1A) of characteristics. Does not apply to a Party that has the Food Regulations 1985 (which prohibits use on labels entered an agreement with other countries, no later than of words indicating quality, grading or superiority February 2003, not to use these terms. (This is directed except as approved by Malaysia’s competent at TPP Parties that have entered into treaties with the authorities). Malaysia Paragraph 17 EU on trade in wine products which contain restrictions on the use of “traditional expressions or complementary quality mentions”. An example is the EU-Chile Agreement on Trade in Wine, which is Annex V to the Chile-European Community Association Agreement of 2003.) ANNEX 8-C – Pharmaceuticals Parties that require periodic re-authorisation of Viet Nam may comply by allowing applications for re- pharmaceutical products are to allow a product that has authorisation within the longer of 12 months prior to Paragraph Viet Nam previously received marketing authorisation to remain expiry of authorisation, or a period 6 months longer 12(d) on its market pending re-authorisation, unless the Party than the period for granting re-authorisation stipulated identifies a significant health or safety concern. in Viet Nam’s relevant domestic rules. Parties shall review applications for authorisation in a This obligation does not apply to Viet Nam until 1 format consistent with principles in the International January 2019. Viet Nam Paragraph 16 Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use Common Technical Document (CTD). B-6 CHAPTER 9: Investment Prohibition against expropriation or nationalisation of a Any measure for direct expropriation of land shall be for covered investment, except if for a public purpose [as purposes set out in the Land Acquisition Act 1960, Land well as in a non-discriminatory manner, on payment of Acquisition Ordnance 1950 of Sabah and the Land Code compensation and in accordance with due process – 1958 of Sarawak. Malaysia 9.8.1(a) paragraphs (b)-(d)]. This potentially broad. Section 3 of the Land Acquisition Act 1960 permits expropriation for mining, residential, agricultural, recreational, commercial or industrial purposes, as well as for “any public purpose”. Obligations relating to NT, MFN, performance Annex 9-I applies (see below). requirements and Senior Management and Boards of Viet Nam 9.12.1(c) Directors) do not apply to an amendment to any NCM to the extent the amendment does not decrease the conformity of the measure with these obligations. ANNEX 9-C: Expropriation Relating to Land Prohibits expropriation or nationalisation except in the Any measure of direct expropriation of land shall be for circumstances set out in 9.8.1(a)-(d) (above). Establishes a purpose in accordance with applicable legislation and Viet Nam 9.8 the obligations of the expropriating Party with respect upon payment of compensation equivalent to market to compensation for the investor. value, “while recognising the applicable domestic legislation”. ANNEX 9-I: Non-Conforming Measures Ratchet Mechanism Obligation to accord NT to investors and covered For three years after entry into force for Viet Nam: investments of other TPP Parties with respect to Viet Nam 9.4 establishment, acquisition, expansion, management, (a) Articles 9.4, 9.5, 9.10 and 9.11 do not apply to an conduct, operation and sale or other disposition. amendment to an NCM to the extent it does not B-7 Obligation to accord MFN, on same terms as for decrease the conformity of the NCM with these 9.5 national treatment. Articles. Prohibition against placing performance requirements, including domestic content requirements and export (b) Viet Nam shall not withdraw a right or benefit 9.10 from an investor or covered investment, in performance, on investors or investments of TPP Parties or non-Parties (subject to exceptions 9.10.3 and 9.10.4). reliance on which any concrete action has been Prohibition against requiring an enterprise of a Party taken, through an amendment to an NCM 9.11 that is a covered investment appoint a senior manager which decreases its conformity with these of a particular nationality. Articles. Permits Parties to maintain NCMs in Annex I to the Agreement covering central and regional levels of (c) Viet Nam shall provide details of any 9.12.1(a) government. Articles 9.4, 9.5, 9.10 and 9.11 do not apply amendment to an NCM that would decrease its to NCMs at local government level. conformity, at least 90 days before making the amendment. ANNEX 9-J: Submission of a Claim to Arbitration Section B of Section B sets out the TPP’s Investor-State Dispute An investor may not submit an ISDS claim against Viet Chapter 9 Settlement (ISDS) mechanism. Nam if the investor has alleged a breach of Viet Nam’s Viet Nam obligations under Section A of Chapter 9 before a court (also Chile, (Investor-State or tribunal in Viet Nam. Mexico, Peru) Dispute Settlement) ANNEX 9-K: Submission of Certain Claims for Three Years After Entry Into Force Sets out the right of a claimant to submit a claim to For three years after entry into force for Malaysia, arbitration, and associated procedures. Malaysia is excluded from claims that it has breached a Malaysia 9.19 government procurement contract with a covered investment, below specified contract values for procurement of goods, services and construction. B-8 CHAPTER 10: Cross-Border Trade in Services Obligations on NT, MFN, market access and local For Viet Nam Annex 10-C (below) applies. presence shall not apply to an amendment to an NCM Viet Nam 10.7.1(c) to the extent the amendment does not decrease the conformity of the NCM with these obligations. ANNEX 10-B: Express Delivery Services Defines “express delivery services”, excluding air For Malaysia, excludes exclusive rights for collection transport services, services supplied in exercise of and delivery of letters by Pos Malaysia under applicable Malaysia, governmental authority, or maritime transport services. legislation. Paragraph 1 Viet Nam For Viet Nam, excludes reserved services set out in applicable legislation and domestic rules. No Party shall allow a monopoly provider of postal Does not apply until three years after entry into force for services to cross-subsidise its own or any other Viet Nam. During the three-year period, if a Party Vet Nam Paragraph 5 competitive supplier’s express delivery services with considers Viet Nam is allowing such cross-subsidisation revenue derived from monopoly postal services. it may request consultations. ANNEX 10-C: Non-Conforming Measures Ratchet Mechanism Obligation to accord NT to services and service For three years after entry into force for Viet Nam: 10.3 suppliers of other Parties. Applies to regional governments also (10.3.2). (a) Articles 10.3, 10.4, 10.5 and 10.6 do not apply to Obligation to accord MFN to services and service an amendment to an NCM to the extent it does 10.4 Viet Nam suppliers of other Parties. not decrease the conformity of the NCM with Sets out scope of market access for services and service these Articles. suppliers of other Parties. 10.5 (b) Viet Nam shall not withdraw a right or benefit from a service supplier of another Party, in B-9 Prohibits Parties from requiring a service supplier of reliance on which the supplier has taken 10.6 another Party from maintaining physical presence as a concrete action, through an amendment to an condition of supplying services in that Party. NCM which decreases its conformity with these Obligations on NT, MFN, market access and local Articles. presence shall not apply to an amendment to an NCM to the extent the amendment does not decrease the (c) Viet Nam shall provide details of any 10.7.1(c) conformity of the NCM with these obligations. amendment to an NCM that would decrease its conformity, at least 90 days before making the amendment. CHAPTER 11: Financial Services Obligations on NT, MFN, market access and Senior For Viet Nam Annex 11-C (below) applies. Management and Boards of Directors shall not apply to Viet Nam 11.10.1(c) an amendment to an NCM to the extent the amendment does not decrease the conformity of the NCM with these obligations. ANNEX 11-A: Cross-Border Trade Affirms that each Party shall accord NT to cross-border Malaysia lists insurance for maritime shipping, suppliers of another Party to supply the financial commercial aviation, space launching and freight, and services listed by each Party in Annex 11-A. goods in international transit; services related to Malaysia 11.6.1 insurance; and transfer of financial information, data and related software. Excludes supply of electronic payment services for payment card transactions. As above. Viet Nam lists insurance for international shipping and aviation and goods in international transit; services related to insurance; transfer of financial information, Viet Nam 11.6.1 data and related software; and advisory and auxiliary services to banking and financial services, to the extent these are permitted in future by Viet Nam. B-10 ANNEX 11-B: Specific Commitments Section D, Viet Nam shall allow issuance of debit or credit cards Viet Nam paragraph using international identifier numbers on terms no more restrictive than for domestic cards. 4(l)(ii) Side-letters Nothing in Section D (Electronic Card Payment with Australia, Services) of Annex 11-B restricts Viet Nam’s right to route cross-border supply of electronic payment services Brunei, through a gateway facility licensed by the State Bank of Canada, Japan, Vietnam, subject to certain conditions. Letters differ Mexico, slightly in their respective terms. Viet Nam Malaysia, New Zealand and US re electronic payment services ANNEX 11-C: Non-Conforming Measures Ratchet Mechanism Obligation to accord NT with respect to investments in For three years after entry into force for Viet Nam: 11.3 financial institutions to investors, financial institutions and investors in financial institutions. (a) Articles 11.3, 11.4, 11.5 and 11.9 shall not apply Obligation to accord MFN to investors, financial to an amendment to an NCM to the extent the 11.4 institutions, investors in financial institutions and cross- amendment does not decrease the NCM’s Viet Nam conformity with these Articles. border financial service suppliers. Sets out scope of market access for financial institutions and investors seeking to establish financial institutions (b) Viet Nam will not withdraw a right or benefit 11.5 from a financial institution or cross-border in a Party. financial service supplier of another Party, or B-11 Prohibition against requiring financial institutions of investors or investments in financial institutions another Party to appoint senior managers of particular in Viet Nam, in reliance on which concrete 11.9 nationality, or to require a majority of an institution’s action has been taken, through an amendment Board to be nationals of that Party. to an NCM which decreases its conformity. See above re Chapter 11. 11.10.1(c) (c) Vet Nam will provide details of any such amendment at least 90 days before making it. CHAPTER 12: Temporary Entry of Business Persons In its entry to Annex 12-A Malaysia excludes legal Malaysia to allow Australian lawyers to practice in Side letter with services from the scope of its commitments to permit Malaysia for up to 12 months or on a fly-in fly-out basis Malaysia Australia re: temporary entry to intra-corporate transferees, for up to 60 days per year, as part of the upcoming legal services contractual service suppliers and independent review of the Malaysia-Australia FTA (MAFTA). professionals. CHAPTER 13 – Telecommunications Parties shall ensure that service suppliers of another Closed user group networks carrying out voice and data Party can connect their telecoms circuits with public telecoms between their members on a non-commercial telecoms networks or with circuits owned by another basis can only connect with each other with approval Viet Nam 13.4.2(c) enterprise. from the regulator. Viet Nam shall give reasons for denial of an application. Viet Nam shall review this rule within two years entry to force of the TPP. Obligation to ensure suppliers of public telecoms Applies only to commercial mobile services until Malaysia 13.5.4 services provide number portability. Malaysia determines it is economically feasible to apply it to fixed services. As above Will apply to fixed services when Viet Nam determines it is economically and technically feasible. Viet Nam to Viet Nam 13.5.4 review within four years of entry into force for it. Will apply to Viet Nam for commercial mobile services no later than 2020. B-12 Obligation to ensure non-discriminatory access to Does not apply to blocks of numbers allocated before Viet Nam 13.5.5 phone numbers for suppliers of public telecoms services entry into force of TPP. of other Parties. Obligations to ensure any major supplier who controls Co-location for landing stations owned or controlled by international submarine cable landing stations in the Viet Nam’s major supplier excludes physical co- Viet Nam 13.15 Party’s territory provides access to public telecoms location. suppliers of another Party in accordance with Articles 13.11, 13.12 and 13.13. Obligation to ensure telecoms regulatory body separate Viet Nam’s regulatory represents the government as from any supplier of public telecoms services. Regulator owner of certain suppliers. Viet Nam will ensure Viet Nam 13.16.1 not to hold financial interest or have management role regulatory actions with respect to those suppliers do not in any supplier of public telecoms. materially disadvantage any competitor. When a Party’s telecoms regulator seeks input for a Viet Nam may comply by responding on request. Viet Nam 13.22.1(e) proposal, it shall respond to all significant and relevant issues raised in comments received. CHAPTER 14: Electronic Commerce Sets out requirements for the protection of personal Viet Nam not required to implement Article before it Viet Nam information of the users of E-commerce including establishes domestic legal framework for protecting 14.8 (also Brunei) publication of measures to protect such information. personal data of E-commerce users. Encourages efforts to promote compatibility of regimes. For existing measures, Malaysia not subject to dispute settlement with respect to Articles 14.4 (Non- Malaysia 14.18.1 Discriminatory Treatment of Digital Products) and 14.11 (Cross-Border Transfer of Information by Electronic Means) for two years after entry force for it. For existing measures, Viet Nam not subject to dispute settlement with respect to Articles 14.4, 14.11 and 14.13 Vietnam 14.18.2 (Location of Computing Facilities) for two years after entry into force for it. B-13 CHAPTER 15: Government Procurement A developing country Party may agree with the other Parties to maintain certain transitional measures during a transitional period. These are to be listed in the Party’s schedule to Annex 15-A. They can include: • a price preference program • phased-in addition of specific entities or sectors Malaysia, • a threshold above the permanent threshold. Viet Nam (also other 15.5 Parties may also agree to a developing country Party ‘developing delaying application of any obligation in Chapter 15 country Parties’) except Article 15.4.1(b) (MFN and NT). Transition periods can be further extended by agreement of the Parties once agreement is in force. Malaysia, Viet Nam and Brunei have listed transitional measures. CHAPTER 17: State-Owned Enterprises and Designated Monopolies Sets out applicability of Chapter to a sovereign wealth Malaysia not subject to dispute settlement under the fund of a Party. TPP with respect to enterprises owned or controlled by Malaysia 17.2.5 its sovereign wealth fund, Khazanah Nasional Berhad, for two years after entry into force of the agreement. Sets out detailed requirements and processes for Does not apply to non-conforming activities of the State providing information on a Party’s SOEs, including Capital Investment Corporation for five years after entry Viet Nam 17.10 where a Party believes activities of an SOE are affecting into force at the latest, as per Annex IV – Viet Nam – 8. trade or investment between it and the Party concerned. B-14 Does not apply to non-conforming activities of SOEs owned/controlled by the Vietnamese Ministries of Defence or Public Security as per Annex IV – Viet Nam – 10. Obligation to publish a list of SOEs within six months of Does not apply until five years after entry into force for entry into force for that Party, and update list annually. each respectively. Malaysia, Within six months of entry into force for each 17.10.1 Viet Nam respectively, each shall provide a list of SOEs with annual revenue from commercial activities of more than SDR 500 million in one of the three preceding years, and update list annually. Obligations to publish designation of a monopoly or Does not apply to non-conforming activities by the 17.10.2, expansion of an existing monopoly, and provide financial institutions and funding entities listed in Viet Nam 17.10.3, information to another Party on request on an SOE that Annex IV – Viet Nam – 9. 17.10.4 the Party believes may be affecting trade and investment between the two countries. Establishes Committee on SOEs and Designated As per Viet Nam’s exception to Article 17.10 (above). Viet Nam 17.12 Monopolies Articles 17.4 (Non-discriminatory Treatment and Articles 17.4 and 17.6 (Non-commercial assistance) shall Commercial Consideration), 17.10 (Transparency) and not apply for five years after entry into force for these Malaysia, 17.12 (Committee on SOEs) not to apply to an SOE if its countries to an SOE whose revenue from commercial Viet Nam 17.13.5 revenue from commercial activities was below activities was below threshold levels calculated (also Brunei) threshold levels calculated according to Annex 17-A in according to Annex 17-A in any one of the three any one of the three previous fiscal years. previous fiscal years. B-15 ANNEX 17-D: Application to Sub-Central SOEs and Designated Monopolies The following do not apply to SOE or designated monopoly owned or controlled by a sub-central level of government: • Article 17.4 (Non-Discriminatory Treatment and Commercial Considerations) • Article 17.5.2 (Courts and Administrative Bodies) re administrative regulatory bodies established or maintained by a sub-central level Malaysia of government. • Article 17.6.1(a) and (b) (Non-Commercial Assistance) re production and sale of a good in competition with a like good produced and sold by a covered investment in Malaysia. • Article 17.6.1(b) and (c) (Non-Commercial Assistance) and Article 17.6.2(b) and (c) (Non- Commercial Assistance). • Article 17.10 (Transparency) Viet Nam As for Malaysia. ANNEX 17-F: Malaysia Provides that Permodalan Nasional Berhad (a trust fund for Malay citizens) and Lembaga Tabung Haji (which Malaysia manages savings for the Hajj pilgrimage) are exempt from most obligations in Chapter 17. B-16 CHAPTER 18: Intellectual Property Article 18.83 sets out transition periods for Malaysia has transition period for provisions relating to: implementing certain obligations for Malaysia, Viet Nam, Brunei, Mexico and Peru. • Acceding to international IP treaties (4 yrs post- EIF for Malaysia) • Registering sound marks as trade marks (3 yrs) • Patent term adjustment for unreasonable curtailment re: pharmaceuticals (4.5 yrs) Malaysia 18.83.4(b) • Biologics (5 yrs) • Marketing of pharmaceutical products (4.5 yrs) • Term of copyright protection for life-based works (2 yrs) • Border measures re: detention of confusingly similar trademark goods (4 yrs) • Protection of encrypted signals (4 yrs) As above Viet Nam has transition periods for provisions relating to: • Acceding to international IP treaties (2 or 3 yrs post-EIF for Viet Nam) • Registering sound marks as trade marks (3 yrs) • Patent term adjustment for unreasonable Viet Nam 18.83.4(f) granting authority delays re: pharmaceuticals, agricultural chemical products and other products (3 or 5 yrs)^ • Protection of undisclosed data for agricultural chemical products and pharmaceutical products (10 yrs)^^ • Biologics (10 yrs)^^ B-17 • Marketing of pharmaceutical products (3 yrs) • Term of copyright protection for life-based works (5 yrs) • Technological protection measures (3 yrs) • Rights Management Information (3 yrs) • Border measures re: export (3 yrs) • Border measures re: transit (2 yrs) • Criminal procedures and penalties re: various offences (3 yrs) • Trade secrets (3 yrs) • Protection of encrypted signals re: criminal remedies and cable signals (3 yrs) • Internet service providers (3 yrs) ^ Viet Nam can seek an additional one year extension for patents claiming pharmaceutical and agricultural chemical products pursuant to Article 18.46.3 and 18.46.4. ^^ Viet Nam can seek an extension up to two years and may ask the TPP Commission for an additional one-time extension. Implementation is not subject to dispute settlement for a further three years after the transition period. If Viet Nam uses any of these additional periods it is required to provide a written report to the TPP Commission on measures taken to fulfil its obligations under these Articles. Side letter with For applications for marketing approval for new Viet Nam the US re: pharmaceutical products that are, or contain, a biologic, Viet Nam will apply Article 9.6 of Chapter II of the Viet biologics B-18 Nam-US Agreement on Trade Relations regarding the protection of undisclosed test or other data submitted with the application. Article 9.6 requires Parties to ensure that no other applicant may use such data for at least five years in most cases, whereas TPP Article 18.50.1 stipulates at least five years in all cases. Malaysia can apply Articles 18.41 and 18.50.3 to the protections under Articles 18.50.1-2 (Protection of Undisclosed Test or Other Data) and 18.51 (Biologics – wrongly noted in the letter as Article 18.52) regardless of patent status. Side letter with the US re: Article 18.41 affirms that nothing in the TPP limits a pharmaceutical Party’s rights under TRIPS Article 31. Article 18.50.3 Malaysia products affirms a Party may protect public health in accordance including that with the Declaration on TRIPS and Public Health. contain a The effect of the letter is to affirm Malaysia’s rights biologic under TRIPS, interpreted in accordance with the Declaration on TRIPS and Public Health, to provide for compulsory licensing of pharmaceuticals in accordance with its WTO obligations. It does not grant Malaysia additional legal rights. Viet Nam and US confirm that until entry into force for Side letter with each Party, each will seek to prevent any action that Viet Nam the US re: GIs would undermine protection of GIs under international agreements as per Article 18.36. B-19 Malaysia and US confirm that until entry into force, or until they have made clear they will not join the TPP, Side letter with Malaysia each will refrain from acts that would defeat its object the US re: GIs and purpose, including Article 18.36 regarding protection of GIs under international agreements. ANNEX 18-C: Malaysia Obligation to keep confidential undisclosed test or other Malaysia can require applicant to start process of 18.50.1 data submitted as a condition of receiving marketing obtaining marketing approval for these products within approval for a drug. 18 months of the products first being given marketing Applies 18.50.1 mutatis mutandis to new clinical approval in any country (i.e. not just TPP Parties). information submitted in support of an application for 18.50.2 Malaysia marketing approval, and to products containing a new chemical entity not previously approved by the Party. Requires Parties to provide market protection for a new biologic for at least 8 years from first marketing 18.51.1 approval, or five years with measures to ensure a comparable outcome in the market. CHAPTER 19: Labour For Malaysia: Malaysia – United States Labour Consistency Plan Side For Viet Nam: United States – Vietnam Plan for the agreements Enhancement of Trade and Labour Relations Malaysia, with the US on Viet Nam Malaysia and Viet Nam commit to additional Labour obligations regarding labour unions and other labour Standards standards, including prevention of child and forced labour. Subject to TPP dispute settlement under Chapter 28, except Article 28.13 on third-party participation. B-20 CHAPTER 20: Environment Parties are to bring fisheries subsidy programs Viet Nam can ask the Environment Committee for an established before entry into force into compliance with additional two years, solely for completing stock Viet Nam 20.16.6 20.16.5 (which prohibits subsidies that could encourage assessment that it has already initiated. overfishing or illegal fishing) within three years of entry into force for that Party. Provides for establishment by Malaysia of the National Side letter with Committee to Coordinate the Implementation of US re: Environment Chapters in FTAs. committee for Malaysia implementation Parties also recognise that equitable sharing of benefits of environment arising from use of traditional knowledge may be addressed through contracts between users and commitments providers. Side Recognise that access to traditional knowledge instruments on associated with biodiversity including genetic resources, and equitable sharing of related benefits, can be biodiversity addressed through contracts or other instruments and traditional between users and resource providers. Malaysia knowledge with Australia, Brunei, Peru, Chile, Mexico B-21 Side instrument Recognise that access to traditional knowledge, as well on biodiversity as equitable sharing of resulting benefits, can be addressed through contracts between users and Malaysia and traditional providers. knowledge with NZ Recognise that equitable sharing of benefits from utilisation of traditional knowledge relevant for Malaysia Canada conservation and sustainable use of biological diversity can be addressed through appropriate mechanisms. Side instrument Recognise that equitable sharing of benefits arising from on biodiversity use of traditional knowledge may be addressed through contracts between users and providers. and traditional knowledge: Malaysia, Aust., Brunei, Viet Nam Canada, Chile, Japan, Mexico, NZ and Singapore CHAPTER 26: Transparency and Anti-Corruption ANNEX 26-A: Transparency and Procedural Fairness for Pharmaceutical Products and Medical Devices Side letter with Recognise that “high-quality healthcare” in Article 2 Peru re: (Principles) of the Annex does not refer to specific final Viet Nam outcomes in a Party’s healthcare system, including principles in selection of specific pharmaceutical products. Annex 26-A B-22 B-23