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TPP MODIFICATIONS – TABLE OF CONTENTS

Chapter 2: National Treatment and Market Access for Goods:

 Article 2.2: National Treatment – page 2 [modified GATT Article III]

 Article 2.22: Definitions – page 4 [selected from U.S.-Singapore FTA]
 Article 2.23: Trader-State Dispute Settlement – page 5 [modified U.S. FTA Investor-State
provision]

 Appendix: Government Instrumentalities and Entities Unbound by National Treatment – page 6

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Chapter Two

National Treatment and Market Access for Goods

Section A: National Treatment

Article 2.2: National Treatment [NOTE: Current U.S. FTAs incorporate the GATT Article III National
Treatment text and make it part of this article mutatis mutandis. Below is the GATT’s Article III with
proposed modifications for the Trans-Pacific Partnership Agreement]

1. The contracting parties recognize that internal taxes and other internal charges, and laws,
regulations, and requirements, and the actions of covered entities, affecting the internal sale, offering
for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations
requiring the mixture, processing or use of products in specified amounts or proportions, should not be
applied to imported or domestic products so as to afford protection to domestic production.*

2. The products of the territory of any contracting party imported into the territory of any other
contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of
any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no
contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic
products in a manner contrary to the principles set forth in paragraph 1.*

3. With respect to any existing internal tax which is inconsistent with the provisions of paragraph 2,
but which is specifically authorized under a trade agreement, in force on April 10, 1947, in which the
import duty on the taxed product is bound against increase, the contracting party imposing the tax shall
be free to postpone the application of the provisions of paragraph 2 to such tax until such time as it can
obtain release from the obligations of such trade agreement in order to permit the increase of such duty
to the extent necessary to compensate for the elimination of the protective element of the tax.

4. The products of the territory of any contracting party imported into the territory of any other
contracting party shall be accorded treatment no less favourable than that accorded to like products of
national origin in respect of all laws, regulations and requirements affecting their internal sale, offering
for sale, purchase, transportation, distribution or use and in respect of all decisions and activities by
covered entities. The provisions of this paragraph shall not prevent the application of differential
internal transportation charges which are based exclusively on the economic operation of the means of
transport and not on the nationality of the product.

5. No contracting party shall establish or maintain any internal quantitative regulation relating to
the mixture, processing or use of products in specified amounts or proportions which requires, directly
or indirectly, that any specified amount or proportion of any good or service which is the subject of the
regulation must be supplied from domestic sources. Moreover, no contracting party shall otherwise
apply internal quantitative regulations in a manner contrary to the principles set forth in paragraph 1.*
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6. The provisions of paragraph 5 shall not apply to any internal quantitative regulation in force in
the territory of any contracting party on July 1, 1939, April 10, 1947, or March 24, 1948, at the option of
that contracting party; Provided that any such regulation which is contrary to the provisions of
paragraph 5 shall not be modified to the detriment of imports and shall be treated as a customs duty for
the purpose of negotiation.

7. No internal quantitative regulation relating to the mixture, processing or use of products in

specified amounts or proportions shall be applied in such a manner as to allocate any such amount or
proportion among external sources of supply.

[x].12 The provisions of this article apply to the covered procurement 3 of government agencies and
covered entities. For greater certainty, government agencies and covered entities may not:

(a) treat a locally established supplier less favorably than another locally established
supplier on the basis of degree of foreign affiliation or ownership; or

(b) discriminate against a locally established supplier on the basis that the offerings of that
supplier for a particular procurement are of another Party.

8. (a) The provisions of this Article shall not apply to purchases by and for the exclusive
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consumption of laws, regulations or requirements governing the procurement by governmental
agencies of products purchased for governmental purposes and not with a view to commercial resale or
with a view to use in the production of goods for commercial sale and covered entities listed in a
contracting parties’ Annex : List of Government Instrumentalities and Entities Unbound by National
Treatment.

(b) The provisions of this Article shall not prevent the payment of subsidies exclusively to
domestic producers, including payments to domestic producers derived from the proceeds of internal
taxes or charges applied consistently with the provisions of this Article and subsidies effected through
governmental purchases of domestic products.

1
In previous FTAs, Government Procurement chapters had their own National Treatment and Non-Discrimination
article, because the GATT’s obligation exempted government procurement. This proposed text removes the
exemption, and incorporates the Non-Discrimination language from Procurement chapter directly into the main
National Treatment obligation.
2
This paragraph is referenced infra in a “Trader-State Dispute Settlement” provision.
3
“Procurement” is defined in Chapter 1’s General Definitions: procurement means the process by which a
government obtains the use of or acquires goods or services, or any combination thereof, for governmental
purposes and not with a view to commercial sale or resale or with a view to use in the production or supply of
goods or services for commercial sale or resale;
4
A more ambitious approach would be to retain the qualifier “for governmental purposes and not for commercial
resale.” This is more ambitious because having swept all SOE activity into the national treatment obligation, the
qualifier simultaneously bars SOE’s from favoring local content in the commercial space. The disadvantage is that
it provides no outlet for defensive concerns in sectors where buy-local policies are entrenched (although GATT
consistency is unclear). Under the proposed text, parties would be able to schedule entities such as state liquor
boards and national broadcasting systems without regard to whether their purchases are for governmental
purposes – subject, of course, to counter-pressure from the negotiating parties.
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9. The contracting parties recognize that internal maximum price control measures, even though
conforming to the other provisions of this Article, can have effects prejudicial to the interests of
contracting parties supplying imported products. Accordingly, contracting parties applying such
measures shall take account of the interests of exporting contracting parties with a view to avoiding to
the fullest practicable extent such prejudicial effects.

10. The provisions of this Article shall not prevent any contracting party from establishing or
maintaining internal quantitative regulations relating to exposed cinematograph films and meeting the
requirements of Article IV.

Section H: Definitions

Article 2.22: Definitions

For purposes of this Chapter:

1. covered entity means:

(a) an enterprise organized under the laws of a contracting party in which effective
influence exists, or is rebuttably presumed to exist, whose annual revenue is greater
than SDR 1 million;

(b) an enterprise organized under the laws of a contracting party in which effective
influence exists, or is rebuttably presumed to exist, whose total assets are greater than
SDR 1 million; and

(c) any entity in which a contracting party’s government owns a special voting share with
veto rights relating to such matters as the disposal of the undertaking, the acquisition by
any person of a specified percentage of the enterprise’s share capital, appointments to
the board of directors or of management, winding up or dissolution of the enterprise, or
any change to the constituent documents concerning the aforementioned matters;

The revenue and total asset thresholds above shall be adjusted for inflation (or deflation) every
five years. The Parties may otherwise revise the thresholds by mutual agreement;

2. effective influence exists where the government and its covered entities, alone or in
combination:

(a) own more that 50 percent of the voting rights of an entity; or

(b) have the ability to exercise substantial influence over the composition of the board of
directors or any other managing body of an entity, to determine the outcome of
decisions on the strategic, financial, or operating policies or plans of an entity, or
otherwise to exercise substantial influence over the management or operation of an
entity. Where the government and its covered entities, alone or in combination, own 50
percent or less, but more than 20 percent, of the voting securities of the entity and own
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the largest block of voting rights of such entity, there is a rebuttable presumption that
effective influence exists. Annex 1B provides an illustration of how the analysis of
effective influence should proceed.

Section I: Trader-State Dispute Settlement

Article 2.23: Consultation and Negotiation

In the event of a procurement dispute under paragraph [x], the claimant and the respondent
should initially seek to resolve the dispute through consultation and negotiation, which may include the
use of non-binding, third-party procedures.

Article 2.24: Submission of a Claim to Arbitration

1. In the event that a disputing party considers that a procurement dispute cannot be settled by
consultation and negotiation:

(a) the claimant may submit to arbitration under this Section a claim

(i) that the respondent has breached an obligation under paragraph [x] of Section A,

and

(ii) that the claimant has incurred loss or damage by reason of, or arising out of, that
breach; and
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Appendix 2.2: Government Instrumentalities and Entities Unbound by National Treatment

Section A: Coverage

1. The provisions of Article 2.2 shall not apply to the purchases by and for the exclusive consumption of
entities listed in this Appendix.

2. The coverage of this Appendix is determined with regard to each Party’s list of entities in its Annexes
to this Appendix (sometimes referred to as each Party's “schedule”).

3. Annexes 1-3 specify the central and sub-central government entities and other covered entities that
each Party has selected as being unbound from the National Treatment provisions of the
Agreement. Each Party's Annex also specifies the threshold values which may determine coverage of
this Appendix. The Appendix also includes Notes and General Notes qualifying the coverage.