The trade agreement TPP among twelve Pacific Rim countries contains not only traditional measures to lower or eliminate trade barriers and tariffs between the signatory countries but also provisions on telecommunications, intellectual property rights etc. The energy sector is covered in the trade and investment provisions under “goods and services.” The TPP will have multifaceted implications on the region’s energy sector, Lillian Sol Cueva explains.

The TPP includes not only Latin American states but also for example Japan.  (Photo by Sakaori, modified, CC BY-SA 3.0)

The Trans-Pacific Partnership (TPP) is a trade agreement among twelve Pacific Rim countries, signed on 4 February 2016. The TPP includes the United States, Mexico, Canada, Chile, Peru, Australia, Brunei, Japan, Malaysia, New Zealand, Singapore, and Vietnam. These countries account for 40 percent of global GDP, 25 percent of the value of global trade and 12 percent of global population (according to a recent study by the Congressional Research Service).

The 30 chapters of the TPP do not only contain traditional measures to lower or eliminate trade barriers and tariffs between the signatory countries but also provisions on topics, such as telecommunications and intellectual property rights, as well as labor, environmental, sanitary and phytosanitary standards.

The energy sector does not have a separate chapter in the TPP, but it is covered in the trade and investment provisions under “goods and services.” Energy is also covered by other provisions including labor, tariff elimination, environment, state-owned enterprises, temporary entry for businesses and dispute settlement. The participating countries have committed to the removal of import and export tariffs; the removal of barriers for the provision of energy services such as exploration, extraction, refining, transportation, distribution or sale; the prevention of preferential treatment of state-owned enterprises (SOEs); the prohibition of introducing new foreign investment screening; the right to entry and temporary stay for business persons, and; investor protections through the Investor State Dispute Settlement (ISDS).

In this regard, Peru has pledged to removing tariffs on iron ore, copper and nickel. Peru and Mexico have committed to allow foreign suppliers to bid for government procurement contracts with PEMEX and the Federal Commission of Electricity (CFE), Mexico’s oil and gas and electricity sector, and with PETROPERU, Peruvian state-owned petroleum company. Chile will eliminate all tariffs to minerals exports for foreign suppliers of services and products.

Expected implications for Latin America

The TPP will have multifaceted implications on the region’s energy sector.

The best-case scenario for the three Latin American countries that form part of the TPP is that the elimination of tariffs and service barriers on key energy sectors, such as renewable energy will result in a price decrease of products, such as wind turbines, solar cells, static convertors and high-voltage electric conductors. According to the US Department of Commerce, the Chilean solar energy sector is expected to dominate the export opportunity landscape for US corporations, including both photovoltaic and concentrated solar power; and for Mexico, it is expected that wind projects will proliferate immediately after TPP ratification due to the elimination of tariff barriers from wind turbines imports. Likewise, the harmonization of environmental standards, for energy efficiency in particular (e.g. the Energy Star Program currently used just by the US, EU, Canada, Australia, Japan, New Zealand, Switzerland and Taiwan), could increase the demand of energy efficiency products and services in Latin America, forcing markets to open up to such technologies.

Probably one of the most controversial provisions of the TPP is the Investor-State Dispute Settlement (ISDS). ISDS is an instrument of public international law, which grants an investor the right to initiate dispute settlement proceedings against a foreign government.

In general, for the energy sector, ISDS evoked opposition because it has been used by oil and gas companies to sue governments when a new policy or regulation hamper their interests “[…] even when rules are nondiscriminatory and profits are made from causing harm”, as Joseph Stiglitz and Adam S. Hersh wrote in 2015. For example, in Canada, the Quebec government is being sued by the US energy company Lone Pine since it was required to suspend its gas fracking operations after the government commissioned an environmental study in the area.

Additionally, ISDS raises concern in Latin America because thirty years of ISDS have showed that there has been a serious asymmetry of this practice. To date, the majority of cases heard by ISDS tribunals have been against developing countries and lodged by multi-national corporations from developed countries. For example, when Mexico denied Metalclad the permit to operate a waste disposal facility and instead declared the area a natural reserve, the US-based corporation retaliated by filing a lawsuit demanding US$130 million in compensation for damages and loss of future earnings. Similarly, in 2006, US$2.3 billion was demanded of Ecuador in a case brought against it by the Occidental Petroleum Corporation, after the corporation was ordered to clean up its toxic waste. This penalty represented more than 6% of Ecuador’s national budget (more than its national health budget). Currently, El Salvador faces a US$300-million case from a mining company (OceanaGold) because El Salvador won the battle to stop toxic gold mining operations.

Finally, from an environmental perspective, organizations such as the Sierra Club, Friends of the Earth, TPP Abierto, and Chile Mejor sin TPP consider that TPP could have negative effects on the environment by accelerating the rate of natural gas and mining exploration, extraction, and consumption; by not having key principles in place such as the precautionary principle and the polluters pay principle; by not relating GHG emissions with current production and consumption patterns; by failing to strengthen fishing and conservationist provisions, both necessary to avoid over exploitation of oceans and forests, and; by just having “flexible and voluntary environmental provisions” and no enforcement mechanisms.

In conclusion, it is expected that TPP will have multifaceted impacts on Latin America. Specifically, we must pay attention to the implications on the energy sector, since the TPP could be an opportunity to expand renewable energy services and products in Mexico, Chile and Peru. At the same time, TTP could endanger the environment and hamper countries’ capacity to ensure the exclusion of inefficient energy approaches such as large damns, nuclear energy and fracking from the use of provisions such as ISDS.