The trade ministers from the 11 Trans-Pacific Partnership (TPP) countries will be gathering this weekend in Hanoi to discuss bringing the agreement into force.
While the TPP didn’t require many changes from the United States, which is already relatively open, and then structured the overall agreement largely to match its own domestic procedures, the same cannot be said for the remaining TPP members.
For the other 11 participants, (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) the TPP does lower barriers between members and requires transformation in procedures. In some countries, the changes are modest and in others, the changes are more substantial.
But in all—the final result will be a much more dynamic, integrated and competitive region with benefits that are limited to TPP member firms. Non-TPP member firms (including, now, American importers and exporters)[1] will not have access to these preferential benefits.
The TPP has always been touted as a “21st century, gold standard” agreement. This assessment may have seemed overblown, but compared to other trade agreements, it does offers better, deeper and broader commitments. The high quality nature of the TPP remains, even if not all 12 original parties are included on the very first day of the deal.
The fastest way to assess a trade agreement for quality is to look at the extent and depth of tariff cuts. Tariffs act like taxes applied on goods crossing borders. Higher levels of tariffs can limit trade and one key goal of free trade agreements is to cut down tariff levels. Better quality trade agreements have steeper tariff cuts overall in shorter time periods.
The TPP is a truly high quality agreement in this regard, especially compared to most alternatives, as it broadly starts with tariff cuts on 90% of all tariff lines on the very first day of the agreement (entry into force or EIF). Many of the tariffs fall all the way to 0 or become duty free on EIF.
For those tariffs that do not fall to 0 on EIF, the majority of tariffs fall to become duty free in relatively short time periods. Often, this is within 5-7 years and most are gone within 10 years.
Unlike the market access schedules, which are different for each TPP member country, the rules of origin (ROO) commitments are the same for all. There is one ROO schedule. Every tariff line has a matching ROO in the TPP under product-specific rules of origin (PSRs).
Once a product has met the ROO for the TPP, it can be shipped without change into every other TPP member country. TPP benefits apply only for goods being shipped into TPP countries.
Of particular importance to companies, the TPP does allow cumulation across members—this is one of the biggest benefits of using a regional arrangement instead of a bilateral trade deal. Firms can add up or “cumulate” the originating content from across all 11 members.
For goods companies, however, the rules for tariff reductions and ROOs are not the only things that matter. The processes and procedures for getting goods in and out of TPP member countries are also important. Fortunately, TPP rules for trade facilitation are likely to prove extremely helpful for companies.
All these commitments are unlikely to change as the TPP11 moves forward. The Asian Trade Centre and APL Logistics have created a new booklet to highlight some of the specific market access benefits for companies.
The TPP includes tariff cuts and market access improvements for every product category. While nearly every product will receive duty-free or tariff-free access eventually, not all drop immediately on the first day. For some items, access is phased in over time. In some markets, tariff cuts happen gradually in even installments. In others, tariffs cuts are uneven. Finally, a limited number of products (mostly agricultural items) never reach duty-free treatment.[2]
To see what the TPP with 11 parties delivers in wide range of products, our new booklet highlights seafood, wine, plastics, cosmetics and soap, shampoo, wood, furniture, iron and steel and some footwear and textile categories. The product categories were chosen to illustrate the range of different market access commitments made by TPP11 members. A quick glance at the charts in the attached booklet shows how many of these items show tariff cuts from levels as high as 40% to zero.
The TPP continues to offer substantial market access benefits to participating member countries. Firms that operate in and across the TPP will face fewer tariff barriers with lower rates as quickly as the first day of the agreement.
While very important, member governments did not throw open doors to market access in goods immediately, nor did they open all sensitive goods markets automatically. For some products, especially agricultural items that have not been subjected to market opening in the past, governments proceeded very cautiously in the TPP.
For companies planning to realign their supply chain to maximize the attractive duty savings opportunities granted by the TPP, other costs such as logistics and transportation should also be carefully considered in view of the unique geographical distribution of TPP members.
Tariff cuts are the easiest elements of the agreement to see and to measure. But the complicated and interlocking nature of the TPP means that firms should not just focus attention on this aspect of the agreement. The TPP also provides firms with lower risk and greater certainty as well as improved opportunities for doing business across TPP member markets. The interlocking nature of commitments means that firms—large and small—receive benefits scattered in chapters all across the deal.
This weekend, trade ministers from the TPP11 countries will be meeting in Hanoi to work on moving the deal forward. This post and the connected booklet shows how and why it continues to matter.
***Talking Trade is written by Dr. Deborah Elms, Executive Director, Asian Trade Centre, Singapore***
[1] With some caveats—some provisions will “spill over” to non-members. For example, better protections for intellectual property are likely to benefit all firms and not just TPP firms. Non-member firms may be able to take advantage of some provisions, if they are clever, careful and have good specialist help.
[2] For more details on what the TPP11 provides for food and agricultural products, please see our Fresh/Frozen and Processed Food materials produced in conjunction with Food Industry Asia.