Worldwide: Trans-Pacific Partnership – TPP-11 – Generates New Business Opportunities

Last Updated: 21 May 2018
Article by Junichi Kato

When the United States pulled out of the proposed Trans-Pacific Partnership (TPP) agreement last year, many people thought that was the end of the pact. But the determination of partners such as Japan resurrected the basis of the deal, and 11 countries – excluding the U.S. – signed the revised trade agreement in Chile on 8th March 2018.

Now known as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), shortened to "TPP-11", the agreement is expected to come into force later this year, rather than in 2019 as originally planned when the initial trade pact was signed in 2016.

So, what are the key elements of the agreement, and how might they impact on companies looking to expand their business to the countries involved?

The 11 nations under TPP-11, which together account for about 15% of global trade and approximately 500 million people, are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.  With a GDP of US$ 4.9 tril in 2016, Japan alone has the largest economy of the 11 TPP member countries and is the fourth largest exporter in world trade and the fifth largest importer.  Once the CPTPP enters into force, it will be one of the largest free trade agreements in the world and will give enhanced market access to key Asian markets.

Whilst 15% of GDP is obviously lower than the original 40% of GDP covered when the US was a member, the remaining agreement partners have stressed that the TPP still has a vast potential for creating new opportunities for trade liberalisation in the region, as well as promoting sustainable development objectives and shoring up the multilateral trading system.

The thinking behind the deal is a commitment to free and open markets, stridently contrasting to the new domestic protectionist policy being forged by the U.S. It is designed to integrate Asia Pacific markets by reducing barriers to goods and services trade, protecting investments and intellectual property rights, establishing rules for e-commerce, and promoting fair competition.

Fully enforceable, the CPTPP is a legally binding agreement, supported by a system of dispute settlement, to bring rule of law and greater transparency and predictability to the regional trading regime.

Why TPP-11 is still exciting?

Trade tariffs between the TPP-11 countries will be slashed considerably, eliminating customs duties on 95% of trade in goods and opening access to a combined marketplace worth around US$13.7 tril. The overall aim is "maintaining open markets, increasing world trade, and creating new economic opportunities for people of all incomes and economic backgrounds," according to the preamble in the official CPTPP agreement text.

It is called 'progressive' because it goes far beyond reducing costs for businesses. The CPTPP includes a reaffirmation by the 11 members of "the importance of promoting corporate social responsibility, cultural identity and diversity, environmental protection and conservation, gender equality, indigenous rights, labour rights, inclusive trade, sustainable development, and traditional knowledge, as well as the importance of preserving their right to regulate in the public interest."

CPTPP members who export to other member countries will benefit from new market access for their goods through the elimination of customs duties and non-tariff barriers that often prevent imports from competing with domestically produced goods. It is expected that duties will be eliminated for most goods on the first day that the agreement comes into effect. For most of the remaining sensitive products, duties will be reduced over time.

For example, dairy products into Canada have faced duties as high as 250%, and poultry producers trying to export to Mexico have faced tariffs of up to 234%. Many of these duties fall to zero on day one of the agreement and nearly all agricultural products will be duty-free within three to seven years.

For all 11 CPTPP member countries, there will be vast business opportunities and benefits.  The Japanese economy for example, the CPTPP's largest member, includes vehicle exports as a key trading commodity, and for Japanese vehicles going to CPTPP member Canada, the 6.1% tariff will be phased out over five years. For exports to the Vietnamese market, the 70% tariff on Japanese vehicles with large engines will be phased out within a decade.

The TPP will eliminate more than 98 percent of tariffs in a trade zone with a combined GDP of US$13.7 tril, according to the Australian Prime Minister, Malcolm Turnbull, who said it will mean "billions of additional exports for Australian companies and thousands of additional jobs," because a quarter of Australian exports go to TPP countries.

For Canada, CPTPP countries as a group are Canada's third-largest trading partner, and two of its top five trading partners - Mexico and Japan -  are CPTPP members. The Canadian Government estimates that the new preferential market access under the CPTPP could provide Canadian exporters with tariff savings of US$428 mil per year, with the bulk coming from exports to Japan (US$338 mil), Australia (US$47 mil) and Vietnam (US$25 mil).

Exporting companies within CPTPP countries can now target the new business potential in countries within the partnership. For example, Japan's increasing taste for wine has led to a rise in wine imports. Whilst the market has ready access to the wines of Australia and Chile thanks to existing Economic Partnership Agreements, the new TPP deal will eliminate the 15% tariff on wine imports from New Zealand. Likewise, the pre-CPTPP beef tariff in Japan has been 38.5%, except for Australia under the existing EPA, but the rate under the new trade deal will reduce the tariff to 9% within 16 years.

For manufacturers, the CPTPP allows companies to make products for all 11 markets without needing to change processes, parts, suppliers, or components. Once an item qualifies under the rules of origin for CPTPP, it can be shipped from one CPTPP country into all 11 markets. The CPTPP includes new rules on customs clearance to reduce paperwork, increase transparency of processes, and help move goods more efficiently and seamlessly across borders.

The CPTPP has important benefits for services companies. Firms should find it easier to provide services across member countries in areas like banking, insurance, construction, logistics, accounting, travel and tourism, consulting, app and games development, and graphic design. Government procurement has also opened across member countries, with a relaxation on the protocols behind non-domestic tenders.

Investments between the member countries are protected under the new agreement, which provides market access, national treatment, and investment protection and guarantees to facilitate cross-border investments. Intellectual Property is another focus area. The new agreement gives robust protection to intellectual property, with commitments reinforcing and going beyond current commitments made through the World Trade Organisation (WTO) Agreement on Trade-Related Aspects of Intellectual Property (TRIPS).

TPP member nations have acknowledged the growing importance of the digital economy, and have agreed to not impose duties, fees, or other charges on digital products. The agreement enables electronic authentication and recognition of electronic signatures; online consumer protection; access to and use of internet including benefit of competition among network providers; cross-border information flows; acknowledging the importance of personal information protection, plus disciplines facilitating the use of cloud-computing services.

Other nations will have the opportunity to enter the agreement later, if they wish. Countries such as Indonesia, South Korea, The Philippines, Thailand and possibly a post-Brexit UK have all been mooted as possible members. And the door has been left open to a U.S. change of heart. President Trump has recently indicated he is willing to reconsider America joining the TPP trade deal, subject to further negotiation. But for the moment, the 11 existing members are forging ahead with an energised spirit of co-operation.

How can TMF Group help?

To help you fulfil your business potential under the new trade agreement, TMF Group has a CPTPP-wide perspective supported by local knowledge, with local offices in each CPTPP member country, with the exception of Brunei. Understanding the changing tariffs per commodity between CPTPP member countries is essential to maximise new trading opportunities.

TMF Group provides global reach with export local support and knowledge, thanks to its network of offices in 84 countries around the world. Comprehensive expertise is available on new and existing importing and exporting regulations per country, plus support for companies wishing to set up new business entities. Specialists in tax, accounting, law, corporate secretariat, HR, and other business support services are on hand to provide you with support for business expansion, new trading arrangements and business entries. Our professionals have an enviable breadth of experience and local contacts to help you maximise new business opportunities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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