Pop open the Sparkling Wine! The conclusion of the TPP Negotiations

imgresThe deal is done.  Negotiations on the Trans-Pacific Partnership (TPP) trade agreement that started in Australia in March 2010 have finally been brought to conclusion.  The 12 negotiating parties of the TPP (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam) managed at last to lock together nearly 30 chapters covering a wide array of topics.

The TPP is a different kind of trade agreement from the myriad other free trade deals because:

·      It is broader.  The TPP covers 29 chapters including typical topics like goods, services, and investment provisions.  It also includes new rules on intellectual property rights, opens up government procurement markets, creates common understandings for e-commerce trade, and includes some new regulations for food, food safety and other types of technical standards.

·      It is deeper.  Past free trade agreements (FTAs) between members may have opened up trade in goods.  But the TPP is likely to reduce barriers to trade further.  This includes opening up highly sensitive agricultural markets that are traditionally carved out, or excluded entirely from FTAs.  Even in areas where coverage is incomplete and duties do not drop to zero, products are included that are normally not discussed or where existing FTA reductions can be extremely modest (like rice, dairy, and sugar).

·      It includes shared norms and commitments for all members.  Unlike other agreements, the TPP rules apply equally to everyone.  The least developed country members have longer time frames to implement some of the commitments, but the same basic rules will apply.  Members opted to join the TPP and, by doing so, signaled their own internal commitment to implementing high quality pledges in every aspect of the agreement.

Is this agreement perfect?  Of course not.  If we put a dozen people in a room, each would likely have their own definition of perfection.  The TPP negotiators never defined what they meant by their own mantra of “21st century, high quality” either.  But the deal on the table is likely to be the very best agreement that could be achieved given the constellation of members, interests and topics.

Much will be written in the coming days about the gaps between the outcome and the aspirational goals.  It is likely that various groups will target specific sections for criticism.  Some groups that have been complaining loudly will continue to do so no matter what sort of outcome was achieved.

At the end, however, the deal had to satisfy domestic constituents in 12 countries in nearly 30 different topics.  Getting it done necessarily required some compromises from everyone.  Importantly, this agreement was not simply a deal cut between the United States and Japan (their bilateral portion covered 6 agricultural items and autos only).

The TPP was genuinely crafted by members from all participating countries and the final outcome reflects many hard-fought compromises.

To examine just one challenging aspect of the TPP, consider the market for beef.  Beef is often viewed as a sensitive topic in many of the TPP member countries.  Government policies have long favored beef producers.  These policies have included tariff barriers that have been resistant to change despite repeated rounds of negotiations in the multilateral setting as well as in various bilateral agreements.

The TPP does not drop tariffs in beef to 0 in all member countries.  Nor does it drop tariffs this low even at the end of full implementation.  Yet the TPP result remains an improvement (and even a potentially dramatic improvement) off the status quo.  The TPP provides new benefits for beef exporters–even in markets with existing FTAs.

Something similar is likely in nearly every area under negotiation.  For market access in goods across the board, the TPP drops tariffs to 0 on entry into force for 90% of tariff lines.  Over a relatively short timeline, most of the remaining tariffs will also drop to 0.

Compare this to the alternatives.  As I have explained in the past, the Regional Comprehensive Economic Partnership (RCEP) in Asia is meant to start with less than half of all tariff lines included for some members and—at the end of full implementation at some likely very distant time horizon—tariff coverage may top out at 80% of lines.  This means that 20% of goods are not going to receive any tariff cut benefits at all.  Beef is one sector that is highly likely to remain out of RCEP commitments (certainly absent significant industry involvement to promote improved outcomes).

For more complex products, the TPP greatly simplifies business on the ground.  Currently, companies trading between TPP member states may have access to some existing preferences from FTAs.  However, the cumulation of rules of origin in the TPP means that companies can aggregate inputs from all TPP countries to count towards the origin of more complex goods.  The ability to “count” more under TPP content makes it much easier to import and export goods (mostly duty free) between member countries.

There are also a host of other benefits to speed up and reduce costs associated with moving goods, including new commitments on trade facilitation and changes in customs procedures.

The TPP, of course, goes well beyond trade in goods.  For the creation of today’s modern supply chains, the TPP includes meaningful openings in services markets of all types.  Most manufactured goods include substantial inputs of services—some are delivered directly by the firms while others are outsourced.  Many of these outsourced services are now opened to large and small TPP member firms.  The TPP expands access and protection for investments of various types.

For more information on what the TPP means for business, please check out our latest publication, available for download on our website.  As the texts become available, we will update our information.  Future blog posts will also examine some more of the specific commitments of the agreement in greater detail.

If you or your company would like to discuss possible benefits that arise from the TPP, please do not hesitate to contact us.  We are very much looking forward to moving into the ratification and implementation phases for the TPP.

Talking Trade is a blog post written by Dr. Deborah Elms, Executive Director, Asian Trade Centre, Singapore

Source: Asian trade Centre