What you need to know about the Trans Pacific Partneship

After being kept secret for years, the wording of the Trans Pacific Partnership (TPP) has now finally been released. The wording contains practical guidance for traders on how to use the TPP.

The TPP is a free trade agreement (FTA) that if implemented will cover 40% of global GDP. The member countries are Australia, the US, Japan, Canada, Mexico, Vietnam, Singapore, Brunei, Malaysia, New Zealand, Chile and Peru. The TPP covers traditional FTA areas such as trade in goods, investment and services but also contains commitments regarding labour, competition and environment laws.

Some interesting points for those who trade in goods are set out below:

  1. To claim the reduced duty rates offered under the TPP, an importer will need to present a certificate of origin. However, this certificate of origin can be prepared by the manufacturer, exporter or importer, and does not need to follow any particular form. This will make use of the TPP much easier than other FTA Australia has entered into.
  2. The one certificate of origin can be used for multiple shipments over a 12-month period. Where you are trading in the same good over a continuous period, this provision will greatly cut down on the red tape associated with FTA use. This may be a reason why a party will seek to use the TPP over an alternative agreement such as the Japan Australia FTA.
  3. As expected, origin will be assessed by reference to content from all TPP countries. This will be particularly useful for goods exported from the US, where currently uncertainty about Mexican content can deter importers from using the US FTA. Under the TPP it will not matter if the US good contains content from Mexico, Canada or any other TPP member.
  4. Not all imports into Australia will be immediately reduced to zero. However, generally it can be said that Australia’s tariff reductions under the TPP are quicker and wider than under other FTA. Examples of goods where the duty is phased out are:
    • Footwear – reduced over 4 years;
    • Herbicides – 5% for the first 3 years than reduced to zero;
    • Many clothing and textiles items – 5% for the first 3 years than reduced to zero;
    • Motor vehicle components – reduced over 3 years;
    • Certain irons and steels – reduced over 3 years.

If implemented, the TPP will constitute the second or third FTA Australia has with all but three TPP members. Despite this, there will be reasons why using the TPP will be desirable.

The first will be more relaxed certificate of origin requirements. Self-certification (including by the importer) will make claiming an FTA preference under the TPP much easier than some alternative FTA.

Also, the ability to use the one certificate of origin over multiple consignments will provide enormous benefit.

For many, the main benefit will be that it will be easier to establish that a good is covered by the TPP than one of Australia’s bilateral FTA due to origin being based on content from all TPP members.

What’s next?

Now that the wording has been released, each TPP member country will need to obtain domestic approval of the agreement. The biggest stumbling block could be the US where there are many critics of the TPP. For instance, Hillary Clinton has opposed the TPP.

Given the TPP will be debated in a US election year the ratification and domestic implementation of the TPP is far from certain.

Despite its uncertainty, the TPP should still be taken into account when making long-term supply chain decisions or negotiating long term supply countries. However, in the medium term traders are encouraged to focus on Australia’s existing trade agreements with TPP members and ensure that these are fully utilised.

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