Trans- Pa­cific Part­ner­ship: What to Ex­pect and How to Pre­pare

Thai-American Business (T-AB) Magazine - - Contents - Writ­ten by: Ni­cholas Stipp

With 12 na­tions that make up nearly 40 per cent of the global gross do­mes­tic prod­uct ( GDP) and about one- third of all world trade as its core, the Trans- Pa­cific Part­ner­ship ( TPP) Agree­ment is set to be­come the largest free trade agree­ment ( FTA) in the world. It is im­pos­si­ble to say with ab­so­lute cer­tainty what the ul­ti­mate im­pact of the TPP will be but chances are good that, once rat­i­fied and im­ple­mented, this sin­gle but com­plex agree­ment will cre­ate new pat­terns of trade and her­ald a new era of eco­nomic open­ness.


With the pas­sage of TPP, trade pro­fes­sion­als are faced with the chal­lenge of eval­u­at­ing the ben­e­fits and com­pli­ance re­quire­ments of TPP. The agree­ment as it stands today ac­counts for about onethird of all world trade, span­ning 12 mar­kets at nearly 40 per cent of the global GDP.

The fi­nal ver­sion of the TPP that was com­pleted on Oc­to­ber 6, 2015, is the end re­sult of a com­plex evo­lu­tion that started with ne­go­ti­a­tions among four orig­i­nal economies – Sin­ga­pore, New Zealand, Chile and Brunei that wanted to im­prove trade within the Asia Pa­cific Eco­nomic Co­op­er­a­tion ( APEC) um­brella. Those ne­go­ti­a­tions at­tracted the at­ten­tion of the U. S., which joined in Septem­ber 2008 and took the process to a whole new level. A rush for ex­pan­sion fol­lowed that led to the in­clu­sion of Aus­tralia, Peru, Viet­nam and, later, Malaysia, Canada, Mex­ico and Japan to form the group of 12 coun­tries that are now part of the largest trade agree­ment in the world.

“One of the more in­ter­est­ing and in­no­va­tive parts of the TPP was its stake- holder process,” said Dr. Deb­o­rah Elms, Ex­ec­u­tive Di­rec­tor of the Asian Trade Cen­tre and an ex­pert on the TPP. Through rounds six to 18 of the ne­go­ti­a­tions, stake­hold­ers rang­ing from businesses to trade as­so­ci­a­tions and non- gov­ern­men­tal or­ga­ni­za­tions were wel­comed to con­trib­ute to the ne­go­ti­a­tions. This is un­usual. The Re­gional Com­pre­hen­sive Eco­nomic Part­ner­ship ( RCEP), for ex­am­ple, is vir­tu­ally a gov­ern­ment- to- gov­ern­ment ne­go­ti­a­tion.

Just as sig­nif­i­cantly, the com­mit­ments ap­ply to all mem­bers – al­though the time frames for im­ple­men­ta­tion vary for some mem­bers. Tar­iffs will drop to zero on 90 per cent of goods traded among mem­bers when the agree­ment goes live and more re­duc­tions will be phased in. Even­tu­ally, 98 per cent of goods will in­cur zero tar­iffs, al­though in some goods that could take as long as 25 years. With the ne­go­ti­a­tions com­pleted, the next step for­ward is for mem­bers to rat­ify the TPP deal within two years. In the re­sults of a joint sur­vey con­ducted with cor­po­rate trade spe­cial­ists in 11 coun­tries span­ning Asia, Latin Amer­ica and the U. S. re­leased on Novem­ber 6, 2015, Thom­son Reuters and KPMG In­ter­na­tional found that 70 per cent of com­pa­nies are not fully uti­liz­ing FTAS. This means they are likely pay­ing more than nec­es­sary in tar­iffs and du­ties which is counter- in­tu­itive. By lever­ag­ing ex­ist­ing agree­ments and paving the way now for the im­ple­men­ta­tion of the TPP, com­pa­nies could op­ti­mize their op­er­a­tions, lower costs and tap into new mar­kets.


The com­pa­nies most likely to ben­e­fit from the TPP are those that start pre­par­ing now. The TPP is par­tic­u­larly im­por­tant at a time of much greater re­gional in­te­gra­tion of sup­ply chains. Com­pa­nies in­creas­ingly source prod­ucts and raw ma­te­ri­als from a greater num­ber of lo­ca­tions and also dis­trib­ute prod­ucts in more numer­ous mar­kets.

The TPP opens up new mar­kets, pro­vides for more ex­pan­sive rules of ori­gin and also deals with new ar­eas of busi­ness, such as e- com­merce. It also har­mo­nizes in­tel­lec­tual pro­tec­tion ( IP) rules, pro­vid­ing greater cer­tainty for businesses in­vest­ing in the TPP re­gion, and goes be­yond most ex­ist­ing FTAS in terms of ac­cess and rules of ori­gin, al­low­ing for re­gional cu­mu­la­tion of ori­gin so that prod­ucts can be sourced from any TPP coun­try. New rules on cross­bor­der in­vest­ment are also stronger than most ex­ist­ing agree­ments, cov­er­ing ba­sic rights, ex­pro­pri­a­tion rules and le­gal re­course.

“Ev­ery sin­gle FTA has its own rules; the use of FTAS is a ne­ces­sity. Man­u­fac­tur­ers and dis­trib­u­tors that do not lever­age trade agree­ments are likely to be side­lined by com­pa­nies look­ing for lower costs and greater mar­ket ac­cess.”

There are con­cerns over how rules of ori­gin are ap­plied un­der the agree­ment. The rules al­low for cu­mu­la­tion but are not al­ways uni­form across prod­ucts, said Dr. Elms. Among other ben­e­fits, the TPP al­lows for self- cer­ti­fi­ca­tion of ori­gin, which should stream­line pro­cesses for busi­ness – with the caveat that the pa­per­work should al­ways be in or­der.

“Ev­ery sin­gle FTA has its own rules; the use of FTAS is a ne­ces­sity. Man­u­fac­tur­ers and dis­trib­u­tors that do not lever­age trade agree­ments are likely to be side­lined by com­pa­nies look­ing for lower costs and greater mar­ket ac­cess,” said An­gelia Chew, Part­ner for In­di­rect Tax and Asia Pa­cific Trade and Cus­toms Leader at KPMG in Sin­ga­pore.


Trade deals are com­plex doc­u­ments driven by po­lit­i­cal ne­ces­sity as much as by eco­nomic or busi­ness re­al­i­ties. As a re­sult, they are of­ten dif­fi­cult to nav­i­gate and not al­ways prac­ti­cal. One ap­proach to max­i­mize the ben­e­fits of TPP and ex­ist­ing FTAS is to au­to­mate anal­y­sis and com­pli­ance in real time. Try­ing to get all the information nec­es­sary to op­ti­mize sup­ply chains and stay com­pli­ant can be ex­tremely com­plex. Data gath­er­ing can take months and be out of date once it is com­pleted.

Tech­nol­ogy so­lu­tions, such as ONESOURCE, can do this on a real time ba­sis for in­di­vid­ual prod­ucts while track­ing in­di­vid­ual ship­ments and sup­pli­ers, all the while of­fer­ing up op­tions to op­ti­mize sup­ply chains.


The TPP has yet to be rat­i­fied and im­ple­mented. Ac­cord­ing to Dr. Elms, the linch­pin in this process is the U. S. Rat­i­fi­ca­tion, which will all but guar­an­tee ap­proval from Japan and other mem­bers. The agree­ment only comes into ef­fect if the U. S., Japan and at least four other coun­tries rat­ify it within two years. “There are not as many losers as you might think, do­mes­ti­cally, in TPP coun­tries but I do think there are im­pli­ca­tions from the TPP and es­pe­cially im­pli­ca­tions on non- mem­bers,” said Dr. Elms. “If you are not a mem­ber and it de­pends on which coun­try and which sec­tor and on what you do – but for some non­mem­bers in some sec­tors there will be im­pli­ca­tions from the TPP go­ing into force.”

When it goes into force, it will give rise to a lot of op­por­tu­ni­ties by open­ing the door for com­pa­nies to ben­e­fit from pref­er­en­tial du­ties in more mar­kets. Mar­ket ac­cess is also much greater through­out the TPP area for ser­vice com­pa­nies, with the agree­ment min­i­miz­ing dis­crim­i­na­tion for spe­cific ar­eas of trade.

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