What does the new Trans-Pacific Partnership mean for you?

By Darryl Daisley - February 28, 2018

After a prolonged period of uncertainty, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), also known as TPP11, seems set to become a reality.

But what is TPP11 and what does it mean for Australian businesses?

Put simply, TPP11 is a planned trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

It is a renegotiation of the better-known Trans-Pacific Partnership (TPP), which was signed on February 4, 2016, but which never entered into force after the United States withdrew from the talks. All original 11 TPP signatories (except the US) agreed in May 2017 to revive the talks and in January, they reached agreement. The formal signing ceremony will be held in Chile on March 8, 2018.

Despite the best efforts of the Prime Minister, the TPP no longer includes the US — however it is an agreement that will have a big impact on Australian importers and exporters, but watch this space.

What does it mean for Australian exporters?

The TPP11 represents eleven separate deals ensuring market access to the member countries — all of which are legally enforceable. In addition, there are enforceable commitments now in place on the ways that countries regulate foreign investment. Both mean new opportunities for Australian businesses, especially those seeking to export a wider range of goods.

Significant wins under the TPP include[1]:

  • Accelerated reductions in Japan’s import tariffs on beef, representing improved access for Australian exporters (even above the $2 billion in beef exports recorded in 2015-16).
  • Elimination of a range of cheese tariffs into Japan, extending to more than $100 million of trade not covered by the Japan-Australia Economic Partnership Agreement.
  • New quotas for wheat and rice to Japan, and for sugar into Japan, Canada and Mexico.
  • Elimination of all tariffs on sheep meat, cotton, wool, seafood, horticulture, wine and industrial products such as manufactured goods.

Why is this free trade agreement so important?

The TPP11, as a free trade agreement, has significant overlap with Australia’s existing FTAs — which exist with eight of the ten other TPP members.

What TPP11 will do, however, is provide expedited access to new markets. This includes:

  • Opening up the Canadian and Mexican markets for the first time.
  • Easier certification requirements making it easier to qualify for lower duty rates than under our existing FTAs.
  • Improved outcomes with our FTA partners — depending on the product.
  • Improved outcomes for services, investment and government procurement compared to existing negotiated positions.

There is also the option of more benefits to come as new countries can join the TPP. Taiwan, Thailand, Indonesia and the Philippines have all expressed interest and Australia continues to lobby the US to bring it on board.

When will it start?

The agreement is due to be signed in March, at which point each signatory will go through the domestic treaty process needed to ratify the agreement. It will enter into force when at least half of the signatories have completed their domestic ratification processes.

Once it commences, the TPP11 will only apply to those countries that have completed domestic ratification.

In line with Australia’s treaty-making processes, the text of the agreement will be tabled in Parliament once signed. The Joint Standing Committee on Treaties (JSCOT) will then conduct an inquiry and report. Parliament will consider any legislation or amendments to existing legislation that may be necessary to implement the agreement. DFAT and other Government agencies will also then be called upon to implement the agreement.[2]

While the TPP originally had support from both major parties, the Labor party is now requesting economic modelling of its impact. This request may slow down the ratification process but it is still possible the treaty will begin by the end of this year.

What are the disadvantages?

Australia will now have three different FTAs with New Zealand, Singapore and Malaysia and two different FTAs with Japan, Vietnam, Peru, Chile and Brunei.

The impact of this overlap will be more pronounced with the TPP11, as there are some big differences to Australia's existing agreements.

The TPP might also weaken the advantage Australia had gained over other countries by aggressively pursuing bilateral FTAs.

Not all TPP members had existing FTAs with Japan, for example, and the concessions in the Australia-Japan FTA were hard won. With the entry into force of the TPP11, Australia will again be on level pegging with the other TPP members.

There is also complexity.

Certificates of origin under the TPP11 will be self-certified. This means that they can be completed by the manufacturer, exporter or importer. While there will be specified data fields, there will be no set format. Additionally, the document can be in paper or electronic form.[3]

Adding more flexibility, the certificates of origin will be able to cover multiple consignments of identical goods.

While self-certification does make FTA use easier, it places a lot of responsibility on the exporter or other party issuing that document.

The Australian Border Force has recently noted in their 2018 Customs Compliance priority areas that improper use of free trade agreements and concessions[4] is already on their watch-list.

This means more need for checks and balances to ensure FTA compliance, not fewer, and the self-certification process will be a risk that needs to be managed.

What should business do now?

Companies should start to take the TPP outcomes into account when developing supply chain strategies and undertaking long-term planning.

The TPP documents are now publically available and set out all of the tariff commitments of each country. We understand these commitments are practically identical to the original TPP, with the exception of a limited number of provisions which will be suspended. Suspensions will remain in place until the Parties agree to end them, by consensus.

Now is also the time to review instances where the business might have not used FTAs with TPP members to their full extent. If the reason for this underutilisation relates to documentation, plans can be made for how best to remedy this position under the TPP.

Pitcher Partners Perth Director of Customs, Fuel Tax and International Trade Darryl Daisley can assist your business to ensure it is maximising its full potential when it comes to FTAs and the new TPP11.

For further information contact your International Trade Advisor.

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