Trans-Pacific Partnership: Bane or Boon?

By Susan Kohn Ross

Originally published by the Journal of Commerce in November 2015

As every international trader worth his/her salt knows, the text of the Trans-Pacific Partnership was released on November 5th. Given word from the Executive Branch is the agreement is still being “scrubbed”, it is reasonable to conclude the text is not yet final, but is being released, as some of our Canadian colleagues commented about regarding newly elected Prime Minister Trudeau and his Labor Party, to allow the nay-sayers to get their vitriol out now, so that by the time the vote comes, calmer heads will prevail. Whether that is a prudent approach remains to be seen.

The TPP text can be found here – https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/tpp-full-text. Since there are 30 chapters and a host of annexes and side deals, only the negotiators have really had time to clearly understand the contents. Nonetheless, after appropriate study, we now can all decide for ourselves whether the TPP is a good or bad deal.

In reality, by releasing the text on November 5, some pundits think the President has started the 90 day period of notice to Congress called for in Trade Promotion Authority, see 19 U.S.C. § 3805. Under its terms, at least 90 calendar days before he will sign the TPP, Mr. Obama must give notice to Congress of his intent to sign. If indeed the intention was to start the clock, the required Federal Register notice should be published shortly.

Within 60 days of the agreement being signed (calendar days are not mentioned, so presumably this means Congressional session days), the President is required to submit to Congress (when both houses are in session) a copy of the final legal text of the agreement, along with a draft of any implementing legislation; a statement of any administrative action proposed to implement the trade agreement; plus a statement asserting the agreement makes progress in achieving the applicable purposes, policies, priorities and objectives of the law; the reasons of the President regarding how and to what extent the agreement makes progress in achieving those applicable purposes, policies, and objectives; an explanation as to how the implementing bill and proposed administrative action will change or affect existing law; whether and how the agreement changes provisions of an agreement previously negotiated; how the agreement serves the interests of United States commerce; how the implementing bill meets the relevant standards to qualify as an implementing bill; and how and to what extent the agreement makes progress in achieving the applicable purposes, policies, and objectives seeking to address and maintain U.S. competitiveness in the global economy; and then the implementing bill is voted upon and presumably enacted into law.

In a recent briefing to the exporting community, U.S. Trade Representative Froman indicated it is most likely the vote in Congress will come in March 2016. Between now and then, American companies can begin to plan for implementation of the agreement. Here are some basic recommendations as to what you can do while we wait for Congressional action:

1)         Read the rules of origin applicable to your products and figure out the requirements which apply to you;

2)         Identify the countries where you are sourcing your products, whether raw materials, intermediate components or finished goods;

3)         If you are sourcing in a country other than Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, U.S. or Vietnam, can you shift your sourcing to one of these TPP-member countries?

4)         What are your current purchase order or other sourcing agreement terms and conditions?

5)         Is your TPP country supplier willing and able to provide you with all the production records you will need if the origin of your product is questioned? What documents will you need? The typical request from U.S. Customs for production records consists of the following:

Factory production records: Records demonstrating the raw materials were obtained by the factory and were available for production: bills of lading, if imported into the country where the factory is located; Customs clearance records; commercial invoice, if purchased; production order showing goods to be produced; assembly or production records maintained on the factory floor by the production manager; time cards to show that employees were working during the time period and any information related to the production process performed; payment records for raw materials.

Subcontracts: If part or all of the production work is subcontracted, the subcontracted operations should be verified to prove the goods were produced in that location; same documents as required above; plus transfer documents to the shipper or primary contractor and proof of payment by the shipper or primary contractor for the work done.

Export documentation showing the goods purported to be produced in the factory were the ones actually exported.

Provide the factory profile which would include an overview of the factory and may include a copy of a valid factory registration document, floor plan/map, production schedule and specific details about processing and production capabilities.

Provide a list of machinery. Provide a letter of credit or proof of payment from the purchaser. All records must be provided with English translations.

Bearing in mind just because you purchased the product from a seller in a TPP country, that does not mean the product (whether raw materials, intermediate components or finished goods) was made there. So, if you are a U.S. importer and want to make a TPP preference claim, can you get these documents from your seller? If you are a U.S. exporter, can you provide these documents? Many exporters are purchasing and selling finished goods. How far up your supply chain will you have to go to obtain the required production records? Can you even get all of these records?

Preference claims under the TPP are like all other free trade agreement claims. FTA claims do not mean unfettered trade, they mean you must be able to properly document your eligibility. So, start now to consider how you will take advantage of this opportunity, but do so smartly. The TPP allows the various countries to cooperate in the face of suspected unlawful activity. Given NAFTA was entered into in 1993 and the Canadian Free Trade Agreement pre-dates it, there is already a long history of companies assuming compliance and waking up to the harsh reality, they did not do their homework, are not eligible, and are now facing serious regulatory and commercial consequences. Don’t get caught this same way! There is plenty of time so do your homework and be ready!

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