Trans-Pacific Partnership Negotiations Concluded – Now What?

By Susan Kohn Ross

Originally published by the Journal of Commerce in October 2015

With the news the Trans-Pacific Partnership (TPP) negotiations have been successfully concluded, the obvious question is what is next? The Republican leadership in the House of Representatives is in chaos. As we go to press, the presumptive new Speaker has withdrawn, the caucus is coming apart, the Democrats are smiling, but the country is suffering. Renewal of the ExIm Bank is subject to a parliamentary ploy where the one thing Congress is supposed to do finally happened – a bipartisan group of Republicans and Democrats reached across the aisle seeking to govern the country. Whether their parliamentary move does the trick remains to be seen. Will the House pass ExIm renewal? If so, what fate awaits the bill in the Senate? The Majority Leader there also opposes renewal, so what will happen? And through all of this President Obama remains a lame duck President, almost out of time. Will he keep his chits for the Iran deal approval? Will he spend some of that capital now if an ExIm renewal bill looks like it might get through the Senate with the right push? We just don’t know. What we do know is the clock on TPP has started to run. The deal needs to be approved by Congress and while the timing of such action is still in question, we all wait to see the actual text and decide for ourselves how our businesses will integrate its provisions into actual operations.

At this juncture, the website for the U.S. Trade Representative is providing the only relatively reliable information about the content of the TPP. The USTR “Issue Fact Sheet” starts with:

The Trans-Pacific Partnership (TPP) is a new, high-standard trade agreement that levels the playing field for American workers and American businesses, supporting more Made-in-America exports and higher-paying American jobs. By eliminating over 18,000 taxes—in the form of tariffs—that various countries put on Made-in-America products, TPP makes sure our farmers, ranchers, manufacturers, and small businesses can compete—and win—in some of the fastest-growing markets in the world. With more than 95 percent of the world’s consumers living outside our borders, TPP will significantly expand the export of Made-in-America goods and services and support American jobs.

The Sheet goes on to talk in terms of 18,000 taxes being eliminated on U.S. agricultural and manufactured products (with automotive parts specifically mentioned), and information and communications technology. The TPP supposedly contains the strongest labor standards and fully enforceable labor rights of any trade agreement. There is also language touting its environmental protections.

One area of focus unique to the TPP has to do with small and medium-sized businesses. Specifically, the Sheet states:

For the first time in any trade agreement, TPP includes a chapter specifically dedicated to helping small- and medium-sized businesses benefit from trade. Small businesses are one of the primary drivers of job growth in the U.S., but too often trade barriers lock small businesses out of important foreign markets when they try to export their made-in-America goods. While 98 percent of the American companies that export are small and medium-sized businesses, less than 5 percent of all American small businesses export. That means there’s huge untapped potential for small businesses to expand their businesses by exporting more to the 95 percent of global consumers who live outside our borders.

TPP addresses trade barriers that pose disproportionate challenges to small businesses, such as high taxes, overly complex trade paperwork, corruption, customs “red tape,” restrictions on Internet data flows, weak logistics services that raise costs, and slow delivery of small shipments. TPP makes it cheaper, easier, and faster for American small businesses to get their products to market by creating efficient and transparent procedures that move goods quickly across borders.

The Sheet includes a discussion about the promotion of e-commerce, the protection of digital freedom and the continued openness of the Internet. TPP is said to level the playing field for American workers when it comes to stated-owned enterprises. The TPP is said to also prioritize good governance and fight corruption. There is a chapter dedicated to development and capacity building (how is that going to work in the face of the WTO’s inability to implement its own trade facilitation agreement?), and finally a claim that all of the barriers being removed will also greatly expand the service sector where 4 out of 5 Americans work.

While the Sheet runs some 63 pages and contains many details, none of us really knows how it will impact our businesses until we see the actual text. For right now, we are left to review what is available at www.ustr.tov/tpp for general information, and https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/tpp-issue-issue-negotiating-objectives for sector specific negotiating objectives. However, there are some factors we can count on.

Let’s start with the rules of origin will be complex and require planning. The rules of origin will be complex and will require lots of supporting documents. The time to start planning is now. Even without knowing the exact rules of origin, this is the time to begin negotiations with business partners in the member countries. Those countries are Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the U.S. and Vietnam. It is time to find out how those business partners source their goods and how they document their sourcing – and just how much information/documentation will they be willing to share with you. Changing the relationship with a business partner always takes time and effort and opening the dialog in the next round of goods/parts ordering can only be helpful to the long-term success of the relationship and any TPP claims made in the future.

It is also time to decide on which of your products you will or will not seek to make TPP claims. For example, the U.S. currently has a free trade agreement with Australia. If you have discussed with your Australian business partner the goods you sell to him and they do not currently qualify, is the country in which you currently source your non-qualifying parts/components a TPP member country? If not, could you change sourcing and acquire the same part/component from a member country and thereby make your good qualifying for TPP benefits? Quality, cost and transportation are such critical factors, it is worth considering now whether such a change is feasible or something you even want to consider.

Assuming you can make the necessary sourcing changes, you will need to find new, reliable suppliers, and negotiate with them your quality and pricing needs, but also figure out the quality and type of documentation typically maintained by them and you, and what changes will be needed on both sides of the deal. Then ask yourself, how quickly can I implement the needed changes in my own company?

When was the last time you negotiated terms and conditions with your business partners? Now might be a good time, and would also allow the door to open to change them, perhaps if for no other reason than to confirm which documents each of you will maintain and agree between you the circumstances under which they will be exchanged, and the related time-frame.

Have you looked at how you are routing your freight? Are there other routes which cut down transit time and/or reduce your cost? Have you check with your carriers, forwarders, brokers, and other service providers for input into those decisions.

If you have concerns about trademark, copyright or patent protection, do the TPP provisions help? If so, how do you take advantage of those benefits. One other issue to consider is when an importer or an exporter submits information to the U.S. government it remains confidential. The definition of confidentiality in many other countries is quite different. Does TPP help to protect trade secrets or other business proprietary information in the member countries to a level which makes American companies comfortable? We just don’t know.

The potential of the TPP being approved is cause enough for companies to review their own operations. Do not leave your business partners out of the equation for success.

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