Negotiators Agree on Trans-Pacific Partnership (TPP Agreement)

This week in Atlanta, the United States and 11 of its trading partners around the Pacific Rim – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam – announced that they had reached agreement on the Trans-Pacific Partnership (TPP), a plurilateral agreement which, if adopted, will eliminate tariffs and service trade barriers in trade between nations accounting for as much as 40% of the world’s economic output.

There is much work to do before TPP actually becomes law. The United States will need to have Congress adopt implementing legislation, which promises a bruising political battle, and the other member countries will need to ratify the agreement as well. A Congressional vote on TPP will not occur until 2016, and implementation in 2017 appears realistic.

The text of the Agreement will not be available for several weeks, and its negotiation was accompanied by unusual (and controversial) secrecy. There are a few things we do know about the deal, however, as it applies to trade in goods.

When will we see the text of the Agreement?

President Obama has indicated that the text of the TPP will remain confidential for at least 30 days after it is presented to Congress, so that “corrections” can be made. The text of the agreement must be available to the public for at least 60 days before Congress is allowed to vote on it.  Members of Congress have indicated that the most recent version of TPP they have seen is dated, and the final text probably differs greatly.

What rules of origin will be used to qualify goods for duty-free treatment?

TPP will include a uniform set of rules of origin, which will be based on “tariff-shift” principles. In addition, some goods will be subject to a “regional value content” requirement, based on the “build down” method of appraisement.

There was considerable debate concerning preference rules of origin for textile and apparel products, with a “yarn forward” rule of origin ultimately being selected. [Vietnam had pressed for a “fabric forward” rule, but was rebuffed].

Reportedly, the parties have agreed on a rule of origin for automobiles which will include a 45% regional value content requirement – less than the 62.5% requirement currently provided in NAFTA. Japan had argued for a more liberal rule of origin, so it can continue to source parts from China and other non-agreement countries in its supply chain.

How will origin claims be verified?

Certifications of “originating” status will be accepted not only from exporters (as is the case with NAFTA), but also from producers and importers of goods. Origin claims will be subject to verification by governments of the exporting and importing companies?

What is the schedule for tariff eliminations?

Duties will likely be eliminated immediately, in the case of countries with which the United States already has a free trade agreement. Schedules for other duty eliminations remain to be determined. It is likely that some tariffs for sensitive goods (rice and beef imported into Japan, dairy and poultry goods imported into Canada) will be eliminated more slowly. In some cases, duty-free access will be quota-limited. Canadian officials have indicated, for example, that the TPP gives foreign countries access to 3.25% of its dairy market and 2.1% of its poultry market.

What’s going to happen to NAFTA?         

If TPP is ratified and adopted, it will replace NAFTA. While broadly based on NAFTA, the TPP is likely to be different in many respects. For instance, we can expect the controversial “NAFTA Marking Rules”, which apply for non-preferential purposes, to become a thing of the past. Hopefully, some of the restrictions on duty drawback imposed under NAFTA, which have hurt American importers, will be eliminated.

We can also expect TPP to replace a number of United States FTAs currently in effect with other TPP countries, including the agreements with Australia, Chile, New Zealand, Peru, and Singapore.

Will TPP affect government procurement rules?

According to the United States Trade Representative (USTR), the answer is no. The United States will continue to handle government procurement issues using the rules of the World Trade Organization (WTO) Agreement on Government Procurement. Eight of the other signatories to TPP are members of the procurement agreement as well.

What’s NOT in TPP?

While some legislators wanted rules on currency manipulation, these are not a feature of the TPP.  In addition, while the Agreement contains an investor-state dispute settlement (ISDS) mechanism, there will be a “tobacco carve out” to prevent tobacco companies from using it to sue governments over tobacco policy, as has occurred with a number of other trade agreements.

What has to be done to implement TPP in the United States?

TPP is a trade agreement, not a treaty, so it does not become law upon adoption or ratification. Congress will need to enact implementing legislation to reflect TPP’s provisions in United States law. Because the President has been granted “fast track” trade negotiating authority, Congress must approve or disapprove the TPP package, but cannot make changes to it.

Once implementing legislation is done, Customs and other agencies will need to draft implementing regulations.

This information is necessarily preliminary, but TPP will make for a very busy 2016 in the Customs and trade field.