It is expected that the Trans-Pacific Partnership (TPP) will be signed on 8 March 2018. While Australia has free trade agreements with nine of the eleven TPP members, the TPP still represents significant opportunities for exporters to Australia and importers of Australian goods.
What is the TPP?
The short story is that the TPP is a comprehensive free trade agreement being negotiated between Australia, Japan, Canada, Mexico, Malaysia, Vietnam, Chile, Peru, New Zealand, Singapore and Brunei. The TPP originally included the US, but President Trump withdrew the US from the agreement on his first day in office. When enacted, the TPP will extensively liberalise trade in goods and services and remove investment restrictions amongst TPP members.
However, with Australia being a party to so many existing FTAs, it is right to question whether the TPP has a significant impact.
While there is considerable overlap with Australia’s existing FTAs, the TPP will provide customs duty-free trade for the first time on the vast majority of goods imported and exported from Canada and Mexico. It is true that current levels of trade between Canada/Mexico and Australia are low. However, with the US seeking to renegotiate the terms of its own FTA with Mexico and Canada and it generally being more protectionist, unexpected opportunities may arise for Australia.
The TPP will be easier than other FTAs
Most FTAs are heavily underutilised. This may be because the documentation requirements traditionally associated with FTAs deter some exporters. Many FTAs require a certificate of origin that has been issued by an authorised body. Others may permit the exporter to produce their own certificate, but it has to be in hard copy and in a set form.
By contrast, under the TPP a certificate of origin can be issued by the producer, exporter or importer; can be in electronic form; and does not have to take any specific form. This will mean that some exporters who have previously not used Australia’s existing FTAs will be more likely to use the TPP.
For Australian exporters, the best gains under the TPP come from improved access to Japan and to a lesser degree Vietnam and Malaysia. While Australia has existing FTAs with these countries, in some areas the tariff reductions under the TPP are an improvement.
For exporters to Australia, most duty rates should already be zero. If you are currently exporting goods to Australia that attract duty on import, now is the time to review why this is the case.
To qualify for an FTA the goods must satisfy the rules of origin. If goods contain material from a third country, this may disqualify the good. However, under the TPP, material from any TPP member can be used without disqualifying the goods. As an example, Australian beef could be marinated with New Zealand wine and Vietnamese flavours and exported to Japan as a TPP originating good. The same good may not qualify under Australia’s FTA with Japan.
It will get better
The TPP membership is not set. There is capacity for other countries to join and the following countries have shown an interest: Taiwan, Thailand, the Philippines, Indonesia and Korea. The more countries that join, the more likely it is the TPP can become the default FTA for the region and encompass entire regional supply chains.
What to watch out for
Exporters and importers will need to ensure high levels of trade compliance. The risks with the TPP include ensuring:
- the certificate of origin includes all the required information. While there is no set format for the certificate of origin, there is a range of mandatory requirements.
- you are using the correct FTA. The rules under each FTA are different. There needs to be alignment between the rules of origin you have applied, the certificate of origin produced and the FTA the importer wishes to use.
- have Canadian and Mexican goods been transhipped via the US? This can occur but goods generally cannot be altered and must remain under customs control.
- goods actually meet the rules of origin. This will be especially the case with goods that include content from a non-TPP member.
What to do now
Companies should start to take the TPP outcomes into account when developing supply chain strategies and undertaking long-term planning.
The original TPP documents (the version the US signed) are publicly available and set out all of the tariff commitments of each country. These commitments are almost identical under the new TPP.
Now is also the time to review instances where there has been an underutilisation of existing FTAs with TPP members. If the reason for this underutilisation relates to documentation, plans can be made for how to remedy this position under the TPP.
Once enabling legislation is introduced, traders and customs brokers should also start to plan for transitional arrangements concerning the start of the TPP.