The Trans-Pacific Partnership (TPP) is famous for being a major issue in the 2016 US election. One of the first acts of the new President Trump was to withdraw the US from the agreement.
Fast forward two years and the TPP (without the US) is set to commence on 30 December 2018. This free trade agreement (FTA) is a major reply to the protectionist trade policies of the US and also offers major benefits for Australian traders.
What is the TPP?
The TPP is a comprehensive FTA between Australia and 10 other countries: Japan, Canada, Mexico, New Zealand, Singapore, Peru, Chile, Vietnam, Malaysia and Brunei. It reduces customs tariffs on a range of goods, but also has comprehensive trade liberalisation provisions concerning trade in services, investment, the environment and labour laws.
Initially, the benefits of the TPP will only extend to Australian trade with Japan, Canada, Mexico, New Zealand and Singapore. This is because the other TPP members are yet to pass domestic legislation ratifying the agreement.
What are the benefits?
While Australia already has FTA with 7 of the 10 other countries, the TPP will bring immediate benefits. Those benefits are:
- For the first time, wide-ranging duty-free entry of goods into Australia from Canada and Mexico (saving of 5%).
- Increased access generally to Canada and Mexico.
- Significantly improved access to the Japanese agriculture market.
- Once ratified, generally improved access to Peru.
- Slightly improved access to Vietnam and Malaysia (once ratified by those countries).
With the TPP set to commence in late December 2018, there will be one round of tariff reductions on commencement and a second round on 1 January 2019, when year two of the agreement begins.
There are thousands of different outcomes depending on the particular product. Exporters need to be speaking to their trade advisors to find out the new duty rates for their products.
How do I use it?
If you are an exporter, you use the TPP to help your overseas clients import the goods at a lower duty rate. Like most FTA, under the TPP you will need to provide a certificate of origin. However, unlike other FTA, the certificates of origin under the TPP are much easier. There is no set form, the document can be electronic and the documents can be created by the producer, exporter or even the importer. This flexibility will increase the ease of using the TPP and for some exporters, reduce the costs.
This ease of use may mean that some exporters will use the TPP for trade that is currently covered by other FTA, such as the ASEAN FTA, which required government issued certificates of origin.
The ease of the TPP is appealing. However, the simplicity of the TPP could be its greatest risk for some traders. The benefits of the TPP only appeal if the goods satisfy the rules of origin. These are the rules that determine whether a good has sufficient connection to the TPP countries to qualify. In a self-assessment system the exporter takes a big risk unless it fully understands how rules of origin work. This risk can be managed, but it first needs to recognised.
If you plan on using the TPP you need to have a compliance e plan in place to avoid an unpleasant customs duty liability and potential penalties.
While there is no specific form that the certificate of origin must take, there are nine requirements that it must meet such as the inclusion of an HS Code of the goods and details of the parties (including their telephone number if known). These are mandatory requirements and the non-inclusion of one of these requirements will mean the TPP does not apply. The risk of missing a data field is normally low as the parties are using a prescribed template document. Again, there is no prescribed template with the TPP.
If you are planning on using the TPP, you need to ensure you are aware of all of the certificate of origin data requirements. We recommend either using a template created by a trade professional or having your own documents reviewed by a trade professional. We will be creating a template TPP certificate of origin for use by our clients.
The TPP is an agreement that businesses need to build into their long term strategy. While the current benefits will work for some traders, the future potential cannot be ignored. The countries that have expressed an interest in the TPP include the UK, Taiwan, Indonesian, the Philippines, Thailand and South Korea. The future of international trade is uncertain. However, for those countries that are looking to pursue an open trade agenda, the TPP will be a welcome home.
The TPP is an exciting opportunity and represents a reduction in the red tape associated with other FTAs. However, that lack of red tape does not mean there is no legal risk. The same obligations remain, however, it is for the traders to fully self-assess compliance with those obligations. This will mean that the need to work with specialist trade advisors and customs brokers will be heightened.
Russell Wiese is a customs and global trade specialist with a strong focus on helping clients proactively manage customs risks and opportunities. Russell helps importers, exporters, customs brokers and freight forwarders with customs concessions (including Free Trade Agreements), customs compliance, commercial agreements and resolving disputes between parties involved in international trade.