CPTPP Arrives on December 30 – LogiSYM November/December 2018
Supply chain professionals should start planning now for the arrival of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) trade agreement. Firms will receive tariff cuts for every single tariff line for products traded between Australia, Canada, Japan, Mexico, New Zealand and Singapore on December 30, 2018.
These cuts, of course, are not automatically provided. Like any trade agreement, they only apply for companies that meet the rules of origin (ROO) and can provide sufficient documentation to support the claim of origin.
Note that CPTPP ROOs are product specific. This means that for every tariff line, there is a matching ROO. In many cases, the ROO provides multiple methods to qualify, including regional value content or change in tariff heading. In others, however, only a single method works.
Hence it is quite important for companies and firms to study the CPTPP tariff cut schedules and ROOs carefully.
The CPTPP does not have a specific form or certificate of origin to use to show origination. In fact, the CPTPP is meant to have self-certification—no specific paperwork required at all.
This does not mean that there are no requirements. The agreement provides a list of specific pieces of information that companies must provide in Chapter 5 to take advantage of the deal. But what is new is that there is not specified format for providing the information.
This should make it easier for firms to transmit details about shipments to customs officials using existing software, as an example, without the need to create new documentation to match CPTPP requirements. A quick look at the field requirements for CPTPP will show that the type of information needed is standard.
Firms must keep all documentation internally for five years post shipment to prove origin, in the event of a post-audit inspection.
The entire rest of the CPTPP agreement also takes effect between these six countries on December 30. This means that all provisions in trade facilitation and customs, services and investment, intellectual property rights, competition policy, labor, environment and more come into force at the end of the year.
Many of these new rules and individual country commitments should provide significant benefits for firms—even over and above any existing bilateral or regional trade agreements. This includes new market opening for supply chains including shipping, warehousing, retail and logistics that are often complicated or challenging to provide across borders.
There are also new provisions to limit the time spent on customs clearance, particularly for perishable goods and for express shipments. Documentation can be submitted electronically.
E-commerce has a specific chapter that allows for free movement of data and a prohibition on requirements to host data locally.
The tariff benefits continue for firms with a second round of tariff cuts between five members—Australia, Canada, Mexico, New Zealand and Singapore—on January 1, 2019. Japan will cut tariffs again on April 1, 2019.
Hence firms get a double round of tariff reductions from the six original CPTPP members in very short order. This should provide significant market benefits and cost savings for firms that are prepared to use the agreement on the very first day.
Vietnam has started the ratification process domestically and is likely to join the grouping in early 2019. Other CPTPP members like Brunei, Chile, Malaysia and Peru may do so in relatively short order as well. As each certifies that their internal processes are completed, the CPTPP begins for them 60 days later.
The CPTPP members are already planning ahead for expansion of the agreement in 2019 as well. In the pipeline are several additional countries including Columbia, South Korea and possibly Taiwan.
The biggest benefits for companies in goods are likely to be found in places where tariffs are traditionally high. This includes agricultural products of all types. The CPTPP eventually cuts nearly every tariff all the way to zero. Most of these tariffs drop to zero in 3-5 years.
The initial tariff reductions can be quite steep as well. Many product categories will fall from high double digits on the first day of the agreement. This includes many tariff peaks and tariff escalation that currently hits processed products and value added items.
CPTPP does not care where a firm is headquartered or where it pays taxes. What matters is where—in geographic space—items are created, transformed or delivered. As long as a product is traveling between two CPTPP countries and meets the rules, it counts as a CPTPP item.
The agreement can be complicated, with a legal text that is nearly 600 pages in length and thousands of additional pages of individual country schedules. Firms should seek out specialist advice for assistance in navigating the rules to squeeze out the maximum benefits.