Trans-Pacific Partnership (TPP) Without the US: Benefits for Business – LogiSYM November/December 2017
One of the most noticeable events that happened during the APEC Summit in Danang Vietnam in November 2017 was the Leaders’ Statement on the TPP11 which officially put the deal back into the game.
There could be possibly three reactions to this event. First, people who didn’t care about the TPP from the beginning will continue to ignore until TPP11 impacts start hitting their business five years down the road. Second, people who strongly believed the deal was already dead following the US’s withdrawal would have a big surprise and might start rushing into assessing the deal’s impacts and planning for the deal. Lastly, people who had been following and preparing for the TPP11 will move forward with their plans with perhaps modest modification.
This article will explain in more details the reasons why TPP11 still matters to your business in both direct and indirect ways.
TPP11 Still Matters
Following the withdrawal of the US from the TPP, many people believe that the benefits of the deal are no longer worthwhile. However, TPP11 (TPP without the US) and CPTPP (revised TPP for 11 countries) still have the potential of changing trade landscape in the region and globally once the deal comes into force. CPTPP commitments are almost the same as the original TPP. Some rules on IP and express shipment were suspended which contribute to less than 10 percent the total length of the agreement.
Overall, TPP11 rules will help to create a dynamic, integrated and competitive trade block. The interlocking nature of TPP11 rules will allow the changes to happen at a deeper level while the coverage of some modern trade issues will make the changes more relevant to business community.
Market Access on Goods
One of the most important benefits of TPP11 is the market opening for goods. Tariffs (customs duties) on more than 90% of the products will be eliminated, most of which will happen on day one. The beauty of tariff elimination under the TPP is that it has managed to cover almost all agricultural products – which are often protected by most governments – and even extended the coverage to sensitive products like rice, sugar, beef and dairy products.
Tariff benefits under the TPP11 apply to a wide range of industries as shown in the following charts of tariffs commitments.
In fact, US market is relatively open for most products. Therefore, the loss when the US is no longer a part of the deal is not very substantial even though it is the case for some products such as textiles.
Market Access on Services and Investment
Another area of the agreement that is often overlooked is the services sectors. Market access for services sectors are widely opened under the TPP11. With the scheduling method of the services and investment chapters in the agreement, most of the sectors are opened except for those who are listed as restricted. This also suggests new services sectors that arise in the future will be automatically given the market access. Some services sectors will see huge benefits such as the healthcare sectors.
TPP11 is one of the first trade agreements in which Japan committed to the similar scheduling method and agreed to open most of its services sectors to foreign suppliers. Moreover, US’s existing services markets do not have many barriers to foreign suppliers.
Other Important Commitments
The deal addressed some important issues in the digital economy such as fostering E-commerce and banning data localization in all member countries. This will help to ensure the free movement of data across TPP11 countries and facilitate the robust growth of digital trade in the region.
TPP11 also includes rules on sanitary and phytosanitary (food safety), standards and testing which will help to improve transparency and reduce non-tariff barriers to trade in the region.
For logistics and supply chain industry, TPP11 rules on express shipment, standard customs procedures and more flexibility with the use of Rules of Origin (ROOs) will help to improve customs efficiency in countries like Vietnam and Malaysia and facilitate trade in the region.
How TPP11 Impacts Will Be Magnified
The existence of global value chains across the Asia Pacific and the rise of Asian countries as the manufacturing spotlights will lead to the widespread impacts of TPP11 that will go beyond the 11-country block.
Countries and companies that are not directly involved in the TPP might also start seeing the impacts on their business once the deal comes into force. This is partly because the difference in the benefits enjoyed by TPP11 members and non-TPP members could be too substantial to ignore.
Trade landscape and trade structure post TPP11 will be different. Even though the changes are difficult to estimate, they are going to be powerful and shaping a new standard of trade rules across the Asia Pacific.
The ketchup example below is one illustration of the potential changes that could happen to regional and global value chains post TPP11.
The 11 countries will continue discussions and preparations at the domestic levels to prepare for the official signing of the TPP11 (CPTPP). After that, the 11 countries will continue their own work at the domestic level to prepare for the implementation of the TPP11.
What Should Businesses Prepare?
TPP11 impacts on business vary across industries, locations, product types and value chain models. The impacts could be modest or significant, temporary or long-lasting.
In order to be well prepared and avoid being left behind, businesses should pay more attention to the TPP11 including its existing commitments and TPP11 members’ implementation plans.
- Reassess your current markets and potential markets: TPP11 works only in member markets across the Asia Pacific. The benefits for goods, services, investment and more can be significant. Your business should assess the agreement carefully to avoid missing out on valuable opportunities and avoid downside risks.
- Reassess your supply chains and regional or global value chains: If you are sourcing from and selling to different countries across the Asia Pacific, the TPP11 is likely to affect your business. Whether this means more challenges or more opportunities, a careful assessment of your current business model, together with good understanding of the TPP11, is needed.
- Evaluate new opportunities, challenges, competition and advantages: If your business will be affected by the TPP11, you will need an in-depth evaluation on how your production costs, profits and profitability will be affected. This will lead to a more competitive pricing strategy and suitable business strategies for the short and long term.
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