On Oct 5, 2015 after many years of negotiations, the twelve countries making up the Trans-Pacific Partnership (TPP) concluded their negotiations for a free trade deal. The twelve countries who make up the TPP are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. The TPP agreement covers 40% of the global trade with a market of nearly 800 million people and a gross domestic product (GDP) of $28.5 trillion.
The TPP is the biggest trade agreement since the creation of the World Trade Organization (WTO). Although it still has some major steps ahead of it such as being legally scrubbed, translated and ratified by each country, implementation is expected to take place in eighteen months to two years. While it is unlikely any country will fail to ratify the agreement, the ratification process in some countries will be challenging. U.S. President Obama will probably use his recently empowered fast track authority for trade pact approval to push the agreement through Congress. Canada is in the midst of a federal election with the three main candidates in a dead heat; if there is a change in government it is unclear how the new government will react to having to pass an agreement they had no visibility into. However, as they are all pro-trade it is likely they will pass the legislation.
So far little details are known as the text of the agreement has yet to be released and the negations have been shrouded in secrecy, but with the announcement yesterday some details were made available:
- The U.S. stated, “the 12 Parties have agreed on a single set of rules of origin that define whether a particular good is ‘originating’ and therefore eligible to receive the TPP preferential tariff benefits. The product-specific rules of origin are attached to the text of the Agreement. The TPP provides for ‘accumulation,’ so that in general, inputs from one TPP Party are treated the same as materials from any other TPP Party, if used to produce a product in any TPP Party. »
- Canada stated, “45 % of a vehicle’s content must come from Canada (be originating) to qualify under the TPP, a change from the North American free-trade agreement (NAFTA), which established that 62.5% of a vehicle’s content must be originating. Canada also stated, the current rate of 6.1% duty rate will be phased out over 5 years, whereas the current U.S. 2.5% duty rate will be phased out over a 25 year period for originating goods. Some seafoods will be immediately duty free, with some processed sea food having a 10 year phase out. »
- The Canadian government has promised there will be a $4.3-billion investment payment (subsidy) over 15 years to protect current dairy, chicken and egg farmer revenues. TPP countries will get duty-free access to 3.25% of Canada’s dairy market and 2.1% of its poultry market.
- Japan is a key opportunity for TPP members as Japan will immediately eliminate the 32% duty rate on 90% of their agricultural products. Canadian beef and pork producers are among the big winners under the TPP deal as within 10 years, Japan is promising to eliminate its tariffs on a wide range of pork products, while the current 50% tariffs on beef will be reduced to 9% within 15 years. Vietnam will move more quickly, eliminating tariffs of up to 31% on fresh and frozen beef within two years.
Once the TPP is ratified it is expected to bring the end to the current North America Free Trade Agreement (NAFTA) but with countries having some challenges with its ratification process we can expect the NAFTA agreement to be around for a few more years. However, the benefits for TPP members are enormous as new export markets open up.
Livingston will continue to post additional information on its website pertaining to this agreement and other trade matters.