Since NAFTA 2.0 builds on the base of the original NAFTA, the new deal had some advantages over the TPP. For example, tariffs between the parties are already set at zero. This remains, although do note that there are very complicated tariff rate quotas in place in NAFTA 2.0 that were not scrapped. Indeed, the level of genuinely new market access granted to partners that have known and worked with one another for decades is vanishingly small. While much focus, as an example, has been on Canada’s new market access for dairy, the total amount given amounts to barely 0.4%. And the United States, in return, has an equally complex system of barriers in place to protect its own dairy industry from competition (as well as sugar, oranges, and others). The deeply problematic bits of the agreement can be found buried in the texts. For instance, the rules of origin (ROO) are incredibly complicated. Given that tariffs are zero, the only way to keep out goods is to craft ROOs that are impossible to follow. Clearly, for many products, this objective has been met. The level of NAFTA content required in fairly large swaths of products is extremely high. Commentators keep focusing on the insane requirements for auto production, but note that for a wide range of goods, new NAFTA content rules require 50% or more content. To make matters worse, in many products, these rules tighten after 3 years, rising to as much as 70% local (ie NAFTA) content.
Negotiations started in March 2010. The original deal was finished in January 2016 with 12 parties. When the United States withdrew a year later, many people expected the agreement to die a quiet death. However, officials persevered and fought hard to maintain the high quality of the trading arrangements. For many, this meant accepting tough provisions originally negotiated as part of a comprehensive package with 12 members. The consequences of the final agreement are important for companies. Our brand-new booklet on 10 Benefits of the CPTPP can be downloaded here. The final agreement signed in Chile pared back the commitments by suspending 19 elements, amending one provision, and clarifying the terms for two others. (For more specific details, see our revised Policy Brief 17-11a.)
The Financial Times has reported that the UK’s Department of International Trade has begun circulating a proposal for the UK to join the Trans-Pacific Partnership (TPP) trade agreement. There are at least four issues to be addressed: 1) Why would the UK want to join the TPP? 2) Does the TPP even allow the UK to join in the first place? 3) Why would the TPP members want the UK? 4) Is it possible to make a deal happen and when?
November 2017: This is an updated version of an earlier post on Talking Trade, modified to reflect the TPP11 changes and the expansion of the agenda in RCEP. However, because RCEP, especially, remains under negotiation, the assessment should be viewed with some caution. For further discussion on how you can use or influence these agreements, please see us soon at the Asian Trade Centre.
Proving once again that good ideas cannot be killed, the Trans-Pacific Partnership (TPP) is ready to move into force as soon as next year. Companies had largely given up on the TPP after the withdrawal of the United States. Now firms will need to scramble to figure out how the agreement matters to their business and what steps they should take to maximize the opportunities and minimize the risks arising from the most important trade agreement in decades. What makes the TPP so relevant is the deep, interlocking nature of the commitments. Unlike other free trade agreements (FTAs), the TPP doesn’t simply open up trade in some goods or partially address services or investment. It manages to better reflect the way that firms actually structure business operations today. It will allow companies to more seamlessly move goods, services, and investments between and across TPP member markets. This benefits not just the biggest firms that have always had advantages of scale, but smaller firms that often struggle to sort out complex rules in trade deals.