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.
The final version of the TPP was released this morning. After more than a year of renegotiation, the release seems like a bit of an anticlimax—the whole “text” is 9 pages. This does understate the issue, of course, since the entire original agreement is now incorporated by reference. The eleven country members are meeting in Chile on March 8 for signature. TPP11 is now on track to begin later this year. Firms should no longer delay. The benefits on offer are substantial. See our latest booklet on how to prepare. For regular readers of Talking Trade, I’m delighted to report that you already knew what the Comprehensive and Progressive Trans Pacific Partnership (CPTPP) contains.
The 11 members of the Trans-Pacific Partnership (TPP) wrapped up the final negotiations on the trade agreement this week in Tokyo. The TPP11 or Comprehensive and Progressive TPP (CPTPP) is set for formal signature on March 8 in Chile. Most businesses will not be prepared. Many firms expected the agreement to fade away. Hence, few have made contingency plans for implementation. Now, the clock is ticking before the agreement takes effect starting in late 2018 or early 2019. Nearly all of TPP11 begins on the very first day (entry into force or EIF), including all market opening for services, investment, most changes in customs procedures, the majority of tariff cuts and more. Most of TPP11 is identical to what was negotiated originally. The majority of the deal remains intact.
The primary difference between the original 12 party Trans-Pacific Partnership (TPP) and the new 11 party version is a set of “suspended” provisions. This is a list of 20 items that officials from the member countries have agreed to remove temporarily from the free trade agreement texts. These suspended provisions (found in Annex 2 of the CPTPP) are meant to be reinstated at some future date. In other words, these elements of the TPP may come back into the agreement as originally negotiated. Between now and then, member governments are not required to implement these rules at the domestic level. Many commentators with an unclear understanding of the TPP have assumed that these suspended provisions are a significant proportion of the document. The removal of both the United States and the 20 elements, therefore, has been said to make the TPP11 less relevant. Neither is the case. The TPP11 (or the CPTPP) is extremely important for companies and continues to set the benchmark for future trade agreements globally.
In other words, all of the existing annexes from the TPP agreement remain unchanged. All tariff cuts will take place on schedule as planned. All services open as intended. All investment is opened as indicated for TPP11 firms. All procurement access that was originally scheduled will continue. Furthermore, there are zero changes to the legal texts at all (beyond removing references to the United States) in the original chapters for 1-4 (definitions, market access for goods, rules of origin, textiles), 6-8 (trade remedies, sanitary and phytosanitary, technical barriers to trade), 12 (temporary movement of business persons), 14 (electronic commerce), 16-17 (competition, state owned enterprises), 19 (labor), 21-25 (cooperation and capacity building, competitiveness and business facilitation, development, SMEs, regulatory coherence), 28 (dispute settlement).
Broken down, the new elements are the inclusion of the suspended bits (discussed more below), the revised entry into force (necessary after the US pulled out), a new section on withdrawal (the necessity of which was made crystal clear after the US pulled out), a new section on accession (since the old one was too vague anyway), a potentially interesting article 6 that seems to review the whole agreement in the future, and article 7 that copies across all of the original commitments and texts from TPP12. What this means in practice is that the CPTPP or TPP11 has identical schedules and commitments for members to TPP12. Everyone should start pulling out their TPP12 materials and reviewing documents to refresh memories now. Firms need to prepare for entry into force which is coming up fast.