Trade barriers will be reduced among 12 countries, including the United States.
Encompassing dynamic economies across the Americas and Asia-Pacific regions, the Trans-Pacific Partnership (TPP) aims to make global commerce easier by reducing the red tape involved and streamlining exporting. With 95 percent of the world's consumers living outside the United States and the U.S. economy already comparatively open, trade agreements like TPP are a means to tear down barriers in overseas markets and help U.S. businesses reach new customers.
Participating countries represent 40 percent of global GDP, while the five new FTA countries have a combined population of 250 million.
After seven years of negotiation, 12 Pacific Rim countries, including the United States, signed the TPP at a meeting in New Zealand – one of five TPP countries that did not already have a free trade agreement (FTA) with the United States. The other four are Japan, Malaysia, Vietnam and Brunei.
The economies of the participating countries represent 40 percent of global GDP and, with a combined population of 250 million, the five new FTA countries represent an extraordinary opportunity for U.S. exports.
So, what does all of that mean for your business? Leslie Griffin, senior vice president for International Public Policy at UPS, shares five ways businesses stand to benefit from the agreement after ratification within individual countries, a process expected to take up to two years.
1. The TPP eliminates many trade barriers. "Trade barriers disproportionally hurt small businesses," Griffin says. "Many have less experience doing business internationally, and they don't have an army of lawyers, consultants or customs experts to help them understand complex barriers to trade."
Customs is a good example, she says, citing the fees involved and opaque, confusing documentation and regulations. "These issues can dissuade a small business from going global in the first place, and are often behind the holdups at the border." Delays can make or break a small business's relationship with a client.
2. Eliminates tariffs. Tariffs are essentially taxes that countries impose on goods each time they cross a border. TPP will eliminate more than 18,000 tariffs on made-in-America goods.
"Today there are global value chains, where multiple countries may add value during the process of production. As tariffs are imposed on the gross value of a good each time it crosses a border, this can really add up," Griffin says.
3. Streamlines regulations. TPP addresses the need for clear and transparent regulations across multiple sectors. Griffin shared this real-world example involving a UPS customer that sells vitamin supplements. "In Australia, they need approval from the Department of Health. In Germany, the supplements must be shipped to a German pharmacy with a prescription from a German doctor."
Similarly, toothpaste in one country may be regulated as a cosmetic, and in another as a health product. "TPP has provisions that aim to harmonize regulations and promote mutual recognition of standards from one country to another, with the private sector permitted to provide input when regulations are being drafted."
4. Opens new markets. "Of the 11 countries with us in TPP, there are some that we've had free trade agreements with in the past, but with five of the markets, it's the first time we've had a free trade relationship with them," Griffin says.
Consider Japan and Vietnam, for example. "Those are sizable markets, and companies that want to export to them are going to see tariffs coming down, and sectors previously closed to them opening up," she says. "That's going to create a lot of opportunity."
5. Promotes digital trade. TPP strengthens the foundation for e-commerce in many ways, which is a big help to smaller businesses that want to go global from day one. "Companies have a real chance to compete internationally, and with respect to e-commerce, TPP has a chapter that ensures countries don't block data flows, and that they keep the Internet open for trade," Griffin says. "In particular the agreement ensures non-discriminatory market access for electronic payment systems, as well as express delivery services, because you need both to make e-commerce work."
In the United States, legislation is expected to be introduced in Congress to approve TPP. In other countries, the agreement is gaining momentum. The Malaysian legislature has endorsed TPP. Mexico, Japan, Australia and New Zealand have presented TPP to their legislatures. "Things are moving forward in anticipation that this will come to pass," says Griffin. "I think that we'll see a vote in Congress during the lame duck session after the November presidential election. But it is important for businesses to speak up and let lawmakers know this is important to them, their workers and their ability to pursue new growth opportunities."
For more on how the TPP will benefit U.S. business, download this infographic or read this whitepaper.