In the works for about eight years now, the Trans-Pacific Partnership (TPP) could come to fruition as early as this coming spring. With the World Trade Organization (WTO) projecting a 4 percent increase in world merchandise trade in 2016 (up from 3.3 percent last year and 2.8 percent in 2014), now is the time for shippers to explore both the opportunities and challenges associated with this new agreement.
According to the Office of the U.S. Trade Representative (USTR), the TPP writes the rules for global trade – rules that will help increase “Made-in-America exports, grow the American economy, support well-paying American jobs, and strengthen the American middle class.” Once ratified, this new initiative could present new trading opportunities in the sphere of global trade, where the North American Free Trade Agreement (NAFTA) has reigned since being ratified in 1994.
Twenty-two years later, TPP has the potential to expand NAFTA’s reach – both in terms of the countries that it impacts and the opportunities that it presents. It may also present challenges for shippers as they get comfortable with the ins and outs of the new agreement.
Taking Global Trade to New Levels
The USTR defines TPP as “new high-standard trade agreement that levels the playing field for American workers and American businesses, supporting more Made-in-America exports and higher-paying American jobs.” By eliminating over 18,000 taxes—in the form of tariffs—that various countries put on Made-in-America products, TPP makes sure farmers, ranchers, manufacturers, and small businesses can compete—and win—in some of the fastest-growing markets in the world.
The countries impacted by TPP include the U.S., Australia, Canada, Japan, Malaysia, Mexico, Peru, Vietnam, Chile, Brunei, Singapore, and New Zealand. The U.S. ships more than $1.9 billion in goods to these countries every day, the USTR reports, and works to build on those exports by negotiating comprehensive and preferential access across an expansive, duty-free trading region for the industrial goods, food and agriculture products, and textiles.
The five defining features that make up the TPP are:
- Comprehensive market access. The TPP eliminates or reduces tariff and non-tariff barriers across substantially all trade in goods and services and covers the full spectrum of trade, including goods and services trade and investment, so as to create new opportunities and benefits for businesses, workers, and consumers.
- Regional approach to commitments. The TPP facilitates the development of production and supply chains, and seamless trade, enhancing efficiency and supporting the goal of creating and supporting jobs, raising living standards, enhancing conservation efforts, and facilitating cross-border integration, as well as opening domestic markets.
- Addressing new trade challenges. The TPP promotes innovation, productivity, and competitiveness by addressing new issues, including the development of the digital economy, and the role of state-owned enterprises in the global economy.
- Inclusive trade. The agreement includes new elements that seek to ensure that economies at all levels of development and businesses of all sizes can benefit from trade. It includes commitments to help small- and medium-sized businesses understand the agreement, take advantage of its opportunities, and bring their unique challenges to the attention of the TPP governments. It also includes specific commitments on development and trade capacity building, to ensure that all parties are able to meet the commitments in the agreement and take full advantage of its benefits.
- Platform for regional integration. The TPP is intended as a platform for regional economic integration and designed to include additional economies across the Asia-Pacific region.
According to the USTR’s most recent numbers, the U.S. exports more than $622.5 billion of manufactured products to TPP countries. With the elimination of TPP countries’ tariffs on manufactured products, it adds, U.S. products will compete on a more level playing field with goods from TPP countries’ other free trade agreement (FTA) partners – including China, India, and the EU.
As just one example, certain U.S. auto parts currently face a 27-percent tariff entering Vietnam, the USTR states. “Meanwhile, countries that have an FTA with Vietnam, such as China, Thailand, and Indonesia, export their auto parts to Vietnam tariff free. By eliminating tariffs U.S. auto parts companies face, TPP would help boost America’s competitiveness in the Vietnamese market.”
Managing the Complexities of Global Trade
At a high level, the TPP is expected to stimulate trade and investment throughout the Trans-Pacific region. This, in turn, should stoke economic growth both in the U.S. and for the 11 other participating countries. Logically speaking, this increased trade and investment will create new opportunities for a wide range of organizations that import and export goods. By eliminating tariffs on trade between the TPP countries, for example, the new agreement will bring down some the existing barriers that prevent trading partners from transacting more (or, at all).
“TPP is an historic agreement precisely because of the opportunity it represents for U.S. exporters,” wrote Stefan M. Selig, under secretary of commerce for international trade in The Trans-Pacific Partnership: A Win for American Businesses and Workers. “By reducing or eliminating tariffs as well as non-tariff barriers, TPP will give our businesses improved access to 11 Pacific Rim markets collectively representing 40 percent of global GDP.” Additionally, the majority of middle class consumers over the next 15 years (3.2 billion people according to the OECD) will reside in the Asia-Pacific region, Selig continued, “which is also estimated to generate nearly half of global economic growth over the next 20 years.”
That global economic growth will come with new complexities and sophistications on the logistics and transportation front – particularly for those companies that aren’t currently engaged in global trade and those that want to increase that aspect of their businesses. Overcoming these obstacles – and getting products and equipment to the right place and at the right time – are ongoing missions that can only be attained by working with experienced, capable transportation and logistics partners.
With around 2,000 locations in all of the world’s most important economic regions, DB Schenker is well positioned to serve as a valued transportation and logistics partner for companies that want to leverage TPP-related opportunities. With a global network geared toward customer service, quality, and sustainability, DB Schenker understands the ins and outs of global trade agreements and the related compliance, regulatory, and customs requirements associated with TPP and other global trade partnership agreements.
Click here for the text of the Trans-Pacific Partnership.