The Trans-Pacific Partnership: 12 countries, 800 million people and 40 percent of world trade

Doug Ferguson, Partner in Charge, Asia Business
Doug Ferguson, Partner in Charge, Asia Business

The announcement of a breakthrough in the Trans-Pacific Partnership (TPP) negotiations overnight appears to be very positive news for the export of Australian goods and services and cross border investment. By design, the TPP is extremely comprehensive and multi-lateral, so there are a lot of details to be ironed out and understood before (mostly) democratically elected parliaments of the 12 member countries formally approve and enact the TPP by the target of mid-2016.

Free trade agreements are certainly proving the flavour of this decade, particularly between western countries like Australia and Asian trade partners. If we looked at a map and tried to plot out the myriad of existing FTAs between counties, it would resemble a bowl of spaghetti making it extremely confusing for companies, let alone government bodies, including taxation authorities, to understand and properly implement.

There is clearly an overlap between the proposed TPP with Australia’s existing bilateral FTAs with USA, Japan, Malaysia, Chile, Singapore, New Zealand and ASEAN. So far we are told the TPP will co-exist with these FTAs but inevitably there will be discrepancies. Companies will need to carefully and specifically understand which takes precedence and if it is the TPP, are we indeed better off?

One of the great strengths of the TPP is that it recognises that companies are now operating regionally if not globally. One common set of rules for the 12 member countries should simplify the manufacturing/ supply process and make the finished products largely, if entirely within the TPP region, tariff free. For example, a food product that is grown in Australia, processed in Singapore with seasoning from Chile, packaged in Malaysia and sold in Canada or Japan would benefit under TPP and ultimately be cheaper to the end consumer.

Another great opportunity is the TPP may further promote inbound investment to Australia. As we are seeing with the China Australia Free Trade Agreement (ChaFTA), the trade benefit for Australian agriculture is also driving increased global investment interest in our agribusiness sector in 2015 and beyond.

However China, the second largest global economy, the largest trade partner for over 125 countries and a rising and globally integrated investor is presently excluded from the TPP. Beyond rising regional geopolitical rivalries, the fact that many of the world’s finished consumer and industrial products have Chinese inputs or are manufactured or assembled in China potentially complicates the structural integrity of the TPP. This becomes even more complicated for services with Chinese e-commerce platforms redefining the traditional goods “rule of origin” classifications.

Australia is obviously fortunate to have negotiated with China a very advantageous ChaFTA so we appear well covered. In terms of timing, it may have been preferable to have formally concluded the ChaFTA but the Chinese have long been aware of our intention to join the TPP and hopefully this news doesn’t disrupt business.

According to the Trade Minister’s office, “TPP negotiating parties are now finalising arrangements for the release of the TPP text, and it will be released well in advance of signature.

Each country will then undertake its domestic treaty-making process. For Australia, this will involve tabling the treaty text in parliament along with a National Interest Analysis and a review by the Joint Standing Committee on Treaties to which all interested parties can make submissions.

The final text is yet unknown and until then, the complex local web of negotiations cannot begin and the final deal signed. But after eight years of negotiation we can look forward to co-operative economic improvements for all the nations involved.

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