Although China did
not participate in or sign on to the Trans-Pacific Partnership Agreement
("TPP"), the agreement is an issue many of our China clients are
monitoring. The countries that signed the TPP together represent 40% of global
GDP. Several of the signatory countries - including Japan, Malaysia, Singapore,
and Vietnam - represent key Asian markets for companies operating in China.
This is especially true for those that engage in manufacturing in China and
already have a "plus one" country or are contemplating one.
The United
States and other countries are getting ready for legislative and governmental
procedures to fully accept TPP and make it a legally binding agreement. During
this time, and specifically as the TPP's text is released to the public,
companies operating in China should stay informed about TPP details and exactly
what TPP signatory countries have agreed upon. This is especially true for
those companies in China that export to countries that signed the TPP.
To provide
you with this necessary information, we plan to post regularly about TPP.
It's been
almost a month since the Trans-Pacific Partnership Agreement ("TPP")
was concluded on October 5, but the final TPP text has not yet been released to
the public for analysis and comment. This has not stopped folks - particularly
2016 US Presidential candidates - from talking about the historic trade deal.
Former
Secretary of State Hilary Clinton distanced herself from the deal, stating that
it did not seem to meet her "high bar" standards for creating good
American jobs and higher wages. Donald Trump went further and called TPP a
"disaster."
Those of us
in the United States not running for President and not currently serving in the
Administration or Congress do not enjoy access to the TPP text. Consequently,
for now, we must rely on the words of the office that negotiated the TPP on
behalf of the United States: US Trade Representative ("USTR") Michael
Froman.
The
following information about the TPP was provided by the USTR in a report
entitled 18,000 Tax Cuts on Made-in-America Exports.
The TPP
will eliminate more than 18,000 taxes and other trade barriers on US products
exported to the other 11 countries that signed the TPP.
Currently,
the average US tax applied to all imports from other countries is 1.4%; the
average tax other countries impose on US imports is over twice as high.
Other TPP
signatory countries impose up to 100% import taxes on US manufactured products
and up to 700% import taxes for US agricultural goods.
As a result
of TPP, signatory countries' import taxes of up to 55% on wine will be
eliminated, as will the current import taxes of up to 35% on certain seafood
products and up to 20% import taxes on US iron and steel products .
The TPP has
a dedicated chapter on small- and medium-sized businesses and how such
businesses can enjoy trade benefits.
The TPP
protects workers' rights by including provisions on minimum wages, collective
bargaining, free association, and workplace safety. Under the TPP, countries
that violate these workers' rights provisions can face trade sanctions.
If the TPP
is signed and implemented, other countries' import taxes on US cars will be cut
by as much as 70%, by as much as 40% for poultry and tires, and by as much as
25% for paper.
USTR has
summarized some of the most important benefits that TPP can offer US companies:
reduction of other countries' import taxes or tariffs on US products. An
important question for US companies will be what qualifies as a "US
product "such that it enjoys a reduction in other countries' import
tariffs under TPP.
Specifically,
US companies must analyze TPP requirements for original US content that must be
satisfied before a product qualifies for reductions in other TPP countries'
import tariffs. By way of example, if an automobile manufactured in the United
States contains over 40% of input parts and materials imported from other
countries, will it qualify for the up to 70% reduction in TPP countries' import
taxes?
The USTR's
details about specific tax cuts is informative, as is the way in which the USTR
report identifies benefits on a state-by-state basis for US companies exporting
products to TPP signatory countries. However, the USTR summary data is just
that - a summary. We need the details before we can participate in an informed,
meaningful public discourse about TPP's advantages and disadvantages. Only
after reviewing the full agreement can we determine whether we should embrace,
distance or "disaster" the TPP. Nonetheless, as you can see from the
above, TPP will no doubt lead to big trade changes that will necessarily impact
US China trade.
For more on
the TPP and on the steps the United States has taken and must take to finalize
the TPP, check out the following:
TPA ⇒ TPP - Part 1
TPA ⇒ TPP - Part 2
TPP Will
Hurt China Companies
The Calm
Before the TPP Storm
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