On January 23, 2018, Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam reached an agreement in principle for a multi-country free trade area. The Trans-Pacific Partnership Agreement ("TPP") has been renamed and will be called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”). The United States is not a signatory to the CPTPP.
We don’t yet know when the CPTPP will be implemented but
it does appear that the 11 nations plan to finalize details and
formally sign the CPTPP in March. Although few details are publicly
available, it is not too early to start to assess how your
organization will be impacted.
Increased market access will both benefit Canadian organizations with new market opportunities and create new competitive challenges. Canadian organizations and those in the other 10 participating nations soon will be able to access each other’s markets under the new CPTPP rules.
To fully assess the opportunities for your organization, it is
important to keep in mind that Canada already has trade agreements
or arrangements with some of the other 10 participating nations
(Chile and Mexico, Australia), so there is going to be an overlap
with the new CPTPP.
Today, your organization may be using one of the existing agreements to move your products into or source products from those markets. For example, a Canadian manufacturer may ship to Mexico under NAFTA, or to Chile under the Canada-Chile Free Trade Agreement.
Consider the following:
- When the CPTPP is implemented, will it be better for your organization to use the new agreement or continue to ship/import under the existing agreement?
- If immediate use of the CPTPP won’t save your organization duty costs or improve efficiencies, will a later transition be advantageous; perhaps when the duties under CPTPP have gone to zero? If so, when should you plan to transition?
- A transition will mean new rules of origin, new reporting requirements and documentation. It also may mean that you will need to or you will have the opportunity to seek out new sources or customers to improve costs/revenues and efficiencies.
For example, for products produced in Canada and shipped to Mexico:
- If they qualify for preferential duty treatment under CPTPP, you will be able to export them to the CPTPP partner countries at lower duty rates for most products. The tariffs for many goods will not go to zero immediately but will be phased out over a transition period. It is important to understand how quickly your products will transition to zero under this new agreement; and
- If your organization currently uses NAFTA to export those goods, you will have established sourcing patterns to ensure that you meet the NAFTA rules of origin for shipments to Mexico. Likely, you have a reporting structure and procedures in place to ensure that you meet the NAFTA content, reporting and documentary requirements. Mexico is also a CPTPP partner so consider whether you could use that agreement to export your goods to Mexico and, perhaps, to other CPTPP countries as well. Under CPTPP your suppliers (e.g. those from the U.S.), and compliance procedures may need to change. The rules of origin and other requirements under the CPTPP will be different from those under NAFTA. This means that you may want to consider which of NAFTA or CPTPP best serves your organization’s goals. Does CPTPP give you the opportunity to assess your sourcing patterns and compliance processes? Will it give you the ability to access new customers? If so, what changes will be required? What changes are now open to your organization that could result in lower cost and more cost-efficient sourcing patterns (e.g. switching from a U.S. supplier to one of the other CPTPP countries or even from China) while still permitting you to meet the CPTPP rules of origin.
Complicating your assessment is the uncertain status of NAFTA. If the three parties are able to negotiate a new/updated trade agreement, we don’t know what it will look like; whether the rules of origin will change or even be attainable by your organization. This reinforces the need to fully understand your options and have a plan.
When the final rules of origin and transition period schedules are publicly released, you should carefully review and compare the duty rates your organization is paying today or those that may be available under an existing trade agreement. Assessing new markets and new sourcing opportunities now, and being ready to transition quickly when we have better information about NAFTA and the specific rules under CPTPP, will best position your organization to have a competitive advantage in this rapidly changing trading environment!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.