A new year’s present from CPTPP: Double tariff cuts and everything else

In their rush to become one of the first signatories, in fact, CPTPP members have actually delivered an unexpected, early New Year’s gift.  Not only does the entire agreement begin on the first day, but most firms will get double tariff cuts by January 1, 2019.

What does this mean?

Start with the basics: on December 30, 2018, the full legal text of the CPTPP will come into force for Australia, Canada, Japan, Mexico, New Zealand, and Singapore.   Every single provision in the 583 pages will become active on the very first day for these six member countries.

Regulatory Commitments

This means every rule that governs trade in:

·      market access for trade in goods,

·      textiles and apparel,

·      customs and trade facilitation,

·      trade remedies,

·      sanitary and phytosanitary measures,

·      technical barriers to trade,

·      investment

·      cross-border trade in services,

·      financial services,

·      temporary entry for business persons,

·      telecommunications,

·      electronic commerce,

·      government procurement,

·      competition policy,

·      state-owned enterprises,

·      intellectual property,

·      labor,

·      environment

·      cooperation and capacity building,

·      competitiveness and business facilitation,

·      development,

·      small and medium enterprises,

·      regulatory coherence,

·      transparency and anti-corruption,

·      institutional provisions, and

·      dispute settlement

is active on December 30, 2018.

Market Access Commitments

In addition to the legal texts, all of the market access commitments and market access schedules for all members begins on December 30, 2018.  This means that all six countries will immediately open up all trade as promised or committed through schedules shown in:

·      Investment and cross-border trade in services (Annex I and II commitments)

·      Financial services

·      Temporary entry for business persons

·      Telecommunications

·      Government procurement

·      State-owned enterprises

Tariff Cuts for Goods

Every tariff line for every product will be cut starting on December 30, 2018.  Some of these initial cuts will be steep and many will be set all the way to zero for qualifying products.

As an added bonus, firms will receive a second tariff cut from five members (Australia, Canada, Mexico, New Zealand and Singapore) on January 1, 2019. 

This means that by January 1, 2019, these five countries will have granted tariff access equivalent to “Year 2” on the CPTPP tariff schedules to CPTPP firms. (Do note some complications with tariff rate quotas for some goods.)

Japan’s “Year 2” commitments will come into force on April 1, 2019. 

Vietnam’s Commitments

Vietnam will join the first six members just two weeks later, on January 14, 2019.  For Vietnam, nearly every rule will also begin on the first day, with a few exceptions.  Vietnam has some deadline extensions for rules in intellectual property and a couple found elsewhere in the agreement. 

Vietnam’s own commitments in all of the scheduled market access areas begins on January 14, 2019. 

When Vietnam joins on January 14, it will grant tariff access equivalent to “Year 2” in its own market access schedule for goods.  Essentially, it will also be giving CPTPP firms double tariff benefits from its first day in the agreement. 

There are also some side letters (instruments) that apply between the seven members.  One, in particular, excludes Vietnam from the e-commerce chapter commitments for a period of five years, until January 1, 2024. 

Rules of Origin

As with every trade agreement, the duty reductions only apply to goods that meet the rules of origin (ROOs).  The CPTPP has some complicated rules to follow, especially for textiles and footwear, so firms inside CPTPP countries shipping to other CPTPP countries need to read the fine print carefully to ensure that products are legally allowed to claim tariff preferences. 

Without meeting the ROOs, firms cannot use the lower CPTPP tariff benefits. 

As always, only products from one CPTPP country qualify for entry into another CPTPP country.  A firm cannot make goods in a non-CPTPP country and ship them through a CPTPP country and claim benefits.  But the CPTPP does not care about the tax registration or domestic headquarters of a company—if a product is substantially transformed or otherwise meets the ROOs of the agreement, it counts as “CPTPP originating.”

Note that there is no certificate of origin (CO) document for the CPTPP.  Instead, there is a list of required field elements that must be in documentation delivered to customs officials. 

Domestic Level Implementation Issues

While the CPTPP is a comprehensive document, it sometimes is more of a framework.  In other words, in some areas, the agreement will also need to be viewed carefully with an eye towards the domestic level implementation in each member country. 

As an example, the agreement is full of commitments by the member governments to transparency, with many pledges to publish information.  While welcome, the deal does not say how such information shall be communicated—where will information on regulations or standards be published?  How often will be it updated?  Will it be made available in certain languages?  Online?  How quickly will this information be forthcoming after the agreement comes into force?

What Next for Firms?

Companies appear to have been slow in understanding and planning for CPTPP entry into force.  With only a few short days remaining and staff members typically taking leave at this time of year, firms are likely to be caught off guard by the start of the agreement. 

The CPTPP is not a typical free trade agreement.  The deep, interlocking nature of the deal means that firms receive considerably greater benefits from this agreement than past FTAs.  This is likely to be true even if it applies to trade between two members that are already covered by an existing deal.