Talking Trade blog
TPP: Investor FAQs
Published 01 December 2015
I have spent an amazing amount of time in the past week talking with investors, investment companies, hedge funds and the like about the Trans-Pacific Partnership (TPP). I thought it might be useful to share some of the frequently asked questions (FAQs) about what the TPP does and does not deliver for investors.
As always, for more details or help figuring out what the TPP might do for your company, please contact us at the Asian Trade Centre.
Who is in the TPP?
12 countries are currently members: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam
Who is not in the TPP?
Notably: China, South Korea, Taiwan and 6 ASEAN countries including Indonesia, Thailand and Philippines
Who might be in the TPP later?
I am projecting up to 20 members in total, with the addition of South Korea, China, Hong Kong, Taiwan, Philippines, Columbia, Costa Rica and Panama
When will expansion take place?
First we have to get the TPP approved and implemented with the current membership. Then it will likely need to run for at least a year before anyone is able or willing to talk about expansion. But if you do the math, expansion is possible in 3-5 years.
Can I see what is in the TPP?
Yes. The complete 1200 page set of texts, plus 5000 pages of country-specific schedules, and more than 100 side letters are available for your reading pleasure. Check out your favorite TPP member’s trade website for details or use the official repository documents from New Zealand at: http://www.mfat.govt.nz/Treaties-and-International-Law/01-Treaties-for-which-NZ-is-Depositary/0-Trans-Pacific-Partnership-Text.php
Wow. That’s a complicated agreement
Yes it is. Note that the benefits for your specific firm or industry are likely to be scattered across multiple places in the agreement, so you cannot simply check one chapter. I would note, however, that while the texts are dense, the possible savings or increased business opportunities for most companies makes it worthwhile to invest time and money in figuring out this deal.
When will it take effect?
Ah. This gets more complicated still. The short answer is that the United States has to approve the TPP by a majority vote in both houses of Congress before the TPP can enter into force and companies can start enjoying the benefits of the agreement. Thus, the timing is really dependent on how fast the Americans can get approval. Other TPP members are likely to wait until the United States has finished its messy internal procedures before they act. In a world of miracles, the TPP could come into effect by next fall. The second default option is entry into force in April 2018. The third default is any time after this date when the United States joins Japan and at least four other members.
Do you have to be a TPP registered company or pay local taxes or something to get the benefits of the TPP?
Not necessarily. The TPP is intended for use by TPP member firms for use in buying and selling goods and services with other TPP members. But what constitutes a TPP member firm is not the location of the headquarters or the tax domicile address. It gets a bit complicated, but basically what matters most is where, in geographic space, a firm creates and delivers products or services. A firm that makes orange juice inside Malaysia is likely to be a covered entity even if the headquarters of the firm is in Amsterdam.
Can I link up the TPP with other trade agreements?
No. You cannot take orange juice made in Malaysia and sell it in Europe using the TPP. The TPP is intended for companies buying and selling from TPP member countries into other TPP member countries. While member firms are likely to receive the greatest benefits from sourcing from TPP countries, note that the content in goods need not be 100% from TPP countries.
What does the TPP do for investors that they don’t get otherwise?
Please review the specific provisions of the investment chapter (also read my blog post from November 11). In brief, there are several key elements that make the TPP extremely helpful for investors. First, TPP investors have significantly enhanced market access. Basically, in the TPP, if a sector is NOT listed, it is opened for investment. Across all 12 members, the number of closed sectors or areas is extremely small and many of the closed areas are unlikely to be of much commercial interest to investors in any case. Second, TPP investors receive better protection of investments. The details are many but basically investors should have less risk and uncertainty arising from TPP investments in the future.
So, who wins and who loses in the TPP?
This is sneaky. If you are sitting in a big investment company, bank or hedge fund, you should be paying for this kind of information! All I will say here is that previously protected sectors may offer the most substantial benefits and market opportunities. Countries that were less open in the past will likely reap more benefits, all else being equal, than countries that have been extremely open.
What about non-members?
The potential implications of the TPP are substantial. Savvy firms will be carefully combing through the agreement to determine what benefits might apply and thinking hard about how to structure the company to take the greatest advantage of this deep and broad set of commitments. Not everything changes, of course. Firms that had substantial markets outside the TPP may continue to operate without impact. But the competitiveness of some firms may shift and create new opportunities that weren’t present before. Trade and investment may well be shifted from non-TPP members to TPP countries in the future. Whole factories could be unbolted and moved, however the more likely outcome is a gradual change in suppliers or customers or increased investments in member countries and a decrease in investment in non-members.
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