The Trans Pacific Partnership (TPP) and International Supply Chain Development

Source: Office of the US Trade Representative

Source: Office of the US Trade Representative

In last Friday’s “This Week in Logistics News” blog post, I mentioned that the TPP details had finally been released by the participating countries’ governments. Since Friday, I have spent a good deal of time reviewing the TPP trade agreement for topics of relevance to the logistics and logistics technology industries. Here is my first finding – I could never have been a lawyer. The document is not an easy read, to say the least. This should also be seen as a disclosure that my interpretation is that of a layman. I am not an attorney.

In July, I wrote a Logistics Viewpoints post on the structure of the TPP. Obtaining details of the agreement was difficult at that time. Well, now that the details have been released, understanding their implications has become the challenge. The TPP includes policies on the reduction of trade barriers, investments, labor, and intellectual property. I will focus this article on policies related to the reduction of trade barriers and the development of international supply chains, leaving the other topics for future discussions.

Reduction of Trade Barriers
The TPP participating countries are working to integrate multi-national supply chains through the reduction in government imposed competitive barriers. Examples of current tariffs outlined on USTR.gov include a 27 percent Vietnamese tariff on US made auto parts, a 40 percent tariff on poultry entering Malaysia, and tariffs from a number of countries on US made textiles. The TPP agreement outlines the schedules for reduction in tariffs. For example, the US tariff elimination schedule includes staging categories along with the schedules for both the elimination of duties and rate reductions for those categories that are not immediately eliminated. The elimination schedule ranges from the time of TPP adoption to January 1 of each subsequent year out to year 8. Thereafter, the schedule includes broader periodic ranges extending out to 20 years from TPP adoption.

Rules of Origin
The TPP agreement includes a common set of rules of origin to determine whether or not a given product or item originates within the TPP region, and therefore qualifies for preferential, low tariff treatment. There are product-specific rules that limit the type and/or amount of non-TPP materials that can be used if the product is to be treated as a TPP originating good. The concept of “cumulation” is used to describe the way in which materials from one TPP country can be treated the same as materials from any other TPP country when making a TPP good. This is a key concept in the development of more seamless international supply chains among TPP participants, and will provide an incentive and financial advantage to cooperation among companies within the trade partnership area.

Technical Barriers to Trade
The TPP outlines policies for streamlining technical regulations, standards, and approval processes across the trade area. The participating countries will accept qualified testing and certifications performed in any other participating country as if the procedures occurred within their own national borders.  The agreement also provides guidelines and protections to some specific industries and technologies. For example, there are protections for providers of cryptographic communications technology, forbidding governments to force these providers to divulge their private keys or secret parameters.  As another example, a pharmaceutical’s pricing is not allowed to play into the drug’s approval for marketing in a given country (“if you reduce the price of sale, we’ll approve it.”).

Cross Border Trade in Services
The TPP provides guidelines for cross-border trade in services, as well as physical goods. Since logistics is itself a service, this portion of the agreement is particularly relevant to logistics service providers. The agreement includes as a goal, to recognize professional qualifications and facilitate licensing and registration procedures across the participating countries. Air services are noted as an important function in facilitating the expansion of trade. Parties are encourages to liberalize air services through agreements providing air carriers with greater flexibility on routing and frequencies. However, the chapter specifically states that its text does not apply to domestic or international air transportation services.  Therefore, the content is focused on ancillary and support services.

Express delivery services (land, local, etc. – not air express) received its own Annex (Annex 10-B). In my opinion, the most notable measure related to express delivery services is the provision that bars participating countries from subsidizing parcel delivery services with revenues from their respective postal monopolies. Similarly, it includes a provision banning participating countries from requiring foreign express delivery service providers to supply a universal postal service as a condition for obtaining a parcel delivery license within that country. Finally, there is also a provision banning the assessment of fees on foreign parcel delivery providers to subsidize a different delivery service (I assume subsidizing domestic service providers was the concern).

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  1. […] The Trans Pacific Partnership (TPP) and International Supply Chain Development: The TPP details have finally been released by the participating countries’ governments – the participating countries are working to integrate multi-national supply chains through the reduction in government imposed competitive barriers. […]