A new trade agreement, the Trans-Pacific Partnership-11 (TPP-11) Agreement will be signed in Santiago, Chile, on 8 March 2018.
This new agreement replaces an earlier version that was kyboshed after President Donald Trump decided the US would not be a part of it.
While the US has recently changed tack, indicating it may be open to supporting this new deal, it won't be part of the March signing.
“TPP-11" is a new agreement to be known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Talks about the deal were finalised in Japan in January this year.
Canada has agreed to be a part of the new agreement, which also includes Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
According to Steven Ciobo, who is Australia's Minister for Trade, Tourism and Investment, Australian farmers, businesses and all exporters are likely to be the major beneficiaries of the deal.
In a 21 February 2018 media release, Ciobo has stated the TPP-11 will help create new jobs in agriculture, manufacturing, mining and services, as well as trading opportunities throughout the Pacific.
Tariff reduction and elimination
The Trade Minister estimates the deal extinguishes more than 98 per cent of tariffs across the countries that are signatory to the agreement, representing a trade zone that has a $13.7 trillion combined GDP.
His statement also notes the TPP-11 delivers, “significant increases in market access for Australian goods and services, most notably improved access to the Japanese market for a number of our agricultural products."
It's also the first time Australia has established free trade agreements with Canada and Mexico, giving Australian exporters access to two of the world's largest economies.
Ciobo outlines the deal on a sector basis:
· Beef: Japanese tariff reductions will be accelerated, while Canada and Mexico will totally remove tariffs within 10 years.
· Wine: Canada to do away with tariffs altogether.
· Dairy: Japan to further reduce cheese tariffs not already agreed to under Australia's existing free trade agreement with Japan, while new lower quotas will be introduced by Mexico and Canada for cheese, milk powders and butter.
· Lamb and sheep meat: tariffs removed.
· Resources and energy: tariffs all removed on exports to TPP-11 countries.
· Sugar: tariffs scrapped for high polarity sugar exports to Japan.
· Manufacturing: tariffs removed for exports to TPP-11 countries.
· Rice: new access to the lucrative Japanese market, tariffs for Mexico scrapped. Additionally, services exports will also benefit under the TPP-11 agreement.
· The Minister expects service industries will benefit by guaranteed access to TPP-11 export countries, lower regulatory risks and easier cross border trade and investment.
· The Department of Foreign Affairs and Trade (DFAT)'s own figures indicate local exports to TPP-11 countries were valued at more than $18 billion in the 2016/17 financial year, with this figure set to rise under the new agreement.
The department cites financial modelling by the Peterson Institute for International Economics (PIIE) which calculates TPP-11 could prompt a 0.5 per cent rise in Australia's national income by 2030.
DFAT says this figure is mainly an indication of the effect of tariff reductions on economic growth and that modelling free trade agreements is an inexact science because it is impossible to accurately predict the full future benefits of the deal.
“The fewer trade barriers Australian businesses face, the easier it is to trade, which in turn brings productivity improvements and higher competitiveness levels across our economy," Ciobo says.
Industry commentators have expressed relief the deal has gone ahead.
In a statement, Lisa McAuley, Executive Director of the Global Trade Professionals Alliance (GTPA) and the former Chief Executive Officer (CEO) of the Export Council of Australia (ECA), said that increasing trade and investment will be important to help the eleven countries involved in the agreement unlock opportunities.
“The Comprehensive and Progressive Agreement for Trans-Pacific Partnership is an important step forward at a time when the benefits of international trade are the subject of debate in various contexts," she said.
The GTPA holds the position that trade is a powerful driver of economic value creation, inclusion and poverty reduction, and also promotes peace and security.
The new trade agreement opens up opportunities for local businesses to develop new partnerships with companies in other nations – something that CFOs will often consider when forward planning to help drive profits and growth.
But the first step for CFOs is to understand the details of the accord.
“Businesses from all the 11 countries will need to review the revised agreement to determine any benefits relating to them," says McAuley.
She notes, however, that while agreements like TPP-11 open up opportunities for businesses, navigating the complex rules governing international trade remains a challenge.
Despite this, McAuley does not believe that introducing free trade agreements (FTAs) will create further complexity.
“The world is already a complex web of tariff rates, standards and entry requirements, and successful exporters and importers, both large and small, are already navigating their way around them," she says.
As with any new agreement or regulatory reform, businesses need to conduct thorough research and invest in the right skills to take advantage of the benefits the deal can deliver.
A key message for CFOs is to build relationships with bodies such as DFAT, GTPA and also Austrade to learn about the different opportunities the TPP-11 deal will produce.
These relationships may also help CFOs to build alliances with other firms to successfully leverage export opportunities to drive new business opportunities.
- TPP-11 replaces an earlier agreement that faltered when the US declined to be a signatory in January 2017.
- This deal removes 98 per cent of tariffs between the 11 signatory countries.
- It opens up the Japanese, Canadian and Mexican markets to Australian exporters, who will compete with local businesses in those markets for the first time.