You’ve probably heard about the Trans-Pacific Partnership (TPP) agreement in the last two weeks in some form or another. Since the release of the final text for the TPP agreement, along with President Obama’s announcement on November 5, 2015, that he intended to sign it, the TPP agreement has been a fairly hot topic—across all industries—with some aspects being more controversial than others. While we’re still sorting through the full text, we wanted to provide you with some background, answer some questions, and offer some insight about what the TPP agreement means for the transportation and logistics industry. Here are the top six questions our customers are asking about the TPP agreement.
What is the TPP agreement?
Essentially it is a proposed trade agreement between 12 countries—the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Similar to other trade agreements—think North American Free Trade Agreement (NAFTA)—the agreement seeks to encourage companies in these countries to conduct more business with one another. This is accomplished in many ways, including securing workers’ rights, reducing or eliminating tariffs and duties on imports and exports, and even creating a shared understanding regarding intellectual property.
How does it affect me?
Ultimately, the goal is that companies (likes yours) in the participating countries will be incentivized to work together because they’ll be saving money when importing and exporting goods. We think open markets and elimination of tariffs may be especially beneficial for companies in the textile and footwear industries as well as agricultural products including dairy, beef, and pork—but certainly not limited to these areas. Another outcome of this type of trade agreement is that manufacturing may shift to participating countries to maximize the potential savings—similar to the shift with increased manufacturing in Mexico, which directly correlates to the implementation of NAFTA. If the shift in manufacturing is great enough, the TPP agreement could also impact trade lanes, shifting the most popular lanes to participating countries.
When will the TPP agreement go into effect? (Or how soon can I start seeing savings?)
The passing of the Trade Promotion Authority (TPA) earlier this year should help expedite the process; however, for a trade agreement this significant, there’s still a long process involved before implementation. So even though the President announced his intention to sign the agreement, it does not mean things will change overnight. At the very earliest, the TPP agreement will likely not be reviewed (or approved) by Congress until December 2016. Even after the TPP agreement goes into effect, the majority of affected tariffs will not be wiped out immediately, but rather phased out over many years, which varies by country and commodity.
You mentioned saving money, how much are we talking?
Well, no one really knows for sure yet. However, the American Apparel & Footwear Association estimates that in the first year after implementation of the TPP agreement that the footwear industry alone will realize $450 million in savings. That’s only the first year. Over the course of 12 years—the timeline footwear duties will be phased out—the savings would be close to $6 billion in savings on duty from footwear imports alone.*
Do I need to change my global supply chain because of the agreement?
Right now the answer is not quite yet. We’re still in a waiting period to see if Congress will give the thumbs up or thumbs down (again, most likely late next year). If the agreement does go into effect, then there may be strategy changes you can undergo to reap the largest rewards, and that’s a conversation to have with your logistics provider at that time.
Where can I get more information?
At some point, you’ll want to have a conversation with your logistics provider about how this will (or won’t) directly impact your specific organization, but as nothing has officially changed as of yet, that conversation may be premature at this point. Here are a few resources I’d recommend if you want to learn more about the TPP agreement:
- The U.S. Trade Representative Website. They’ve put together a fantastic page that really outlines the major points without having to read through the full text. There are also links to chapter summaries and you can access the full text from here, too.
- The International Trade Administration Website. Their site breaks down the impact of the TPP agreement by state and industry.
Ultimately, the TPP agreement is a complicated issue, one that if it passes will certainly impact the transportation and logistics industry in many ways. What are your thoughts on the TPP agreement? Leave your comments below.
* “TPP Poised to Slash Footwear Duties by $450 Million in Year One, Says FDRA President,” International Trade Today, November, 10, 2015, 2-3.