Tariff reductions and market access
The TPP is broader in scope than many FTAs. In addition, its multilateral nature results in a complexity that may not exist within bilateral agreements. That said, at its core the TPP is concerned with market access. In this respect a key outcome of the TPP is the reduction and removal of tariffs on a large number of goods. Tariff levels currently vary significantly as between TPP parties. For example, Australia has relatively low and limited tariffs on imports. That said, for certain countries and for certain goods, tariff levels remain significant. This is particularly true in respect of agricultural products and automotive goods.
TPP Chapter 2 reduces or eliminate a significant number of tariffs. The Parties obligations are not uniform and are particularised within individual country schedules in Annex 2-D. In respect of certain products tariffs will be eliminated when the TPP comes into effect. For other products tariffs will be phased out over the timeframe set out within each countries tariff elimination schedule.
Chapter 2 also contains various restrictions and obligations in regard to import and export restrictions. In this respect the TPP rightly recognises that the benefits of tariff reduction can be undermined by ancillary trade barriers. Consequently, and for example, the TPP Parties have agreed not to adopt any new waiver of customs duties where a waiver is conditioned on the fulfilment of performance requirements. Consistent with the overall goal of the TPP to encourage transparency and certainty in trade-related regulation, Chapter 2 includes specific provisions which require each Party to provide information in respect of both import and export licencing provisions although it does not affect the ability of parties to maintain export control measures.
Chapter 2 also contains specific provisions allowing for the re-entry of goods for repair and alteration, as well as duty-free entry of commercial samples, professional equipment, goods intended for display or demonstration and sports equipment.
The remanufacturing of goods is a growth industry in certain TPP countries. In this respect Chapter 2 contains provisions dealing with products which are not simply repaired but, rather, effectively restored to an as new condition. To the extent that a Party adopts or maintains measures prohibiting or restricting the importation of used goods, such measures will not apply to remanufactured goods.
Rules of origin
Rules of origin (ROO) are a key component of any trade agreement. The ROO define the goods that originate in the region covered by the agreement and, therefore, the goods that are eligible for preferential treatment.
TPP Chapter 3 includes a single set of ROO for the TPP countries to define whether a particular good is ‘originating’ and therefore eligible to receive TPP preferential tariffs. In certain circumstances, determining the origin of a good is relatively straightforward, for example when the question of origin relates to a primarily material such as a mineral ore which was extracted in the country of export. However, in practice, the question of origin for many goods is often more complex, due to the presence of several inputs which could be sourced from numerous different territories and the fact that the inputs are transformed to make a different product.
The TPP identifies goods which are wholly obtained or produced entirely in the territory of one or more TPP Parties as having TPP origin. The TPP also determines that goods produced entirely in the territory of one or more Parties, exclusively from originating materials, have TPP origin.
For products produced using non-originating materials, there is a Product-Specific ROO Annex which provides rules for determining when such products can be considered to have TPP origin. The Rules in the Product-Specific Annex are set out according to the tariff classification of the relevant product.
In general, the Product-Specific ROO Annex provides for TPP origin to be conferred where one or more of the following requirements is satisfied: (i) the product has a different tariff heading or subheading than the non-originating inputs; or (ii) if the so-called "regional value content" of the product is not less than a certain percentage of total value the product. In certain cases there are also other specific rules that can apply in the alternative or as further conditions. For example, Appendix 1 to the Annex sets out select optional regional value content methodologies that can be applied with respect to certain automobile parts. Further, there is a separate chapter on textiles and apparel which lays out specific ROO rules for those products.
Apart from the basic origin rules discussed above, the TPP ROO Chapter also contains accumulation provisions which allow inputs from various TPP parties to be used to produce a product within any TPP Party.
Another significant aspect of the TPP ROO Chapter is Section B concerning origin procedures. The provisions of Section B create a common TPP-wide system of showing and verifying that goods made in the TPP meet the rules of origin, thereby facilitating trade and reducing regulatory burdens.
Customs administration and trade facilitation
Customs processes can be complicated. There can also be significant variation between the processes used in different countries. In this respect customs process may, in themselves, significantly impact the efficiency of, and ultimately the levels of global trade. Burdensome customs processes may, in particular, negatively impact small and medium-sized enterprises which may lack the resources to effectively navigate the peculiarities of different systems.
The TPP does not do anything as radical as introduce a single customs system across the TPP Parties. Some of the provisions of Chapter 5 may be dismissed as containing motherhood statements around increased co-operation. That said, Chapter 5 does contain specific obligations in certain areas. In particular, it provides for specific obligations in regards to transparency, advanced rulings and penalties (amongst other things). If properly implemented Chapter 5 should assist in improving harmonisation as between systems, as well as introducing additional certainty and fairness into customs processes.
The ability to know in advance how customs will treat a particular good on import assists importers. TPP Chapter 5 contains specific obligation on Parties to provide advanced rulings to importers. Advanced rulings are to be issued as expeditiously as possible and, in no case, later than 150 days following the receipt of a ruling request. In addition, Chapter 5 contains specific obligations which provide importers with access to administrative review processes of advanced rulings.
Advanced rulings are to apply in respect of matters including tariff classification, the application of customs valuation criteria and whether a good is a TPP-originating good as set out in Chapter 3 in regard to rules of origin (ROO).
Timing of customs release
International trade is impeded where goods are not released from the customs process in a timely manner. Chapter 5 includes obligations regarding the release of goods. To the extent possible customs processes are to ensure the release of goods within 48 hours of their arrival.
The TPP also includes obligations to provide for the electronic submission and processing of customs information in order to expedite the release of goods from customs. Processes are to be implemented which allow for the release of goods prior to a final determination of customs duties and there are limitations on the amount of security which may be obtained by customs officials when goods are released prior to a final duty determination. The TPP also contains obligations regarding expedited customs procedures for express shipments.
The TPP seeks to limit the possibility for excessive customs penalties by requiring Parties to ensure that any penalty is ‘commensurate with the degree and severity of the breach’. The TPP also provides for transparency obligations in respect of customs penalties. For example, a Party must provide an explanation in writing to a person upon whom a penalty is imposed which specifies the nature of the breach and the procedure used for determining the penalty amount. While relevant TPP obligations can be dismissed as being general in scope, they have the capacity to positively affect businesses’ experience with customs officials and with the customs processes across the various TPP jurisdictions.
While the use of trade remedies have been criticised as protectionist in certain circles they are a well-entrenched feature of the international trade landscape and supported and legitimised by various WTO agreements. It was never expected that the TPP would take a radical approach to trade remedies. Relevantly, in respect of anti-dumping, countervailing duties and safeguard investigations and procedures, the TPP explicitly does not affect the rights and obligations of the TPP parties under existing WTO agreements. Chapter 6 of the TPP does, however, contain certain provisions which may ‘improve’ antidumping processes from a due process perspective and increase the transparency of decision-making. In this respect, while certainly not satisfying critics of the use of these processes, Chapter 6 provides for some positive developments.
Transitional safeguard measure
Chapter 6 contemplates that the phasing out of a tariff could lead to increased imports from TPP countries so as to cause serious injury to the domestic industry. Where these conditions are satisfied, a Party may introduce a transitional safeguard measure by suspending any further reduction of customs duties or increase the rate of that duty to an applicable MFN rate. A transitional safeguard measure is to be in place for two years with a possible extension for a third year. It will be interesting to see whether any reductions in tariffs cause substantial imports into any particular Party such that they consider invoking a transitional safeguard measure.
Anti-dumping and countervailing duty proceedings
The TPP explicitly recognises the right of parties to apply trade remedy measures (ie anti-dumping and countervailing duty measures consistent with WTO obligations).
Annex 6-A to Chapter 6 which sets out certain processes which the Parties consider promote the goals of transparency and due process in trade remedy proceedings. However, there is no specific obligation to ensure compliance with such processes and no dispute settlement right under the TPP arises in respect of Annex 6-A.
Technical barriers to trade
Differences in standards and difficulties in demonstrating conformity with another country’s standards has a negative impact on trade. In addition to the expense imposed on business in demonstrating conformity with various and differing standards, standards may be used as a means to protect domestic industry from imports.
While not undermining the ability of Parties to set standards, TPP Chapter 8 imposes process obligations regarding the development of standards and conformity assessment procedures including, for example, obligations which allow for the participation of importers in the development of standards.
In addition to general obligations, TPP Chapter 8 contains specific annexes covering wine and distilled spirits, information and communication technology products, pharmaceuticals, cosmetics, medical devices, formulas for certain food products and organic products.
Consistent with the approach taken elsewhere in the TPP, TPP Chapter 8 does not derogate from, or prevent a Party from adopting measures in accordance with rights and obligations under the WTO Agreement on Technical Barriers to Trade.
By reference to various provisions in the WTO TBT Agreement, the TPP provides that each TPP Party will accord conformity assessment bodies with national treatment. Where this obligation applies a certification by a qualified assessment body in one TPP country will be accepted as confirmation that the products or services meet the obligations of another party.
Consistent with the provisions of the TBT Agreement that there are various carve-outs which will allow a Party to undertake solely within specified government bodies located in its own territory conformity assessments in relation to specific products.
Chapter 8 imposes obligations which allow for participation in standard-making processes as well as greater transparency in such processes. Relevant transparency obligation include:
the TPP Parties must allow persons of other Parties to participate in the development of technical regulations, standards and conformity assessment procedures;
proposals for new technical regulations and conformity assessments need to be published; and
proposals must contain sufficient detail about the content so as to adequately inform interested persons and other Parties about whether, and how, their trade interests might be affected.
Cooperation and trade facilitation
Chapter 8 recognises the range of mechanisms that may facilitate cooperation in respect of the development of standards and the acceptancy of conformity assessment results. These include, for example, mutual recognition agreements between accreditation bodies and ongoing regulatory dialogue to achieve greater alignment between national standards.
Chapter 8 contains obligations allowing for information exchange and technical discussions between parties and creates a committee on technical barriers to trade which is to monitor the implementation and operation of Chapter 8 and, in general terms, encourage ongoing cooperation in respect to standard setting.
Cross border trade in services
Chapter 10 of the TPP concerns cross-border trade in services between TPP Parties. The Chapter includes the following core obligations:
- National treatment – The national treatment obligation requires no less favourable treatment of foreign services and service suppliers as compared to domestic services and service suppliers;
- Most-favoured nation treatment – The most-favoured national treatment obligation requires no less favourable treatment of services and service suppliers of one Party as compared to services and service suppliers of another Party;
- Market access – The market access obligation entails a prohibition on measures that impose numerical limitations with respect to services (for example, on the number of service suppliers in a service sector) or which restrict or require specific types of legal entity or joint venture through which a service supplier may supplier a service; and
- Local presence – This obligation stipulates that local presence cannot be a condition for the supply of a cross border service.
The TPP’s core obligations in respect of services are based on a "negative list" approach (ie the relevant commitments apply to all service types, unless they are specifically excluded by a Party). This approach is generally considered to the best option from a trade liberalisation perspective and has the advantage that new types of services developed after the TPP comes into force will be automatically covered.
There are two country-specific annexes attached to the TPP which are used by Parties to identify areas which are excluded from the TPP Chapter 10 core obligations:
- Annex I – Annex I sets out non-conforming measures to which the core obligations do not apply but with respect to which a TPP Party accepts an obligation not to make its measures more restrictive in the future; and
- Annex II – Annex II sets out sectors and policies where a TPP Party maintains full discretion to adopt non-conforming measures in the future.
TPP Chapter 10 on cross-border services also contains a number of other provisions. For example, there are rules on domestic regulation that concern, inter alia, administration in a general, objective and reasonable manner, and authorisation procedures and fees. In addition, there are provisions that deal with recognition of the foreign qualifications, transparency, payments and transfers that relate to cross-border supply of services and other matters. Further, there are annexes which specifically deal with professional and express delivery services.
In addition to Chapter 10 on cross-border trade in services, there is a chapter on financial services (Chapter 11) which also adopts a negative list approach as well as chapters on telecommunication services (Chapter 13) and electronic commerce (Chapter 14). There is also a specific chapter on temporary entry for business persons (Chapter 12) which includes agreements regarding the transparency of temporary entry requirements, ongoing cooperation on issues such as visa processing and specific commitments on access by business persons by all TPP Parties, with the exception of the United States, as set out in country-specific annexes.
The TPP provisions on trade in services are in many respects similar to the WTO General Agreement on Trade in Services (GATS). However, they are meant to provide for a greater level of trade liberalisation among the Parties. This is done chiefly through more specific provisions and the negative list approach (the WTO GATS follows a positive list approach, i.e. WTO Members only commit to follow rules in sectors which they have specifically identified as applicable in a Schedule).
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The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2020