Seminar for the WTC Tampa Bay-Feb 25, 2016

The New Trans-Pacific Partnership – How Can Tampa Bay Businesses Benefit?

By Susan L. (Susie) Hoeller, J.D., CITP, Hoeller Law Firm

 “When goods do not cross borders, soldiers do.”

– Frederic Bastiat, 19th century French economist

INTRODUCTION

  • TPP is a trade agreement among 12 Pacific Rim countries – the biggest trade deal in history –6,000 pages
  • It was signed on February 4, 2016 in Auckland, New Zealand – Former Prime Minister Helen Clark of  New Zealand originated the treaty negotiations 14 years ago, starting with NZ, Singapore and Chile
  • Today:  Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, Vietnam
  • South Korea and Indonesia want in
  • Look who is missing – TPP is a geo-political strategy not just a trade deal
  • The TPP countries produce 40% of global GDP and 26% of world trade
  • It has to be ratified by member countries – timetable for complete ratification is unclear but cannot exceed two years
  • U.S. Presidential Election:  Political opposition from left (Sanders and Clinton) and right (Trump and Cruz) – Rubio hedging – Kasich is for TPP
  • However, Congress has never voted down a trade deal struck under fast-track authority. This week, President Obama said he is cautiously optimistic that TPP will pass (on June 24, 2015, the U.S. Senate had passed fast track 60-38)
  • Some sectors will face tougher import competition but it will be a huge boost for U.S. exporters 
  • Non-tariff barriers and services are getting attention not just tariffs on goods

FLORIDA’S OPPORTUNITY

  • Florida is viewed as “the gateway for trade in Latin America” but people would be surprised to learn that 21% of the state’s current exports go to all TPP countries ($12.5 Billion)
  • Florida’s current top destinations for exports are Canada and Mexico. Three Latin American countries – Mexico, Chile and Peru are in the TPP (Statistics below)
  • Florida will benefit from the expanded Panama Canal which is 96% completed – the capacity of the Canal will be doubled

BENEFIT – MAJOR TARIFF CUTS FOR EXPORTERS

  • 18,000 tax/tariff cuts for Made in America exports per USTR
  • Projected impact on four industry segments:
  • U.S. manufactured products:  TPP eliminates import taxes on every Made in America manufactured product that the U.S. exports to TPP countries.  For example, TPP eliminates import taxes as high as 59 percent on U.S. machinery products exports to TPP countries. In 2014, the U.S. exported $56 billion in machinery products to TPP countries.
  • U.S. agriculture products: TPP cuts import taxes on Made in America agricultural exports to TPP countries. Key tax cuts in the agreement will help American farmers and ranchers by expanding their exports, which provide roughly 20 percent of all farm income in the United States. For example, TPP will eliminate import taxes as high as 40 percent on U.S. poultry products, 35 percent on soybeans, and 40 percent on fruit exports. TPP will ensure that foreign regulations and agricultural inspections are based on science, eliminating agricultural export subsidies, and minimizing unpredictable export bans.
  • U.S. information and communication technology products: TPP eliminates import taxes as high as 35 percent on U.S. information and communication technology exports to TPP countries. In 2014, the U.S. exported $36 billion in information and communication technology products to TPP countries.
  • U.S. automotive products: TPP eliminates import taxes as high as 70 percent on U.S. automotive products exports to TPP countries. In 2014, the U.S. exported $89 billion in automotive products to TPP countries.
  • See also the U.S. Commerce Department Fact Sheet for Florida (attached)
  • However, not all tariffs are eliminated – for example, Japan will retain tariffs on beef, although they will be slashed from 38.5% to 9%

BENEFIT – SUPPLY CHAINS

  • U.S. companies will be able to simplify their global supply chains if they take advantage of TPP’s unique “cumulation” provision.  The Rules of Origin chapter allows TPP countries to treat components and materials from one TPP country in the same way they treat components and materials from any other TPP country when the components and materials are used to make a TPP good. This cumulation concept strengthens incentives for U.S. companies to integrate production and supply chains within the TPP region.

BENEFIT – SMALL BUSINESSES

  • For the first time in any trade agreement, TPP includes a chapter specifically dedicated to helping small and medium-sized businesses benefit from trade. Small businesses are one of the primary drivers of job growth in the U.S., but trade barriers lock many small businesses out of important foreign markets when they try to export.  Less than 5 percent of all American small businesses export.  TPP unlocks potential for small businesses to expand their businesses by exporting more to the 95 percent of global consumers who live outside U.S. borders.
  • Each TPP country has to set up a special website to provide information about how small exporters can access their markets.
  • TPP addresses trade barriers that pose disproportionate challenges to small businesses, such as high taxes, overly complex trade paperwork, corruption, customs “red tape,” restrictions on Internet data flows, weak logistics services that raise costs, and slow delivery of small shipments.  TPP will make it cheaper, easier and faster for American small businesses to get their products to market by creating efficient and transparent procedures that move goods quickly across borders.

BENEFIT – SERVICES EXPORTS

  • TPP lifts restrictions and bans on access for U.S. businesses that export American services like retail, communications, logistics, entertainment, software and more.

BENEFIT – FOOD SAFETY

  • Ensures the ability of U.S. and other TPP regulatory agencies to regulate for the protection of food safety and plant and animal health.
  • Ensures food safety measures are developed and implemented in a

science- based and transparent manner.

  • Establishes tough provisions on rules of origin to help the U.S. combat illegal transshipments, including those of seafood.
  • Develops a consultative mechanism for regulatory experts to resolve food safety issues in a timely fashion.
  • Makes most food safety obligations enforceable through a dispute settlement process should the consultative mechanism not be successful.
  • TPP allows the FDA, the U.S. Food Safety and Inspection Service and the EPA to continue

taking all necessary steps to protect Americans from unsafe foods,

including by better aligning food safety systems in other countries with our

own.  When other countries enact unscientific, discriminatory measures, unfair barriers to trade are erected that hurt American farmers, fishermen, ranchers and food

processors.

BENEFIT – E-COMMERCE, DIGITAL FREEDOM, AND OPEN INTERNET

  • TPP includes cutting-edge rules to promote Internet-based commerce and one of the world’s great opportunities for growth. The agreement includes strong rules that make sure the best innovation, not trade barriers and censorship laws, shapes how digital markets grow.
  • TPP preserves free international movement of data, ensuring that individuals, small businesses, and families in all TPP countries can take advantage of online shopping, communicate efficiently at low cost, and access, move, and store data freely.  TPP also bans “forced localization” – the discriminatory requirement that certain governments impose on U.S. businesses requiring them to place their data, servers, research facilities, and other necessities overseas in order to access those markets. 

BENEFIT – FOR INTELLECTUAL PROPERTY CREATORS

  • TPP countries have committed to combat counterfeiting, piracy and other infringement including trade secret theft. There are obligations to facilitate legitimate digital trade including creative content and provisions to promote the development of and access to innovative and generic medicines and biologics. (See caveat below.)
  • Patents: TPP parties have agreed to adopt the best practice of allowing a grace period in which certain public disclosures of inventions will not be used to deny a patent application. This is very significant for universities and entrepreneurs.
  • Patents: There are provisions to facilitate the efficient processing of patent applications in multiple jurisdictions and this will benefit small and medium size businesses.
  • The parties are not prevented from taking measures to protect public health, including responding to epidemics. This will become an area of litigation between multi-nationals and governments and there is a special rule for tobacco currently.
  • TPP prohibits countries from overprotecting geographic names or indications which then shut out U.S. agricultural and food producers. TPP expands the definition of generic terms and provides safeguards for pre-existing trademarks.
  • TPP is the first trade agreement to impose criminal penalties for trade secret theft including by means of a computer.    
  • TPP is the first trade agreement whereby the parties cannot exclude state owned enterprises from the treaty’s IP enforcement rules.
  • TPP provides enhanced criminal penalties for trademark counterfeiting and copyright privacy and it is the first trade treaty to provide for IP enforcement of digital infringement not just for goods.
  • A huge change and one that is very controversial is a requirement to extend the term of copyright from the life of the author plus 50 years to life plus 70 years. This keeps works out of the public domain for an additional two decades.  
  • “Big-Pharma” issue – reduction of 12 year protection for biologics to 5 and 8 years

BENEFIT – THE STRONGEST WORKER PROTECTIONS OF ANY TRADE AGREEMENT IN HISTORY

  • TPP will require all countries to meet enforceable labor standards as stated in the International Labor Organization’s (ILO) Declaration on Fundamental Principles and Rights at Work.
  • The fully-enforceable labor standards include the freedom to form unions and bargain collectively; prohibitions against child labor and forced labor; requirements for acceptable conditions of work such as minimum wage, hours of work, and safe workplace conditions; and protections against employment discrimination.
  • TPP will result in the largest expansion of fully-enforceable labor rights in history, including renegotiating NAFTA and bringing hundreds of millions of additional people under ILO standards. TPP proponents claim this will level the playing field for American workers so they can win in the global economy – I am skeptical about this because of the of the low wages paid in poorer countries.

BENEFIT – THE STRONGEST ENVIRONMENTAL PROTECTIONS OF ANY TRADE AGREEMENT IN HISTORY

  • The agreement upgrades NAFTA, putting environmental protections at the core of the agreement, and making those obligations fully enforceable through the same type of dispute settlement as other obligations.
  • TPP requires all members to combat wildlife trafficking, illegal logging, and illegal fishing, as well as prohibit some of the most harmful fishery subsidies and promote sustainable fisheries management practices. TPP also requires that the 12 countries promote long-term conservation of whales, dolphins, sharks, sea turtles, and other marine species, as well as to protect and conserve iconic species like rhinos and elephants. And TPP cracks down on ozone-depleting substances as well as ship pollution of the oceans, all while promoting cooperative efforts to address energy efficiency.

BENEFIT – TPP DISCIPLINES STATE-OWNED ENTERPRISES (SOES)

TPP protects American businesses from unfair competition by State-owned companies in other countries, who are often given preferential treatment that allows them to undercut U.S. competitors. This includes the first-ever disciplines to ensure that SOEs compete on a commercial basis and that the advantages SOEs receive from their governments, such as unfair subsidies, do not have an adverse impact on American workers and businesses.

BENEFIT – TPP PRIORITIZES GOOD GOVERNANCE AND FIGHTING CORRUPTION

TPP includes the strongest standards for transparency and anticorruption of any trade agreement in history. As such, TPP strengthens good governance in TPP countries by requiring them to ratify or accede to the U.N. Convention Against Corruption (UNCAC), commit to adopt or maintain laws that criminalize bribing public officials, adopt measures to decrease conflicts of interest, commit to effectively enforce anticorruption laws and regulations, and give citizens the opportunity to provide input on any proposed measures relating to issues covered by the TPP agreement. TPP also requires regulatory transparency policies based on standard U.S. practice.

BENEFIT – TPP INCLUDES FIRST EVER DEVELOPMENT CHAPTER

For the first time in any U.S. trade agreement, TPP includes stand-alone chapters dedicated to development and capacity-building, as well as a wide range of commitments to promote sustainable development and inclusive economic growth, reduce poverty, promote food security, and combat child and forced labor.

CRITICISMS IN THE U.S. AND OTHER TPP COUNTRIES 

  • No anti-currency manipulation provisions
  • No climate change provisions
  • Exclusion of other Pacific Rim countries
  • Predicted flood of more imports into the U.S. from the cheap labor countries displacing American workers – American public is much more aware of jobs lost to imports than of jobs gained by exports since they see the imports on store shelves
  • The trade agreement does not address wage level disparities between rich and poor countries
  • Concern in other countries about negative impact on their pro-consumer pharmaceutical buying arrangements and fears that drug and biologic prices will rise
  • The time delays which occur in enforcing international treaty obligations
  • Higher costs for consumers’ purchase of entertainment due to copyright law changes
  • Concern over the expansion of multinational companies’ power because of their ability to challenge state owned enterprises
  • Concern that countries’ own health and safety laws will be overridden by multi-nationals– loss of sovereignty

 

WHAT CAN TAMPA BAY EXPORTERS AND POTENTIAL EXPORTERS DO NOW?

  • Ask congressional delegation, governor and mayors to support TPP and educate them on how this trade agreement can help your business specifically. Tampa and St. Petersburg mayors have publicly supported TPP.
  • Focus your export market research on TPP countries and look for distribution agents and customers there now – don’t wait for TPP to be ratified
  • Consider developing new supply chains from TPP countries
  • Service providers and digital content providers should investigate these new market opportunities as barriers to their participation outside the U.S. will fall

CONCLUSION

There are many organized opponents to the TPP who will seek to block its ratification in the member countries because they view TPP as a trade agreement that benefits multi-nationals and the U.S. as opposed to consumers and the smaller countries. In the U.S., the opponents are some consumer groups, unions and industry sectors that will be hurt by import competition. Rather than viewing TPP as a remarkably innovative “fair” trade agreement; they are basing their opposition on the negative aspects of free trade under NAFTA and permanent normalized trade relations with China. I find it remarkable that instantaneously with the release of a 6,000 page treaty; opponents attacked the TPP before they could even have read it. It is not perfect but there is no doubt that it will create new, higher paying jobs in Florida (nearly 50,000 by 2025 as projected by the Business Roundtable) and enable Tampa Bay businesses, large and small, to pursue success in exporting their goods, services, digital content and other intellectual property. 

***

Statistics:

2014 Florida Origin Exports to:

Canada                       $ 4.2 Billion

Mexico                        $2.2 Billion

Japan                          $1.9 Billion

Chile                            $1.8 Billion

Peru                            $1.7 Billion

Australia                     $ 619.7 Million

Malaysia                     $199 Million

Vietnam                      $120 Million

Source: Enterprise Florida

FOR MORE INFORMATION IN SUPPORT OF TPP:

Office of the U.S. Trade Representative        https://ustr.gov/tpp/

U.S. Coalition for TPP                                      http://tppcoalition.org

Business Roundtable                                       http://www.tradebenefitsamerica.org

U.S. Commerce Department (ITA)                 http://www.trade.gov