What the Trans Pacific Partnership Agreement Could Hold for Arizona Manufacturers, Retailers and Distributors: Part 1

Leaders of Trans Pacific Partnership

By: Melissa Proctor, Polsinelli PC

The Trans Pacific Partnership agreement (“TPP”), the largest regional free trade and investment agreement that has ever been negotiated, was recently signed by the United States and eleven other countries in the Asia Pacific region (i.e., Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and, Vietnam.). The signatory countries will now have a maximum period of two (2) years in which to implement the TPP into their respective local laws. What does this mean for Arizona retailers, distributors, and manufacturers? For starters, the TPP will eliminate import tariffs on more than 18,000 goods, many of which are currently subject to high duty rates. Thus, U.S. companies will enjoy significant duty-savings opportunities on imports of qualifying goods into the United States, and U.S. exporters will likely find their goods in greater demand by foreign buyers located in TPP countries. The Obama Administration has also touted the TPP as a means for supporting higher paying jobs in the United States, growing the U.S. economy, and countering China’s economic expansion.

With respect to the implementation of the TPP in the United States, President Obama notified Congress of his intent to enter the TPP, and signed the agreement with the other signatory countries on February 4, 2016. On November 17, 2015, the U.S. International Trade Commission (“ITC”) announced its intent to commence an investigation on the likely economic impact of the TPP on the United States—such investigations are a routine part of the international agreement implementation process. The ITC’s impact analysis report is expected to be released in mid-May 2016, and it is unlikely that Congress will vote on any implementing legislation until after that report has been released. In light of the upcoming Presidential election at the end of 2016, there will likely be additional delays in the TPP’s implementation. Even after its implementation, the agreement will enter into force only after at least six of the signatory companies (that represent a minimum of 85% of the GDP of all of the participants) have implemented the agreement into their local laws. Thus, the TPP may not go into force until sometime in 2017 or later.

As noted above, duties on a wide array of products will be eliminated under the TPP; however, only goods that are considered “originating” in a TPP member country will be afforded preferential tariff treatment. Part 2 of this article, which will be published shortly, will discuss the mechanics of utilizing the TPP, including qualifying goods for TPP treatment, exceptions to the TPP’s rules of origin, satisfying the TPP’s direct shipment rule, the requirements for preparing valid certifications supporting TPP claims, and record retention requirements. Although it is still too early to predict with any certainty when the agreement will actually go into effect, it is a good idea for Arizona companies to begin thinking about the potential impact of the TPP on their operations, its likely impact on the sourcing decisions of their customers (both foreign and domestic), and how the TPP may be used for greater duty and cost savings in the future.

Melissa Proctor is a Shareholder with Polsinelli, P.C. who has significant experience in the customs laws and regulations, export controls, economic sanctions, and international trade. She may be reached at (602) 650-2002 or via e-mail at mproctor@polsinelli.com.