Pacific trade agreement will boost export opportunities

Posted on Jan 26, 2016 :: Insight From
Andrew Schaick
Posted by , Insight on Manufacturing Staff Writer

It’s taken 10 years and 30 sets of negotiations, but the political push is now underway to finally conclude the Trans-Pacific Partnership, a regional free trade agreement that could benefit the many manufacturers and small businesses in Northeast Wisconsin by increasing market opportunities to export products.

Although the negotiation phase of the agreement has now been concluded, obstacles remain due to the country-by-country implementation of international agreement. One of the challenges facing the world’s trading partners, especially regions with a lesser internationally focused economy, is the misconception on how free trade agreements actually work and the mutually beneficial economic benefits they provide to their partners.

The TPP is no different from previously negotiated and concluded multilateral FTAs, except that it is limited in scope because it is a regional FTA. When the TPP was launched in July 2005, initial parties were Brunei, Chile, Singapore, and New Zealand. By 2015, participants included: Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. Seven other countries have expressed interest in TPP membership, including: Taiwan, Philippines, Laos, Columbia, Indonesia, Bangladesh, and India. China has also expressed interest in eventual membership.

The TPP is not only procedurally complex, but also substantively complex, covering such issues as: trade in goods; rules of origin; customs duties; “trade remedies” (import restriction proceedings such as anti-dumping investigations); trade in services; financial services; E-commerce; telecommunications; investment; preferential import duty regimes; intellectual property; labor; environment; and “horizontal” issues such as regulatory coherence and business facilitation.

Despite ongoing work on 30 chapters, contention still remains over the TPP.  Once a multilateral regional FTA such as the TPP is implemented, it will help ensure member countries are an important part of regional trade and, in turn, make each partner a more attractive international investment, manufacturing and distribution center. Its conclusion offers increased access to a single market of nearly 500 million people, given the present participants. Furthermore, TPP partners also benefit from an increase in a number of their products afforded preferential import duty treatment, and inflow of foreign investments from countries hoping to gain greater market access to TPP member countries.

Wisconsin’s top industrial goods exported to TPP countries currently include health products, machinery and high-tech instruments. Many of those manufacturers are domiciled in the New North region. In 2011, Wisconsin export of goods and services to each TPP member country was as follows: Canada, $7.7 billion; Mexico, $2.3 billion; Japan, $1.4 billion; Australia, $929 million; Chile, $694 million; Singapore, $355 million; Malaysia, $196 million; Peru, $182 million; New Zealand, $82 million; Vietnam, $53 million; and Brunei, $275,000.  Currently, tariffs on health products in TPP markets range up to 30 percent; tariffs on machinery products range as high as 70 percent; and tariffs on high-tech instrument products range up to 25 percent. Investment liberalization and preferential import duty treatment benefits gained through TPP membership would undoubtedly reduce these tariffs.

U.S. membership in the TPP should also generate growth opportunities for small and medium business exporters in the U.S., which in 2012 represented about 40 percent of U.S. exports. Small businesses tend to benefit disproportionately from trade liberalization, since they are less likely than larger enterprises to establish overseas subsidiaries to overcome trade barriers. At the end of the 2014 calendar year, there were nearly 442,000 small businesses in Wisconsin, representing 97.7 percent of all employers, and employing 50.7 percent of the private-sector workforce. Although not latently apparent, all of these small businesses are in some capacity, and at some supply chain level, participating in global trade.

Like any international trade agreement, there are winners and losers. The TPP is no different. However, from an economic standpoint, its positives substantially outweigh its overall economic negatives. Existing programs like the Trade Adjustment Assistance Program can ease the transition for any Wisconsin firm that may suffer temporary adverse effects. Thus, if the TPP were finally concluded, it would make American companies more competitive and successful at doing business within TPP countries, leading to a stronger economy here in the U.S. Northeast Wisconsin and Wisconsin businesses would benefit as a result of the TPP’s conclusion.

Ngosong Fonkem is an attorney at Corneille Law Group, Green Bay. Prior to joining the Corneille Law Group, he lived and worked in Malaysia/Singapore as a law professor at Multimedia University Faculty of Law, as a consultant for a French energy management consulting company in Singapore; and an of-counsel attorney for Aitken Berlin. Bruce Aitken is a lawyer with more than 35 years of experience in arbitration, customs/international trade and government procurement/homeland security issues.