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What in the world is the CPTPP and how does it affect Ag?

  • By: "Prime" Ag News
  • Mar 22, 2018

By Sam Lawrence - Crowe Horwath

This month, Australia and New Zealand, along with nine other Asia-Pacific nations signed one of the largest and most progressive free trade agreements in history. The agreement opens up new trade opportunities for Aussie and Kiwi exporters and businesses, covering a market of 495 million people, or 6.8 per cent of world population.

Signed on 8th March 2018 in Santiago, Chile, the lengthily named Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP or TPP for short), nearly a decade in discussion, will increase market access and eliminate more than 98 percent of tariffs across the 11 participating countries, which collectively represent 13.5 per cent of the world’s economy – amounting to US$10.2 trillion, and 15.3 per cent of global trade in 2016-17.

The agreement will take practical effect, or ‘enter into force’ in trade parlance, once it has been ratified by at least half of its signatories. This is a relatively straight-forward process, which in Australia and New Zealand requires a parliamentary examination process to identify any necessary amendments to existing legislation. Government sources indicate entry into force could occur within 12-18 months of signature, allowing some lead time for businesses to prepare for the new trading opportunities.

Although some of the details are different for each country, in essence the agreement reduces costs for Australian and New Zealand exporters doing business with member countries by streamlining bureaucracy and reducing or eliminating the tariffs levied on their products and services when they cross the border.

Yankee doodle don’t, or; a brief history
It hasn’t always been plain-sailing. The CPTPP has had a turbulent albeit short history, having arisen from the ashes of its progenitor, the TPP. These original negotiations involved twelve parties, the eleven current members of the CPTPP; Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, plus the United States.
In late 2016, following many years and rounds of negotiation the TPP agreement was nearing conclusion. However, the newly elected US President Donald Trump issued an executive order withdrawing the US from the TPP on his first full day in office. This resulted in negotiations entering a state of crisis, given the size and importance of the United States to the endeavour. At the time, analysts openly wondered whether the agreement was lost, particularly as a major plank of the treaty was the new free trade arrangements it would establish between the US and Japan, the world’s first and third largest economies. US agriculture and Japanese manufacturing and heavy industry had particular interests in concluding a deal.

Following a grim start to 2017, wherein it appeared a rising tide of global protectionism would drown the TPP effort, the remaining nations announced a commitment to conclude a revised version of the TPP, the CPTPP, at the APEC Summit in Da Nang, Vietnam in November 2017, suspending a number of controversial IP provisions formerly included by the US. Ministers from the 11 nations met on the margins of the Davos Economic Forum in Switzerland in January 2018, to announce that they would finally seal the deal, a promise fulfilled in Santiago this month.

While the absence of the US was keenly felt, reducing the percentage of the global economy covered from 40 per cent to 13.5 per cent, the agreement still acts as a framework to a potential future free trade area of the Asia Pacific, not dissimilar to the European single market. Importantly, the ‘suspension’ rather than the removal of the IP provisions can be seen as the basis for a possible future US re-entry to the agreement.

‘So what’s in in it for me?’ I hear people ask, to which I’d say ‘a lot’. Aussie and Kiwi businesses have enjoyed the benefits of FTA’s with many countries for years, including with each others’ markets, and several countries which are co-signatories to the CPTPP such as Singapore, Chile, Vietnam, Malaysia and Japan. Importantly, the new agreement improves the conditions of access for exporters over some previous FTA’s, and includes access to new markets with which neither Australia nor New Zealand have previously had an FTA, notably Canada and Mexico.

The agreement covers markets to which Australia exported a massive $87.9 billion, and from which it imported $76.1 billion, or $164 billion in two-way trade, representing a massive 22.3 per cent of all Australian trade in 2016-17.

For New Zealand, the agreement is even more significant, with the CPTPP member countries taking a whopping 31 per cent of New Zealand’s goods and services exports, at NZ$15.2 billion and NZ$6.9 billion respectively.

The agreement covers a wide-range of areas, including trade in goods, such as manufactured products and agricultural exports, to investment, health, resource & energy, transport & logistics, and trade in services including financial services. Importantly, the ‘progressive’ part of the title refers to inclusions around environmental, labour, anti-corruption and transparency measures, with special attention being paid to the needs of small and medium-sized enterprises (SMEs).

The reduction in red-tape for SMEs in applying for Australian Government contracts is one example of this new emphasis on helping SMEs to take advantage of FTA benefits and participate in global value chains.

Over the coming months, and with the assistance of Findex and Crowe Horwath’s excellent network of subject matter experts, we will bring you a series of articles examining the impact of the TPP on different sectors, along with insights on other, and related trade developments. If you are in Melbourne, you may also like to attend the Global Shippers Forum, to be hosted in Melbourne on the 10th of May by Crowe Horwath’s corporate partner, the Australian Peak Shippers Association.

If you are thinking about exporting or are already trading internationally, you may wish to consider our new Export Strategy service to ensure your business is prepared for the future, and take advantage of all the opportunities and markets available. We offer a suite of export related assistance including Australian Trusted Trader registration, Export Grant applications, Supply Chain Optimisation, Due Diligence and Customs Duty refunds for importers, just to name a few.

For a friendly chat, please feel free to contact me directly at sam.lawrence@crowehorwath.com.au, or contact your Crowe Horwath adviser.