One of the biggest trade deals in history came into being on Monday when the Trans-Pacific Partnership (TPP) was signed in Atlanta after five years of often fractious negotiations. The agreement reduces trade tariffs and sets common standards in trade for 12 Asian countries, including the US, Canada, Mexico, Australia, Japan, Vietnam, Malaysia, Singapore and New Zealand. In total it covers about 40% of the world’s trade, although as yet does not include China.
The present US administration has been very keen on agreeing the TPP due to the economic benefits which it says will accrue to US consumers and exporters. For example, in Asian export markets existing tariffs raise prices by up to 59% for US vehicles and up to 40% for poultry products. Japan, the largest Asian country to sign the deal, has proved particularly difficult for US exporters to penetrate and the TPP, along with a US bilateral trade deal, should not only reduce tariffs on a wide range of products but also non-tariff barriers.
The deal will stimulate trade throughout the region as, on a quid pro quo arrangement, the US market will also be opened up and, in theory, US consumers and retailers should benefit from lower prices.
There will also be practical benefits to all companies involved in international supply chains including freight forwarders. The agreement means that standards of customs procedures will be established and these will include the time a shipment takes to be cleared. The deal will also provide expedited customs treatment to express delivery shipments, and set ‘de minimis’ levels for low-value shipments under which customs will not impose tariffs.
Despite the fanfare, there is a long way to go before the TPP comes into existence. Although negotiators have done their job, the treaty needs to be agreed by each of the parties’ administrations. There are many vested interests which have to be overcome, with some politicians believing that a free market of goods could see substantial job losses. For example, Canadian auto parts manufacturers are looking warily at the import of cheaper components from Asia. Supply chains which had become more regionalised due to the success of NAFTA may well now reach across the Pacific. Great news for shipping lines, express companies (particularly UPS, FedEx and DHL) and other international logistics providers such as Expeditors, but not necessarily so good for local manufacturers or their trucking companies due to the enhanced competition.
The liberalisation of the Japanese market through the TPP could be one of the major benefits for logistics companies. Not only would it eventually allow US and other Asian companies better access to Japan’s huge domestic market but it would also help re-balance trans-Pacific volumes if US and Canadian exporters can make headway. The present trade imbalance with Asia makes asset utilisation difficult for the express carriers, airlines and shipping lines. More efficient use of space in both directions would certainly improve return on assets.
One of the strengths of the TPP, should it be ratified, is that other countries will be able to join. At present South Korea, the Philippines and Taiwan are lining up as well as Colombia. Many hope that one day China will accede, although this may be a political step too far for the US. The TPP has been seen by many as a US driven initiative to cement its influence in Asia and rival China’s growing economic dominance.