The Trans-Pacific Partnership (TPP) was agreed to in principle by TPP negotiators in Atlanta this morning.
This historic agreement represents over 40% of the world’s economy. It includes 11 of Canada’s trading partners including in order of importance, United States ($246B), Mexico ($26.7B), Japan ($14B), Peru ($3.2B), Malaysia ($2.3B), Vietnam ($2.2B), Australia ($1.8B), Chile ($1.7B), Singapore ($1.3B), New Zealand ($554M) and Brunei ($6.8M). It establishes the framework for commerce within the Trans-Pacific region and will increase Canada’s access to markets such as Japan and Australia for agricultural and forestry exports in particular.
Although the participating countries do not presently include countries such as China and India it is expected these countries may have an opportunity in the future to join an expanded TPP membership though this possibility will present a whole new round of negotiations and complexities.
Impact on Canadian Retailers:
RCC has been the voice of Canadian retail throughout the negotiations, liaising with officials from the Canadian Departments of Finance, Trade and Agriculture. As a result, the agreement contains a number of retail-friendly provisions, including:
- De Minimis – RCC’s advocacy efforts to prevent an increase in the de minimis level for goods shipped to consumers from outside Canada has been successful.
- Tariff Relief – Duty free access to approximately $10 billion in consumer goods from the seven TPP countries with which Canada does not currently have free trade agreements. For fish and seafood, for example, 100% tariff relief was achieved with elimination to take place over the next 15 years.\\
- Regulatory Coherence – The agreement contains a commitment to harmonize regulatory requirements and standards between the 12 countries. This will further facilitate the work RCC is doing to harmonize safety and testing standards on consumer goods such as car seats, cribs, electronics and other consumer goods.
Notwithstanding these favourable outcomes to our industry, there is a potentially problematic element to some members: the agreement contains a so-called “Yarn Forward” rule of origin for textile and apparel products that limits duty-free treatment only to apparel products made in a TPP country from yarns and fabrics also produced in a TPP country. RCC advised officials that it does not support a yarn-forward rule, which is significantly more restrictive than rules of origin governing other manufactured products. This provision is strongly supported by the U.S. cotton and textile lobbies and limits the ability of Vietnamese and other apparel manufacturers (who represent a significant source of supply for Canadian retailers) to gain duty-free access to TPP countries as a majority of their inputs are sourced from non-TPP countries.
According to reports there were three key issues that were the focus of this most recent round of negotiations. The first related to rules of origin for the automotive industry, the second related to Canada’s supply management system and the last related to the period of patent protection for pharmaceuticals and biologics drugs.
With reference to changes to Canada’s supply management system, measures to increase access for TPP countries to Canadian dairy, chicken, turkey, eggs and cheese markets have been included in the final Agreement. Canada provided limited duty free access to the Canadian market for these goods as it had with CETA for cheese. In this case, concessions include 3.25% foreign market access for dairy, 2.3% for eggs, 2.1% for chicken and 2% for turkey. The Government of Canada announced a series of new programs and initiatives for supply-management producers and processors worth over $4.3B to assist them throughout the implementation of the TPP and Canada-EU Trade Agreement, including the Income Guarantee Program, the Quota Value Guarantee Program, the Processor Modernization Initiative and the Market Development Program. Additional information can be found at here.
Tariffs on motor vehicle and motor vehicle parts will be phased out. Rules of origin are governed under a so-called “regional value content rule”, which lowered the 62.5% NAFTA requirement for the value of regional content to 45% for motor vehicles and 40% for motor vehicle parts.
The agreement includes commitments to facilitate the use of electronic commerce as a means of trade and to ensure that the parties will not discriminate against or impose custom duties or other charges on online digital products.
There are also labour provisions to strengthen standards across all TPP countries and specific measures to help small and medium enterprises to take full advantage of the opportunities the TPP will create.
Heads of the TPP countries will now need to sign the agreement in the beginning of 2016 at the earliest. This timing is determined by the lay-over period mandated by the U.S. Congress, which requires the President to notify Congress of his intention to sign a trade agreement 90-days before doing so, and make the text of the proposed agreement public during that period. For Canada, this timing means the post-election federal government will decide whether Canada will sign the agreement. There will not be an option to open negotiations and modify the agreement.
Each country will then have to follow its domestic legislative process to approve and implement the agreement. For Canada, this means tabling the agreement for a minimum of 21 sitting days in Parliament and then passing implementing legislation. This process will likely take months and be driven by the post-election political landscape. The deal will enter into force 2 years after TPP countries complete their domestic legislative procedures.
TPP is a major trade agreement that has been under negotiation for nearly eight years (over five years for Canada). In the days, weeks, and months to come, RCC will review in-depth this complex agreement and will publish follow-up member notices as more details become available and as we review the more detailed elements as they become available.
RCC will continue to work with the Canadian Government in the post-election landscape to ensure retail-friendly implementation including:
- No change to the De Minimis rate.
- Accelerated tariff reductions.
- Focus on the allocation process for imported product impacted by changes to Canada’s supply-management system.
- Ensuring that the cost of any compensatory measures for the agriculture sector do not fall on the retail sector.
If you have any questions or concerns, please don’t hesitate to contact: Jason McLinton, Senior Director, Federal Government Relations at: [email protected] or 613-656-7903