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What is the Trans-Pacific Partnership (TPP) all about? With debate over this 12-nation trade agreement now underway, the Chamber is publishing this series making the case for the TPP’s approval. This installment summarizes its basics provisions.
While the TPP’s critics like to describe the agreement in sinister terms, a review of the actual text of the 12-nation accord quickly reveals its simple objective: To boost economic growth and the job creation it supports by opening overseas markets and eliminating barriers to trade.
Starting with its most basic provisions, the TPP will eliminate all tariffs and many non-tariff barriers on U.S. exports of manufactured goods to the other TPP Parties. With regard to the four TPP countries with which the United States does not already have a trade agreement, the TPP will immediately eliminate tariffs on 98% of U.S. industrial and consumer goods. Such tariffs range as high as 100%.
In fact, 70% of the considerable length of the TPP text consists entirely of tax cuts: that is, country-by-country schedules for the elimination of tariffs. This translates into approximately 18,000 tax cuts on U.S. goods sold abroad and 6,000 tax cuts on goods imported into the United States from other TPP nations.
This is why anti-tax advocate Grover Norquist, president of Americans for Tax Reform, has praised the TPP. “This is both sound foreign policy” and “great economic policy,” Norquist told National Journal:
It’s 4,000 pages of tax cuts. Tariffs … tariffs suck. Tariffs kill jobs. Tariffs slow the economy. This is good. It’s not everything you wanted—no. But it’s progress towards almost everything you wanted.
The TPP’s critics are dead wrong to be dismissive of the agreement’s tariff-cutting power. Too often, these activists and politicians are simply unfamiliar with the real world of business, where margins are razor thin for tradeable goods. Even a so-called “nuisance” tariff of 3% can make or break a sale. It’s also worth noting how remarkably comprehensive the TPP’s tariff-cutting provisions are: Many countries’ trade agreements fall far short of the TPP’s reach in this regard.
Looking beyond tariffs, it’s often the case in trade policy that the “devil’s in the details,” and little publicized rules and regulations can become significant barriers to the export of “made-in-the-USA” goods in services. These are known as “technical barriers to trade,” and the TPP includes a “TBT” chapter to address these problems.
So, the TPP includes transparent, non-discriminatory rules for developing technical regulations, standards, and conformity assessment procedures to ensure these norms don’t become stealth barriers to trade—or unintentional ones. The TPP will also bar restrictions on the importation of remanufactured goods, such as refurbished motor graders or other heavy equipment—an important kind of environmentally-friendly commerce.
U.S. agriculture will be a major beneficiary of the agreement as tariffs imposed on American agricultural exports by other TPP nations soar as high as 700%. Most U.S. farm product exports will receive duty-free treatment immediately. The share of U.S. agricultural exports on which tariffs will be eliminated immediately ranges from 50% in Japan—the fourth largest market for U.S. agricultural exports—to 80% in New Zealand, 90% in Malaysia, and 100% in Brunei.
The American Farm Bureau Federation estimates that “annual net farm income will increase by $4.4 billion, driven by an increase of direct U.S. agricultural exports of $5.3 billion per year upon full implementation of the TPP agreement as compared to a scenario in which the U.S. fails to pass the agreement while the remaining member countries proceed apace.” The resulting opportunities for U.S. farmers and ranchers will add more than 40,000 jobs to the U.S. economy.
The Farm Bureau anticipates major gains for U.S. producers of beef, pork, fruits and nuts, vegetables, soybeans, poultry, dairy, rice, cotton and processed food products as countries such as Japan and Vietnam phase out their high tariffs, although tariff phaseouts are generally longer than for manufactured products. Commercially valuable tariff-rate quotas (set amounts of farm goods that can be imported at reduced tariffs or duty free) will also be introduced for some U.S. exports.
As with the TBT chapter, the agreement’s chapter on sanitary and phytosanitary standards (SPS) for agricultural products includes obligations to uphold transparent, non-discriminatory rules based on sound science.
The TPP will also open markets to cross-border trade in services and investments in service sectors. Services employ more than 80% of America’s private sector workers, and the United States is home to thousands of highly competitive services companies in such sectors as audiovisual; finance; insurance; energy services; transportation, logistics, and express delivery services; information technology services; and telecommunications. These “business services” sectors employ 50% more Americans than manufacturers do and pay wages are 20% higher on average than those in manufacturing.
On the strength of these industries, the United States has become by far the world’s largest exporter of services. U.S. services exports reached $716 billion in 2015, and the United States has a trade surplus in services of $227 billion. Even so, the potential for service industries to engage in international trade is almost untapped. One in four U.S. factories exports, but just one in every 20 providers of business services does so. Just 3% of U.S. services output is exported, according to the Peterson Institute for International Economics.
The TPP will help U.S. services companies by barring discriminatory treatment of U.S. firms. Under the agreement, foreign governments may not treat U.S. companies less favorably than they do domestic firms or those from other countries. Among other provisions, it will eliminate requirements that suppliers from one TPP Party establish an office or affiliate with a specific legal character in another Party’s territory in order to supply a service.
In addition, the TPP will:
- Establish improved protection of intellectual property, addressing patents, trademarks, copyrights, industrial designs, geographical indications, trade secrets, and enforcement of intellectual property rights;
- Promote e-commerce, safeguard cross-border data transfers, and proscribe the “forced localization” of data in local computing facilities;
- Introduce obligations to implement modern risk management practices, automation of customs processes and trade facilitation, publication of related regulations and laws, data standardization, and a single entry point for import and export procedures; and
- Impose new disciplines to ensure governments and their state-owned enterprises do not distort competition or circumvent trade agreement obligations, ensure due process and procedural fairness in antitrust proceedings, and promote widely-accepted good regulatory practices.
The Chamber will examine some of these issues in greater depth in the near future.