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What is the Trans-Pacific Partnership (TPP) all about? With debate over this 12-nation trade agreement now underway, the U.S. Chamber is publishing this series of posts making the case for the TPP’s approval. This installment looks at the agreement’s rules on state-owned enterprises, regulatory barriers to commerce, and customs administration.
The TPP is billed as a trade agreement for the 21st century, and from the perspective of the business community its updated trade rules are badly needed. As noted earlier in this series, the TPP’s provisions on tariffs and old school “non-tariff barriers” are critically important; and so are its path-breaking rules on digital commerce, intellectual property, and investment.
But the TPP is at the bleeding edge of trade policy in several other areas. One important example arose from concerns voiced by U.S companies about the unfair practices of companies that are owned and assisted by governments. State-owned enterprises (SOEs) that engage in commercial transactions are increasingly distorting competition and allowing governments to circumvent their multilateral and bilateral trade and investment obligations. The potential for self-dealing is significant when the state is both a player and a referee in the game of trade.
The TPP represents a precedent-setting opportunity to establish a basic set of rules for fair play that will place state-owned commercial companies on an equal footing with private-sector competitors. Governments will always be actors in the market to various degrees; indeed, most markets require some rules, and governments are usually best positioned to set them. The TPP’s rules in this area represent a path-breaking and badly needed brake on the government favoritism toward SOEs that stifles economic growth and job creation and skews the playing field against U.S. companies.
Another area where the TPP breaks new ground is at the crossroads of trade and regulation. Regulatory inconsistencies, needlessly conflicting standards, and duplicative testing requirements can diminish the benefits of trade agreements as the “tyranny of small differences” suppresses growth and competition. At times such regulatory divergences spell protectionism—sometimes unintentional and sometimes not.
To address these concerns, the TPP partner countries agreed to include a chapter on “regulatory coherence” to advance best practices and minimize unnecessary regulatory divergences among the TPP Parties. Doing so will help avoid the creation of new non-tariff barriers by establishing ongoing regulatory cooperation between U.S. regulators and their foreign counterparts across the TPP countries.
The TPP will encourage our trading partners to follow the principles that underlie U.S. administrative law and similar norms in some other countries, such as transparency and public participation. A good example of these principles in practice is the U.S. notice-and-comment rulemaking process in which draft regulations are published in the U.S. Federal Register and regulators are obliged to take comments into account. Additional principles are the need for evidence-based regulation, with analysis of costs and benefits, as well as accountability under the law and guarantees of impartiality among regulators.
The TPP does nothing to tie the hands of regulators: Governments remain sovereign in every sense, and the agreement supports their obligation to protect health, safety, and the environment. But these basic disciplines will help to ensure that TPP regulators do not use regulations and standards as stealth trade barriers that put U.S. companies and workers at a disadvantage.
Separately, the TPP’s competition policy chapter includes some positive innovations. Increasingly, divergent approaches in the world of antitrust are stirring concern. Too often, antitrust investigations operate as black boxes that deny others direct insight into the motivations behind investigations and the selection of remedies. The TPP does not alter the substance of antitrust laws in any country, but it does raise the bar in terms of transparency and the ability of parties under investigation to defend themselves. These due process guarantees not only reduce the chance of abuse but ultimately add to the credibility of any enforcement action taken.
Another area where the TPP brings commerce into the new century is trade facilitation. Today, manufacturers, retailers, and a wide array of other businesses rely on global supply chains to produce and deliver their products to customers worldwide on a just-in-time basis. In this context, needlessly burdensome or opaque customs requirements can have the same detrimental impact on the flow of trade as tariffs. These hidden costs can add as much as 15% to the final price of a product.
The TPP will make customs procedures more efficient and transparent, cutting unnecessary red tape and bureaucracy. It requires that the TPP parties publish all customs laws, regulations, and procedures on the Internet for maximum transparency. In a world where time is money, seeing your cargo stuck in customs quickly becomes costly; for this reason, governments have pledged in the TPP to provide advance rulings on valuation and other matters to avoid unnecessary delays on arrival. These commitments will help ensure that shipments move through ports within a time period no longer than necessary to comply with the law.
In addition, the TPP includes commitments to provide expedited customs treatment for express delivery shipments. It also includes a commitment to establish so-called de minimis levels for low-value shipments; goods worth less than this limit—set at $800 in the United States—may enter duty free and avoid customs paperwork. The TPP also includes commitments to strengthen cooperation against illegal trade in counterfeit goods, wildlife trafficking, and goods illegally transshipped through TPP countries to evade tariffs.
The U.S. business community warmly welcomes these provisions in the TPP, which truly make it a 21st century trade agreement.