Australia has become the 6th country to officially adopt the Trans-Pacific Partnership (TPP) meaning that the agreement will commence on 30 December 2018. As an added bonus, commencement in 2018 will mean that a second round of tariff cuts occur on 1 January 2019.
This free trade agreement (FTA) is a major reply to the protectionist trade policies of the US and also offers major benefits for Australian traders. While in many ways the TPP is easier to use, its lack of formalities around certificates of origin represents a significant compliance risk.
Please see below a summary of the TPP and what it means for international trade professionals by Russel Wiese, Principal from Hunt & Hunt Lawyers.
What is the TPP
The TPP is a comprehensive FTA between Australia and 10 other countries being, Japan, Canada, Mexico, New Zealand, Singapore, Peru, Chile, Vietnam, Malaysia and Brunei. It reduces customs tariffs on a range of goods, but also has comprehensive trade liberalisation provisions concerning trade in services, investment, the environment and labour laws.
Initially, the benefits of the TPP will only extend to Australian trade with Japan, Canada, Mexico, New Zealand and Singapore. This is because the other TPP members have not yet pass domestic legislation ratifying the agreement.
What are the benefits
While Australia already has FTAs with 7 of the 10 other countries, the TPP will still bring immediate benefits. Those benefits are:
· For the first time wide ranging duty free entry of goods into Australia from Canada and Mexico (saving of 5%)
· Increased access for Australian exporters to Canada and Mexico;
· Significantly improved access to the Japanese agriculture market;
· Once ratified, generally improved access to Peru;
· Slightly improved access to Vietnam and Malaysia (once ratified by those countries)
With the TPP set to commence in late December 2018 there will be one round of tariff reductions on commencement and a second round on 1 January 2019, when year two of the agreement begins.
There are thousands of different outcomes depending on the particular product. Exporters need to be speaking to their trade advisors to find out the new duty rates for their products.
How to use it?
If you are an exporter, you use the TPP to help your overseas clients import the goods at a lower duty rate. Like most FTA’s, under the TPP you will need to provide a certificate of origin. However, unlike other FTAs, the certificates of origin under the TPP couldn’t be easier. There is no set form, the document can be electronic and the documents can be created by the producer, exporter or even the importer. This flexibility will increase the ease of using the TPP and for some exporters, reduce the costs.
This ease of use may mean that some exporters will use the TPP for trade that is currently covered by other FTAs, such as the ASEAN FTA, which require Government issued certificates of origin.
The ease of the TPP is appealing. However, the simplicity of the TPP could be its greatest risk for some traders. The benefits of the TPP only apply if the goods satisfy the rules of origin. These are the rules that determine whether a good has sufficient connection to the TPP countries to qualify. In a self-assessment system the exporter takes a big risk unless it fully understands how rules of origin work. This risk can be managed, but it firstly needs to recognised.
If you plan on using the TPP you need to have a compliance plan in place to avoid an unpleasant customs duty liability and potential penalties.
While there is no specific form that the certificate of origin must take, there are 9 requirements that it must meet such as the inclusion of a HS Code of the goods and details of the parties (including their telephone number if known). These are mandatory requirements and the non-inclusion of one of these requirements will mean the TPP does not apply. The risk of missing a data field is normally low as the parties are using a prescribed template document. Again, there is no prescribed template with the TPP.
If you are planning on using the TPP you need to ensure you are aware of all of the certificate of origin data requirements. We recommend either using a template created by a trade professional or having your own documents reviewed by a trade professional.
The lack of a template certificate of origin presents an additional problem for customs brokers. It will be the role of a broker to assess whether the document held by the importer meets the requirements of the TPP. This could become time consuming given that every exporter may produce a different certificate of origin. It will also be the case that there are bound to be a greater level of errors and omissions. The customs broker will face the difficult task of assessing what is, and what is not, an acceptable error.
In transit provisions
The TPP does not have clear rules in transit provisions. The Australian legislation provides that it applies to goods imported after commencement of the FTA (30 December 2018) or goods imported before this time, but where the date of the assessment of duty is after 30 December. Brokers will need to work closely with clients regarding goods arriving in late December to ensure the full benefit of the TPP is obtained. For many importers it will be worth delaying the entry for home consumption until the second round of tariff reductions on 1 January 2019.
Retrospective COOs and refunds
The TPP does not expressly allow for retrospective COOs. This is similar to the Korea FTA and in that case, the ABF has provided guidance that retrospective COOs cannot be issued. There does not seem to be any reason to impose this restriction and it goes against the flexibility intended by the provisions of the TPP.
Hopefully the ABF will provide guidance on how it sees the provisions of the TPP applying. In the meantime, be cautious about suggesting any problems can be fixed with a retrospective COO.
The TPP does not require direct shipment. However, if goods are shipped via a country that is not a party to the TPP, they must remain under customs control. This is standard for FTAs. However, it poses a special risk with goods from Canada and Mexico. These goods may find their way into US distribution centres before export to Australia. Make sure before claiming the benefit of the TPP that these goods have not been cleared into US prior to export to Australia.
The TPP is an agreement that business’ need to build into their long term strategy. While the current benefits will work for some traders, the future potential cannot be ignored. The countries that have expressed an interest in the TPP include the UK, Taiwan, Indonesian, the Philippines, Thailand and South Korea. The future of international trade in uncertain. However, for those countries that are looking to pursue an open trade agenda, the TPP will be a welcome home.
The TPP is an exciting opportunity and represents a reduction in the red tape associated with other FTAs. However, that lack of red tape does not mean there is no legal risk. The same obligations remain, however, it is for the traders to fully self-assess compliance with those obligations. This will mean that the need to work with specialist trade advisors and customs brokers will be heightened.
Source credit: Freight and Trade Alliance – FTA