USTR Contemplating Tariff Scenarios in Case of Provisional TPP

ORLANDO – The U.S. government is considering how it would implement Trans-Pacific Partnership tariff phase-outs if the deal enters into force before ratification across all 12 parties, Deputy Assistant U.S. Trade Representative for Market Access and Industrial Competitiveness, Office of U.S. Trade Representative, Sushan Demirjian said Oct. 19 at the National Association of Foreign-Trade Zones annual conference. Under the deal, if the full group of parties doesn’t approve TPP by Feb. 3, 2018, any group of six countries that together comprise 85 percent of TPP by Gross Domestic Product (GDP) -- which mathematically must include the U.S. and Japan -- would have 60 days to complete their respective legal procedures to implement the agreement, at which point it would provisionally enter into force for only those ratifying nations. If that doesn't happen, the deal would enter into force 60 days after six parties that make up 85% of combined TPP GDP ratify it. Only ratifying countries will realize TPP benefits upon its entry into force.

The TPP market access chapter allows any party to an effective TPP to individually decide how to align its tariffs to new entrants, she said. As soon as a provisional TPP activates, active TPP countries might opt to follow their standard, comprehensive reduction timelines covering all TPP parties, and allow subsequent ratifiers to pay whatever standard tariff rate is in place at the time of their approval. “So they might say, ‘We were cutting tariffs year by year, we don’t want one or two countries off that schedule; we’ll just … speed ahead,'” Demirjian said. But others, including the U.S., will likely take a more case-by-case approach, following special arrangements negotiated with different TPP partners, she said.

Countries could also parse out whether they’ll treat entering countries according to standard reduction schedules, or according to specific arrangements, until the agreement enters into force for all parties, she said. Assuming the U.S. is part of the first tranche of activating countries, “it’s all really going to depend on the country, how much time, how much lag there is, whether there are special arrangements we might have negotiated with them,” she said. Specific country tariff commitments can be viewed on the USTR website (here).

TPP will not supersede the tariff rates, duty deferral, drawback, rules of origin and merchandise processing fee (MPF) treatment provisions of NAFTA and other free trade agreements among TPP parties, Demirjian said. So assuming the U.S. is part of a provisional TPP, for FTA entry purposes, importers during the interim should consider whether goods are subject to zero or lower tariffs under other deals, and whether TPP cumulation provisions are salient for their goods, she said. “If it’s not important, you might stick with your FTA arrangement if you’re not anticipating using inputs from TPP countries, or not at the moment,” she said.

Waivers for MPF under other trade agreements will still be available as and after TPP enters into force, but filing for TPP preferences will require MPF payment. She said CBP is undergoing “internal discussions” about how the U.S. should implement MPF commitments under TPP (see 1603090030). TPP prohibits parties from assessing any ad valorem fees, which includes the U.S.’s current MPF structure, but the agreement allows three years after TPP takes effect before the new structure must be implemented. Demirjian highlighted the government’s intention to create a “tiered” MPF (see 1604040019). She said Congress is on board with the idea, and the structure will be part of TPP implementation legislation.

Many TPP countries are looking to the U.S. to decide how and when they will implement the deal, as countries like Japan, Malaysia, Vietnam and Brunei might not be able to generate enough political momentum to ratify the deal without a guarantee that the U.S. would be part of it, Demirjian said. Those countries have significantly changed their commercial laws, economic systems, labor laws, and/or environmental laws in anticipation of eased access to the U.S. market, she added. “They could essentially decide to move forward on TPP without us,” Demirjian said. “But at this moment, I think they want to be sure that the U.S. is going to be part of it before they take their last political steps.”