The Unsexy Challenge of CPTPP23/01/2019
Smooth and effective implementation is the key to the success of CPTPP.
The 11 countries involved in the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) trade agreement met in Tokyo this month to hammer out rules to let new members join the group.
It is always more exciting to design plans for the future than deal with the much less sexy implementation of existing commitments. Ministers and officials from Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam are no different.
Although the CPTPP has literally just started, attention has already begun to drift to new members. While understandable, this is a significant problem.
The CPTPP, which sprang out of the failed Trans Pacific Partnership accord after the U.S. pulled out, is the most ambitious trade arrangement in decades. The deep, interlocking commitments better match the existing reality of trade and commercial activity today than previous trade deals. Officials struggled for years to put together a complex package of rules and commitments spanning 30 chapters that includes everything from agriculture to high tech and digital services.
The rule book runs to nearly 600 pages, with thousands of additional pages of country-specific promises.
The commitments finally began for companies in six markets on December 30, 2018: Australia, Canada, Japan, Mexico, New Zealand and Singapore. Vietnam joined on Jan. 14.
Officials that need to administer the rules in these markets are unlikely to be very clear on what is now supposed to happen. Such significant changes typically require substantial capacity building across bureaucracies to ensure that policy is effectively implemented on the ground.
In the CPTPP, however, this process of carefully and methodically rolling out the rules and administrative changes needed to bring the agreement into effect on the ground for companies seems to be lacking.
In part this is due to the unusual trajectory of the agreement.
The CPTPP started life in March 2010, when formal talks were launched for the TPP. Over the years, the planned membership expanded from seven to nine to eleven to twelve. But, just as the agreement was finally concluded, conditions changed inside the United States.
In January 2017, U.S. President Donald Trump took the United States out of the deal.
Most observers assumed the TPP would be relegated to the dust bin. But Japanese Prime Minister Shinzo Abe helped resurrect the agreement, changing the name and freezing some of the provisions that were most problematic for the remaining members.
The re-christened CPTPP moved ahead in 2018 as members scrambled to complete domestic ratification procedures.
During the period between the collapse of the TPP and the rebirth and launch of the CPTPP, however, much of the capacity building that would have typically been conducted internally by member states and some of the development assistance that should have been provided between members, was sidelined.
Most governments erred on the side of caution when deciding whether or not to spend limited budgets on capacity building for an agreement that had already seen one major setback and might not ever survive a second.
Hence, when the CPTPP started on December 30, 2018, it seems most governments were poorly prepared.
Fortunately, perhaps, companies seem to be just as slow to recognize the changes available on the ground and have not yet been asking for CPTPP rules to be applied to their goods, services, investment decisions and the like.
The entire agreement is now active-all 600 pages of rules and all market access promises.
One example of a problem that is sure to be looming in the coming days and weeks are short-term challenges at the border in most CPTPP member countries. For instance, the CPTPP does not require something called a certificate of origin for goods that are going to claim preferences. Typically, if a company wants to use a free trade agreement, it must acquire and file a CO with customs.
The CPTPP, by contrast, eliminates this requirement. Companies need only provide specific pieces of information when claiming that their goods meet the rules of the agreement to have access to lower tariffs. But there is no specific form to fill out.
Officials did this on purpose. They wanted to allow companies to save time and money on obtaining COs. Companies can use whatever sort of documentation best suits their business, as long as they meet the rules of the agreement and provide the information required.
The details could be on letterhead or in a format better suited for internal compliance and audit purposes. It can be on yellow or green or white paper. It can (eventually) be digital. The point is that there is no specific form to be filled out any longer in CPTPP, starting at the end of December.
Yet, given the lack of capacity building across the seven member countries currently active in CPTPP, it is highly unlikely that every customs official in every port of entry will be aware of this new requirement. It may even be the case that some companies will have goods stopped or held up at the border waiting for a document that does not exist and cannot be procured.
Implementation issues like these are typically not very sexy. They usually only generate headlines when things go wrong. But smooth and effective implementation is the key to the success of CPTPP.
There is no point in painstakingly negotiating a trade agreement that matches the world of business and spending hours more thinking through new annexes and decisions for the future if the deal that already exists does not make the leap from words to reality.
Now that the CPTPP is live, it is time for quick work in getting officials and companies up to speed in the complex realities associated with the agreement. Getting new members is quite exciting, but the current benefits and promises have to be delivered first.