Harmonization of TPP tariff rates key issue

SINGAPORE—The ministerial talks for the Trans-Pacific Partnership trade accord that ended Tuesday in Singapore failed to reach a broad agreement. But even if Japan, the United States and emerging economies agree on the pact in the future by making concessions in their talks, they will nonetheless face thornier issues, including one on harmonizing tariff rates for the same kind of product—a key to maximizing trade liberalization’s positive effects.

Regarding TPP tariff-related liberalization talks, negotiations are held bilaterally, such as between Japan and the United States and between Vietnam and the United States.

Because of this, tariff rates differ even on the same product among importing countries. For example, even if the United States exports automobiles to Vietnam tariff-free, tariffs may be imposed on Japanese automobiles when exported to Vietnam.

Meanwhile, under economic partnership agreements, such as ones Japan and China have made with the Association of Southeast Asian Nations, harmonized tariff rates are imposed on the same type of product, no matter which country is the exporter.

Also, during negotiations on the Regional Comprehensive Economic Partnership that encompasses 16 nations—the 10-member ASEAN, Japan, China, South Korea, India, Australia and New Zealand—the adoption of a similar system to impose harmonized tariff rates are being discussed, with the aim to reach an agreement next year.

If implemented, the system will help expand the scope of Japanese manufacturers’ investment and sales strategies, as it would make it easier to set up production bases flexibly without worrying about rate differences.

In TPP talks, however, participating countries have had few discussions on harmonized tariff rates. If the issue remains unresolved and the TPP comes into effect, the parties to the agreement would have to follow what would be a total of 66 separate free trade agreements, such as one between Japan and the United States or one between Vietnam and Mexico. Tariff rates would differ in many cases, complicating trade under the TPP pact.

A source close to the TPP negotiations said discussions on adopting harmonized tariff rates have made little headway as Washington, in its tariff talks with Japan and emerging economies, “wants to improve U.S. farm products’ export competitiveness by securing tariff rates lower than those imposed by their rivals in agricultural fields, such as Australia and Canada.”

As bilateral talks under TPP negotiations face rough going, a Japanese government source said, “If we start discussing the issue of adopting harmonized tariff rates, our conflicts of interests will become more complex, making conclusion of the TPP negotiations highly unlikely.”

Differing tariff rates under the current system will lessen the effect of regional integrity in trade. To further revitalize Asia-Pacific trade, the ultimate target of the TPP talks, the issue of adopting harmonized tariff rates will be a big challenge they should address.

Rules of origin

In regional trade, it is important to create rules of origin to clarify whether a product is made in TPP member countries.

For example, the Japan-ASEAN economic partnership agreement gives preferential treatment regarding tariffs to those goods processed in two or more countries if they contain materials produced in the EPA member countries and the materials are worth more than 40 percent of the product price. This system encourages Japanese firms to use effective production systems by utilizing division of production.

Japan is calling for similar rules in TPP talks to make the TPP trade supportive of and convenient to Japanese companies.

Source: The Japan News