The Trans Pacific Partnership agreement ("TPP"), the largest comprehensive regional free trade and investment agreement that has ever been negotiated, is slated to be signed by twelve countries in the Asia Pacific region that represent roughly 40% of the world's economy. The Obama Administration has touted the TPP as a means for boosting U.S. exports, supporting higher paying jobs in the United States, growing the U.S. economy, and countering China's economic expansion. The full text of the agreement was made available to the public on November 5th
What does all of this mean for retailers, distributors, and manufacturers? For starters, the TPP will eliminate import tariffs on more than 18,000 goods, many of which are currently subject to high duty rates. Although it may be quite a while before the TPP goes into force, companies are advised to take stock of the agreement, assess its potential impact on future sourcing decisions and international sales strategies, and contemplating the rollout of processes for making import claims under the TPP as well as responding to requests for TPP certifications from overseas customers. This article provides a brief overview of the current status of the TPP, the TPP's rules of origin and the requirements for making and supporting valid claims for preferential tariff treatment.
1. Current Status of the TPP and Its Entry into Force
For the past five years, the following countries have been actively negotiating the TPP: United States; Australia; Brunei; Canada; Chile; Japan; Malaysia; Mexico; New Zealand; Peru; Singapore; and, Vietnam. Negotiations officially concluded on October 4, 2015, and the signatory countries are slated to formally sign the agreement in New Zealand on February 4, 2016. Thereafter, the signatory countries' respective legislative bodies will have a maximum period of two (2) years in which to implement the TPP into their respective local laws.
With respect to implementation of the TPP in the United States, Section 106(a)(1)(A) of the Trade Priorities Act (Pub.L. 114-26) requires the President to notify Congress of his intent to enter into an international agreement, such as the TPP. President Obama provided that notification to Congress on November 5, 2015. The Trade Priorities Act also requires the President to sign the international agreement no later than ninety (90) days after providing notification to Congress, which will be February 3, 2016. On November 17, 2015, the U.S. International Trade Commission ("ITC") announced the commencement of an investigation on the likely economic impact of the TPP on the United States. Such ITC investigations are part of the international agreement implementation process and the ITC generally issues its reports to Congress when the implementing legislation is about to be voted upon. In the case of the ITC's investigation of the TPP, the impact analysis report is expected to be released on or around May 18, 2016. It is likely that Congress will delay its vote on the TPP implementing legislation until after the ITC's report has been released. Further, in light of the upcoming Presidential election at the end of 2016, there will likely be additional delays in the implementation of the TPP in the United States.
It should also be noted that the TPP will enter into force only after at least six of the signatory companies (that represent a minimum of 85% of the GDP of all of the participants) have implemented the agreement into their local laws. Thus, the TPP may not go into force until sometime in 2017 or later.
2. The TPP Rules of Origin and Direct Shipment Rule
As noted above, duties on more than 18,000 products will be eliminated under the TPP. However, only goods that are considered "originating" in a TPP member country will be afforded preferential tariff treatment. There are three ways in which a good may be eligible for preferential treatment under the TPP:
- It is wholly obtained or produced entirely in the territory of one or more of the parties
- It is produced entirely from TPP-originating materials
- It satisfies the product-specific rules set forth in Annex 3-D to the agreement (e.g., regional value content rules, tariff-shift rules, etc.)
The agreement also provides a de minimis rule
that will allow products containing non-originating materials to qualify for the TPP – where the product-specific rule of origin cannot be satisfied. Those goods will still be afforded preferential treatment if the value of all of the non-originating materials does not exceed 10% of the value of the finished good.
In addition to satisfying the TPP rules of origin, originating goods will only be eligible for preferential trade benefits if they have been transported directly from one member country to another without passing through the territory of a non-party. However, originating goods that transit a third country may still retain their TPP eligibility provided that: (a) they do not undergo any operation in the third country other than unloading, reloading, separation from a bulk shipment, storing, labeling or marking, or any other operation necessary to preserve them in good condition or to transport them to the importing TPP country; and, (b) they remain under the control of the customs authorities in the non-party's territory.
3. Making TPP Claims
Once the agreement goes into force, companies in TPP member countries may claim preferential tariff treatment on imports of qualifying goods. TPP claims may be made at the time of entry provided that the importer has the required certification statement. In addition, companies may submit retroactive claims for qualifying goods post-importation in order to obtain duty refunds – this scenario is likely where the required certification statement and supporting eligibility records were not available at the time of entry.
As noted above, importers are to make claims for preferential tariff treatment under the TPP based on a written certification of origin attesting to the fact that the goods in question satisfy the applicable rules of origin. The certifications are not required to be submitted to the importing country's customs authorities at the time of entry; rather, they must merely be in the possession of the importer when a claim is made. The certifications may be prepared by the exporter, producer or even the importer itself. The certification may apply to a single shipment or to multiple shipments made over the course of a 12-month period. Certifications may be submitted in English, but the importing country may also require that a translation into its local language be provided as well. There is no specified format for the certification or form that must be used. Rather, the certification must merely be in writing and contain the following data elements:
- Names and addresses of the Importer, Exporter or Producer
- Certifier's name, address, telephone number and e-mail address
- Description and Harmonized System Tariff Classification of the goods
- Invoice number (if known and if the certification of origin covers a single shipment)
- Origin Criterion
- Blanket Period covered by the certification
- Signature and date of the certifier
As with other free trade agreement that are currently in force, it is likely that many of the importing TPP member countries will provide suggested templates or recommended formats for the certifications, though they will not be legally required to be utilized. Further, the certification must contain the following statement:
I certify that the goods described in this document qualify as originating and the information contained in this document is true and accurate. I assume responsibility for proving such representations and agree to maintain and present upon request or to make available during a verification visit, documentation necessary to support this certification.
Importers making TPP claims will be required to maintain documentation relating to their imports (including the certification of origin and additional documentary evidence that substantiates the goods' eligibility) for a period of five years from the date of importation. Similarly, exporters or producers that issue certifications to their customers must also maintain records for five years from the date the certifications were issued (as well as all records that demonstrate TPP eligibility).
At this stage of the TPP process, it is still too early to predict when the agreement will actually go into effect. However, it is a good idea for companies to begin thinking about how the TPP may impact their operations and whether it could be used for greater duty and cost savings in the future. Companies are urged to review the agreement, assess whether their goods or raw materials may qualify, monitor developments relating to the ITC's investigation and release of the draft U.S. implementing legislation down the road.
Melissa Proctor is a Shareholder with Polsinelli, P.C. With significant experience in the customs laws and regulations, export controls, economic sanctions, and international trade, Melissa is committed to understanding companies' operations and providing assistance geared toward helping them reach their specific business and operational goals. She may be reached at (602) 650-2002 or via e-mail at firstname.lastname@example.org