New Trade Pact Could Impact Your Business

More than five years of contentious negotiations have come to an end, and the Trans-Pacific Partnership is now complete. The TPP is the largest trade deal in more than two decades. It joins 12 countries, including the United States, in easing tariffs, creating agreed-upon minimal standards for both worker and environmental protections, and establishing intellectual property protections. Proponents believe the agreement will help increase American-made exports, thereby growing the U.S. economy, providing well-paying jobs, and strengthening the middle class.

The TPP is no small development. It involves more than 40 percent of the world’s competing economies, making it a big deal for business owners of all sizes. The TPP is not law yet in the United States because it must still be approved by Congress. During the summer of 2015, Congress granted President Obama fast-track authority to negotiate the deal. This means the President and his administration were given complete authority to craft the agreement, which must be given a straight up or down vote by Congress without the possibility of amendments or filibusters. Many groups are opposed to the TPP, including an unlikely alliance of labor unions, certain Democratic factions and Tea Party Republicans.

U.S. businesses are likely to experience significant changes if the TPP passes Congress and becomes law. The TPP removes tariffs on thousands of different goods manufactured in the United States. As a result, manufacturers who export their products directly to TPP member countries should experience increased economic activity. The U.S. Chamber of Commerce expects the TPP to spur a $125 billion increase in U.S. exports over the next decade. On the other hand, the TPP applies both ways, so U.S. manufacturers can expect increased competition as well. Tariffs will fall on TPP member goods coming into the United States on everything from electronics to textiles. Tariffs in the following areas represent the most significant changes.

• Manufactured products: Tariffs are eliminated on every manufactured product that the U.S. exports to TPP countries. For example, U.S. manufactured machinery currently has import taxes as high as 59 percent added to it by importing TPP countries.
• Agriculture products: Import taxes on American agricultural products to TPP countries are reduced. Import taxes currently as high as 40 percent on poultry products, 35 percent on soybeans and 40 percent on fruit will be lowered.
• Automotive products: Tariffs that are currently as high as 70 percent on U.S. automotive products are eliminated.
• Information and communication technology: The TPP eliminates import taxes as high as 35 percent on American-made IT exports to TPP countries.

Further, the TPP gives greater authority among Pacific Rim Nations to the United States instead of granting that role to China. China however has its own trade agreement in the making, known as the Regional Comprehensive Economic Partnership. The TPP primarily favors the United States because China is widely perceived to have lower labor and environmental standards. The trade deal could also give the United States more leverage in negotiations regarding China’s currency manipulation. Currently, China enables the value of TPP partners’ currencies to remain artificially low, thereby making it more difficult for U.S. companies to sell their goods in the Asia-Pacific region.

There are many other specifics in the TPP that can affect businesses; however, just these few tariff-related items are significant in their own right. Keep an eye out in 2016 to see if the TPP becomes law and these changes actually become a reality.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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