The TPP11 benefits for smaller firms in Singapore

Smaller companies in Singapore often struggle to export goods and services. Even when sending items to other markets in ASEAN where nearly all products receive duty-free access, firms often face other kinds of barriers to trade like challenging customs rules, incompatible regulations, labeling laws, licensing rules and so forth.

An upcoming trade agreement is likely to provide significant benefits to smaller firms in Singapore into key markets like Australia, Japan and even Canada and Mexico.

The Trans-Pacific Partnership 11 (TPP11) is currently moving towards the finish line. The 11 members--Singapore, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru and Vietnam—are going to announce their plans in November. Nearly all of the agreement is already known, with schedules and texts available for review.

Companies in Singapore already have access to many free trade agreements (FTAs). But the TPP11 is different. It provides broader, deeper benefits that are much easier for companies to use than most existing FTAs.

As an example, once a product is made for shipment to Malaysia under the TPP11, it will qualify for shipment into all other TPP11 countries without the need for changes in how it is made. The same rules of origin apply for all TPP11 countries. The item can be sent to Japan or Australia or Canada. The tariff on the product could be as low as zero on the very first day of the agreement.

Many food products, especially processed food items, electronics and components, consumer items and the like will see tariffs into TPP11 markets fall. In many cases, duties as high as 30 40% will become zero immediately. In other situations, tariffs will be reduced to zero within 3-7 years. In rare circumstances, phase outs will take up to a decade to reach duty-free treatment.

Customs rules are meant to support these changes in each of the member countries to facilitate faster movement of cargo over the borders. In fact, some firms may be able to do away with certificates of origin completely and keep all paperwork internally instead.

For firms that are services companies or want to invest in TPP11 markets, the scope of coverage is unlike anything negotiated by Singapore in the past. Nearly every single sector and subsector is open across all TPP11 markets for Singaporean companies. Firms will find that their investments come with improved protections as well.

Smaller firms often compete on the basis of their innovation that sets them apart from competitors. TPP11 offers better protection of intellectual property rights, especially in markets like Vietnam, that had patchy commitments in the past. Part of the agreement will involve capacity building for officials to help ensure that these promises will be kept and implemented.

Like all FTAs, the agreement can only be used by TPP11 companies for use into other TPP11 markets. It is not possible to use this FTA to ship goods into Thailand, for example, which is not currently a TPP11 member, and get the benefits of the TPP11 like duty-free tariff rates.

Note also that companies do not automatically get TPP11 benefits. In many circumstances, firms will need to know about the agreement and actually do something to use the deal. In other words, it is not the case that all Singaporean companies will receive TPP11 tariff concessions into Japan, for example. Companies will need to be aware of the agreement first.

But since the tariff cuts into Japan can be substantial — often significantly more than the existing Singapore-Japan FTA or ASEAN-Japan FTA — it will be worthwhile for firms to investigate the TPP11 tariff schedules for their specific product categories. In many instances, companies will save thousands or even millions of dollars in duties using TPP11.

These benefits will not just flow to big companies. Smaller companies can use the agreement as well. In many ways, it can be easier for SMEs, since the product inventory and supply chains are less complex and simpler to adjust, if necessary, to take advantage of the TPP11. The Singapore government has already begun the process of preparing officials to help companies use the agreement.

- Dr Deborah Elms, Founder and Executive Director, Asian Trade Centre (ATC) -