History and Participating Countries
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a free trade agreement between 11 countries situated around the Pacific Rim. It came into force on December 30, 2018 between 6 of them : Canada, Australia, New Zealand, Mexico, Japan and Singapore. Vietnam joined in 2019 and Peru in 2021, increasing the number of active parties to 8. Chile, Malaysia and Brunei have not yet ratified; i.e., the Agreement is not yet in force for trade with them.
The CPTPP is a successor agreement to the Trans-Pacific Partnership (TPP) signed in 2016 by the 11 countries mentioned above plus the United States. In January 2017, shortly after taking office, President Trump signed an order declaring that the United States would not ratify the TPP. The remaining 11 countries renegotiated the Agreement, rebranding it as the CPTPP, and signed it on March 8, 2018. The CPTPP includes much of the original content of the TPP.
In February 2021, following its “Brexit” withdrawal from the European Union, the United Kingdom applied to become a party to the CPTPP. Accession negotiations between a working group of the existing 11 parties and the United Kingdom are ongoing.
In September 2021, China also applied to become a party. However, its accession is unlikely to happen anytime soon. China’s state controlled economy would not fit within the existing terms of the Agreement. Many of the current members are reluctant to change the terms to accommodate that fact. The admission of a new party requires unanimous consent of the existing parties.
The 11 current parties to the CPTPP left the door open for the United States to rejoin. However, while President Biden has made some supportive statements, there doesn’t appear to be sufficient political will for America to seriously enter into negotiations.
Tariff Reduction and Elimination
Approximately 86% of the tariff lines for all countries collectively become duty free on ratification. A further 13% of tariff lines become duty free on various schedules ending at various times over the succeeding 15 years. Tariffs will remain for approximately 1% of tariff lines.
Each country has its own tariff reduction schedule based on the Harmonized System. These schedules form part of Chapter 2 of the CPTPP Agreement and may be accessed from the Table of Contents. The schedules show duty rates for Year 1, Year 2, Year 3 and so on up to Year 15. Year 1 is 2018 for Canada, Australia, New Zealand, Mexico, Japan and Singapore. Thus, 2022 is Year 5 for these six countries. Year 1 is 2019 for Vietnam and 2021 for Peru. Year 1 for each of Chile, Malaysia and Brunei will be the year the Agreement comes into force for each.
Certain lines in the tariff reduction schedules use tariff rate quotas (TRQs), which involve the application of a preferential tariff rate for a defined quantity of imports and a higher tariff rate applied for imports above that quantity.
Rules of Origin
The Rules of Origin are set out in Section A of Chapter 3 of the CPTPP Agreement. In common with most free trade agreements established under World Trade Organization rules, there are three preferential origin criteria:
- (a) goods wholly obtained or produced entirely in the territory of one or more of the Parties as established in Article 3.3;
- (b) goods produced entirely in the territory of one or more of the Parties, exclusively from originating materials; or
- (c) goods produced entirely in the territory of one or more of the Parties using non-originating materials provided the good satisfies all applicable requirements of Annex 3-D (Product-Specific Rules of Origin, or “PSROs”),
The meaning of the term “preferential origin” is discussed in an article elsewhere on this website. It is important to note that the more common and universal concept of “non-preferential origin”, based on the principle of “substantial transformation”, does not apply in determining whether goods qualify for preferential tariff treatment under a free trade agreement such as the CPTPP. For example, a machine manufactured in Australia, in a way that materials and components sourced outside Australia have been substantially transformed, is of Australian non-preferential origin when imported into Japan. However, it will qualify for preferential tariff treatment under the CPTPP only if it meets the Product Specific Rule of Origin for its classification code under the Harmonized System.