The TPP tariff reduction schedule treats party countries differently
The breadth of countries covered by the Trans Pacific Partnership Agreement (TPP) and the news coverage surrounding the agreement will compel importers and exporters to spend time and money evaluating the advantage of the proposed duty savings from TPP. However, it is prudent for companies to fully understand the rules of the game before jumping in to play. This, along with the lack of transparency on how the agreements were negotiated, has created a huge interest in the rules pertaining to the new TPP FTA released earlier this month.
It has been widely cited by the stakeholders in the U.S. government that this agreement will expand access for U.S. goods globally. Similarly, the other parties to the agreement expect lower tariffs and expanded access to the U.S. economy. This can only mean that the TPP will most definitely make changes to the current import processes in the United States.
This is a 3 part series that will focus on the effects the TPP will have on imports coming into the U.S.
Overview of TPP Tariff Reduction Schedule
Some of the TPP rules grant automatic duty free entry into the U.S. while others gradually reduce tariffs each year for a period of 5 years and thereafter enter duty free. On average 91% of the codes found in the 2010 Harmonized Tariff Schedule of the United States (USHTS) as listed in the TPP, will be entered duty free immediately upon enactment of the agreement. Using the tariff rate reduction schedule of the TPP, the following graph shows the average rate of tariff reductions for the countries in TPP after it goes into effect.
During the first year the TPP goes into effect, 91% of the HTS codes will enter duty free. After that, HTS codes are gradually phased in to be duty free. Most HTS codes will be duty free by year 13 with a small number of codes actually taking to year 30 to become duty free. The HTS codes that are designated to have the longest reduction schedule are six HTS codes with descriptions of “Motor Vehicles for transport of goods” from Japan. The tariff reduction schedule designates these HTS codes as US17 stating that the duty rates “shall remain at base rates until December 31 of year 29. Such goods shall be duty-free effective January 1 of year 30;”
The graph above is based on an average of the eleven countries. While the majority, about 78%, of HTS codes has the same reduction timeframe between all of the TPP countries, there are some differences as to if and when a particular product is entered duty free. In the U.S., the tariff reduction schedule can differ by country and these differences reduce the tariffs of different types of products at different times adding to complexity of ensuring proper compliance.
Details regarding the tariff reduction schedules are found in a 278 page document called the U.S. tariff elimination schedule. Creating a simple pivot table with the data reveals that Chile and Singapore tie for the highest number of immediately duty free HTS codes, 96%, while Vietnam only receives 78% duty free treatment on its goods.
Immediately free HTS codes upon enactment of TPP by Country
This list of duty free treatment expresses the fact that the U.S. does not uniformly grant duty free entry to all party countries. In contrast, there are some party countries that treat all party countries the same and apply the same tariff reduction schedules across the board. Australia, Brunei, Malaysia, New Zealand, Peru, Singapore, and Vietnam have harmonized tariff reduction schedules. For these countries all HTS codes are reduced the same for every party country. The U.S., along with Canada, Mexico, Japan, and Chile all have tariff reduction schedules that treat countries differently.
For example, imports of “Motor vehicles for transport of goods” produced in Japan and shipped to the U.S. will take thirty years to see any tariff reductions while importers of the same products produced in Brunei, Malaysia, New Zealand and Vietnam will see a gradual reduction of the 25% duty rate until year 10 when the products become duty free. In the meantime, those same products are entered in duty free from Australia, Canada, Chile, Mexico, Peru, and Singapore.
Those same products produced in the U.S. and shipped to party countries receive varying treatment. Vietnam is the only country that has created a pretty complicated tariff schedule for these products but Australia Brunei, Chile, Japan, New Zealand, Peru, and Singapore immediately allow these products to be entered in duty free from all countries. Canada and Mexico delay duty free status for a few years. This is one reason why multinational corporations having production in multiple countries will have to take a close look at their supply chain in order to estimate how and when the TPP will reduce duty. This varying treatment could also possibly motivate changes in production of some highly taxed products.
The topic of part 2 of this series discusses how the U.S. tariff reduction rules can co-exist with existing free trade agreements since six of the eleven party countries to TPP already have outlined preferential trade rules between themselves and the U.S.
 https://ustr.gov/tpp/: “TPP will make it easier for American entrepreneurs, farmers, and small business owners to sell Made-In-America products abroad by eliminating more than 18,000 taxes & other trade barriers on American products across the 11 other countries in the TPP—barriers that put American products at an unfair disadvantage today.”
 The graph does not take into account the following codes: 189 codes have specific dates on which they become duty free. Where it falls in the graph depends on the date of enacting the TPP. 627 item codes have tariff quota rules and 116 references to a rule that does not exist in the current draft of the TPP. 95,621 item codes will have immediate entry duty free into the United States.
 Some countries’ tariff reduction schedules treat all party countries the same and apply the same tariff reduction schedules: Australia, Brunei, Malaysia, New Zealand, Peru, Singapore, and Vietnam.
 Rules designated as EIF & US25 in the tariff reduction schedule are immediately allowed duty free into the US.
 2010 HTS codes 87042100, 87042250, 87042300, 87043100, 87043200, and 87049000.
 These party countries are Australia, Chile, Peru, NAFTA (Canada and Mexico), and Singapore. Full text from these agreements can be found at https://ustr.gov/trade-agreements/free-trade-agreements.