The TPP is all but dead. Now what?

24th January, 2017

The US is out of the Transpacific Trade Partnership (TPP), so the unprecedented agreement is on the verge of collapse.

Is this a good or a bad thing for Australian and NZ businesses?

The TPP was touted as a free trade deal covering 12 Pacific Rim countries, including Australia, New Zealand and the US.

In fact, it covered roughly 40 percent of the global economy, meaning that it was a truly world-shaking deal.

Those in favour of the deal said that it would lead to more open economies, creating more opportunities for businesses big and small to tap new markets without needing to run the tariff gauntlet.

Others said the deal favoured the US and were worried about some of the flow-on effects of the deal largely conducted in secret, such as the ability for multinational corporations to sue governments.

So, what happens now new US president Donald Trump has pulled out of the deal?

The answer to that question depends largely on your perspective.

Largely theoretical?

On the one hand, the actual effect will be negligible because although nations had agreed to the TPP, it still needed to be ratified by the 12 countries in question.

It could have taken years for the deal to be in effect anyhow – and democracy can be slow moving.

In terms of direct change, there’s none to report because the changes hadn’t taken hold yet.

The US is now out of the deal, but the remaining partners could re-draft the deal to only include the 11 remaining countries.

For many parties, such as Vietnam, increased access to the US market was a big driver to sign the deal in the first place.

What is the TPP, anyway?

The TPP was a trade deal which would have removed tariffs for a whole bunch of industries.

For example, if you’re exporting your product into the Canada, a tariff won’t eat into your margin or force you to pass the cost of the tariff onto the end consumer.

That’s a positive for exporting companies, but for local players it raised the prospect of having a whole bunch of competing products in the local market.

Again, it depends on your perspective.

Unfortunately, it has been difficult to draw too many conclusions because the vast substance of the deal was kept under wraps.

The effect on eCommerce and financial services

For local eCommerce and financial services players, the deal meant they could have expanded into new markets more easily.

If, for example, you wanted to expand your financial services business into Singapore, the deal would have meant that you could bring over your local workforce without too much fuss.

It would have also meant that Australian or NZ companies in the US wouldn’t need to set up local infrastructure like data, servers and research facilities in overseas markets to access those markets (which was previously one of the prohibitive costs of expanding to new markets).

Of course, it would have meant that tech giants from the US would have been exempt from those rules as well.

Tech startups serving the local market in Australia and NZ may have found themselves facing fierce competition from overseas behemoths.

Overall the deal was weighted towards exporting companies and those with the financial muscle to expand into new markets.

Lost potential?

There are noises being made about reviving the TPP as an 11-member deal, but without the involvement of the largest partner the momentum seems lost.

The effect of the US pulling the plug is largely about lost potential.

There’s the possibility that Australian and New Zealand governments may seek to tie up individual deals with the 11 members of the TPP, but again this is highly speculative.

Whether the TPP being abandoned or not will impact the future of your business depends on what business you’re in.

If you’re looking to export products, then the loss of the TPP may be a hammer blow.

If your business services the local market, then the dissolving of the TPP may come as a relief.

The key thing to remember is that the deal hadn’t kicked in yet, so for now it’s business as usual.