9th March, 2018
The Trans-Pacific Partnership (TPP) has been signed, but what does a piece of paper in Chile mean to small businesses in Australia and New Zealand?
In case you missed it, 11 countries including Australia and New Zealand (but, crucially, not the US) signed off on a massive trade deal which has the potential to increase the flow of trade between those countries.
While trade deals are usually the sort of things you wouldn’t be caught dead talking about at a dinner party, they usually have a long-standing effect on businesses large and small which shouldn’t be ignored.
So, what is it all about?
The biggest outcome of TPP is that it reduces or eliminates a range of tariffs on several products moving between countries.
If your business exports products into one of the 10 other countries which have signed onto the deal, that’s great news because the ultimate end price for your overseas customer will be cheaper.
A tariff is essentially a tax put on foreign products for the privilege of being sold in a domestic market.
That extra cost makes the product more expensive for the end user (or the exporter if they decide to fold the tariff into their margin).
For example, one of the key benefits to Australia is thought to be a reduced tariff on agricultural exports such as beef into Japan.
Of course, the reverse applies as well.
If you’re in an industry where tariffs have been reduced on foreign imports, then expect to see more competition from international players as the cost of exporting goes down.
One of the exciting parts of the deal for Australian and NZ companies is that the cost of setting up operations in countries that are part of the deal could be lowered significantly.
If you wanted to set up in Singapore, for example, you wouldn’t necessarily have to set up local servers and research facilities.
It also means that you would be able to bring over your Australian or NZ workforce without too much trouble – meaning you’d cut out a lot of time and energy trying to find a local team for each market.
Of course, the situation also exists in reverse – with global eCommerce players to find it a bit easier to set up in Australia.
In fact, employment provisions could be one of the more controversial parts of the deal.
One of the more controversial things about the TPP is that, outside of the negotiating parties, nobody’s really seen the full text of the deal – meaning it hasn’t been held up to proper scrutiny.
But, of course, nothing can be totally negotiated in secret so some things have started to creep out.
Things like employment arrangements could prove controversial.
Under the deal it’s believed workers from Mexico, Chile, Japan, Canada, Malaysia and Vietnam could be allowed to work in Australia without the employer needing to check whether there’s an Australian worker who could do the same job.
For canny employers, this means while it’s always an advantage to recruit locally, there will now be more of an incentive to bring in specialist-skilled recruits from overseas.
There are also concerns about the legal rights of participants to essentially sue the government for making laws for ‘certain breaches of a country’s investment obligations’.
Exactly what that means remains up in the air.
The key thing to remember is that the deal still needs to be ratified by each country for those countries to be part of the deal.
While Australia and New Zealand have signed the deal, there’s no guarantee they’ll participate unless the deal is signed off by their respective parliaments as well.
There’s also the 800-pound gorilla in the room – the US.
They originally pulled out of the-then TPP12 deal after President Donald Trump expressed concern that the US wasn’t getting a good deal.
After the US pulled out there were fears the whole thing could collapse, but Australia and Japan continued to pick up the momentum.
There’s also the possibility that the door is still ajar for a US re-entry into the deal, which would provide the deal a lot more heft.
In any case, as with any sort of trade deal, it can take the better part of a decade for the effects to be truly felt on individual businesses.
So no matter what you think of the deal, there’s no need to panic and there’s no call to jump for joy just yet.
The most important thing to remember is that easier access to overseas markets doesn’t mean success is guaranteed.
You still need to do your research and make sure your product or service is right for the market you’re targeting.