Following several years of negotiations, and after the high-profile collapse of the original Trans-Pacific Partnership (TPP) in 2017, the renamed “Comprehensive and Progressive Trans-Pacific Partnership” (CPTPP) has now met the required number of ratifications to come into force. This is due to occur on 30 December 2018. This will offer New Zealand businesses a range of opportunities they should plan for, including reduced tariffs on a number of key exports.
The six countries that have ratified the CPTPP are: New Zealand, Mexico, Japan, Singapore, Canada and Australia. The signatories still to ratify are: Brunei Darussalam, Chile, Malaysia, Peru and Vietnam.
The CPTPP includes many elements negotiated in the TPP, but also suspends 22 of the previous provisions, meaning that they will not apply unless all CPTPP countries agree that they should take effect in the future.
The agreement includes a number of exceptions ensuring that the New Zealand Government can continue to legislate and regulate in the public interest, including a specific Treaty of Waitangi exception allowing New Zealand to adopt any policies considered necessary to fulfil Treaty obligations.
We consider the key areas of the CPTPP and its implications for New Zealand below.
Tariffs
Tariffs on many key New Zealand exports will be eliminated or significantly reduced, either immediately or in phases over the coming years. This includes tariffs on kiwifruit, apples, fish, beef and wine.
The Ministry of Foreign Affairs and Trade estimates that New Zealand exporters will potentially benefit from NZ$222 million in tariff reductions per year, once the CPTPP is fully implemented.
The CPTPP will also help address other barriers to trade in goods by reducing time frames for customs clearance and by lowering compliance costs.
The timing of the ratifications means that New Zealand exporters will benefit from two rounds of tariff cuts in almost immediate succession from all member countries (with the exception of Japan, which does not use calendar tariff years). The first tariff cut will apply upon entry into force of the agreement on 30 December, with the second round effective from 1 January 2019. Japan’s second round of tariff cuts will be on 1 April 2019.
Overseas investment
The CPTPP preserves New Zealand’s right to restrict overseas investment in New Zealand through the Overseas Investment Act 2005. Preferential screening thresholds will apply: the threshold above which investors from CPTPP parties must get approval to invest in New Zealand business assets increases from NZ$100 million to NZ$200 million. No changes will be made to the way New Zealand approves investments relating to ‘sensitive land’ or fisheries quotas.
The agreement also includes provision for Investor-State Dispute Settlement (ISDS), which allows foreign investors to pursue remedies directly against a CPTPP party for breaches of the CPTPP investment provisions. The investment provisions require CPTPP parties to treat foreign investors in the same way as domestic investors or other foreign investors, subject to certain exceptions. The scope of the ISDS mechanism is narrower in the CPTPP than had been proposed under the TPP:
ISDS claims are limited to breaches of the investment chapter and some parts of the financial services chapter. Claims cannot be brought for breaches of investment agreements, investment authorisations, and certain investment-related provisions in the financial services chapter.
Reciprocal side letters with Australia, Brunei, Malaysia, Peru and Vietnam mean that compulsory ISDS will not apply between New Zealand and these countries.
Pharmaceuticals and intellectual property
The PHARMAC medicine purchasing model has been preserved, and a previous TPP provision, which would have required certain administrative changes, has been suspended.
A further 11 intellectual property provisions from the TPP have been suspended, including a provision which would have extended copyright term from 50 years to 70 years.
Labour and environment
The agreement contains provisions setting common labour obligations for all CPTPP parties, which are intended to protect and enforce labour rights, improve working conditions, and enhance labour capacity.
Parties are also required to implement commitments in international environmental agreements, and the agreement introduces new regulation on fisheries subsidies which may contribute to over-fishing.
The significance of the CPTPP may increase as further ratifications occur, and potential new signatories accede to the agreement. Various countries have expressed an interest in joining the CPTPP including Colombia, South Korea, Indonesia, Thailand and China. The UK is also exploring joining – a “Pacific” nation by virtue of its foothold in the Pitcairn Islands.
In the meantime, the challenge for New Zealand businesses is to engage with and make the most of the opportunities the CPTPP presents.
If you would like to discuss the possible implications of the CPTPP that are specific to your business, please contact the lawyers featured or your usual Bell Gully adviser.