THE TRANS-PACIFIC PARTNERSHIP
- December 09, 2015
- Blog, News & Events
As many of you know, our law firm has a strong international presence. We may be a boutique law firm, but we have extensive experience in representing clients from over fifteen different countries here in the United States. Additionally, we serve as a guiding force for our U.S. based clients who are looking to expand internationally through revenue expansion or production.
Whether it be a non-U.S. based entity looking to expand into the American economy, or a domestic corporation seeking product placement abroad, the legal and regulatory maze can be convoluted, confusing, and downright treacherous. Many small to medium sized businesses overlook this harsh reality when considering expansion beyond their own domestic borders. Unfortunately, many early entrants into a non-domestic marketplace do not realize the cost and risk associated with international expansion and investment. For larger corporations, the regulatory and legal costs are not as punitive. However, for small to medium enterprises (“SMEs”) — businesses with fewer than 500 employees (our typical client demographic) — it can be a tremendous financial burden to undertake the international leap. Often, a SME has already committed itself to an international customer or manufacturer when it encounters an issue with customs protocol, intellectual property compliance, localization requirements, or a variety of other regulatory hurdles mandated by a foreign country. To further complicate the situation, the SME has likely not factored in the regulatory costs, thereby materially affecting the gross profit margins of a specific transaction. Unfortunately, far too many SMEs inadvertently negate any potential profit margin when facing the perplexing web of international trade.
However, there is potentially some good news facing SMEs that engage in international trade. Last week, I had the opportunity to attend a small gathering of attorneys, government officials, business leaders, and trade organizations at Bloomberg Headquarters (fantastic host!) in New York City to discuss and review the Chapter Text (released November 5, 2015) of the Trans-Pacific Partnership (“TPP”) that has been released to the general public.
The TPP is a trade agreement among twelve different countries: USA, Japan, Australia, Vietnam, Malaysia, Singapore, Mexico, Canada, Brunei, New Zealand, Chile, and Peru (we interact with entities from most of these countries on behalf of our clients). On a broad level, the primary objectives of the TPP include delivering market access and trade liberalization, promoting digital trade, globally promoting uniform and robust intellectual property rules, creating a more level playing field for foreign investment (i.e., new rules on state-owned enterprises), and encouraging regulatory cooperation and cohesion among the trade partners. While the TPP has been finalized by the participating nation-states, the terms of the TPP stipulate that when a deal is formally submitted to Congress, it must act within ninety legislative days. According to Congressional experts at the Bloomberg event, many expect Congress to act in the Summer of 2016 or during the lame-duck session following the 2016 presidential election (Congress has elected to be very generous with their vacation time in 2016 — it appears it will only be in session for approximately six months during 2016).
However, let’s return to the primary point of this blog post and discuss the potential benefits to SMEs that participate in international commerce (my educated guess is that Congress will ratify the provisions of the TPP since it is one of the most critical and potentially transformative trade agreements that addresses digital trade and global intellectual property concerns, which are growing and important segments in our economy). To be succinct, the TPP will benefit SMEs tremendously.
Here are some interesting tidbits I extracted from the Bloomberg discussion:
- The twelve countries in the TPP constitute 40% of the global economy;
- The negotiators present at the Bloomberg discussion mentioned that they frequently heard from SMEs regarding the issues discussed earlier in this blog post; these negotiators made it a priority to address the worries of SMEs in the final draft of the TPP;
- 98% of U.S. exporters are SMEs — together these firms account for approximately one-third of annual goods exported outside of the U.S.; however, there is tremendous potential for growth since only 5% of SME’s currently export (statistics courtesy of Ed Gerwin);
- If more SMEs can export and tap into foreign markets, this is good news since small businesses account for approximately two-thirds of America’s new net jobs; small businesses are the backbone of the American economy (statistics courtesy of Ed Gerwin);
- A specific chapter in the TPP creates a permanent SME committee to supervise the manner in which the TPP is addressing and protecting SME international trade;
- The TPP clearly eases the burden on trade regulatory compliance by reducing paperwork, requiring transparency, and lessening testing and certification requirements;
- SMEs that participate in the growing and ever-changing digital economy will find that foreign customer transactions will become more efficient by ensuring that cross-border data flows become more streamlined and uniform amongst the twelve members;
- The TPP negates almost 20,000 trade tariffs; and
- Small entrepreneurs with ingenious products can sell directly to the world in a much more cost-effective manner, thereby increasing profits.
In closing, the TPP is a very large and complex agreement. In fact, many folks are already haphazardly groaning about it without having even read it or attempting to understand its contents. What is certain is the fact that the global economy will continue to change as other markets continue to grow and open up. The U.S. faces stiff competition everywhere, and we must realize that the digital economy is the future. How we interact with the world and sell our goods is a fluid process that necessitates an adept approach to commerce. The TPP provides this framework.
Providing foreign entities with easier access to the U.S. market will increase foreign investment in the U.S., which will spur increased employment for American workers, create strong and sustainable real estate values, and increase tax revenues (our firm represents several subsidiaries based in the U.S. that have foreign ownership). On the flip side, giving American SMEs better access to the global economy will promote innovation, competition, higher income, and will continue to promote and stimulate the necessary growth of the backbone of the American economy: the independent, small, and private American business (i.e., the SME).
On behalf of our entire firm, we look forward to assisting our domestic and internationally-based clients traverse through the complexities of international trade. Hopefully, the TPP will lessen these complexities. We look forward to discussing this important agreement with you and will continue to keep you updated.
Peter M. Potente, Esq.