What Does TPP Do For Services Companies?

by | Aug 19, 2016 | Articles

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What Does TPP Do For Services Companies?

By: Steve Craven

Many people overlook the importance of services in modern international trade, thinking that trade only has to do with physical goods that travel in ships or airplanes. In fact, the United States is the world’s largest trader of services, boasting some $711 billion in exports and $477 billion in imports in 2014. Services can include such diverse businesses as education, architecture or engineering, accounting, banking, investment services, travel, logistics, package delivery, laboratory analysis and much, much more. Some of these are huge for Hawaii and provide many good-paying jobs in our state.

The Trans Pacific Partnership has two chapters devoted to services, one of which is dedicated to the complex world of financial services. For all services, however, the broad impact of TPP is to open markets up to cross-border delivery of services. TPP contains four core obligations. First, “national treatment” guarantees that services and the companies that provide them will not be discriminated against by TPP signatories in favor of their own suppliers. Second, TPP members guarantee that service suppliers from other TPP countries will get equal treatment in their markets, and that nobody will get better treatment (“most-favored nation”). Third, market access will be open, meaning there will be no limits on the number, value or type of transaction – nor will there be any requirement for the type of entity that supplies the service (e.g., joint venture, sole proprietor). Lastly, there will be no requirement for a local presence in order to provide a service. Some services, say computer software coding, can be provided at a distance without a local office. For others, perhaps educational services, it may make business sense to have a local office, but this will no longer be legally required. (This clause may be very important for Hawaii. Our architects and engineers have long been hampered by requirements that they establish overseas offices before they bid on projects in some countries. They have even been required to take on local partners in foreign markets. TPP ends that as a legal requirement for doing business in TPP markets.)

International rules for trade in services are still new compared to the long history of rules for hard goods. As a result, most countries are not yet willing to open their services markets entirely. That is why the TPP provides two annexes in which countries specify their restrictions on services that they are not yet willing to give up. While things will open up for most services, anybody in a service business should check these annexes so they won’t be surprised. Most of the restrictions listed in the annexes will also be subject to a “standstill” that prohibits more restrictive measures – and to a “ratchet”, meaning that if the restriction is ever loosened, the new less restrictive measure becomes the “standstill” benchmark. So check the annexes.

TPP does not prevent countries from ever installing new restrictions on services trade. But new restrictions must be prepared in a clear and transparent manner, including giving foreign companies a chance to comment on proposals.

There are two other annexes regarding trade in services. One deals with professional services (e.g., legal services or accounting). This annex encourages cooperation among TPP members to harmonize regulatory rules and professional licensing. The second annex deals specifically with express delivery services. Vitally important to small and medium-sized businesses, the express delivery annex essentially applies the U.S. Postal Accountability & Enforcement Act of 2006 to other TPP members. For some countries, this makes no difference, but it can be very important in those countries where express delivery services are seen as competing with postal monopolies.

The TPP is not the final word on trade in services, but it certainly adds openness and transparency that goes beyond earlier services negotiations under the World Trade Organization.

Steve Craven advises companies on international business strategies and how to overcome problems encountered in foreign markets. He is a former consultant, American diplomat and a U.S. trade negotiator. He served as a Career Diplomat and Senior Foreign Service Officer, member of the U.S. Commercial Service, U.S. Department of Commerce. Mr. Craven also previously served as Chair of the Hawaii Pacific Export Council.

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