Working with the US Commercial Service to promote exports through business counseling, education, and community outreach.
By Catherine Petersen and John Goodrich
The United States currently maintains fourteen trade agreements with twenty trading partners. A recent survey by KPMG and Thompson Reuters found that 25% of companies do not participate in free trade agreements. Another 36% participate in only one or two FTAs. In total, 61% of companies are either not using or are underutilizing free trade agreements. The results of this survey are disappointing, but not surprising.
Companies within the survey explained that complex rules of origin and the requirements to obtain and retain detailed supporting documentation through their supply chains were barriers to participation. They also found that obtaining sufficient qualified staff to manage participation prevented them from engaging in FTAs. In the end, some companies find that the cost of administering FTAs often outweigh the benefits and, therefore, they choose to opt out.
We have observed a subtler barrier to broad FTA participation in the U.S. We refer to it as “the NAFTA trap.” NAFTA remains the single largest free trade agreement in which the United States participates. As of 2016, it represents $1.1 trillion in trade between the three nations.(1)
In 2015, NAFTA partners represented 14% of the world's trade with less than 7%(2) of the world's population.(3) Because of its size, U.S. companies by design or by default, have developed supply chains that emphasize sourcing and product in Canada, Mexico and the U.S. They have responded exactly as the public policy imbedded within the NAFTA has intended. Unfortunately, they have done so at the opportunity cost of not participating in the free trade agreements available to them. They are trapped by the NAFTA. This trap exists at two levels.
The TPP promises some relief from the NAFTA Trap. Imbedded within the TPP is a concept called “cumulation.” Cumulation permits originating content from anywhere within the TPP territories to contribute towards origination. While under the U.S.-Australia agreement, Mexican material content might preclude participation, under the TPP that same Mexican content would contribute towards qualifying for a duty exemption.
Under the TPP, manufacturing companies will enjoy the benefit of cumulating the content and value of materials from twelve participating countries. They will also find that administering a single trade agreement will minimize the burdens they currently face administering the individual agreements with Australia, Canada, Chile, Mexico, Peru and Singapore.
Under the TPP, companies will experience a release from the NAFTA trap.
In addition, TPP will (4):
 U.S. Chamber of Commerce, https://www.uschamber.com/report/tpp-top-10
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