A deal signed by the United States and 11 other countries could prove to have strong benefits for South Carolina.
Robert Underwood, an associate professor at Furman University and author of the book Attitudes towards Economic Globalization: Does Knowledge Matter?, said benefits of the Trans-Pacific Partnership, signed on Feb. 4 in New Zealand, could result in additional world market support for South Carolina.
“I am a very fervent free trader and, in the long run when you lower trade barriers, you increase the flow of financial capital, intellectual capital, human capital, technology and you have more choice,” Underwood told GSA Business Report. “You open your business to compete on a global scale.”
According to the International Trade Association, the Trans-Pacific Partnership includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The agreement lifts foreign taxes on various industrial and consumer goods including automotive products, chemicals, machinery, forest products and energy products.
For S.C. businesses, the agreement, which is still pending congressional approval, will open up new market access to Brunei, Japan, Malaysia, New Zealand and Vietnam because of the elimination of various tariffs on goods and services exported to those countries. The Office of the U.S. Trade Representative said agreement will eliminate “more than 18,000 taxes” on made-in-America exports.
“The idea is that this is a broadening of the market,” Underwood said. “For companies, this means that approximately 75% of the market is outside the United States.”
The trade association reported 31% of South Carolina’s exports went to the 11 countries that make up the partnership and accounted for an average of $8.4 billion annually from 2012 to 2014. In 2014, businesses in South Carolina exported $300 million in automotive products to partner countries, the largest category of exports to the region, but those came with up to 75% in tariffs. Under the Trans-Pacific Partnership, those tariffs will be eliminated. Chemicals, another large export product from the state to partner nations, accounted for $225 million in exports from South Carolina. The maximum tariff partner countries charged for chemical imports was 35%, but under the new agreement, those tariffs would be gone.
The agreement, Underwood said, does go farther than a traditional trade agreement in that there is language built into the agreement which goes above just the average cut in tariffs.
“I think the thing that makes this a little different is that this has some labor issues and agreements that are implied with regard to labor rights and environmental concerns that go beyond just lowering trade barriers,” Underwood said.
In a summary from the Office of the U.S. Trade Representative, the Trans-Pacific Partnership agreement includes provisions to implement multilateral environmental agreements, the elimination of subsidies for products causing environmental harm, as well as language preventing member nations from waiving labor rights laws and a process to address various trade disputes among member countries.
“The Trans-Pacific Partnership is a tough, high-standard and modern trade agreement that reflects our values on labor, the environment and human rights,” said Penny Pritzker, U.S. Commerce secretary, in a statement.
Another benefit to the deal, Underwood said, is that importing goods from member countries will be cheaper for companies in South Carolina. AVX Corp., which has its corporate headquarters in Greenville and plants in Conway and Myrtle Beach, imports, from Malaysia, ceramic powders for some of the electrical equipment it manufactures. Greystar LLC in Bluffton has imported brown alumina from Japan to be used to make abrasive grains.
“There is often a misunderstanding of the idea of importing products means we are losing jobs in doing that,” Underwood said. “That may be the efficient use of resources, but also I think it is well over 50% of our imports are components or raw materials used to manufacture items that we then, in turn, export or sell domestically.
“Higher quality inputs that go into aerospace and automotive products are being produced here because there is greater infrastructure and logistics as well as a labor force that fits that market.”
One potential issue that could face some S.C. businesses wanting to expand into partner countries is location. The fact that the Port of Charleston sits on the other side of the world from member nations in Asia could be a hurdle, but Underwood said there are ways to overcome that.
“From a supply chain perspective, there may be some limitations to that,” Underwood said. “It’s all logistics, and they are going to look for the best route. It’s all part of a complex supply chain and, for us, with regard to automotive and aerospace, the proximity to the Port of Charleston is very important.”
“There is an existing partnership there with a lot of these countries.”
In the Upstate, Cryovac Sealed Air Corp. in Duncan already exports synthetic resins to Malaysia and Japan, while Michelin North America in Greenville sends its tires to Japan to be used by Japanese automakers as well as in the retail market.
The National Retail Federation said the retail market in South Carolina continues to benefit from international trade. In 2013, the most recent data available, the National Retail Federation said trade with the 11 Trans-Pacific Partnership nations, as well as European Union countries, supported 59,100 retail jobs in the state. The federation reported that consumer goods imported from member nations and the European Union to South Carolina faced $100 million in taxes. Under the Trans-Pacific Partnership, goods imported from member nations would either see tariffs eliminated or reduced.
Agriculture is another market that could see benefits if the Trans-Pacific Partnership is approved by Congress. The U.S. Department of Agriculture said S.C. agriculture exports have eclipsed $900 million after 2013, and exporting things like broiler meat, cotton, wheat, soybeans and processed fruits and nuts support nearly 7,000 jobs across the state.
Then, there is the automotive sector of the state that leads in terms of exports. Countries new to the Trans-Pacific Partnership — Brunei, Japan, Malaysia, New Zealand and Vietnam — received $300 million in automotive products from South Carolina in 2014. The agreement gives the United States preferential market access; 98.2% of those products will be duty free in those countries, according to the trade association.
Paul Ryan, vice president of trade and competitiveness with the Association of Global Automakers, a group representing international motor vehicle manufacturers, said ratifying the Trans-Pacific Partnership will “provide U.S. businesses with new opportunities for growth and consumers with more competitive choices.”
“Open trade and investment policies have encouraged international automakers to build and expand their U.S. operations, increasing their production in the U.S. by 2.4 million vehicles over the past decade,” Ryan said, in a statement. “These automakers continue to commit to U.S. jobs and the economy with additional research and development facilities, testing laboratories, manufacturing operations and increased exports.”
Underwood said one of the things the Trans-Pacific Partnership would do is open up a larger market to businesses in South Carolina. This can include small and medium-sized businesses.
One of the provisions of the agreement is each country establishing a website “targeted as small and medium-sized enterprise users to provide easily accessible information on the agreement and how they can take advantage of it,” according to a summary from the Office of the U.S. Trade Representative.
“These websites will distill all the relevant information spread out over hundreds of pages of the agreement, plus additional country-specific information, into single user-friendly sites tailored to the needs of small and medium-sized enterprises,” the summary said. “In doing so, we expect the TPP to make it easier for U.S. SMEs — from small, specialized manufacturers and small food exporters to independent craftsmen and artisans and small tech startups — to take advantage of the opportunities the agreement will create.”
Underwood said there are areas of the state that could reap additional benefits, if the Trans-Pacific Partnership is ratified.
“Certainly, the infrastructure in place in Charleston and North Charleston; I would think things like the TPP would benefit that area because they play a critical role and, all things being equal, I could see an impact,” Underwood said.
But, the globalization impact of agreements like the TPP and other’s similar in scope can already be seen in the Upstate. Merchandise exports from the Upstate totaled more than $17 billion in 2014, according to the trade association.
“I think Greenville is a perfect example of the evolution of globalization,” Underwood said. “You have all these high-end, capital-intensive companies in place, and it wasn’t that way all the time.”
The next step for the Trans-Pacific Partnership is congressional approval. Congress passed legislation, called the Trade Promotion Authority, allowing the president to negotiate trade deals with other nations. The measure was passed specifically with the Trans-Pacific Partnership in mind.
Following the Feb. 4 signing, there is a 60-day clock started for President Barack Obama to submit a bill to Congress to allow him to implement the agreement. The U.S. International Trade Commission will also conduct an economic development review and submit that to Congress within 105 days of the agreement signing. Congress will then consider the agreement in several committees before potential consideration by both the House and Senate.
According to The Hill, provisions in the agreement regarding pharmaceuticals and the tobacco industry have prompted concern from lawmakers as well as the U.S. Chamber of Commerce and National Association of Manufacturers. Any changes made to the agreement would require concessions by other nations, according to The Hill.
In his weekly press conference, U.S. House Speaker Paul Ryan, R-Wis., told reporters he did not think there were enough votes to pass the agreement in Congress. He said he also had concerns “where I don’t see enough support for it right now.”
Reach Matthew Clark at 864-235-5677, ext. 107, or @matthewclark76 on Twitter.