Personal Care and Cosmetics: TPP Opens Expanding Markets to IndustryFebruary 25, 2016
Tracy Gerstle is an International Trade Specialist in ITA’s Office of Materials Industries.
Second only to the European Union in terms of total global exports, the United States personal care and cosmetics industry holds nearly 20 percent of the world market (2014). In 2014, the sector contributed $10.22 billion in exports to U.S. GDP, with a 5 percent rate of average annual growth since 2009. The personal care and cosmetics sector comprises a broad mix of companies from household names including Procter and Gamble, Avon and Estee Lauder, to a large number of nimble and small enterprises, often characterized by women and minority owners. In addition, the industry makes important contributions to the U.S. economy on other fronts, employing 48,513 people in 2013 with an average wage of $45/hour. The industry is characterized by high levels of investment in innovation and marketing, with U.S. companies maintaining competitiveness through the constant introduction of new products and marketing campaigns.
Once implemented, the Trans-Pacific Partnership (TPP) will pave new in-roads for U.S. personal care and cosmetics companies in some of the largest and highest potential markets for the industry. Comprising 48 percent of U.S. global personal care and cosmetics exports, the TPP countries offer the industry 800 million consumers. This base includes consumers in well-established markets for U.S. products such as Mexico and Japan, which together accounted for more than $1 billion in U.S. exports in 2014. Also important, the TPP countries will provide unprecedented access to some of the highest potential future markets—including the growing middle class in countries spanning from Vietnam to Malaysia. These consumers aspire to the quality and sophistication for which U.S. products are known, and they are increasingly willing to move beyond basic products such as shampoo and soaps to skin care and premium products. Under the TPP agreement, U.S. products will become more competitive in new TPP markets where the United States does not have an existing free trade agreement and will result in an estimated duty savings of $11.1 million on U.S. exports to Japan, Malaysia, Vietnam, Brunei, and New Zealand. For example, in Vietnam tariffs on U.S. products from makeup to skin care to shaving cream range as high as 30 percent, all of which will be duty free within four years.
TPP is a milestone for the U.S. personal care and cosmetics industry, as the first regional trade agreement in which the United States participates that includes an annex specific to this sector. The Cosmetics Annex to the TPP’s chapter on Technical Barriers to Trade promotes international best practices in cosmetics regulation, with all of the TPP signatories committing to processes that are timely, objective, and transparent. Under the agreement, TPP countries agree to consider transitioning any product registration requirements for cosmetics to notification systems and post-market surveillance. Further, TPP countries agree to recognize all relevant international standards, guidance and recommendations, including when preparing or adopting guidelines on Good Manufacturing Practice, which is one of the greatest trade impediments for the sector in terms of countries’ customs requirements. In addition, the industry will receive considerable benefits regarding time and cost-savings with the elimination of costly documentation requirements such as certificates of free sale across the TPP countries. In some TPP countries, such as Chile, these requirements currently cost companies hundreds of dollars per product to prepare and submit for processing, in addition to several weeks for preparation, submission and approval. Also, relabeling will be allowed across the TPP countries, reducing requirements on companies for new packaging. Another important element of TPP to note is its recognition across the countries that cosmetics should be regulated differently from medical devices or pharmaceutical products, in terms of product risk. TPP provides that there will be no animal testing requirements in product safety assessments, unless there are no other means available.
In terms of global market share, Japan is the world’s fourth largest market for personal care and cosmetics products and accounts formore than 30 percent of the aggregate Asia-Pacific market. As the second largest exporter of cosmetics to Japan, the Unites States is well poised to benefit from the TPP. Additionally, U.S. businesses often find that expanding to Japan creates heightened visibility for their products and brands, which in turn leads to regional market demand. In this way, the Japanese market offers U.S. exporters a stepping stone to the greater Asia-Pacific region. Best prospects for U.S. companies include dual-use products that offer beauty and skin care benefits, natural or certified-organic products, men’s skincare and personal care products, as well as personalized skin cleansers and niche fragrances.
The International Trade Administration offers the cosmetics and personal care industry a number of services and tools to reach the TPP markets, including market research to support their identification of high value markets; targeted support via trade shows, e-commerce, and business partner vetting; and links to other USG agencies that offer assistance in financing, insurance and other services. For more information on this historic agreement and export opportunities for U.S. personal care and cosmetics exporters, contact one of our local offices or visit us on the web.