The signing of the Comprehensive & Progressive Agreement for Trans-Pacific Partnership in March 2018 marks a significant step for the development of trade in the Pacific Basin. It represents an ambitious vision for an open, liberal, rules-based trade regime in a region of 500m people with a GDP of $10 trillion.
The 11 members include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam and the trade agreement will enter into force once six members ratify it, possibly this year.
The United States was a leading participant in the original Trans-Pacific Partnership agreement signed in February 2016, but President Donald Trump ordered his country’s withdrawal in January 2017, directing US negotiators to pursue bilateral accords instead.
The agreement was renamed the CPTPP and 20 provisions that had been supported in particular by the US were suspended. However, the balance of the original agreement was kept intact, including some references to the United States, indicating hopes that the US will return at some point.
But the CPTPP is a big deal even without the US. Its open architecture is designed to accommodate additional members and includes arrangements for periodic review and updates.
Its 30 chapters deliver deep liberalisation in goods, services and trade related investment. Most duties will be reduced to zero while non-tariff barriers such as customs and regulatory impediments to trade will be reduced.
Services are liberalised and investors assured national and most favoured nation treatment. The agreement addresses 21st century challenges in areas such as e-commerce, telecommunications and data issues, including privacy and free flow of data. It also tackles social concerns including the environment, labour, inclusive trade and unfair competition.
Exports should rise by an average of more than 6% by 2030 for all members, according to estimates from the Peterson Institute for International Economics. The region’s real incomes may increase by 1% over that period too, with developing countries benefitting most.
The improved competitiveness from increased market openness under the CPTPP framework may help the members to benefit more fully from engagement in other trade initiatives in the region, such as China’s Belt & Road Initiative or the Regional Comprehensive Economic Partnership under negotiation between ASEAN and six of its free-trade agreement partners.
Non-CPTPP members such as China, Korea, Taiwan, Thailand and the US could face modest net losses as some trade is diverted to members, but some of these countries, possibly including China and Thailand, may in time reconsider membership. And even President Trump has reportedly said the US would join TPP if there was a much better deal.
So, in the face of rising protectionist sentiment, CPTPP sends a positive signal in favour of market openness and trade liberalisation, and the economic rewards reaped by members may entice other countries in the neighbourhood to join rather than face losses by staying out.
By Douglas Lippoldt,
Chief Trade Economist
HSBC Global Research