SINGAPORE: Moving along without the United States, the remaining 11 countries of the Trans-Pacific Partnership (TPP) on Thursday (Mar 8) signed a new version of the multilateral trade pact, resuscitating a landmark deal that would slash tariffs and foster trade in a market with a combined output of US$10 trillion (S$13 trillion).
The inking of the Comprehensive and Progressive Agreement for TPP (CPTPP) in Chile followed the conclusion of talks in January and marked a turnaround of fate after Washington’s withdrawal a year ago left it in limbo.
"The CPTPP will establish a new standard for other regional economic integration agreements, and even for future negotiations in the WTO (World Trade Organisation) and in APEC (Asia-Pacific Economic Cooperation)," said Chile's foreign ministry.
"We're very proud to show the world that progressive trade is the way forward," said Canadian Trade Minister Francois-Philippe Champagne as officials gathered for the signing ceremony.
Here’s what you need to know about this latest trade pact:
Q: WHAT IS THE CPTPP?The CPTPP, also dubbed the TPP-11, was negotiated by Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
Officials from the 11 member nations first reached a broad agreement last November to move ahead with the renamed trade pact, not without overcoming some last-minute resistance from Canada, before finalising negotiations in Tokyo about two months ago.
The revived deal will look to reduce tariffs in economies that together represent 500 million people and account for 13.5 per cent of global gross domestic product (GDP) – equivalent to a total of US$10 trillion.
The original TPP, with the participation of the US, would have covered 40 per cent of the world economy worth US$28 trillion. It was signed on Feb 4, 2016, following six years of talks, and was hailed as setting a new standard for global trade.
However, nearly a year later, the US withdrew from the trade pact as part of President Donald Trump’s “America First” agenda to protect domestic jobs. Due to the TPP’s legal requirements, the agreement cannot enter into force without the US and the remaining 11 countries, led by Tokyo, resumed talks to keep the deal alive.
Q: HOW IS IT DIFFERENT FROM THE TPP?
With the exclusion of the US, the CPTPP is putting on hold 20 provisions even as it incorporates the original TPP text by reference.
Out of which, 11 of the suspended clauses are related to intellectual property (IP) originally inserted at the demand of US negotiators. The other nine involve areas like investment, financial services, copyright, telecommunication and government procurement.
An agreement by all 11 members would be needed for these provisions to take effect in the future.
Dr Deborah Elms, founder and executive director of the Asian Trade Centre, described the suspensions as “minor tweaks” that few will notice, particularly given how the IP-related clauses were US-driven.
These include provisions that gave data protection to new pharmaceutical products and biologics. The latter was a “hot button issue” that the US had aggressively pursued during the negotiations.
“Most chapters have no changes at all and some of the changes involve just three words or a sentence,” she told Channel NewsAsia over a phone interview. “They are really quite minor.”
Mr Christopher Corr, a counsel at international law firm White & Case, said the suspensions resulted in a “less robust agreement” though the CPTPP will still have a “major, beneficial impact on trade in the region”.
This is because it still includes “important ‘new era’ rules” that facilitate e-commerce, cross-border trade in goods and services, investment, as well as new disciplines on state-owned enterprises, environmental protections, labour rights and good governance.
“That agreement now stands as a new best practices precedent for others to emulate and build from,” Mr Corr added.
Q: WHAT DOES IT MEAN FOR SINGAPORE?
For one, new market access into countries, like Canada and Mexico, where Singapore does not have free trade agreements (FTAs) with, according to the Ministry of Trade and Industry (MTI).
The trade deal will also boost regional economic integration, paving the way for “stronger and better linkages” between Singapore and valuable sources of investment and technology in Japan and other advanced economies.
The CPTPP also covers important markets and production bases for Singapore firms with its inclusion of some of the world’s fastest-growing economies and the country’s trading partners, such as Malaysia, Japan, Vietnam, and Australia.
MTI noted that CPTPP member countries in 2017 accounted for 22.2 per cent of Singapore’s total goods trade, which came to S$214 billion.
Trade minister Lim Hng Kiang said in January that homegrown companies will gain from the substantial elimination of tariffs and non-tariff barriers for goods, better access for service suppliers in a wide range of sectors, greater facilitation of investments and improved access to government procurement contracts.
One company that is looking to tap on the CPTPP as an “icing on the cake” is Ademco Security Group.
The homegrown security solutions provider hopes the trade deal can break down barriers in Malaysia and Vietnam where protectionist measures remain firmly in place within the security industry.
“Currently, licenses in these two countries for provision of security service, like guarding and alarm monitoring, are somewhat restricted for foreign-owned companies,” group managing director Toby Koh said. “I hope that the CPTPP will open up a whole new potential segment of the security industry to us.”
Given how the company has business operations in both Southeast Asian countries, the tax relief under CPTPP will also be a “nice to have”, added Mr Koh.
Q: WHAT’S NEXT?
Individual member countries will now begin their respective domestic ratification processes and the CPTPP will enter into force after at least 50 per cent of the signatories complete that.
Analysts that Channel NewsAsia spoke to are hopeful of a quick process even as Malaysia has said that it will not be among the first countries to ratify the trade deal by early 2019.
“As negotiations were successfully concluded recently in January 2018, ratification under this threshold by 2019 is not expected to be a problem,” Mr Corr said.
“Once that happens, Malaysia and Singapore companies will have a distinct advantage in the CPTPP region over competitors in other ASEAN countries, and they should start planning to take advantage of that now.”
Other countries could also be mulling becoming new members of the agreement. Yonhap news agency reported on Thursday that South Korea’s trade ministry will be looking at the CPTPP’s impact on its economy before deciding whether to join the trade pact within this year.
US President Trump also said previously that he would be open to re-joining the trade deal if it involved a “better deal” for the US, but joining the CPTPP would need to win the support of all the existing members.
Q: AMID TRADE WAR FEARS, WHAT DOES THIS MEAN?
Observers described the signing of the CPTPP this week as “rare good news” that will “stand in stark contrast” to recent heightened fears about a tit-for-tat trade war.
Concerns over the likelihood of a global trade war have intensified over the past week after US President Trump announced plans to impose stiff tariffs on steel and aluminum imports. That had sparked strong opposition from most of its major trade partners, with Europe and China warning that they would respond in the event of a trade war with the US.
Despite having some of its limelight stolen by recent developments, the CPTPP’s signing will still send a strong signal on free trade, stressed Dr Elms.
“(Recent events) shouldn’t overshadow the importance of what other parts of the world, especially Asia, have been up to in terms of opening markets and continuing to push forward more sensible policies on trade.”
For Mr Corr, the CPTPP will be a “stark contrast to recent troubling protectionist actions”.
Citing the example of how US firms will likely be feeling the pain of withdrawal after the CPTPP goes into effect, he elaborated: “One hopes the prospect of this will lead the US to re-engage in TPP and will serve as an example to others of not only the benefits of joining trade agreements, but also the costs of not joining.”
The formalising of the CPTPP could also help to speed up ongoing negotiations for the Regional Comprehensive Economic Partnership (RCEP) which, if approved, will cover nearly 3.5 billion people and one-third of the world economy.
First conceived in 2012, the 16-nation multilateral trade pact involves the likes of China, Japan, India, South Korea, Australia and New Zealand. Among them, seven are CPTPP members, namely Australia, Brunei, Japan, Malaysia, Singapore, New Zealand and Vietnam.
Dr Elms noted that countries that are out of the CPTPP could feel the “competitive challenge” to conclude the RCEP soon.
The uncertainties about global trade could also spur progress, she added.
“If you can’t rely on the US or end up with some protectionist barriers being raised in the Europe, US or even China – all of which are important final markets for everyone in Asia – that would be deeply problematic,” Dr Elms told Channel NewsAsia.
“So at the minimum, if you can have better markets within Asia, that would be a better fall back plan to have.”