The signing in Chile of the new trade pact between 11 Pacific Rim nations is a harbinger for the 500 million individuals and businesses within the countries it serves.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is an ambitious deal and is expected to bring sizeable economic gains to its members: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. It also has the potential to expand membership with Thailand and South Korea which have expressed interest in joining. Across the 11 economies involved, recent estimates from the Peterson Institute for International Economics suggest the agreement could boost exports by an additional 6 per cent by 2030 (above current trade projections for that period), with members enjoying a projected gain in total real income of US$157 billion as a result.
The potential impact
Of most benefit will be the elimination of a host of tariffs between member countries. Where tariffs are maintained, cuts will be significant. For instance, the tariff on New Zealand beef exports to Japan will fall from 38.5 per cent to 9 per cent when the deal enters into force. This could be within a year to 18 months of signing.
In addition to raising labour and environmental standards, the CPTPP also provides efficient and transparent custom procedures to make it easier to move goods in and out of member markets. Finally, it has dedicated chapters to set rules around data movement and to facilitate the exchange of services.
Collectively, these improvements mean that around 500 million people across 11 nations will have access to a greater and cheaper choice of goods and services. Combining more than US$10 trillion of economic output – about 13.5 per cent of the world’s GDP – these nations offer bright prospects to the business community too.
Whether it is firms already doing business in the region, or globally-minded companies looking to tap into new markets, many recognise the potential benefits the CPTPP could bring them. New HSBC research reveals that nearly half (46 per cent) of firms based in one of six CPTPP countries surveyed expect the deal to have a positive impact on their business.
The Singapore story
Singapore’s situation is unique because of its free port status. Hence, every trade agreement that the city state signs means more market access for local firms and more commercial activity for Singapore’s ports. In short, more business for the country. Data from the Peterson Institute backs this up. All things being equal, the CPTPP is projected to boost Singapore’s exports by 6.2 per cent come 2030. The optimism shows. Half of Singapore companies in the HSBC survey feel that this agreement is both relevant and will have a positive impact to their business.
Obviously, the clear sector winners for Singapore will be linked around the shipping, logistics ecosystem. That the agreement is strong on the protection of intellectual property rights doesn’t hurt Singapore’s ambition to grow its innovation space either.
The IP protection that the CPTPP affords is also a boon for the electronics sector. It serves to safeguard Singapore as a high-end manufacturer. Coupled with the CPTPP granting Singapore greater access to Japanese markets and its emphasis on electronics and precision engineering, it could lead to larger trade volumes and a bump up in supply chain activity.
And this nicely dovetails with the Committee on the Future Economy’s recommendation that Singapore’s manufacturing sector contribute 20 per cent of economic output over the medium term.
To make the most of these opportunities, companies should start developing strategies to reap the benefits unlocked by the new agreement, before it enters into force.
First, businesses can review their current trade relationships to identify the gaps and understand where is the greatest potential to create new ties and tap into some of the fastest growing consumer markets.
Second, they can look at how their current supply chains – regional or global – map against the CPTPP links. Those who work now to understand how the deal could impact their business model will reap the greatest benefits in the future. This is not only important to companies based in one of the member markets, but also to any firms doing business in the region.
Finally, an in-depth understanding of the CPTPP and its impact on tariffs for each group of goods and services will be critical for firms to reassess their pricing strategies and maintain their competitive advantage.
A win for free trade
The CPTPP agreement is a remarkable piece of diplomacy. This single pact, which ushers in higher standards and economic benefits, covers emerging and advanced economies, spanning four regions. It is a big step for multilateralism and international collaboration, and serves as an example for further pacts.
So while the path towards ratification could still be bumpy, the signing of the CPTPP tells us that trade liberalisation is alive and kicking, something all of us who believe in trade as a force for good should celebrate.