The Comprehensive and Progressive Agreement for Trans-Pacific Partnership will help keep the flame of free trade burning in Asia, says Manu Bhaskaran
This article was first published in the March 2018 China edition of Accounting and Business magazine.
The export-oriented economies of Asia Pacific have overcome the setback to trade liberalisation they suffered when President Donald Trump withdrew the US from the Trans-Pacific Partnership (TPP) agreement. The 11 remaining countries have concluded a new agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which retains the essence of the original TPP.
The CPTPP would not have materialised but for Japan’s active leadership. Japanese Prime Minister Shinzo Abe personally pitched the case to leaders of countries such as Vietnam and Malaysia that had reservations, while his trade diplomats crisscrossed the region, resolving obstacles. After decades of passivity, the new Japan is willing to move vigorously on its own initiatives. The takeaway from the CPTPP’s success is that Japan could thus be a stabilising force in Asia Pacific, filling some of the vacuum created by a more disengaged US.
The CPTPP will bring substantial benefits to its members. First, it creates an integrated market of 500 million people with a combined output of US$10 trillion, representing 13.5% of the world economy. It also weaves together multiple free trade agreements (FTAs) into a more coherent single one while enabling those members with fewer FTAs to enjoy wider trade relations. There will be considerable synergies as lower trade barriers promote increased competition, forcing companies to be more efficient. In addition, greater competition is likely to persuade countries to reform their economies faster through deregulation and investing more in infrastructure and education. All this will eventually yield gains in output and incomes.
Second, these synergies will be more substantial because the CPTPP addresses 21st-century issues such as e-commerce and intellectual property protection more clearly. The CPTPP also has more provisions for non-tariff barriers, services trade and investment than those other agreements.
Third, the CPTPP strengthens the hand of Asian countries as they deal with a more protectionist US. Japan has gently deflected US requests for a bilateral FTA, while South Korea, which is renegotiating its FTA, will see its negotiating hand strengthened.
Several studies show that the CPTPP will generate net benefits for signatories, with Malaysia and Vietnam the biggest winners and Singapore not far behind. It will also facilitate greater flows of goods, services, capital and skilled labour, creating more demand for regional hubs such as Singapore.
Countries such as China, South Korea, Taiwan, Indonesia and Thailand, which are not part of the CPTPP, stand to lose out as trade and investment will tend to be diverted towards members. Over time, though, more countries will join, making it the principal framework for Asian economic integration.
In short, the CPTPP will help keep the flame of free trade burning. That will be a boon to Asian economies in an age of growing protectionism.
Manu Bhaskaran is CEO of Centennial Asia Advisors in Singapore
"There will be considerable synergies as lower trade barriers promote increased competition"