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Without the United States, 11 Countries Conclude a Revised Trans-Pacific Trade Agreement

19 March 2018
Mayer Brown Consulting (Singapore) Article

Just over a year after the United States withdrew from the Trans-Pacific Partnership Agreement (TPPA), the other 11 member countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) pushed through and signed the renamed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) on 8 March 2018.

The 11 countries clearly demonstrated that their free trade ambitions are not held back by the U.S. withdrawal. The CPTPP retains all of the tariff reductions and eliminations from the original TPPA concluded by the 11 countries and the US, but suspends 22 provisions which the US had pushed for. In other words, whilst the US had used its considerable bargaining power to pry open markets under the TPPA, the benefits will now be enjoyed by the 11 CPTPP countries.

CPTPP countries on either side of the Pacific will gain better market access to countries on the other side. Japan has provided its most ambitious market opening for the agricultural sector, to date, under the CPTPP. While Japanese concessions are relatively limited, especially in sensitive agricultural categories such as dairy and sugar products, agricultural producers in Canada, Mexico, Australia and New Zealand will gain better access through preferential quotas and lower tariffs. Malaysia and Vietnam will immediately gain access to three new preferential markets: Canada, Peru and Mexico. Malaysian palm oil, rubber and electronics exporters will be the main beneficiaries while Vietnam foresees export growth in food, beverages and tobacco, clothing and footwear, chemical and plastic products, transport equipment, and machinery and other equipment.1 Besides direct market access benefits, there will also be opportunities to seek out more cost-efficient sourcing lanes (for example, switching from a U.S. supplier to one of the other CPTPP countries) to meet the CPTPP rules of origin.

The CPTPP is expected to take effect by the end of 2018, when at least six countries have ratified the agreement. Even before implementation, other countries are expressing interest in joining the CPTPP in the future. The UK has raised this as a possibility after BREXIT2 as has Taiwan. South Korea, the Philippines, Indonesia, Colombia and Thailand are also potential candidates for accession. Even though U.S. President Donald Trump has indicated his interest in joining the CPTPP under better conditions than those originally offered in the TPP, it is hard to envisage the 11 CPTPP countries agreeing to such terms without extracting concessions in return.

Mega Asian FTA Just Received a Boost

The pace of negotiations on the Regional Comprehensive Economic Partnership (RCEP) has tracked that of the TPP. The RCEP consists of ten ASEAN countries plus Australia, India, Japan, Korea and New Zealand, and is largely seen as a China-backed effort to counter the U.S.-led TPP. With the U.S. abandonment of the TPP last year, there were concerns that the RCEP negotiations will languish.

RCEP talks appear to have regained traction with the countries agreeing to an end of 2018 deadline for concluding negotiations. As with the CPTPP, Japan has emerged as the key player, together with Singapore who is the Chair of ASEAN in 2018, in pushing hard to advance RCEP talks.

Whether the RCEP will conclude with all 16 countries or only with 15, it will depend on India. For the duration of the negotiations, India has been resisting ambitious tariff dismantling for goods while not being satisfied with the offers made on services, especially in regard to the movement of workers and professionals. ASEAN is said to be holding out for all countries to commit to zero duty on at least 90 percent of goods.

Perhaps the CPTPP may provide another example for the RCEP to follow, the RCEP may conclude without India but may leave room for the country to rejoin at a later date.

CPTPP vs RCEP: Does It Matter?

There have been many commentaries and reports comparing the CPTPP/TPP to the RCEP, with most concluding that the CPTPP offers deeper market access in goods and services, and goes beyond traditional trade issues to address intellectual property, labour rights and state-owned enterprises.

Yet, in a practical sense, the differences may not matter all that much for businesses. Both agreements offer opportunities for businesses to restructure their sourcing and trading patterns, and business and operational flows. The higher standards set by the CPTPP on labour rights, environmental protection, competition policy, state-owned enterprises, and cross-border information flow will likely become the norm in countries participating in both the CPTPP and the RCEP (Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam). Through effective planning, businesses, especially those operating in both CPTPP and RCEP areas, can maximize benefits arising from both deals.


1 Economic and Distributional Impacts of Comprehensive and Progressive Agreement for Trans-Pacific Partnership: The Case of Vietnam, The World Bank, 5 March 2018

2 There is scepticism over this proposal, especially given that the UK is not a member of the Asia Pacific Economic Community (APEC) under whose auspices the CPTPP was negotiated.

Authors

  • Chian Voen Wong
    Director, Mayer Brown Consulting
    T +65 6327 0639

Related People

  • Cecil Leong
    Chief Executive Officer, Asia Pacific, Mayer Brown Consulting
    T +65 6327 0254
  • Sydney H. Mintzer
    T +1 202 263 3866
  • Paulette Vander Schueren
    T +32 2 551 5950
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