As the world enters 2019 awaiting the outcome of trade truce talks between the US and China in Beijing next week, the dream of free trade lives on in the Pacific Basin. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) officially came into force in six countries on December 30, in the latest demonstration of trade liberalisation in the region.
The trade deal took effect in Australia, Canada, Japan, Mexico, New Zealand and Singapore – the first six members to ratify the pact – with Vietnam set to follow later this month. Together, these economies represent the lion’s share of the US$10tn in GDP covered by the agreement. Around 90% of tariffs on goods in the first six countries were immediately removed and, ultimately, the deal will eliminate 95% of the current tariffs on trade among all partners.
The CPTPP is the successor to the Trans-Pacific Partnership (TPP), which the US withdrew from in 2017, in one of Donald Trump’s first unilateral moves as president. It was Trump’s opening shot in his war on free trade: he subsequently embarked on a renegotiation of the North American Free Trade Agreement (Nafta) and unleashed a series of tariffs against Chinese exporters. Erstwhile partners Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, however, powered on without the US, and are claiming a victory for globalisation.
Stuart Tait, regional head of commercial banking, Asia Pacific at HSBC comments: “The CPTPP’s entry into force signals that the desire for an open, liberal and rules-based trading system is very much still alive. The CPTPP is indeed comprehensive and progressive in how it facilitates trade and investment in the 21st century as it tackles issues such as ecommerce and data protection. Businesses are certain to benefit from greater clarity at a time of trade policy turbulence – as well as from improved access to 500 million customers.”
Estimates from the Peterson Institute for International Economics across the 11 CPTPP economies suggest trade flows will be boosted by 6% to 2030 as a result of the deal. According to HSBC’s recent Navigator survey, 39% of companies in member countries believe that the agreement will directly or indirectly help their business.
“FTAs such as the CPTPP simplify import and export procedures and reduce the cost to trade,” says Tait. “For example, the CPTPP provides for full cumulation, meaning that businesses in CPTPP markets can use inputs sourced from other CPTPP markets to qualify for preferential treatment within the region. With the CPTPP now in effect, there is no better time for businesses to raise their awareness and maximise the benefits that are on offer.”
Other nations, including South Korea and China, could join the CPTPP in the coming years, while the UK has expressed an interest in coming on board once it leaves the EU in March. The door is also not closed to a potential US return, although there has been little indication from the Trump administration that this is under consideration.
The CPTPP’s entry into force is the latest in a string of initiatives by Pacific Basin countries to keep the free trade banner flying high. With further Asean integration, Regional Comprehensive Economic Partnership (RCEP) negotiations as well as a number of trade deals with the EU, in one corner of the world, at least, free trade is still alive and well.