US Withdraws From TPP. What now?

  • Tuesday, 24 January 2017 17:10
  • Published in Business News
  • Read 517 times

With US out from the Trans-Pacific Partnership (TPP), trade related insurance provider Euler Herms gives their analysis on what is at stake and what opportunities still lie in wait for the other 11 members.

President Trump has made good on his campaign promise to withdraw the US from the TPP. The 12-nation free trade agreement was an ambitious attempt to promote trade on a mega-scale.

Now US’ support is officially withdrawn, so gone is the aspiration of bringing together 800 million consumers, close to US$28 trillion of wealth (36 percent of global GDP) and US$11 trillion in trade (exports and imports, i.e. 26 percent of global trade). This new trade framework could have boosted TPP member countries' GDP by more than US$38 billion over the first two years of implementation.

In addition to the extensive trade liberalisation in goods and services via the reduction of tariff and non-tariff barriers, the agreement was also intended to promote fair labour competition, freer investment movement, enforcement of intellectual property (IP) rights, and the harmonisation of legal and regulatory issues:

To increaseTo decrease
    • Trade flows
    • Economic growth
    • Investment between partners
    • Intellectual property protections
    • E-commerce protections
    • Taxes and tariffs
    • Non-tariff barriers
    • Labor abuses
    • Differences in regulations

The global trend of trade is already weak. For the full year of 2016, first trade releases point that USD denominated exports dropped in China (-7.7 percent), in South Korea (-5.9 percent) and Singapore (-4.9 percent).

We expect a limited improvement in 2017. Global trade volume growth will stay modest, below +4 percent in the medium-term: we forecast +2.9 percent in 2017, after a record low at +1.9 percent in 2016.

Regime switch in demand (China's rebalancing; energy autonomy in the US; adjustments in the emerging world), isolationism and servitisation/digitalisation explain this daunting trend.

Protectionism has been intensifying over the past years: over 700 new restrictive measures were introduced each year between 2012 and 2015. A total of 567 trade barriers were issued during the first nine months of 2016 while indirect protectionism is also on the rise (public procurement, subsidies, compensation).

In that context, Asia will need to find new trade drivers.

The first of these is a “one belt one road” initiative for Asia. For ASEAN TPP members—namely Singapore, Malaysia, and Vietnam, the Chinese-led One Belt One road initiative could be a good alternative. This entails improving connectivity and economic cooperation in Asia, Europe, the Middle East and Africa thanks to massive infrastructure investment plans.

The impact can be felt through a capital boost in countries which could result in more funding to finance infrastructure projects. Also, this would incite a gradual increase in demand from China for strategic natural resources.

Another channel would be the rise in competitiveness as infrastructure for trade improves. Singapore could also leverage on its edge in financial services and logistics operations to advice and support companies expanding their business in the region.

The second trade driver could be the other partnerships that Asia Pacific markets can bet on. For example, the countries can move towards further regional integration with the promotion of the Regional Comprehensive Economic Partnership (RCEP).

This mega-trade agreement which involves China, ASEAN, Australia, New Zealand, India, South Korea, and Japan represents a market worth around US$22 trillion, gathering 3.5 billion people. It aims at liberalising goods and services trade, facilitating investment flows and promoting best practices.

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Asia Pacific Food Industry (APFI) is Asia’s leading trade magazine for the food and beverage industry. Established in 1985, APFI is the first BPA-audited magazine and the publication of choice for professionals throughout the industry with its editorial coverage on the latest research, innovative technologies, health and nutrition trends, and market reports.

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