25 January, 2016
One of the buzzwords of 2015 is TPP or Trans-Pacific Partnership. Alandmark agreement with the aim of “achieving more open trade and regional integration in the Asia-Pacific region”,1 the TPP is intended to “boost trade and investment flows between TPP countries as well as integrate the region into a single manufacturing base and market”.2
This article provides a primer on the TPP and examines its impact on trade and small businesses.
1. WHAT IS THE TPP?
The TPP was concluded on 5 October 2015 after more than five years of negotiations. The TPP is a trade pact that aims to regulate trade amongst 12 countries, namely, the United States, Japan, Canada, Australia, Mexico, New Zealand, Chile, Peru, Singapore, Brunei, Vietnam and Malaysia. Together, these countries “represent 40% of global GDP, one-third of world trade, and comprise a population of 800 million, making the TPP the largest regional trade agreement to date”.3
The TPP is set out in 30 chapters, comprising matters such as investment, financial services, telecommunications, electronic commerce, competition, intellectual property, labour and environment.4
2. THE TPP IS IMPORTANT
If the TPP comes into force (hopefully within the next few years although no specific timeframe has been set), it will be the biggest trade agreement negotiated since the North American Free Trade Agreement (NAFTA) signed in 1994 and the 1994 completion of the Uruguay Round, which created the World Trade Organisation. It will account for 40% of the world’s economy but its footprint will very likely extend beyond that.
The TPP will not only establish Singapore’s first preferential trade agreement with Canada and Mexico, but will also promote regional
business by strengthening regional production and supply chains, and reducing tariff rates for goods which are produced in stages across multiple TPP countries.5
3. THE IMMEDIATE IMPACT ON TRADE AND NON-ECONOMIC ACTIVITIES
Similar to conventional free trade agreements, the TPP will reduce trade barriers to the flow of goods and services. In particular, manufacturers and exporters of goods will enjoy duty-free treatment on a wider range of goods than those provided in prior trade agreements. For instance, qualifying for reduced tariffs under the TPP to United States and Japan will be easier for processed food and textile and apparel manufacturers.6
Significantly, the White House estimates that the TPP will eliminate 18,000 taxes (in the form of tariffs) on manufactured goods in the
United States,7 while providing everyone from Chilean gold miners to Malaysian rubber planters cheaper access to markets across the Asia-Pacific region.
In tandem with the TPP’s impact on trade, the TPP will set and enforce minimum standards on issues such as workers’ rights, environmental protection, investor-state dispute settlement and intellectual property.
For instance, all TPP member countries will be required to eliminate all forms of forced labour and child labour, and tackle various environmental challenges such as marine pollution and illegal wildlife trafficking.8
4. THE BIGGEST WINNERS
Trade has undeniably increased global living standards and enabled many poorer countries to close the wealth-poverty gap.
Consumers have gained access to a broader range of goods, and in wealthy countries, cheap imports drove down the cost of basic items, such as clothes, thanks to manufacturing industries in less developed countries.
Vietnam, a low-wage economy heavily reliant on exports, may be the biggest winner from the trade deal. Its GDP is forecasted to gain 11%, or US$36 billion (S$51.2 billion), in 10 years. Its exports are predicted to increase by 28% during the same period, which could be attributed to companies moving production to Vietnam.9
Major Chinese textile giants are relocating to Vietnam to take advantage of this trade deal. Singapore can boost trade and investment flows thanks to the TPP as well. In 2013, the TPP countries accounted for 30 per cent of Singapore’s total goods trade, worth S$300 billion, and 30 per cent of foreign direct investment (“FDI”) in Singapore, amounting to S$240 billion.10
It can stand to gain by providing intermediary services that facilitate trade between partners. Trade needs to be facilitated by financial and legal services, areas in which Singapore is arguably the best amongst the Southeast Asian member countries in the TPP.11
Japan probably stands to benefit more than most from higher inward FDI given the very low presence of foreign firms in the country. Perhaps most importantly, the wider economy should benefit as previously protected sectors are exposed to competition, albeit amidst howls of protest from sectors like agriculture, which will see rice farmers losing some of their protections under a non-tariff import quota of one per cent of total rice consumption.12
5. IMPACT ON SMALL BUSINESSES
The TPP is meant to be inclusive and will assist small-and-medium-sized enterprises (“SMEs”) to flourish along with other bigger commercial entities by removing more tariffs and increasing trade facilitative rules to “reduce costs and make it easier for SMEs to participate in regional production and supply chains”.13
User-friendly websites will also be set up to help SMEs to “better understand regulations and procedures concerning intellectual property rights, foreign investment regulations, business registration procedures, employment regulations and tax information”.14
In addition, SME communities will benefit from capacity building programmes in the TPP region.15
As the sun sets on the negotiations of the TPP trade deal, it is the dawn of a new day for TPP member countries as they begin with the tedious ratification and implementation process.
It is now up to each TPP member country to obtain the buy-in of their stakeholders, so that the benefits of the TPP can be fully realised.
1 Ministry of Trade and Industry, Singapore. (2015, October 23). Trans-Pacific Partnership Free Trade Agreement (TPP) – 7 Things You Should Know (https://www.mti.gov.sg/MTIInsights/SiteAssets/
2 Ministry of Trade and Industry, Singapore. (2015, October 5). Press Release: Trans-Pacific Partnership Negotiations Conclude Successfully (https://www.mti.gov.sg/NewsRoom/SiteAssets/
3 See note 1 above.
4 See the full text of the TPP at https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/tpp-full-text.
5 See note 1 above.
6 See note 1 above.
7 Office of the Press Secretary of the White House. (2015, October 5). Fact Sheet: How the Trans-Pacific Partnership (TPP) Boosts Made in America Exports, Supports Higher-Paying American Jobs, and Protects American Workers. (https://www.whitehouse.gov/the-press-office/2015/10/05/fact-sheet-how-trans-pacific-partnership-tpp-boosts-made-america-exports)
8 See note 1 above.
9 John Boudreau. (2015, October 9). The Biggest Winner From TPP Trade Deal May Be Vietnam. Bloomberg Business News
10 See note 1 above.
11 Kelly Tay and Soon Weilun. (2015, October 7). Despite optimism over historic TPP, doubts persist.
The Business Times. (http://www.businesstimes.com.sg/government-economy/despite-optimism-over-historic-tpp-doubts-persist)
12 Bloomberg Business News. (2015, October 6). TPP Trade Deal: Who Stands to Gain, Suffer in Asia-Pacific. (http://www.bloomberg.com/news/articles/2015-10-06/tpp-trade-deal-who-stands-to-benefit-suffer-in-asia-pacific)
13 See note 1 above.
14 See note 1 above.
15 See note 1 above
For further information, please contact:
Azman Jaafar, Partner, RHTLaw Taylor Wessing