The Trans-Pacific Partnership – dawn of a new age
The signing of this pact on 5 October 2015 marked the end of a long road towards an ambitious development in world trade.
The Trans-Pacific Partnership (TPP) was signed by 12 Pacific Rim countries, including the US and Japan on 5 October 2015. The sweeping trade pact involves nations that make up nearly 40% of the world's economy – a combined GDP of US$30trn – and a total population of 800 million. Viewed by many as the most important trade deal negotiated in more than 20 years, the pact is expected to boost trade and investment flows between the participating countries and stimulate economic growth.
For a start, the pact slashes some 18,000 tariffs among the dozen participating countries. Low wage economies like Vietnam, which are hugely reliant on exports, will be among the biggest beneficiaries of the reduced duties. Other features include a pledge by members not to devalue their currencies to make exports cheaper and more effective enforcement of environmental laws and labour rights.
The pact will also lift curbs on foreign equity restrictions in certain countries, opening up previously closed sectors like private healthcare, telecommunications and energy to foreign competition. Huge benefits will also be seen in easing the trade in services across borders, which has traditionally been a difficult and sensitive area. This also applies to government procurement in certain countries that have allowed only limited access to foreign bidders in the past.
Winners and losers
The pact has its detractors however. For example, after much debate, next generation biological drugs have been granted an exclusivity period of only five years. This is far shorter than the 12-year protection period sought by US companies, which claim that the exclusivity period is insufficient to encourage investment in expensive innovative treatments.
Protection of local homegrown businesses and domestic interests is also a key concern for many of the governments involved, especially as the pact still needs to be ratified by the national legislatures of the participating countries.
Likely impact on members
For countries with free trade and economic partnership agreements already in place, the benefits to be gained from the TPP will be incremental. For example, Singapore currently has 21 such agreements in place, but 30% of its total goods trade will come under the TPP and 30% of foreign direct investment into the country – numbers which are by no means insignificant.
Apart from reduced tariffs for exporters, there could be indirect benefits for companies engaged in services such as shipping and financing from increased trade between TPP member nations. Likewise, countries with strong trade and economic linkages, such as the ASEAN nations, could benefit from the knock-on effects of the boost to trade and investment in these countries.
The TPP is a game-changer which is expected to have a profound impact on the economic and trade interactions of its member nations for years to come. Much remains to be done, not least the ratification of the pact itself by the individual countries to give it full legal effect. Still, the prospect of increased trade and investment flows bringing economic benefits across what would be the single largest regional trade bloc in the world is indeed cause for cheer, particularly in a world increasingly prone to bouts of protectionism and inward-looking policies.
For more information, contact:
Lam Fong Kiew
Nexia TS, Singapore
T: +65 6534 5700