TPP powerful trading bloc even without US15/07/2019
On February 21 the text of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP11) was released, introducing the world's latest free-trade bloc, characterised as a high-quality multilateral free trade agreement that takes in Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
The loss of the US from the TPP means the agreement bestows global income benefits of US$147 billion ($190.5 billion), compared with the US$492 billion benefit produced from the TPP12, says the Peterson Institute for International Economics in a working paper.
However, the relative boost in income benefits accrues more to Canada, Mexico and Australia under the TPP11 than under TPP12, where the nations with no FTA with the US fared proportionately better.
"The TPP11 will give Australian exporters access to markets worth $13.7 trillion," says Minister for Trade, Steven Ciobo. "It will give our exporters preferential market access to Canada and Mexico, where that access did not previously exist, and exporters will have better market access to Japan – better access than under the current free trade agreement."
Almost a quarter of Australia's total exports – about $88 billion – went to TPP countries last year. And the TPP delivers accelerated reductions in Japan's import tariffs on beef and the elimination of many of Japan's cheese tariffs, not covered by the Japan-Australia FTA. Australian producers also see new quotas for wheat and rice to Japan and sugar into Japan, Canada and Mexico. The TPP eliminates all tariffs on sheep meat, cotton, wool, seafood, horticulture, wine and industrial products.
Even before the partnership was signed by the parties in Santiago, a number of other nations had signalled interest in joining, including Indonesia, Korea, the Philippines, Taiwan, and Thailand. The United Kingdom, Columbia and Sri Lanka have also shown interest in joining the TPP and the Asia-Pacific free trade bloc allows for new entrants through its 'accession clause' structure.
Ciobo says that, while the headline effect of the TPP is tariff reduction and elimination, the partnership also binds parties to facilitate and lift restrictions on in-bound foreign investment and to streamline customs red-tape so trade flows become more efficient. It also establishes a dispute-resolution office and has ejected much of the intellectual property provisions that the US negotiators pushed for with TPP12.
"The TPP11 is a comprehensive trade and investment agreement," says Ciobo, who signed the TPP11 documents in Santiago. "The investment component is crucial for this country. Australia has historically relied on foreign capital as a source of funding and the means by which we reach our economic potential."
He says being part of the TPP makes it easier and more certain for foreign capital providers to invest in Australia, and that is good for the economy.
He says the TPP11 will eliminate more than 98 per cent of tariffs in the trade zone, the obvious beneficiaries being Australia's agricultural producers who under the TPP will have free trade access to Mexico and Canada and improved tariff treatment in Japan.
"We already have a free trade agreement with Japan but tariff reduction and elimination is more favourable to the Australian agriculture sector under TPP," he says.
"Our producers of proteins, grains and pulses will see opportunities in this agreement, but there's also significant opportunity in our manufacturing and services sectors."
Ciobo says the Pacific free trade zone was revived in 2017 after the US exited and he says the efforts of Prime Minister Malcolm Turnbull and Japan's Prime Minister, Shinzo Abe, were the driving force behind keeping TPP alive. And while he says there's been some modelling on the value of the TPP, the true value will be revealed once the partnership is active
"Countries outside the partnership are interested in joining, and we'll see more interest once the TPP is operating and the economic value is obvious and growing," says Ciobo. "It's an open agreement with a structure that allows more countries to join. It also has the capacity to become more comprehensive as it matures."
While Ciobo does not make predictions about which other nations will join the TPP, the Peterson Institute – in its October Working Paper – already posits a scenario of a TPP16 (which includes Indonesia, Korea, the Philippines, Taiwan, and Thailand), which would have the same global income benefits as the putative TPP12.
Peterson Institute also suggests an eventual convergence of the TPP and Regional Comprehensive Economic Partnership.
The Export Council of Australia hopes the TPP11 will be ratified in Australia before the end of 2018, and says the true strength of the TPP11 is that it is multilateral and high quality.
"Multilateral free trade agreements are better for the members in that zone," says the ECA's head of Trade Policy, Heath Baker, "in part because of the value-chains that can thrive in a multilateral environment."
He says the TPP's high quality provisions bind the parties to not just dump and reduce tariffs for other members but also to facilitate free trade through their customs regulation and enforcement, and their rules on foreign investment.
"When you have nations in a multilateral free trade zone, it's easier to take goods and services from different countries and make high-value exports to another nation in the zone, without the restrictions and costs that would apply if there was no free trade."
Baker says the top-line benefits to Australian businesses include the accelerated tariff reductions in Japan that will help beef, grains and dairy exporters, and the free trade agreements with Mexico and Canada that will help our mining and oil and gas services exporters. The TPP will also aid Australia's professional, financial and education service providers in south-east Asia.
Baker says the TPP is high-quality in that it addresses issues such as import regulation and red tape, foreign investment limits and restrictions, and data storage and retrieval.
"When you're a small company trying to open up a new export market, the regulation and behaviour where goods cross the border is a big issue and can cost a lot of money," says Baker. "For services exporters the issue is setting up your office in another country. The TPP creates standards around these issues."
He says the TPP also allows 'data sharing', meaning exporters can store their data in one country and 'share' it across borders, as opposed to having to create onshore data storage in each country they operate in.
Baker says the existing modelling of the TPP11 – by the World Bank and Peterson Institute – shows a 0.6 per cent of GDP benefit to Australia by 2023, while the benefit to Malaysia and Vietnam is many times greater.
"You can't really model a multilateral free trade agreement," says Baker. He says if the Productivity Commission does model TPP11 it would use the same assumptions as the World Bank and Peterson.
"A multilateral free trade agreement that spans the Pacific and includes Japan, Mexico and Canada is good for this country. What does it cost us? Very little. What do we get? The same benefits as if we'd signed an FTA with all the TPP partners."
HSBC Australia's head of commercial banking Steve Hughes says many businesses are welcoming the new agreement.
"A HSBC survey shows almost half (46 per cent) of companies in major economies covered by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, including Australia, expect it to have a positive impact on their business. Now is the time for both firms and government to focus on implementing the agreement to achieve its full potential."
Senior Economist at Austrade, Mark Thirlwell, says the TPP11 is a "significant agreement" even if the US has opted out.
"You're still talking about a trade or economic zone worth around $14 trillion combined GDP in 2016-17, and the destination for around one quarter of all Australian exports," Thirlwell says.
He says the signature markets in the TPP11 are Japan – for its improved access for agricultural imports from Australia – and Canada and Mexico.
"Canada and Mexico are two big economies and, under the TPP, we'll see preferential access for Australian beef and sugar."
Thirlwell says the goods side of exporting is largely driven by tariffs, but services require comprehensive trade agreements that deal with 'behind the border' issues.
"The TPP11 zone took one-fifth of Australia's service exports last year," he says. "Services require trade agreements that deal with complexity around red tape and regulation. How do you make markets predictable and transparent for foreign companies that want to be based there and sell their services? You have to do it through agreements like the TPP. Making free trade work for services in harder to do, but it has an important impact."
Source: Financial Review