Trans-Pacific Partnership moving forward

While this column has identified the many advantages the Trans-Pacific Partnership (TPP) would provide U.S. logistics managers once it comes into play, the deal also has positive implications for Asian members.

According to Rajiv Biswas, Asia-Pacific Chief Economist for IHS Global Insight, the TPP agreement will remove 98 percent of remaining tariffs on trade in goods throughout the region, thereby providing a shot in the arm for so-called “emerging nations” as well a couple of aspirational super powers.

The insiders
*The TPP deal is expected to provide a significant boost to Vietnam’s GDP growth rate and exports when tariffs for US-bound garments exports goods drop to zero, due to the importance of the Vietnamese textiles and clothing industry in the structure of the Vietnamese economy and as a share of total Vietnamese exports. Vietnamese exports of textiles and clothing were estimated at $24.5 billion in 2014, showing strong growth of 19 percent on the previous year. Large new investment inflows are also underway into the Vietnamese garments industry in preparation for the TPP deal implementation. This will provide significantly improved access to the US market as tariffs on Vietnamese garments exports to the U.S. will drop from a range of 17 percent to 32 percent currently, to a zero tariff for products made from domestically sourced materials. The United States is already Vietnam’s largest export market, with total Vietnamese exports of $30.6 billion, of which textiles and garments accounts for around one-third of this total.

*For Japan, the combined impact of the TPP and EU-Japan FTA currently being negotiated could help to lift Japan’s long-term GDP growth rate, particularly by accelerating domestic economic reforms as required by Japan’s TPP undertakings.

*For Australia, the TPP deal will deliver a number of positive benefits, including doubling the Australian sugar quota for the U.S. market, reducing tariffs on beef exports, and increased market access for Australian exports of services, including for logistics, education, financial services and mining services.

*Malaysia does not currently have an FTA with North American countries, so will benefit from greater access to North American markets for its manufacturing exports due to reduction of tariff barriers.

The outsiders
Some Asian garments exporters such as Bangladesh, Cambodia, Pakistan, and Sri Lanka will suffer trade diversion losses as TPP members such as Vietnam gain market share.

India is a expected to suffer some trade diversion effects in its textiles industry as the U.S. market accounts for 40 percent of total Indian textiles and clothing exports. However the overall impact is expected to be relatively moderate as a share of total GDP and exports.

For China, meanwhile, the trade diversion losses are relatively low as a share of total Chinese GDP and exports, but will further reduce the relative attractiveness of southern Chinese provinces relative to Vietnam for new investment in low cost textiles and electronics industry segments.

Some trade analysts suggest that China’s exclusion from the current TPP configuration might well be a deliberate attempt to contain the superpower’s range and aspirations in the region. Indeed, it could further isolate a country that is already regarded by regional partners as a rogue influence unwilling to respect intellectual property rights or develop adequate government procurement standards.

But besides its involvement in the Silk Road project, the Asian Infrastructure Investment Bank, and the New Development Bank, China has many independent trade negotiations to conduct before worrying about being left out in the cold.

Furthermore, no one is counting on keeping China out of the TPP indefinitely. To do so, might be a regrettable provocation.

Joshua P. Meltzer, senior fellow, global economy and development at the Brookings Institution, advises China to also develop its “own vision” of how to further integrate its economy in the Asia-Pacific region…with one caveat.

“A vision that excludes the United States—or is inconsistent with the emerging TPP framework for international trade and investment—will founder,” he says.