The CPTPP Is Good News For East Asia

Trade & Policy

The CPTPP Is Good News For East Asia

The larger the trade partnership gets, the better it is for its members and the more attractive it becomes for those left outside. And in the same way it replaced the TPP, the most significant effect of the CPTPP could be to propel an even larger East Asian alternative that would ultimately supersede it The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) may emerge as the good news story for East Asia - albeit a more low-key one. The larger it gets, the better it is for its members and the more attractive it becomes for those left outside. The CPTPP is a new market reality for Japan, Canada, Australia, Mexico, Singapore, New Zealand, Vietnam. These seven economies account for more than 92% of the total GDP of the 11 signatories. Malaysia, Chile, Peru and Brunei signed but did not ratify the agreement yet. Vince Peterson, head of US Wheat Associates, has warned of an "imminent collapse" of the largest wheat export market for US growers. Japan is the largest export market for US and Australian beef, and has agreed to major tariff cuts for beef imports. Instead of joining the CPTPP, the Trump administration will try for a bilateral trade deal with Japan that includes the same - if not more generous - market access commitments for American agricultural exports. If, as is likely, no such agreement is reached during Trump's presidency, the next US administration may seek to reverse his decision and join the partnership. Should this be the case, the US would not be alone. The list of governments considering joining the CPTPP is already more diverse than those that have ratified the agreement. They include South Korea, Taiwan and China (which boasts a larger GDP than the eleven CPTPP signatories combined), Thailand, Indonesia, the Philippines, Colombia and a post-Brexit Britain. Taiwan, South Korea, and Thailand have been the most consistent in their interest, with the latter two appearing to be the most likely second-round joiners. For Thailand, the deal threatens to divert investment and trade from Thailand to Vietnam and possibly Malaysia. For South Korea and Taiwan, the threat is more competitive Japanese production chains becoming better able to access markets and production sites in the other signatory economies. The most significant effect of the CPTPP could be to propel an even larger East Asian alternative that would ultimately supersede it. Five of the seven governments that have ratified the CPTPP are also involved in the less successful mega-regional trade negotiations led by ASEAN for a Regional Comprehensive Economic Partnership (RCEP) agreement. These negotiations have dragged on since 2013; they include the 10 ASEAN member-states, as well as China, Japan, South Korea, Australia, New Zealand and India. Despite many leadership pledges of renewed commitment for a speedy conclusion, fewer than half of the 18 chapters of a potential deal have been agreed. RCEP supporters hoped the conclusion of the CPTPP negotiations would bring RCEP talks to a head. The opposite may be more likely. Some RCEP parties not included in the CPTPP have castigated Australia and New Zealand in particular for trying to make the RCEP more like the CPTPP. But if Australia and New Zealand have been criticised for being too ambitious, India's RCEP position has been criticised for being too defensive, particularly towards China. Negotiations have been stuck with more tunnel than light. Some RCEP parties have started to consider a parallel ASEAN-led process that excludes Australia, New Zealand and India. An agreement among these 13 East Asian governments would be easier to conclude, could be conducted under the well-established ASEAN+3 process (which includes China, Japan, and Korea), and would be in line with China and Malaysian Prime Minister Mahathir Mohamad's "Asia for Asians" preferences. The collective GDP of these 13 economies is more than twice that of the 11 CPTPP signatories.