Massive tariff cuts as CPTPP comes into effect

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A landmark 11-country trade deal, a revamped version of the Trans-Pacific Partnership (TPP), came into force on Sunday, triggering massive tariff cuts for six of its member nations.

Known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), it covers market access for goods and services, investment, intellectual property rights, state-owned enterprises and trade remedies.

Benefits for businesses and consumers

"The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) provides New Zealand with trade agreements, for the first time, with three significant economies: Japan, Canada and Mexico," said David Parker, New Zealand's trade minister, in a statement.

Sharing his views on the agreement, Australia's trade minister Simon Birmingham said that "The opportunities are vast, from more Victorian wine and cheese being enjoyed on the slopes of Whistler, Canada, to more New South Wales prime beef being served in Japan's world-class restaurants."

The pact came into effect on Sunday for Australia, New Zealand, Canada, Japan, Mexico and Singapore, with Vietnam to follow on January 14.

For Brunei, Chile, Malaysia and Peru, it will come into effect 60 days after they complete their ratification process.

While tariffs were completely slashed for some products and services immediately, for others the process will be more gradual and is expected to be carried out over a period of 20 years.

Ji Xianbai, a doctoral candidate at the S. Rajaratnam School of International Studies, has been closely following the CPTPP. He highlighted that the deal will not only benefit businesses but the impact will also trickle down to the consumers.

"Tariff liberalization means goods and factors of production will flow more freely in the bloc, as a result, enhanced competition will spur productivity improvements and consumers will benefit from lowered prices."

Singapore's trade and industry minister Chan Chun Sing wrote in a Facebook post, "Besides complementing our extensive network of free trade agreements, the CPTPP also deepens regional economic integration, providing greater trade and investment opportunities in the region for Singapore businesses, including small and medium-sized enterprises."

CPTPP may pinch U.S. farmers, ranchers

The 583-page trade deal, which covers 13.2 percent of the global economy and 15 percent of global trade, does not include the U.S. after Washington pulled out of the TPP negotiations in 2017.

Australia is looking forward to favorable conditions for its agricultural exports including wheat, prompting U.S. competitors to warn they will be needing help to compete.

"Japan is generally a market where we seek to maintain our strong 53 percent market share, but today we face imminent collapse," Vince Peterson, president of U.S. Wheat Associates, told a public hearing in Washington on December 10.

"In very real terms, as of April 1, 2019, U.S. wheat will face a 40 cent per bushel, or 14 U.S. dollars per metric ton resale price disadvantage to Australia and Canada," Peterson said, according to a transcript on the U.S. Wheat Associates website.

Ji believes that Trump's withdrawal may cost U.S. farmers and exporters, as the goods of non-CPTPP members are now expected to be pricier and less competitive in the bloc.

"Their exports will suffer as CPTPP countries will trade more with each other and less with the U.S. in those sectors."

"Not just farmers, ranchers, meat producers and textile workers will also be hit hard by the CPTPP," he added.

What's next?

CPTPP ministers are scheduled to meet in Tokyo on 19 January, 2019. Among the items on the agenda is the expansion of membership to other countries.

Among the front runners are South Korea, Thailand, Columbia, Ecuador, and the Philippines.

Trump said in April that he would consider rejoining the trade agreement if the terms were more favorable to the United States.

"The deal was terrible, the way it was structured was terrible. If we did a substantially better deal, I would be open to TPP," he claimed in an interview with CNBC in January.

Most countries of the CPTPP welcomed the possibility but Japan did not favor a renegotiation.

"The 11 participating countries share the thinking that it would be extremely difficult to take out part of the TPP and renegotiate or change it," said Toshimitsu Motegi, Japan's minister in-charge of the TPP, in April according to Kyodo News.

Ji believes "an interesting CPTPP candidate country is the Brexiting Britain." He added that "Britain needs strong market access to fast growing economies outside of Europe. In addition, London wants a robust platform through which it can shape emerging trade and investment rules to its advantage."

In addition to the CPTPP, the Regional Comprehensive Economic Partnership (RCEP), which covers about 3.5 billion people in 16 nations, including China, and accounts for one-third of the world's gross domestic product, is in its final stage of negotiations.

However, the ASEAN-led initiative failed to sign the deal this year as expected. Officials from China's Ministry of Commerce said on December 22 that 80 percent of negotiations have been finished so far.

The RCEP, which does not include the U.S., was conceived in 2012.

(Cover: Signing ceremony of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in Santiago, March 8, 2018. /VCG Photo)

(Yang Jing and Cao Qingqing also contributed to the story.)

Will China join the TPP?

Source(s): Reuters