Building Commercial Links Between Asia and Latin America – The Trans-Pacific Partnership

As the commercial trade war between China and the US rages on without a solution in sight for the near future, companies around the world are reviewing and exploring options to minimize the disruptions in supply chain caused by it.

TPP, the Trans-Pacific Partnership

As the unilateral measures and tariffs are implemented and the companies and communities start to feel the effects and at the same time to embrace their patriotic sentiments, the reality is that transfer of manufacturing capacity are happening, and new international trade strategies are continuously becoming a common topic of discussion among businessmen and civilians alike.  In this new era of changes in the global supply chains, multi-lateral trade agreements can play a very important role to determine the right strategy to follow: one such very relevant agreement is the Trans-Pacific Partnership, TPP.

This trendy acronym, most popular during the early years of the second millennium, was earmarked a one of the most significant steps yet to bridge and expand inter-continental commercial relationships across the Pacific Ocean.  In its genesis in 2008, the original agreement was a negotiation between TPSEP (Trans-Pacific Strategic Economic Partnership Agreement signed by Brunei, Chile, New Zealand and Singapore) with Australia and the United States.

This initiative was quickly expanded to include 6 additional countries (Canada, Japan, Malaysia, Mexico, Peru and Vietnam) bringing the total to 12 countries and the trade agreement was eventually signed in February 2016 but was not ratified as required and never took effect.  Then in January 2017, when the United States withdrew from the pact, the TPP agreement was considered defunct.  However, the remaining 11 countries did not let this setback stall their efforts and a new treaty called the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) was drafted in 2017, signed in March 2018 and entered into effect December 30, 2018 (Canada, Australia, Japan, Mexico, New Zealand, Singapore and Vietnam are the first countries to ratify the agreement).  The nations that conform CPTPP represent approximately half a billion of people and a GDP of $13.5 trillion USD (13.5% of the entire world) positioning this free-trade area third in the world after the North American free-trade agreement and the European Single Market.

Since the inception of the CPTPP, there has been growing interest in this treaty with seven countries expressing interest to join:  Taiwan, United Kingdom (post Brexit), Colombia and Indonesia, South Korea, and Thailand.  Even the United States, after withdrawing in 2017, announced in 2018 that they would like to explore re-joining after realizing the severe potential impacts to its wheat and beef industries.

Countries in CPTPP:

• Australia
• Brunei
• Canada
• Chile
• Japan
• Malaysia
• Mexico
• New Zealand
• Peru
• Singapore
• Vietnam

*Bold indicates countries that ratified already

Countries that expressed interest in joining:

• Colombia
• Indonesia
• South Korea
• Taiwan
• Thailand
• United Kingdom (post-Brexit)

The CPTPP incorporate the tariff outcomes that were contained in the original TPP Agreement.  Overall, the treaty provides a comprehensive tariff elimination across all sectors with most tariff lines becoming duty-free when the agreement entered into force and tariffs for remaining goods to be “phased-out” over time and varying by country.  So, with the treaty coming into force on December 30, 2018, what does this mean for global trade?

• The CPTPP with its vast geographic, wide substantive scope and as the third largest free-trade zone in the world, with half a billion people and 13.5% of the world economy and slashed tariffs, will shift global supply chains significantly.
• It marks the advent of a “next generation” of trade agreements that builds on the core structure of the WTO (World Trade Organization) and existing FTAs (Free-Trade Agreements) but taking the rules further in a number of key areas such as digital trade and electronic commerce, green technology and sustainability, intellectual property and SOEs (State-owned enterprises). The impact of the CPTPP will go beyond its effect on the trades of goods and services and will play a significant role as a model for future agreements with a more comprehensive approach covering many more aspects of business than just transactional.

As companies continue to shift positions jockeying for improved competitive positions in the new global trade era, including the CPTPP in their considerations is very important, one that can bring significant advantages.  At ARC Consulting, we are very well positioned to support you with your initiatives to explore options in the “new normal” of global trade and how to maximize benefits from the CPTPP.  We do this by using a proven model to provide you with a comprehensive financial, regulatory and logistical analysis to help guide in your decision making about the next steps in your business development.

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