CPTPP: The new trade deal on the block

Over the last one month, the regional trading environment in Asia has undergone a very significant change that has gone largely unnoticed in India. The Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) agreement came into effect on December 30, 2018, among six of its 11 signatories that include Australia, Canada, Japan, Mexico, New Zealand and Singapore. The CPTPP, originally the 12 member Trans Pacific Partnership (TPP) agreement, has thus gone ahead despite pullout by its largest member economy, the United States. On January 14, its seventh member, Vietnam, joined after ratification of the agreement. The first round of tariff cuts— 95 per cent by Chile, 94 per cent by Canada, 86 per cent by Japan and 77 per cent by Mexico — will be implemented with immediate effect except for Japan, in which case it will be from April 1. Vietnam undertakes the lowest tariff cut of 66 per cent but that will increase to 87 per cent over a period of three years. For the other four member countries —Brunei, Chile, Malaysia and Peru — the agreement will come into force after their respective ratification processes. 

The CPTPP continues to be an ambitious pluri-lateral free-trade agreement (FTA) like the TPP. It offers WTO-plus commitments that go beyond trade and investment facilitation to include enforcement of high labour and environmental standards among the Asia-Pacific economies. A majority of the provisions of the original TPP agreement have been retained in the CPTPP except for 22 provisions relating to investment and intellectual property rights, of priority interest largely to the US, which have been either modified or suspended. Significantly, chapters on government procurement processes, e-commerce and state-owned enterprises have been retained. 
  
Illustration by Ajay mohanty
Thus, aimed at deeper integration with over 90 per cent tariff reduction and high standards of regulatory environment policies, the CPTPP is designed to provide more efficient production sharing and network possibilities. FTA induced ease of doing business, lower trade costs and preferential market access will help facilitate multiple cross border movement of intermediate goods that is integral to global value chains (GVCs) as well as movement of final goods to consumption demand. This is relevant in the current context when global trade and growth is weighed down by risks of escalating “trade wars” among major economies. Rising trade protectionism that can negatively impact investor sentiment, investment levels and thereby disrupt global value chains will be countered by the CPTPP as an instrument of deep and progressive trade liberalisation. 

The Asia-Pacific economies, in the past, have benefited from GVC participation that has helped them enhance firm productivity, create skilled job opportunities and ride the wave of GVC led international trade over the last decade and a half. At this juncture, therefore, the continued value chain led trade through CPTPP is significant in not just assisting trade and growth in the region but possibly also as the driver of global trade and growth. This will happen as over time trade and GVC possibilities can be expected to expand through FTA linkages of the member countries beyond the CPTPP, such as that between Japan and the European Union. 

In the context, three lessons may be useful for India. One, we must not fight shy of participating in FTAs fearing competition from other member countries. In addition to providing opportunities for enhancing trade and investment, FTAs, most significantly, facilitate entry into GVCs. Against the current background of WTO losing its ability to promote trade liberalisation and further trade reforms, FTAs may soon become the only available instruments for shaping trade norms and rules, regionally and globally. Even smaller countries such as Vietnam perceive participation in FTAs as an opportunity to attract GVC-creating FDI. Vietnam’s outlook may no doubt have been conditioned by recent positive assessments of its growth process and business environment. With a decade-high growth rate of 7.08 per cent in 2018, Vietnam has been among the fastest growing economies in the world. In the World Bank’s ease of doing business rankings for 2018, Vietnam gained 14 places to rank 68th among 190 countries. In 2019, it ranked 69th, again among 190 countries. Interestingly, in the same rankings, India has also made impressive progress. In 2019, India jumped 23 places to be at rank 77. India should, therefore, also derive confidence from such assessments and consider FTAs as a means to lock in domestic reforms and leverage its, as yet underexploited, GVC potential. 

Second, the CPTPP concessions for individual country sensitivities, such as for Canada’s cultural industries and labour protection laws in case of Vietnam as well as its varying levels and period of tariff reduction across member countries, should provide India with examples and means to negotiate concessions and safeguards for its sensitive sectors under the Regional Comprehensive and Economic Cooperation (RCEP) agreement, still under negotiation. 

Third, the CPTPP’s commitment towards membership expansionism will, over time, imply greater regional and global trade coverage. In the first CPTPP trade ministers meeting on the 19th of this month, it has been agreed to keep the agreement open to new members that are willing to abide by its higher standards. Soon, therefore, other ASEAN member countries such as Thailand and Indonesia and regional economies such as South Korea and Taiwan, all keen on membership, may find entry into the agreement. Extra–regional economies such as post-Brexit UK and Colombia have also expressed interest in joining the agreement. The CPTPP, already in effect, is therefore likely to alter the regional and global trade regime quite significantly, and quite soon. It is surely high time India took note and acted to hasten completion of the RCEP negotiations and improve its trade and related policies for a possible future membership of the CPTPP. 
, School of International Studies, JNU


Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel