(The following statement was released by the rating agency)
HONG KONG/SINGAPORE, October 07 (Fitch) The terms of the Trans-Pacific
Partnership (TPP) trade pact, which member governments covering about 40% of the
world economy agreed to on 5 October, would set important precedents for the
future development of international trade and investment if ratified, says Fitch
Ratings. The TPP will be a significant contributor to economic integration over
the long term for member states. However, it is unlikely to be a game-changer
for members' economic prospects in the short term.
The TPP covers 12 countries - Australia, Brunei, Japan, Malaysia, New Zealand,
Singapore and Vietnam in the Asia-Pacific region as well as the United States,
Canada, Mexico, Peru and Chile. The terms of the agreement must now be ratified
by member-state legislatures before coming into effect. Should the TPP be
ratified, the most significant consequence will be in setting the rules and
guidelines under which economic integration deepens around much of the Pacific
Rim. This will, in turn, set a powerful precedent for other global trade and
investment protocols.
The pact includes provisions to lower barriers to trade in services and remove
foreign investment barriers, in addition to lowering tariffs on goods trade.
Provisions setting common minimum standards on labour markets and environmental
protections as well as international dispute resolution regimes also set
important foundations for future economic integration in the region.
The agreement may have more significant long-term implications for some
countries than others. One academic study by Robert Lawrence modelled gains in
GDP by 2025 attributable to the pact ranging from 0.4% for the US to 13.6% for
Vietnam. For Japan, the TPP is significant and marks a major structural reform.
This is especially notable as it comes at a time when the potential for
Abenomics policies to generate higher rates of GDP growth sustainably is
increasingly being questioned. For example, reforming Japan's agricultural
sector has been among the most politically difficult for Prime Minister Shinzo
Abe and previous administrations, but the TPP would immediately end tariffs on
32% of the country's agricultural imports while reducing others over a
multi-year time horizon.
While the TPP would likely be positive to varying degrees for those within the
pact, it may divert trade and investment from non-participating countries. The
net impact on global activity may be small as increased trade within the TPP is
offset by trade diverted from countries outside the bloc. One study estimated a
gain in global GDP of about 0.3% relative to a baseline without the deal by
2025. Within APAC, China, Thailand, Philippines, Korea and Indonesia are notable
non-participants for now. Countries such as Thailand and Indonesia, which have
been looking to boost foreign investment and exports, may come under pressure to
join TPP should FDI and trade flows from Japan and the US shift to member
countries such as Vietnam and Malaysia.
Passage of the TPP agreement by member-state legislatures, including the US
Congress, is not guaranteed. Some provisions, such as those regarding
investor-state dispute resolution that enable companies to contest national
government policies at supra-national courts, are controversial and likely to
generate political opposition. Furthermore, some of the provisions to lower
tariff barriers will only take effect over many years, so the broad-based
effects of the TPP may only manifest over the long term.
Contacts:
Andrew Colquhoun
Senior Director
Sovereigns
+852 2263 9938
Fitch (Hong Kong) Limited
19/F Man Yee Building
68 Des Voeux Road Central
Hong Kong
Justin Patrie
Senior Director
Fitch Wire
+65 6796 7232
Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:
leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email:
wailun.wan@fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market
commentary page. The original article can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.
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