United StatesChange Country

FX International Payments

Asia-Pacific Trade Agreement in Effect, Easing Cross-Border Trade

By Karen Lynch

The 11-nation Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)—which began life as the Trans-Pacific Partnership (TPP)—is now in effect and beginning to ease cross-border trade in one of the world’s largest and fastest-growing economic regions. The first seven countries to ratify the trade pact, signed in March 2018, began reducing tariffs and streamlining administrative procedures early in 2019.

This article describes some of the changes that companies could face when trading across borders in the region, as the CPTPP establishes what many consider to be model trade practices.

 

Background: Cross-Border Trade Agreements Boost Asia’s Economic Rise

 

Some U.S. companies have expressed concern about being on the outside of the new trade bloc, whose 11 economies account for about $10.6 trillion, or over 13 percent of the world’s GDP.1,2 Ratified members include Australia, Canada, Japan, Mexico, New Zealand, Singapore, and Vietnam (with Brunei, Chile, Malaysia, and Peru expected to ratify later). Additional countries may join in the future.3 The U.K. government, for example, has consulted with British businesses about joining.4

 

The CPTPP’s attractiveness to companies and their governments worldwide comes as no surprise. As Business Insider points out, “Most of the top 10 fastest growing emerging market economies are in Asia, in line with expectations that the region is the future of the global economy.”5 In this context, “the CPTPP … is a game- changer in that it locks in institutional and rules-based reform, sets new standards for future free trade agreements (FTAs), and provides incentives to consolidate and reorder Asia-Pacific supply chains,” according to the law firm White & Case.6

 

The CPTPP begins to take hold as an even larger Asian FTA, the 16-nation Regional Comprehensive Economic Partnership (RCEP), came a step closer to finalization at a ministerial meeting in March 2019.7 The RCEP would cover the 10 members of the Association of Southeast Asian Nations (ASEAN), plus Australia, China, India, Japan, South Korea, and New Zealand.8 If agreed, it would create the world's biggest trading bloc, with a GDP of $23.8 trillion.9 There is overlapping participation in the RCEP and CPTPP (Australia, Brunei, Japan, New Zealand, Singapore, and Vietnam). However, two of the largest parties to the RCEP negotiations, China and India, are not in the CPTPP.

 

Separately, a meeting among the leaders of India, Japan, and the U.S. took place in late 2018 on a third alignment, the “Free and Open Indo-Pacific Strategy,” which the U.S. introduced in 2017, including the principal of “free, fair, and reciprocal trade.”10

 

CPTPP Cuts Tariffs

 

“The CPTPP's broad tariff cuts—on approximately 90 percent of items on day one and nearly all others within 10 years—will have an immediate impact on the relative competitiveness of exporters in and out of the agreement,” according to White & Case.11 “For example, U.S. exporters will now be disadvantaged in the CPTPP zone relative in particular to competitors in Canada, Japan, and Australia.”

 

Most tariffs will drop all the way to zero—many from high double-digit percentages—in the first three to five years of the pact, according to Asian Trade Centre Executive Director Deborah Elms.12

 

Cross-Border Trade and Logistics Benefits

 

Although there are already bilateral FTAs among many of the CPTPP members, “the CPTPP is significant because it: (1) upgrades existing arrangements, (2) creates new FTA relationships, and (3) establishes new networks, including supply chains between Asia and the Americas,” according to the Asian Trade Centre.13

 

A Canadian guide for small to midsize enterprises (SMEs) reported that, “Not only is there one set of rules and paperwork, but these rules are easier to use and more forceful than those in other agreements. The CPTPP standardizes and creates consistency including allowing firms to self-certify and obtain advance rulings to prevent delays once goods arrive in market.”14

 

Also included are targeted timeframes for customs clearance, including six-hour windows for express deliveries and expedited handling of perishable items, as well as promises to digitize more of these procedures. “The agreement [includes] key parts of the logistics and supply chain like warehousing, back office processing, even retail,” according to Elms. “Prior agreements typically carved out these elements, leaving firms unable to compete effectively or deliver necessary services attached to goods manufacturing, sales, and servicing.”15

 

Exporters can include materials, labor, parts, and components from one or more countries throughout the CPTPP. Once an item qualifies under the CPTPP rules of origin, it can be shipped into all CPTPP markets. “These rules support integrated sourcing, in line with modern production patterns where parts and components are produced from multiple countries for final assembly and delivery to market,” according to the Asian Trade Centre report.16

 

In the Canadian government’s view, these and the many other provisions in the FTA “will create a predictable trading environment for CPTPP members, giving manufacturers and exporters a leg-up in prospective markets.”17

 

The

Takeaway:

The 11-nation CPTPP is now in force as a free trade agreement that reduces tariffs and administrative friction for cross-border trade within one of the world’s largest and fastest-growing regions. Its modern trade provisions are considered a model for other regions. Eventually, additional countries are expected to join the trade bloc. In the meantime, companies operating within the bloc stand to benefit, giving them a competitive advantage.

Karen Lynch - The Author

The Author

Karen Lynch

Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.

Sources

1. “Comprehensive and Progressive Agreement for Trans-Pacific Partnership,” New Zealand Ministry of Foreign Affairs & Trade,” https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-in-force/cptpp/cptpp-overview/
2. “American farmers brace for more pain as Pacific trade deal kicks in without the US,” CNBC; https://www.cnbc.com/2018/12/31/cptpp-american-farmers-set-for-pain-as-pacific-trade-deal-kicks-in.html
3. “Comprehensive and Progressive Agreement for Trans-Pacific Partnership—Ministerial Statement,” Government of Canada; https://international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cptpp-ptpgp/cptpp_joint_statement-ptpgp_declaration_commune.aspx?lang=eng
4. “New Public Consultations Announced for Future Trade Agreements,” U.K. Department for International Trade,” https://www.gov.uk/government/news/new-public-consultations-announced-for-future-trade-agreements
5. “These 10 Emerging Markets Will Dominate the Global Economy in the Next Decade,” Business Insider; https://www.businessinsider.com/oxford-economics-ranking-of-emerging-market-economies-2019-2
6. “The CPTPP Enters into Force: What Does it Mean for Global Trade?,” White & Case; https://www.whitecase.com/publications/alert/cptpp-enters-force-what-does-it-mean-global-trade
7. “Confidence on Trade Pact Goal,” The Nation; http://www.nationmultimedia.com/detail/Economy/30364537
8. “Regional Comprehensive Economic Partnership,” Association of Southeast Asian Nations; http://asean.org/?static_post=rcep-regional-comprehensive-economic-partnership
9. “Regional Comprehensive Economic Partnership,” Australian Department of Foreign Affairs and Trade; http://dfat.gov.au/trade/agreements/rcep/pages/regional-comprehensive-economic-partnership.aspx
10. “Briefing on the Indo-Pacific Strategy,” U.S. Department of State; https://www.state.gov/r/pa/prs/ps/2018/04/280134.htm
11. “The CPTPP Enters into Force: What Does it Mean for Global Trade?,” White & Case; https://www.whitecase.com/publications/alert/cptpp-enters-force-what-does-it-mean-global-trade
12. “CPTPP Arrives on December 30,” Logisym Magazine; http://logisym.org/cptpp-arrives-on-december-30-logisym-november-december-2018/
13. Ten Benefits of the Comprehensive and Progressive Trans-Pacific Partnership,” Asian Trade Centre; https://static1.squarespace.com/static/5393d501e4b0643446abd228/t/5aa1042aec212dcf8e6fc2aa/1520501823014/CPTPP+Benefits+Digital+final.pdf
14. “CPTPP Guide for Small Businesses in Western Canada,” Canada West Foundation; https://cwf.ca/wp-content/uploads/2018/11/2018-11-CWF_JustinTimePlan_CPTPP_Guide_WEB.pdf
15. “Restructuring Supply Chains to Better Match the CPTPP Trade Agreement,” Logisym Magazine; http://logisym.org/wp-content/uploads/2018/03/LogiSYM_March2018_Digital.pdf
16. “Ten Benefits of the Comprehensive and Progressive Trans-Pacific Partnership,” Asian Trade Centre; https://static1.squarespace.com/static/5393d501e4b0643446abd228/t/5aa1042aec212dcf8e6fc2aa/1520501823014/CPTPP+Benefits+Digital+final.pdf
17. “Overview and Benefits of the CPTPP,” Government of Canada; https://international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cptpp-ptpgp/overview-apercu.aspx?lang=eng

Related Articles

New Pact Aims to Restructure International Trade in Asia
As The Trans-Pacific Partnership Falters, A Look at the Future of International Trade
The WTO and Regional Agreements on International Trade

Make International Payments

Existing FX International Payments customers log in here