Expectations are high for the Trans-Pacific Partnership, a comprehensive and controversial trade pact that includes 12 nations, many in Asia. Full agreement on the pact was reached in October and now the details, revealed last month, have to be approved individually by each of the member states.
“The reach of the TPP is without equivalent,” Julien Chaisse, an international-trade lawyer and professor at the Chinese University of Hong Kong, said. “I really think that there will an era before and after TPP.”
The TPP is expected to result in increased trade flows, a lower cost of goods, and improved employment prospects for the participants. Member countries will also benefit from lower tariffs and uniform regulations.
According to Henry Chin, head of Asia-Pacific research at CBRE Research, the industrial and logistics sectors will be the major and immediate beneficiary of the TPP.
China locked out
China is currently excluded from the TPP, which is a huge disappointment for the government, said Chi Manjiao, a professor of international law at Xiamen University.
The mainland is expected to lose export market share to signatory countries. Exports will drop by 1.2% due to trade diversion, according to estimates from PIEE.
China could join the TPP at a later date. However, “there are some clauses that Chinese people would think are targeting China”, Chi said, citing SOE reform.
Although such reform is already on the state agenda, the TPP would force state-owned enterprises to open and many would find it hard to quickly compete with multinationals from the TPP nations.
“China has so many SOEs the impact would be profound.”
Tariff winners
Vietnam, Japan and Malaysia are expected to be big winners of the TPP. Pre-existing trade barriers will come down, leading to improved productivity.
Vietnam has been singled out by several analysts. Vietnam’s exports to the US and Japan account for 40% of the country’s total exports, and tariff reduction will create a big advantage, according to Thu Nguyen, lead portfolio manager of Vina Capital’s VCG Partners Vietnam Fund.
The amount of tariffs Vietnam currently pays to the US is about 45% of the total tariffs the US collects from all other 11 countries in the TPP, Thu said.
“Vietnam will stand to benefit the most. China and Taiwan and would be most interested in using Vietnam as a manufacturing base to export to the US with duty reduction.”
However, the TPP will rollout over time. Candy Cheung, co-head of Asia investments at the fund of hedge funds SAIL Advisors, said it is too early to see any benefit to the bottom line of specific companies.
“Stock picking and any impact to the profit and loss statements takes much longer to see,” Cheung said.
Kevin Gardiner, the global investment strategist at Rothschild, added that the TPP is positive in geopolitical terms, but it will take time for corporates to reflect the results of the new rules.
“People often suggest [the TPP] will galvanize the global investor community, transform the prospects overnight,” Gardiner says. “Effects are not expected to show up in the capital markets for up to two years.”
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The TPP is expected to boost Vietnam’s GDP 10.5% and exports by 28.5% by 2025. The other big gainers are Japan and Malaysia.
