How big can the Asia-Pacific Free Trade Agreement get?

Dusseldorf, Tokyo, Bangkok More than half a billion people and almost a sixth of global economic output: This is how large the free trade alliance CPTPP will be when Great Britain is admitted to the trading bloc in the coming months. On Friday night, British Prime Minister Rishi Sunak announced that the path to official accession was only a formality: he announced the corresponding agreement with the eleven founding members.

For Great Britain, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has become the most important trade alliance since Brexit. In the long term, British economic output could increase by around two billion euros a year with accession, the government in London said.

However, the CPTPP trade alliance itself will be strengthened by the inclusion of the sixth largest economy in the world. The trade bloc, which came into force at the end of 2018, was originally intended to also include the USA and suffered from the loss of economic importance from the start after the US government under Donald Trump joined refused.

But now interest in the trade alliance is clearly growing again. In addition to the British, several other countries want to become part of the bloc, and Switzerland is also discussing joining.

>> Read here: Why the EU is not able to decouple from China

“CPTPP could become a nucleus for a supra-regional trade agreement with modern standards that go beyond WTO rules,” says Jürgen Matthes, who heads the Global and Regional Markets department at the German Economic Institute. This applies in particular with regard to rules against unfair distortions of competition, as they emanate above all from China.

In the medium term, however, according to Matthes, it would be important for CPTPP that the USA decide to join after all – and so do the Europeans. “The EU should seriously consider membership,” he says.

CPTPP extends from Australia to Peru

With the expansion, CPTPP could gain in importance compared to the other major free trade area in the Asia-Pacific region, the coalition Regional Comprehensive Economic Partnership (RCEP). RCEP is less ambitious in terms of content, but covers a much larger area – and for the first time unites China, Japan and South Korea in a free trade agreement.

Sanchita Basu-Das, economist at the Asian Development Bank, therefore sees RCEP ahead of CPTPP when it comes to the economic scope of trade associations. The fact that the trading bloc came about at all after the United States left is due in part to Japan’s then Prime Minister Shinzo Abe. He persuaded the remaining states to create the CPTPP without the US.

>> Read here: Europe and the US have a historic opportunity to form a powerful bloc

So far, the free trade zone includes Australia, Canada, Chile, Mexico, Japan, Brunei, Malaysia, New Zealand, Peru, Singapore and Vietnam. Most countries are represented in several trade agreements. Local businesses can choose which of the many bilateral and multilateral agreements in the region to leverage to maximize benefits.

Mitsubishi Fuso, for example, the Japanese subsidiary of Daimler Trucks, uses a bilateral agreement between Japan and the Southeast Asian state association Asean for its trade with Southeast Asian countries. The economic partnership between the EU and Japan is important for the European plant in Fusos in Portugal, where the Canter small truck is produced, explains Karl Deppen, head of Daimler Trucks Asia.

RCEP is of particular interest for the export of industrial engines to China. And CPTPP uses Mitsubishi Fuso mainly for deliveries to Mexico, but also to a lesser extent for regional markets such as Chile and Peru.

Trade between CPTPP countries is increasing – Vietnam one of the biggest beneficiaries

CPTPP member countries are satisfied with the record so far. CPTPP has brought the economic benefits hoped for to businesses, workers and consumers, Singapore’s Trade Minister Gan Kim Yong said late last year when he received representatives from the participating countries. He pointed to the significant increase in trade between the CPTPP countries. Between 2019 and 2021 alone, the trading volume within the bloc increased from $467 billion to $535 billion – an increase of almost 15 percent.

More recent figures are not yet available. However, Paul Cheung, head of the Asia Competitiveness Institute (ACI) in Singapore, judges: “Positive effects on trade and the creation of investments are obvious.” The consequences for trade between countries that previously did not have trade agreements with each other are particularly clear .

One of the biggest beneficiaries is Vietnam. The Southeast Asian country has seen an onslaught of companies in recent years that see the country as a cost-effective alternative to China to produce for the global market. Business with the CPTPP industrialized countries is particularly flourishing. Exports from Vietnam’s textile and clothing industry to Canada rose by 40 percent last year – while the industry’s exports of goods as a whole increased by only around 15 percent.

Canada also benefits from beef exports to Asian Free Trade Association countries, most notably Japan. In 2022, Canada’s farmers exported $518 million worth of beef products to the CPTPP’s largest economy under the deal. This has made Japan Canada’s second largest foreign beef export market.

And farmers are expecting sales to increase as CPTPP tariffs continue to fall: in early April they will fall from 38.5 to 23.35 percent, then gradually to nine percent by 2033.

The agreement had a positive effect on those involved, agrees Holger Görg, acting president of the Kiel Institute for the World Economy. In view of the Covid crisis years, especially in Southeast Asia, and the pending trade facilitation, the potential will only really become apparent in the future.

Hope for change in the great power conflict through trade

According to former Singaporean Foreign Minister George Yeo, who helped draft the deal initially, the main benefit of the deal is geopolitical. Yeo sees this as a means by which Asian countries can counteract the consequences of the growing major power conflict between China and the United States. Both Taiwan and China have now applied to join the CPTPP.

“We in the region should be smart enough to shape the negotiations with China in a way that changes US attitudes,” Yeo said. The aim must be for China and the USA to join at the same time. Because the region is suffering from the rivalry between the two great powers.

Australian Prime Minister Anthony Albanese

Australia opposes China joining the CPTPP. But under the Albanese government, the relationship is slowly easing.

(Photo: IMAGO/AAP)

In Japan, too, there is hope that China’s accession could also persuade the USA to want to be part of the free trade agreement. “It is the United States that shaped the TPP in its current strategic importance,” says Japanese Foreign Minister Yoshimasa Hayashi. “The US itself should be the focus, and Japan strongly expects the US to return to the TPP as soon as possible.” TPP was the precursor to CPTPP.

However, trade expert Görg is skeptical “in the current political situation” that China, the USA or the EU will join in the foreseeable future. For the EU, he also believes that accession makes economic sense, but currently sees just as little political will as in the USA. However, some CPTPP members have opposed China’s accession.

Australia opposes China

The strongest critic of China’s accession is currently Australia. As a precondition for serious negotiations, the Canberra government has called for China’s trade barriers on Australian goods, which were put up as a result of political conflicts between the two countries, to be lifted.

After the change of government in Australia last year, there was a cautious rapprochement. China has been letting Australian coal into the country again since the beginning of the year. However, the trade conflict is not quite over yet.

Australia’s former CPTPP chief negotiator Justin Brown believes the Beijing government may now make trade policy normalization conditional on Australia taking a less hostile stance on China’s CPTPP bid. However, it is still unclear whether this will actually settle the resistance to Beijing’s membership.

More: China in particular relies on the world’s largest free trade zone

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