Free Trade Free trade receives fresh impetus without the USA

Author / Editor: Stéphane Itasse / Rosemarie Stahl

At the moment, punitive customs tariffs and fears of a worldwide trade war are dominating the headlines. However, eleven countries are succeeding in something else: Even without the USA, they are forging a free trade zone extending beyond the Pacific.

The new CPTPP pact should give a boost to trade in the Pacific region.
The new CPTPP pact should give a boost to trade in the Pacific region.
(Source: NYK Virgo / NYK Virgo / Bernhard Fuchs / CC BY 2.0 / BY 2.0)

Japan, Mexico, Canada, Australia, New Zealand, Brunei, Chile, Vietnam, Malaysia, Peru and Singapore have surprised the world: In March 2018, these countries signed a pact in Chile awkwardly named “Comprehensive and Progressive Trans-Pacific Partnership” (CPTPP). It must be ratified by the parliaments of the participating countries before it can take effect.

Additional Information
Mexico's major industries

According to NAPS (North American Production Sharing), which is specialised in outsourcing services for companies manufacturing in Mexico, the Mexican industry is growing. For example, the city of Tijuana is said to already have the largest concentration of medical device manufacturers in North America. The Mexican electronics industry is the sixth largest in the world after China, the US, Japan, South Korea and Taiwan. The country is also the seventh largest producer of automobiles in the world after China, the US, Japan, Germany, India and South Korea. The automotive sector accounts for 17.6% of Mexico’s manufacturing sector.

Donald Trump quickly pulled out of TPP

The pact was preceded by long negotiations meant to lead to the Trans-Pacific Partnership (TPP), in which the USA was still a participant. However, soon after taking office in January 2017, President Donald Trump signed a decree to pull the USA out of the free trade pact. Observers considered it impossible to continue with this plan, the German Chamber of Trade and Industry Conference (DIHK) reports. Yet that is exactly what has now happened.

According to the DIHK, the new free trade zone accounts for 15% of world trade (with the USA included, it would have been 25.9%) . The total population of the participating countries is 500 million. The partnership will abolish a major portion of punitive duties and reduce trade barriers in other spheres such as services, investments and customs procedures. In addition, the Organization for Economic Cooperation and Development (OECD) expects the CPTPP to boost standards in critical areas such as environmental protection, anti-corruption and employee rights.

Certain regulations on pharmaceutical products or copyright, included in the text of the TPP at the USA’s request, have been suspended from the CPTPP. This should enable the USA to join the partnership at a later time, under a new administration. Moreover, many other countries expressed an interest in taking part during the TPP negotiations, including India, Bangladesh, the Philippines, South Korea, Indonesia, Thailand, Laos, Cambodia, Taiwan, Columbia and Costa Rica. According to its foreign ministry, Taiwan reaffirmed its interest following the conclusion of the CPTPP.

Japan and Australia as driving forces

The German Chamber of Trade and Industry in Japan (AHK Japan) sees Australia as a driving force next to Japan in bringing about the free trade zone. Japan in particular is undergoing a change: Only in December, the country concluded talks on a trade agreement with the European Union, even though Japan has been regarded a champion of protectionism until now, the AHK Japan reports. Both agreements would compel various sectors of the Japanese economy to be more efficient and productive in order to withstand the increased competition from greater imports. That should help with modernisation and open up new opportunities for exporters at the same time. In an analysis, the DIHK says the pact will result in a “fully new momentum“ in the Far East. Both of Japan’s trade agreements are clear signals to China and the USA on account of the increasing protectionist trends in these countries. The costs saved by free trade would affect global value-added chains, says the DIHK. That would boost the economies of participating CPTPP states and make them more attractive as trade partners and for investments.