MACROSCOPE
Macroscope
by

Expect big changes for global trade from ‘historic’ TPP agreement

The Trans-Pacific Partnership will have a dramatic effect upon trade between the 12 member nations

PUBLISHED : Wednesday, 21 October, 2015, 8:46am
UPDATED : Wednesday, 21 October, 2015, 9:23pm

It’s a trade deal with such wide ranging consequences, it will have a profound and uplifting impact on activity around the Pacific Rim as we know it.

Analysts taking stock of the Trans-Pacific Partnership, the US-led free-trade agreement formally signed by 12 participating nations on October 5, see the pact as a milestone in eliminating barriers to trade across a vast area.

As many as 18,000 tariffs are expected to be eliminated over time, according to some estimates.

“Once ratified…the accord will become the most significant, most economically impactful trade deal in history,” Frank Holmes, CEO of US Global Investors, wrote in an opinion column circulated in US media.

The pact includes Australia, New Zealand, Vietnam, Singapore, Japan, Malaysia, Brunei, Canada, the United States, Mexico, Peru, and Chile.

The deal is yet to be ratified. That’s not expected until next year, when the various governments of the participating nations will likely vote the agreement into law.

Still, judging by the research notes and reports circulating in recent weeks, figuring out the beneficiaries of the trade agreement is very much on the minds of analysts, even as uncertainties linger over when the agreement will kick in.

Credit rating agency Moody’s issued a report earlier this month that identified a number of beneficiaries, and highlighted Vietnam’s budding export industries as a major standout.

Data cited by the credit rating agency indicated that, once enacted, the pact will see Vietnam gain additional income worth 19 per cent of 2014 GDP, while Malaysia will gain a boost of around 7 per cent, while Japan, New Zealand and Singapore will each gain around 2 per cent. Australia is forecast for a modest 0.5 per cent boost.

In particular, Vietnam’s textiles and footwear industries should see significant upside.

“Vietnam has a distinct advantage in terms of its combination of low wages, improving infrastructure and scale,” Moody’s analysts wrote. “Authorities have promulgated wide-ranging changes – including the relaxation of ownership restrictions for public companies, real estate and banks.”

Analysts at Daiwa said the boon to Vietnam could indirectly benefit some Hong Kong-listed textile companies. In an October 8 note, the broker recommended shares of Shenzhou International, Texhong Textile, and Pacific Textiles. All three companies have operations in Vietnam and are expected to tap the expected surge in shipments to the US and Japan as tariffs are removed.

How much those tariffs will be whittled down is still uncertain, as the final text of the trade pact is still being drafted. Daiwa forecasts the tariff reduction will significantly increase Vietnam’s competitiveness vis-a-vis Chinese exporters. Textile shipments to the US face an import tariff of 12 to 20 per cent, whereas Chinese shipments face import tariffs of 10 to 25 per cent.

“Anecdotal evidence suggests that a portion of the strong FDI inflows into the country [Vietnam] over the past year has been in anticipation of the passage of the agreement,” Moody’s said.

Japanese carmakers and auto-parts suppliers also stand to benefit. For these companies, the importance of the trade agreement is in dramatically expanded market access to Canada, the US and New Zealand. Tariffs on 70% of exports of industrial goods will disappear when the trade agreement come into effect, and “eventually be eliminated entirely,” Moody’s said.

Japan’s farmers are among those to face the greatest downside, as the TPP lays ground for greater market access to Australian and New Zealand agricultural producers. Shipments of New Zealand beef to Japan will be subject to import tariffs of 9 per cent, down from 38.5 per cent currently. Australian farmers are also expected to be big beneficiaries from greater access to Japanese markets.

Property group CBRE said it expects agricultural land prices in Australia and New Zealand to gain from the projected increased output.

Singapore is also poised to benefit in its push to become a trade and professional services hub.

“As a small, open economy driven by external trade, the TPP will serve to complement [Singapore’s] existing pacts and boost investment and trade flows with partner countries,” Moody’s wrote.

CBRE said the trade agreement was positive for selected assets in the city state over the medium term.

Increased regional trade would likely translate into growth for Singapore’s logistics, chemicals and electrical services companies, CBRE said.

The TPP “will support office demand as the city remains a regional hub for multinationals,” CBRE said.

CBRE also highlighted commercial real estate in Japan as a beneficiary, in particular, manufacturing and logistics centres geared to the expected increase in Japanese exports.