This page is about:

While escalating US-China trade tensions make headlines, two trading pacts covering a large swathe of the global economy are having a positive material impact on exports and imports among other trading nations.

The Comprehensive & Progressive Agreement for Trans-Pacific Partnership – the CPTPP – took effect for Australia, Canada, Japan, Mexico, New Zealand and Singapore last December with Vietnam joining in January, and Brunei, Chile, Malaysia and Peru due to follow. In addition, the new EU-Japan Economic Partnership Agreement came into force in February. The GDP for the members of these two deals totals USD28 trillion.

The CPTPP countries plan to phase out 99 per cent of import duties on their mutual trade over 15 years, while the EU-Japan deal – Europe’s largest ever trade accord – will ultimately see Tokyo remove tariffs on 86 per cent of imports from the EU and Brussels abolish duties on 99 per cent of Japanese goods.

In 2019’s first quarter, after Japan substantially cut its 38.5 per cent tariff on beef imports from CPTPP members, beef shipments from Australia, Canada, Mexico and New Zealand were 6 per cent above 2018 levels and further growth is expected.

Canadian tariff cuts contributed to growth in imports from Vietnam: clothing imports were up by 23 per cent in the first quarter of 2019 compared to last year, and shoe imports were up by 33 per cent. Vietnam’s fishery exports to Japan rose 16 per cent in the first quarter. New Zealand's dairy exports to Canada, Japan, and Mexico also surged.

Meanwhile, Tokyo eliminated tariffs on 90 per cent of EU agricultural products under the deal with Brussels and the EU immediately removing tariffs on 96 per cent of Japanese tariff lines. Sales of EU pork to Japan were 54 per cent higher this February than in February 2018; cheese sales rose 30 per cent and wine exports 42 per cent as tariff cuts lowered shop prices.

In both deals, there is also a commitment to tackle non-tariff barriers. For example, under the EU-Japan agreement, the two sides have moved to international car standards and ending duplicate testing and certification of imported vehicles.

The EU is phasing out its tariff on Japanese cars by 2025. And in March 2019, Japan exported 30 per cent more passenger vehicles to the EU than a year earlier.

Japan benefits from membership of both the EU and CPTPP deals. Its government thinks the European pact alone could boost GDP by around 1 per cent and create nearly 300,000 jobs. Once the CPTPP is fully implemented, real income growth in Japan could reach 0.9 per cent compared to the baseline according to the Peterson Institute for International Economics.

But an un-level playing field is emerging for businesses and consumers in countries outside these deals. The US and China are notably absent from both trade agreements.

China is involved in pan-Asia trade talks via the Regional Comprehensive Economic Partnership, which includes ASEAN’s 10 members plus Australia, China, India, Japan, New Zealand and South Korea. Beijing hopes to conclude negotiations this year. The deal is less generous than CPTPP but would include Korea and India, so it would have very large scale.

But the US withdrawal in 2017 from the Trans-Pacific Partnership – the CPTPP’s predecessor – could hit American income, with the US foregoing perhaps USD130 billion a year compared to a scenario with continued membership. The US withdrawal also hurt other CPTPP economies such as Japan, Malaysia and Vietnam. Likewise, the EU-Japan pact could also affect US exports to those two markets.

Washington is in separate trade talks with Japan and the EU, but early results are not expected.

However, the two new accords have motivated other Asia-Pacific nations to redouble their trade reforms. For example, Thailand and Colombia are now exploring CPTPP membership. The CPTPP deal has also stimulated RCEP’s negotiators to expedite talks and include countries such as India, while the EU pursues bilateral deals with ASEAN members.

More broadly, the CPTPP and EU-Japan accords challenge the economic nationalism of the US and the state capitalism of China. They support a liberal, rules-based, market-oriented framework for governing international trade that is compatible with – and helps advance – the World Trade Organization’s underlying principles.

This page is about:

Disclosure and disclaimer

More, collapsed
Join the conversation?

Join our Linkedin group to get an unparalleled view of macro and microeconomic events and trends from a bank that is a leader in both developed and emerging markets.