Trans-Pacific Partnership challenges emerging markets

Trans-Pacific Partnership challenges emerging markets

While many emerging markets have not signed the Trans-Pacific Partnership (TPP) free trade agreement, they are likely to be impacted by the changes in world trade that the deal will spark, experts told Anadolu Agency on Wednesday.

The publication of the full 6,000-page final text of the agreement on Nov. 6 has enabled analysts to formulate the nature of these challenges. But the agreement must yet be ratified by legislatures in the countries that have signed it.

“The TPP agreement creates reformed trade conditions for companies, and those covered by the agreement will enjoy many advantages,” Mark Weisbrot, co-director of the Washington-based Center for Economic Policy Research said in an interview.

“Countries and companies outside the agreement may have difficulties competing with these advantages,” he warned.

For those countries that have signed the agreement, companies within those countries will enjoy tariff-free or near-tariff-free access for goods.

“There is a danger that companies from countries outside the agreement could be shut out, as their products will be priced higher,” explained Mark Plummer, professor of International Economics with Johns Hopkins School of Advanced International Studies in Bologna, Italy, in an interview with Anadolu Agency.

The textiles sector provides one example of how the agreement could affect emerging markets.

“TPP countries will remove tariffs on 98 percent of trade in goods among member countries,” commented Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in London, in an interview with Anadolu Agency.

 “Vietnam is a TPP member and a large exporter of textiles and garments, and under TPP, will have tariffs eliminated on its garments exports to the U.S. This is likely to have a negative trade diversion impact on other textiles and garment exporting countries that are not in the TPP, including Turkey, Bangladesh, Sri Lanka and Pakistan,” Biswas said.

But tariffs are not the only aspect of the agreement that could affect emerging markets.

“There is also the issue regarding product origin -- when, for example, most of the parts of a car must be manufactured in countries that have signed the agreement,” Plummer continued. “Under TPP, there is a tariff of 35-40 percent on products that are mostly manufactured outside the TPP area. This will create a challenge for companies that do not manufacture within it,” Plummer said.

Then, as Biswas pointed out, an important part of the TPP agreement is the liberalization of state procurement rules, which will allow businesses in TPP countries to have greater access to bid for government and state-owned enterprises’ procurement contracts in other TPP countries.

But countries outside the agreement won’t be able to bid, Biswas said.

To be sure, there are some areas of the agreement that could create opportunities for emerging markets.

“In some sectors, for example in financial services, multi-lateralization of the agreement will take place, meaning that rules governing countries within the agreement will be broadened to apply to all countries,” Plummer said.

For example, when rules regarding banks are made according to the agreement, they are likely to be written so that they will apply to all banks, Plummer pointed out.

“This is what happened with the North American Free Trade Agreement (NAFTA) signed by Mexico, Canada and the U.S. which came into effect in 1994,” Plummer said. “It turned out that, for Mexico, the greatest beneficiaries of the liberalization of financial services under NAFTA were European banks.”

Plummer explained that a similar opening of financial services across Asia could be the result of the TPP agreement, thus benefiting emerging markets.

“What makes TPP important, “Plummer said, “is that it is all part of the broader process of mega-regionalization -- that is taking place. As this progresses, this will be good for all countries in the region, including emerging markets that are not part of the TPP process.”

The U.S. and 11 Pacific Rim countries agreed last Thursday to what could be the largest regional trade agreement following more than seven years of negotiations.

If ratified by the U.S., Japan, New Zealand and nine other countries, the Trans-Pacific Partnership (TPP) would link 40 percent of the world’s economy and eliminate nearly 20,000 tariffs on various goods, according to the White House.

The other nine countries included in the agreement are Australia, Brunei, Canada, Chile, Malaysia, Mexico, Peru, Singapore and Vietnam.c_6HuLGKhVPvxGlVEERqfJeKiPiFrTNg

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