Trans-Pacific Pact could dramatically alter supply chains

The world watches as Asia plays host to the Asia-Pacific Economic Cooperation (APEC) summit along with Trans-Pacific trade negotiations (TPP) this week.

Despite the US president’s inability to attend the latest meetings of APEC and the Trans-Pacific trade negotiations, member countries are moving forward. Combined, members including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam comprise over 40% of global trade. Members are meeting this week in Bali to discuss such concerns as tariff barriers, intellectual property rights and labor rights.

The US president has made these negotiations a key part of his administration’s efforts to strengthen relations with Asia. China is not yet part of the TPP talks, though it has not been excluded. That has fuelled speculations that the negotiations are part of the US strategy to counterbalance Beijing’s growing strength in the region. 

China, however, is a member of APEC, and in his opening speech, China’s President, Xi Jinping, noted “China cannot develop in isolation of the Asia-Pacific and the Asia-Pacific cannot prosper without China.”  Asian supply chains are tightly woven connecting many countries to China which is indeed an important economy within the region as well as to the global economy. Despite this, a recent World Bank report concluded that countries with developing economies in East Asia and the Pacific were expanding at a slower pace as China shifted from export-driven growth and focused on domestic demand. Growth in larger middle-income countries, including Indonesia, Malaysia and Thailand, is also softening because of lower investment and global commodity prices, as well as lower-than-expected export growth.

As such, the TPP negotiations are taking on a more urgent tone as these Asian countries look to stimulate and expand trade. Still, the issues at hand are formidable and the end of the year deadline may be difficult to meet.

For example, Vietnamese manufacturers want better access to sell their shoes and clothes in the US and other industrialised nations. Some US-based manufacturers, meanwhile, oppose opening their factories to competition from nations with low labour costs.

Meanwhile, the US wants better access for its service providers, especially banks, in developing nations. It will also be seeking freer trade with Japan, its fourth-largest agricultural export market, which protects local farmers with tariffs and quotas. Japan is also under pressure to open its automotive and insurance industries to global competition.

Another core issue is how to ensure that state-owned enterprises do not pose unfair competition to private-sector businesses.

According to the Peterson Institute for International Economics, once agreed and fully implemented, the Trans-Pacific trade pact could raise Japan’s GDP by 2.2% by 2025, Malaysia’s by 6.1% and Vietnam’s by over 13.0%.

While politics hint at shutting out China, the TPP will provide opportunities for all its member countries and as such supply chains could be altered as trade barriers fall and trade increases between member countries.