At a glance: the Trans Pacific Partnership

What is it?

A proposed expansion of 2005’s Trans-Pacific Strategic Economic Partnership, the new TPP seeks to manage trade, promote growth and regionally integrate the economies of the Asia Pacific region.

Who’s involved?

Spearheaded by the US, the current negotiating partners include Australia, Brunei, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Taiwan and South Korea have also expressed interest in becoming involved.

Why is it in the news?

Since first mooted in 2010, the TPP has come under fire for what some see as “secretive talks” and its expansive scope. It has also been the subject of information leaks, and the leaked clauses have been somewhat controversial as well as indicating there may be disagreements between the US and negotiating parties on issues such as intellectual property, agricultural subsidies and financial services.

What’s its competition?

The TPP is not the only free trade agreement (FTA) under negotiation in APAC: the Regional Comprehensive Economic Partnership (RCEP) is based around the 10 ASEAN member nations and their free trade partners (Australia, China, India, Japan, Korea and New Zealand). While there is some overlap, crucially the RCEP features China and India, whereas the TPP does not. While both negotiations aim to liberalise trade and bring economic integration, the TPP goes deeper. Both have been called the “next stage in Asian regionalism”.

Why should you care?

As the Asian Development Bank said in 2008: “Asia’s economies are increasingly vital to each other and to the world. Asia’s output … may well be 50% larger than Europe and North America by 2020 in terms of purchasing power parity.”

A study by Petri, Plummer and Zhai, quoted in the Asian Development Bank Institute’s blog Asian Pathways, says that while the effect on the world economy would initially be small, by 2025 the annual welfare gains would rise to $104bn with TPP, $215bn with RCEP and $303bn when using both tracks. An eventual region-wide FTA would generate $862bn in benefits for member nations by 2025.

What do we say?

Says Paolo Tavolato, Head of APAC for TMF Group: “While there are already FTAs in Asia Pacific, they are not all uniform, and require careful scrutiny to ensure the best deals are found. The TPP is promoted as the “gold standard FTA” and is expected to develop a level playing field for business in APAC, as well as providing US investors an easier route to some of the world’s biggest emerging economies.

“Anything that makes investment in APAC more streamlined and efficient is always welcome, and a level playing field in the region will open up opportunities in smaller countries that just aren’t possible at the moment. In fact, RCEP will account for almost half of the global population and one-third of global economic output, so it’s something the international business community will want to keep an eye on.

“However, while FTAs open opportunities, they can bring more complexity. When investing and growing your business in a new country, you should always work with a third party partner with local knowledge to ensure you comply with local regulations – and this is especially true in Asia, where non-compliance can lead not only to fines but also jail time.”