Strategic Interests of the U.S. and Participating Southeast Asian Economies
U.S. Interests in the CPTPP
In recent years, specifically under the Trump administration, the United States has shifted its focus to bilateral free trade agreements (FTAs) that would eliminate or reduce bilateral trade imbalances. These agreements, however, provide limited economic benefits to the United States and do not provide the same catalyst for regional production networks in the Asia-Pacific region as multilateral FTAs do. Within ASEAN, the U.S. bilateral FTA negotiations with Malaysia and Thailand have reached a standstill. Additionally, if reached, a bilateral agreement between the U.S. and Japan would only provide a fraction of the benefits of the original TPP.
The Peterson Institute for International Economics estimates losses of $133 billion annually for the United States due to withdrawal from the TPP and subsequent foregone trade opportunities. This estimate includes the $131 billion that the U.S. would have gained from the original TPP, as well as the $2 billion in losses the U.S. incurs without CPTPP membership. Michael Froman, who served as the U.S. Trade Representative under President Obama, said that the American exporters are facing negative consequences as a result of the U.S. pulling out of the TPP. In Japan, the third largest economy in the world, the U.S. agriculture industry has been at a disadvantage to countries that have free trade agreements with Japan. For example, Australian beef and Chilean wine dominate their respective markets in Japan due to substantially lower duties than American products. Joining the CPTPP would not only alleviate the disadvantages faced by American exporters but would significantly boost the global gains from the CPTPP.
Japan, Malaysia, and Vietnam would be the primary beneficiaries of U.S. membership to the CPTPP, as these countries had pre-existing FTAs with many of the signatories. These countries had the most to gain from access to U.S. markets offered under the TPP.
By withdrawing from the TPP, the U.S. also began to lose its status as the international trade rule-maker. Since many CPTPP members use the agreement as a model in negotiating new FTAs, the CPTPP plays an important role in FTA standards. Though the United States-Mexico-Canada Agreement (USMCA) did help the U.S. reassert itself as a trade rule-maker, returning to the CPTPP would amplify this and strengthen U.S. influence in the Indo-Pacific region in relation to China.
Positions of Participating ASEAN Member States
As one of the 4 original members of the P-4 group, the Government of Brunei viewed the TPP as a policy instrument which could help promote economic diversification in Brunei. Since Brunei has not yet ratified the CPTPP, the agreement has not taken effect in the country. Brunei’s Second Finance and Economy Minister Amin Liew Abdullah recognized the benefits of both the CPTPP and the proposed Regional Comprehensive Economic Partnership (RCEP) for Brunei, citing trade liberalization, trade rules, progressive reforms, and regional integration. In addition, Brunei continues to explore ways of leveraging its participation in the RCEP negotiations as catalysts for supporting economic diversification.
Since Malaysia has not yet ratified the CPTPP, the agreement has not taken effect in the country. Historically, open trade policies have boosted Malaysia’s economic growth, and ratification of the CPTPP would do the same. The agreement benefits palm oil, rubber, and electronics exporters in Malaysia by providing access to new markets, such as Canada and Mexico. Conversely, not ratifying the CPTPP could hurt Malaysia’s export and FDI competitiveness. Though Prime Minister Mahathir Mohamad previously expressed support for the CPTPP, support for the agreement throughout Malaysia has declined under his administration, with many lawmakers in the leading Pakatan Harapan coalition expressing concerns about its effects. Some fear that the ratification of the CPTPP will reduce policy flexibility and limit the preferences that government-linked companies can offer to local small- and medium-size enterprises. There is, however, also some pressure within Malaysia to ratify the CPTPP. Though ratification does not appear to be a priority for the Malaysian government, the administration has not completely written it off. In January 2019, Minister of International Trade and Industry Darell Leiking said the administration was still reviewing the terms of the agreement to ensure that it is fair to Malaysia and reported that there was nothing stopping the government from ratifying it.
On the other hand, concluding the RCEP negotiations is a top priority for Malaysia, with hopes that the agreement will be concluded by the end of 2019.
The CPTPP creates new trade agreements for Singapore with Japan, Australia, New Zealand, Chile, and Peru. It is also Singapore’s first trade agreement with Canada and Mexico, expanding market access for Singapore companies. Given its reliance on exports, Singapore stands to achieve major gains from this enhanced market access and preferential tariffs when exporting to other CPTPP countries. Specifically, 94% of Singapore’s trade with other CPTPP countries will be tariff-free immediately upon the agreement’s entry into force, with the remaining tariffs set to be eliminated in the future. Minister for Trade and Industry Chan Chun Sing cited estimates that the CPTPP will boost Singapore’s economy and total exports by 0.2 percent more each by 2035. Further, with the new guidelines for government procurement, Singapore companies will be able to bid for government projects in Malaysia, Mexico, and Vietnam, all of which were closed to foreign bidders prior to the CPTPP. Singapore also supports the accession of new countries to the agreement, recognizing that this would enhance regional economic integration and provide greater economic benefits.
Singapore continues to play an important role in the negotiation of the RCEP. Prime Minister Lee Hsien Loong expressed his hopes that the agreement will be concluded in 2019, though this is ambitious given how much needs to be accomplished by then.
Vietnam is expected to be one of the main winners of the CPTPP. The World Bank conservatively estimates that the CPTPP will increase Vietnam’s GDP by at least 1.1% by 2030. This boost to the country’s GDP is due to an increase in exports, FDI, and productivity growth as a result of trade liberalization and expanded market access under the CPTPP. This agreement strengthens trade between Vietnam and Japan, with Vietnam’s exports Japan significantly increasing in the first quarter of 2019. The CPTPP is also Vietnam’s first trade agreement with Canada, Mexico, and Peru. According to Vietnam’s Ministry of Agriculture, between January and April 2019 alone, Vietnam’s seafood exports to CPTPP countries increased by 15 percent compared to the same period the year prior, generating an additional US$502 million in revenue. Further, the National Centre for Socio-Economic Information and Forecasting in Vietnam estimates that the CPTPP will boost the country’s exports by 4.04%, approximately US$4 billion, by 2035. Economists also predict that the agreement will serve as a catalyst for domestic reforms across a variety of sectors in Vietnam, such as improving regulations and investing more in innovation.
Similar to other ASEAN countries, Vietnam has high expectations for RCEP’s positive impact on Vietnamese imports and exports and aims to finalize the agreement in 2019.