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International Trade

The CPTPP’s Ratification Clears way for Enforcement, but it is also Causing Nervousness Among U.S. Shippers

New York - Wendy Cutler, the Vice President of the Asia Society Policy Institute and a former acting deputy U.S. Trade Representative, who had also negotiated the then U.S. led 12-member Trans-Pacific Partnership (TPP), could hardly conceal her disappointment when asked by this correspondent at a recent discussion at the Asia Society in New York to share her thoughts on the U.S. withdrawal from the TPP. She called it a “mistake”.

Cutler’s view is shared by many, including U.S. exporters. Pulling out of the TPP was the first foreign policy act by U.S. President Donald Trump in early 2017.

However, the TPP did not die, as some experts were predicting, though it was gasping for breath after the U.S. withdrawal.

The agreement, now known as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) embracing 11 member states led by Japan, was further solidified, with seven of its members formally ratifying the CPTPP and thus clearing the way for its enforcement on December 31, 2018. Japan, Singapore, Mexico, Canada, Australia, New Zealand and Vietnam have ratified the deal, meeting the minimum threshold of ratification by six signatories, for the CPTTP to take effect by end 2018. The remaining members, Brunei, Chile, Malaysia and Peru, have yet to ratify it.

But the ratification is also causing nervousness among U.S. exporters who, facing challenges from low-cost suppliers, believe that future export growth stimulus will come from the Asia-Pacific region, embracing the world’s most dynamic markets. The U.S. withdrawal from the multilateral partnership has caused trepidations among U.S. exporters who saw the vision of accessibility to this huge market vanish. There are now fears that other countries might step into the breach and reap the benefits that could have accrued to U.S. shippers.

American suppliers of soybeans, corn, meat and other agricultural products, for example, will bear the brunt of the loss. U.S. agricultural produce suppliers, already facing a downturn in commodity prices, and further hit by the U.S.-China trade spat, will also face hurdles in the CPTPP markets. Critics say that the Trump administration has, ostensibly, shot itself in the foot by pulling out of the TPP.

The CPTPP region will cut tariffs among its member states making their exports cheaper in each other’s markets. Estimates by U.S. research groups suggest that about 90 percent of the tariff cuts will go into effect immediately, besides eliminating other red-tape hurdles such as allowing customs clearance before shipment arrivals.

American farmers had pinned their hopes on the so-called Asia pivot, designed and engineered by the previous administration of President Barack Obama. The TPP was a key element in the U.S. pivot strategy which had a combined security and economic component to assert U.S. influence in the Asia Pacific region. U.S. farmers will now be at a disadvantage in the CPTPP markets and will depend on bilateral free trade agreement to help them enter these markets.

Take the example of Japan which is a huge market for U.S. meat; the U.S. could now be replaced by Australia, also a big meat supplier in Japan’s geographic proximity. Australian exports of meat products could benefit from a drastic cut in tariffs by Japan under the terms of the CPTPP. Other American products such as grain would also attract tariffs, making U.S. grain more expensive than Canadian and Australian grain, thanks to a drastic tariff reduction for the two CPTPP members.

Trump’s efforts to get a free trade agreement with Japan have, so far, met with little success, denying a $ 2 billion real income for the U.S.

Two years into the Trump administration, questions are also being raised about the economic prudence of pulling the U.S. out of the TPP which some think tanks argue could have bolstered the country’s real income by some $ 131 billion annually. Thus, besides not gaining the additional real income of some $ 131 billion, the U.S. will lose $ 2 billion because U.S. companies face hurdles in the CPTPP markets.

Many pundits even question whether Asia produces for the U.S. market or whether the U.S., instead, produces for Asia’s huge market. “We have reached a stage when Asia no longer produces mainly for the U.S. market. Asian countries are increasingly producing for each other. Indeed, the U.S. is also, increasingly, producing for Asian markets. In the circumstances, does it make sense for the U.S. to have just walked away from the TPP which could have offered U.S. suppliers greater access to the world’s most dynamic region?” one Asian businessman told the American Journal of Transportation on the condition of anonymity.

During a discussion at the Asia Society in New York in September 2018, Singapore’s foreign minister Vivian Balakrishnan, responding to a question by this correspondent, had said that “we were disappointed when America pulled out … but we have left the door wide open for America (to return to the CPTPP)”.

The US-China trade war is already benefitting some of the CPTPP member states. At the recent medical devices trade show, MEDICA, in Dusseldorf, Germany, Malaysian exhibitors, for example, received an overwhelming response from international buyers, many of whom were looking for alternative sources of supply as Chinese products face tariff hurdles not just in the U.S. but also in European markets.

The Selangor-based Welford Manufacturing (M) Sdn. Bhd., which manufactures infusion therapy devices such as safety intravenous sets, catheters and other infusion therapy accessories bagged a huge order for its products from a U.K. based buyer.

“We have signed an agreement with our U.K. customer to buy our ‘Airguard’ brand products for a five-year period commencing 2019. This is actually an extended agreement by which I mean that our products can now be sold by our U.K distributor outside his U.K. territory in Poland. The total value of this agreement is around RM 33.3 million (nearly US$ 10 million) for a five-year period,” Wong Wen Wvei, Welford’s director, told American Journal of Transportation.

Indonesia has also experienced a surge in demand for its products.

Indonesia’s Minister of Trade, Enggartiasto Lukita, who led a trade mission to the U.S., January 12 to 19, 2019, witnessed the signing of a memorandum of understanding (MoU) at the Indonesian consulate general in New York between Indonesia’s Gunung Steel Group and the New Jersey-based Hanwa America Corp., for supplies of Indonesian-manufactured steel beam products with an estimated value of US$ 40 million. The minister also met with U.S. Trade Representative Robert Lighthizer in regard to the General System of Preferences Review.

Lili Yan Ing, a lead advisor to the Indonesian trade minister on international trade matters, explained in an interview with the American Journal of Transportation:

“Our trade mission’s aim is to improve bilateral economic and trade ties with the United States which is an important partner for us. Indonesia’s exports to the U.S. in 2017 amounted to US$ 21 billion while imports amounted to US$ 7 billion,” she said, adding that the figures reflected only trade in goods but did not include “big ticket items” such as aircraft and other items, and services.

Lili Yan pointed out that Indonesia was also the biggest Boeing aircraft buyer in the aircraft manufacturer’s 90-year history. “Indonesia had the largest transaction in Boeing’s 90 year history. Indonesia’s Lion Air purchased 230 Boeing aircraft. The MoU signed between Boeing and Lion Air in 2018 is alone worth some US$ 22 billion,” she emphasized.

Manik Mehta

American Journal of Transportation

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