Four fundamental concepts of the TPP

Tom Kenny

Senior International Economist, ANZ

After half a decade of negotiations the US, Japan and ten Pacific Rim nations finalised the Trans-Pacific Partnership this week. The specifics of the deal remain unknown, but we can assume the TPP will promote economic interaction between the 12 negotiating countries which represent 40 per cent of the world's GDP.

Once in place, the TPP is expected to evolve with more countries joining over time. The actual gains for each of the participating country members will become more apparent once (and if) the deal is approved by the parliaments of all participants.

"We can be certain the TPP will promote economic interaction between countries representing 40 per cent of global GDP."
Tom Kenny, Senior international economist, ANZ

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However it is clear from the outset that from a regional and industry perspective, the TPP's benefits will be varied. Below are the key points you need to know for the Australian, New Zealand and ASEAN economies.

AUSTRALIA

The TPP participants represent around 33 per cent of Australia's total goods and services trade.
The deal is expected to eliminate more than 98 per cent of tariffs in the TPP region. Tariffs on $US9 billion in dutiable exports to TPP countries will be lifted. On the downside, Australian producers competing with imports will see their competition intensify.
The deal will particularly open up access for businesses to TPP markets Peru, Mexico, and Canada as Australia doesn't already have trade agreements with these countries.
The Australian agriculture sector should be one of Australia's largest beneficiaries. Inward capital flows and acquisition activity could also lift as a result.

NZ

The TPP will provide NZ with improved access to the US, Mexico, Japan, Canada and Peru - some of the largest and wealthiest consumer markets with which NZ has no existing FTA.
Tariffs could be eliminated on 93 per cent of the products NZ currently traded with the TPP participants.
All of NZ's export sectors outside dairy look to have gained better access.
NZ's dairy exporters will have preferential access to new quotas into the US, Japan, Canada and Mexico and there will likely be tariff elimination on a number of dairy products.

ASEAN

The TPP will likely provide added growth opportunities. These will primarily arise from the substantial reduction in tariff and non-tariff barriers, which should boost production and exports.
Only four ASEAN countries are members of the TPP (Malaysia, Singapore, Vietnam and Brunei). This may raise concerns that trade could be diverted from other member states, but it's more likely to reinforce global value chains within the region. In fact, as some of the non-TPP ASEAN have cheaper labour costs, part of the TPP-boosted manufacturing process will likely be outsourced to these economies.
The TPP will help unify the current pool of smaller, overlapping FTAs within this region.
As ASEAN markets become increasingly integrated with fewer impediments to trade, the region will be more competitive and more attractive for foreign investors.

Tom Kenny is a senior international economist at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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