CPTPP: Revived Pacific trade deal's impacts on Vietnam

The Trans-Pacific Partnership was seemingly in tatters after President Donald Trump announced the US’s withdrawal following his assumption of office. But with great efforts by the remaining 11 members, the deal has been saved and rebranded as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

  Representatives of members of the CPTPP trade deal at the signing ceremony in Chile on March 8, 2018.

TPP reborn as CPTPP

The original Trans-Pacific Partnership (TPP) was signed in February 2016 with the participation of the US and 11 member countries namely, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

However, US President Donald Trump decided to withdraw from the agreement in early 2017, causing fears that it would not come to fruition without its most influential member.

But the 11 remaining members, led by Japan, made great efforts to keep the trade deal alive despite the US’ absence.

In November 2017, ministers from the eleven TPP countries met on the sidelines of the APEC Summit in Da Nang and reached an agreement to push ahead with the trade pact by suspending some provisions from the original deal and rebranded it as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

  Vietnam’s trade minister Tran Tuan Anh and Japan’s economic minister Toshimitsu Motegi at the press conference to announce the renaming of the TPP to the CPTPP in Da Nang, Vietnam on 11 November 2017.

  The press conference is attended by a large number of reporters. (Source: VOV)

In January 2018, they announced the conclusion of negotiations on the CPTPP.

The final version of the revised Trans-Pacific trade deal was signed by the trade ministers from the 11 member countries in Santiago, Chile, on March 8.

Following the official signing of the CPTPP, several other countries have also expressed an interest in joining the trade deal.

The Republic of Korea said in March that the country will decide whether to join the CPTPP within this year after looking into its impact on the Korean economy and consulting with the pact's members.

Thailand's deputy prime minister also said that the country aims to join the CPTPP trade pact this year, while the UK government is also exploring the option of becoming a member of the CPTPP to stimulate exports after Brexit.

In April US President Donald Trump also asked his trade advisers to look at re-joining the Trans-Pacific Partnership, after signalling his interest in reconsidering the trade deal earlier this year.

TPP vs CPTPP: Key differences

The new Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), also known as TPP-11, is much like the original deal in 2016, by basically keeping all the core content of the TPP.

However, member countries agreed to suspend 22 items from the original TPP agreement on January 23, 2017.

Differing from the original trade deal, which merely covers the exchange of goods and services, the reshaped deal sets broader requirements in areas of labour issues, the environment, and government procurement.

  Click on each aspect to view details

CPTPP, which includes “Comprehensive” and “Progressive”, was highly appreciated by all country members, confirming the quality and normative direction of the new deal.

It is called progressive because it goes beyond reducing costs for businesses to cover commitments to safeguarding high labour and environmental standards across the Asia-Pacific region.
With the pull-out of the US, the total GDP of CPTPP is estimated at US$10.1 trillion, while the TPP’s GDP would have stood at approximately US$28.7 trillion.

There are 11 CPTPP member economies, accounting for 13.5% of global GDP and 15.2% of total global trade turnover.

While these figures are substantial, they are much lower than they would be had the US stayed in TPP, which are estimated at 38.2% of global GDP and 26.5% of global trade turnover.

The market size has also decreased significantly to 499 million from 822 million under TPP.
The old TPP deal would take effect if the total GDP of member countries ratifying the deal made up 85% of the total GDP of the 12 signatory countries in 2013.

Meanwhile, CPTPP requires only six members out of the 11 to ratify the deal to bring it into force among all ratifying countries. After the ratification requirements are met, it would take another 60 days for it to enter into force.

Most of the tariff reductions on goods will take effect when the deal comes into force, as well as all provisions for services and investments.

The new trade deal also adds regulations related to the process of withdrawal, participation, and flexible reviewing of the CPTPP in the future.
Most of the 22 suspended items are from the Intellectual Property chapter of the deal that the US raised previously.

The CPTPP will delay requirements for member countries to change their laws and practices in protecting new pharmaceuticals from competition with generic drugs.

The new deal also suspends the time term of copyright in case of unreasonable delays in licensing.

Member countries no longer have to extend the duration of lifetime copyright protection from 50 years to 70 years, which will reduce tangible costs for CPTPP members compared to the TPP.

A total of 11 TPP intellectual property provisions were suspended in the CPTPP.

The remaining provisions to be shelved cover investment. Regarding the dispute solution mechanism between governments and investors (ISDS), the CPTPP narrows the mechanism’s availability for foreign investors to sue the host member state.

Through several adjustments to regulations and the efforts of the 11 member countries, the TPP has been revised. The reshaped CPTPP is said to be a comprehensive and progressive deal, reaching high standards while remaining open, and is expected to bring benefits to all of its members.

Differences in charts

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Market size

Impacts on Vietnam: The Opportunities

The most important thing upon joining the CPTPP is for Vietnam to become a full market economy. This means Vietnamese enterprises will be free from trade impediments imposed by other countries, which have so far refused to acknowledge it as a market economy.

  The garment industry is one of the largest beneficiaries of the CPTPP.

Given the economic size of the members and the terms of trade liberalisation, joining the CPTPP is obviously an advantage to the strength of the Vietnamese economy within Southeast Asia in terms of economic growth, trade, and FDI attraction. In the economic perspective, Vietnam is one of the countries to benefit the most from the CPTPP.

The opportunities to increase the export of goods in which Vietnam holds an advantage (i.e. textiles, footwear, electronic products, and equipment) are relatively high by combining the benefits of tariff reductions and the country’s experience in these markets.

The attraction of foreign investment into Vietnam is greatly promising. The access to large markets such as Japan and Canada together with the clearer commitments to improving the investment environment and the protection of intellectual property rights will become a significant attraction for international investors.

Moreover, Vietnam, under the framework of CPTPP, is able to attract large inflows from the member countries through the membership of regional economic organizations such as AFTA and ACFTA.

The CPTPP will be a vital deal in expanding free trade and ensuring sustainable development in Vietnam.

Tran Tuan Anh, Minister of Industry and Trade

The chances of faster economic growth are immense. The expansion of major export industries such as textiles, footwear, fishery, etc., will help stimulate the income growth from domestic production, thereby supporting the increase of the overall demand.

Vietnam will have the opportunity to form a more comprehensive economic structure. CPTPP will urge both domestic and regional investors to invest in the supporting industries to create local material resources given the extremely high standards on the place of origin.

It is a chance to complete the institutions that govern the market economy. CPTPP sets out a clear legal framework for not accepting concessions to any business. Because of its high and foreseen requirements on policy transparency, compared to many other agreements, CPTPP could become one of the most important premises for Vietnam to comprehensively carry out institutional and market reforms.

Impacts on Vietnam: The Challenges

Economic growth dynamics in Vietnam are still lacking due to low labour productivity and an over-dependence on the world economy and the foreign invested sector, especially when the advantage of cheap labour costs will diminish due to the 4.0 industrial revolution.

The country must improve its productivity and administration, and demonstrate an overall commitment to the free trade conditions of the agreement, lest its benefits are wasted on a workforce and business community that are not yet ready to meet global standards.

  One of the challenges from the CPTPP is the increasing competition of goods from the members of the trade pact.

The manufacturing sector's structure is not consistent with the provisions of the CPTPP. The economy is not well-prepared and the supporting industry is too weak. With regard to the requirements of origin, the sectors in which Vietnam holds advantages in the export sector are not able to exploit the concessions from the CPTPP because their inputs do not contain domestic factors.

The challenge comes from the stagnation of the enterprise system. The adaptability to the market economy of Vietnamese enterprises is lacking. The lack of an effective investment strategy for the supporting production industry and “traditional outsourcing” works have lessened the overall benefit to the economy.

The limitation of state enterprises’ role in the national economy becomes a content of CPTPP. The external pressure is positive only if it meets the community benefits. If the selection of the CPTPP is a purely commercial-economic aspect, it will not cause the objection against the reformation within the SOE system.

The increasing competition of goods from the members of CPTPP is another challenge. At present, Vietnamese enterprises are well-protected by high tariffs. The trend and demand for zero tariff reduction will be applied to CPTPP members in the coming time.

In the analysis of the export structure of CPTPP countries, it can be seen that the manufacturing industries of Vietnam which face the greatest difficulty are the automobile industry and agriculture, especially husbandry, which remains small and fragmented, and unable to compete against the large, experienced, and traditional competitors.

The initial removal of tariff barriers will enable Vietnamese goods to gain easier access into other CPTPP markets, but the opposite holds true as foreign goods will also pour into Vietnam.

The requirements of intellectual property protection in CPTPP are much more critical. The continuing possibility of court appearances for infringing intellectual property law is present in countries which previously had inadequate intellectual property laws. Furthermore, the requirements for increasing the level of protection provided by intellectual property rights over inventions, copyrights, and trademarks can lead to the escalation of drug prices and create a health burden on an emerging economy like Vietnam.

Furthermore, the measures to protect intellectual property related to biology also affect agriculture which accounts for more than 60% of the population of Vietnam. The prices of agricultural products such as veterinary drugs, fertilizers, etc. will thereby grow significantly, which subsequently increases costs and reduces the efficiency of agricultural production in general.

  Domestic enterprises should be aware of a number of labour standards, especially the issue of child labour.

Though some 20 provisions of the original TPP have been suspended, the CP TPP remains a high-quality free trade agreement, including many provisions in non-tariff barriers, rules of origin, competition, labour protection, intellectual property rights and dispute settlement.

According to experts, Vietnamese enterprises should actively apply appropriate labour standards, along with a roadmap to improve their own labour standards and business facilitation. Domestic enterprises should be aware of a number of labour standards that are particularly relevant to the elimination of child labour, ensuring access to justice in the enforcement of labour laws, and improve corporate social responsibility.