10 benefits the Trans-Pacific Partnership will bring S'pore
After much criticism over the transparency of the biggest free trade agreement struck to date, several governments involved in the trade talks released the full text of the Trans-Pacific Partnership (TPP) two weeks ago.
The document, spanning 30 chapters and running into more than a thousand pages, is the actual text agreed on by the 12 countries which signed the agreement.
It goes into the fine print of the agreement that will cover 40 per cent of the world economy.
The pact must now be signed formally by the leaders of the nations - Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam - and ratified by their legislatures.
The Straits Times picks out 10 key takeaways from the trade deal for Singapore.
MARGINAL SHORT-TERM IMPACT
Singapore already has 21 free trade agreements and economic partnership agreements in force, so additional benefits from the TPP may be incremental.
Still, the TPP countries represent a large market for Singapore, accounting for 30 per cent of its total trade in goods in 2013 and 30 per cent of foreign direct investment here.
Exporters will benefit from the removal of duties on more types of goods than previous trade agreements provided for.
For instance, a Singapore ice cream manufacturer could find it easier to qualify for lower tariff rates when exporting to the US under the TPP. This is because milk from New Zealand, sugar from Australia and cocoa from Mexico used in the production of the ice cream will count as input from TPP countries, and can combine to help qualify the end product for preferential tariffs.
While the direct benefits might be few, Singapore could be an indirect beneficiary of increased trade between other TPP nations, said Mr Shivaji Das, a senior vice-president at consulting firm Frost & Sullivan.
For instance, the TPP will phase out the 2.5 per cent US duty on imported cars over 25 years and scrap the levy on many auto parts. This is expected to boost Japan's automobile exports to the US, he noted.
Singapore companies which provide services such as shipping and trade financing "could benefit from increased trade between the big players".
A BOOST FOR ASEAN
Developing regional economies, such as Malaysia and Vietnam, will benefit strongly from the trade deal, and there will be payoffs for Singapore from the growth in activity, said Mr Nicholas Lingard, arbitration partner at law firm Freshfields Bruckhaus Deringer.
Vietnam could see a 10 per cent boost to its economy by 2025, while Malaysia could experience a 5.5 per cent expansion in the same period, based on a Peterson Institute for International Economics study.
"We expect to see higher deal flow in South-east Asia as a result," said Mr Lingard.
OPENING UP NEW MARKETS
Singapore already has existing free trade agreements with all the 12 countries involved, except Canada and Mexico.
Mr Das noted that Mexico is an emerging manufacturing powerhouse still heavily dependent on the US market.
"Mexico will be looking at Asia as a key market," he noted.
Under the TPP, Canada and Mexico will eliminate tariffs on almost all of Singapore's exports. This includes shipments of pharmaceutical products to Mexico, where current tariffs range from 10 to 15 per cent.
REMOVAL OF FOREIGN EQUITY RESTRICTIONS
The TPP will lift curbs on foreign ownership of companies in private healthcare, telecommunications, courier, energy and environmental services in Brunei, Malaysia and Vietnam.
While this will benefit Singapore investors keen on those markets, these industries tend to be dominated by domestic incumbents. It remains to be seen how much headway foreign firms will be able to make.
PROVISIONS FOR CROSS-BORDER TRADE IN SERVICES
Trade deals have, traditionally, focused on easing the flow of goods between countries, but the TPP is one of the few with comprehensive provisions for the services trade, said Mr Das.
The pact will open up markets in TPP countries for Singapore firms offering services such as consultancy and urban planning, he added.
However, restrictions remain. Some TPP countries have been allowed to maintain existing protectionist measures in sectors such as transportation services, where firms still have local content requirements.
GOVERNMENT PROCUREMENT OPENED UP
The TPP will enable Singapore companies in the IT, construction and consultancy sectors to bid for government procurement projects in markets such as Malaysia, Mexico and Vietnam, which were previously closed to foreign bidders.
REDUCING NON-TARIFF BARRIERS
The TPP will reduce "behind-the-border", or non-tariff, regulatory barriers to ease the flow of trade and investment. This means countries will be required to make Customs laws, regulations and procedures more transparent, and also tackle hidden costs impeding business operations, such as corruption.
A '21ST CENTURY' AGREEMENT
The TPP addresses emerging concerns faced by businesses and consumers, such as intellectual property and the growth of the digital economy.
It sets in place rules on e-commerce to ensure that government regulations do not impede cross-border data flows, or impose requirements that force businesses to place data servers in individual markets as a condition for serving consumers in that market.
The agreement also prohibits the imposition of import duties on electronically transmitted products, hence protecting Singapore businesses and consumers from this potential extra cost.
TPP governments have agreed to put in place laws protecting consumers from fraudulent and deceptive commercial activities online. The deal also commits countries to implement common standards across major types of intellectual property, including patents, copyrights and trademarks.
This will make it easier for Singapore businesses to search, register and protect their trademarks and patents in new markets.
ACCESSIBILITY TO SMEs
With its special provisions for small and medium-sized enterprises (SMEs), the trade deal aims to make it easier for these companies to participate in regional production and supply chains.
The TPP countries will set up websites with information targeted specifically at SMEs. They will also develop capacity building programmes for SMEs, to help firms take advantage of the provisions in the deal.
SMEs make up 99 per cent of companies in Singapore and employ 70 per cent of the workforce.
This article was first published on November 16, 2015.
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