Last week the 12 member nations that are part of the Trans-Pacific Partnership (TPP) said they had reached an agreement on the trade deal expected to reduce the cost of trade and encourage growth between the countries—a credit positive for all involved. The extent to which TPP benefits each country will undoubtedly vary, but Moody’s Investor Service said in a statement Monday that Asian economies will likely be the biggest winners.
TPP is presently going through a “legal scrub” of the text before the deal is made public, gets sent to Congress and ultimately lands on President Obama’s desk for signing. The agreement’s member states—Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam—also still need to ratify the final deal.
But once TPP takes effect, all included nations will have greater access to the U.S. market for their goods, but it’s the Asian countries in the deal that stand to benefit the most from the added access when it comes to GDP.
According to analysts affiliated with the East-West Center and Peterson Institute for International Economics, Vietnam was projected to gain additional income worth 19 percent of the country’s 2014 GDP through 2025 (based on the deal reaching agreement in 2013), Malaysia was to see income worth 7 percent of its national output added, and Japan 2 percent over the same period.
Among the TPP countries, Vietnam has continuously been touted as the nation most primed to benefit from the deal—and apparel and footwear manufacturers in particular will realize the biggest benefit. The country’s combination of low wages, improving infrastructure and scale, according to Moody’s, gives it a “distinct advantage.” In the last year, in anticipation of the TPP deal, Vietnam has benefit from increased foreign direct investment as well.
“Vietnam’s authorities have promulgated wide-ranging changes—including the relaxation of ownership restrictions for public companies, real estate and banks—against the backdrop of several FTAs that they have concluded this year,” Moody’s said. “These include a bilateral pact with Korea, a similar deal with the Eurasian Economic Union, and an agreement in principle with the European Union.”
For Malaysia, TPP is expected to realize an increase in exports of its palm oil, rubber and electronics sectors specifically, and Japanese manufacturers will benefit too.
Moody’s said Japan’s market access to Canada, New Zealand and the U.S. (which it doesn’t already have trade agreements with) will increase “dramatically” as tariffs on 70 percent of total industrial goods exports will disappear on the agreement’s implementation and ultimately be altogether eliminated.
“In Japan, too, TPP is acting as a catalyst for reform,” the Moody’s report noted. The country’s Prime Minister Shinzo Abe has used the trade pact to help remove entrenched protections for farmers, an advancement for agricultural reform.
Though it already has trade agreements in place with nine TPP countries, Singapore will continue to benefit from the pact expected to compliment the existing deals and further fuel trade. “Singapore is a net importer with TPP countries, excluding other Asia Pacific economies, which suggests that it may benefit particularly through increased competition and specialization, as tariff barriers to imports disappear,” the report noted.
“One modestly credit-negative aspect to the trade deal is that it could hurt governments’ fiscal balances by reducing their customs revenues over the longer term. Within rated Asian TPP nations, average tariffs are highest in Vietnam (5.4%), Malaysia (4.3%) and Australia (3.9%) on a trade-weighted basis,” the report noted. “However, additional receipts owing to the expected uptick in economic growth are likely to offset foregone tariff revenue.”