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Moody's Investors Service says that the withdrawal by the US (Aaa stable) from the Trans-Pacific Partnership (TPP) represents a lost opportunity, especially for countries that would have substantially expanded their export access to major markets. In addition, the end of TPP could slow the reform momentum the deal had fuelled.
Moody's conclusions are contained in its just-released report "Sovereigns -- Asia Pacific: US Exit from Trans-Pacific Partnership Represents Lost Opportunity for Asia".
Moody's notes that the TPP deal went far beyond existing free trade agreements (FTAs) by setting standards in areas including intellectual property rights, government procurement, environmental and labor conditions, and corruption prevention, in addition to reducing or eliminating tariffs and non-tariff barriers.
The deal also further increased access to trade -- even where agreements already existed -- applied to some hitherto protected markets, such as Japan's (A1 stable) agricultural products.
The significance of the deal is also testified by its scope and size - with the TPP signatory economies accounting for about 40% of global GDP.
In particular, the lost export and growth opportunities are material for Vietnam (B1 stable) and Malaysia (A3 stable), which would have benefited from the opening up of trade with the US, and relatively large foreign direct investment (FDI) inflows over the long-term. Moreover, TPP ratification in Malaysia would have necessitated reforms to state-owned enterprises (SOEs) and government procurement. It is now unclear whether such reforms will proceed.
For Japan, car-parts and auto-makers stood to gain from freer market access to the US, Canada (Aaa stable) and New Zealand (Aaa stable).
In the case of New Zealand, the TPP would have lowered tariffs on its important exports, such as dairy and beef. And for Singapore (Aaa stable), the TPP would have smoothed production chain linkages, and services would have gained greater market access.
And while a number of TPP signatory countries are working on other trade deals -- such as the Regional Comprehensive Economic Partnership (RCEP) -- with the exception of Free Trade Area of the Asia-Pacific (FTAAP) agreement, the potential benefits from these trade deals would be smaller than those of TPP, as they would cover a smaller share of global trade, overlap with existing arrangements and be narrower in scope.
