CPTPP – The Evolution of Globalisation

We have seen a number of LinkedIn posts and press coverage that the Comprehensive and
Progressive Agreement for Trans-Pacific Partnership or (CPTPP) has entered into force. Still
called TPP or TPP-11 by some, commenced in a fairly low-key manner over the new year. Much
of the hyperbole and enthusiasm around the agreement was dampened by Donald Trump who
withdrew the US from the agreement on his first day in office in 2017.
This move by the leader of the pre-eminent global power in relative decline but refusing to
admit it, should not disguise the importance of the CPTPP for dynamics of supply chains and
wider global trade.
The agreement brings together a string of economies in Eastern Asia and the Pacific rim;
Australia, New Zealand, Canada, Japan, Malaysia, Chile, Peru, Mexico, Brunei, Singapore and
Vietnam. Originally, the agreement would have covered around 40% of World Trade but as it is,
it is still an important agreement. Aside from the size of the economies it covers, the effect it is
likely to have on others could be fairly significant.
One benefit could be the stimulus it could give to ASEAN actually concluding Regional
Comprehensive Economic Partnership (RCEP) in 2019. RCEP is a proposed FTA between the ten-
member states of and the six Asia-Pacific states with which ASEAN has existing free trade
agreements.

Additionally, ASEAN economies that are not in the CPTPP are drawn by the prospect of closer
trade relations. Thailand and Indonesia are still struggling with the problem of opening-up their
economies to greater external investment whilst managing their political situations. South
Korea and the UK amongst others have expressed interest in joining and may do so at some
stage. If such economies were drawn into the agreement it would dominate the world’s trade
regulatory structure. It would also be one that implicitly excluded China and could perhaps in
itself be reason to seek inclusion.

Japan’s position and role in the CPTPP and on global trade has been very interesting. Formerly
both dependent on, yet fearful of free trade, it has performed an about-face to become an
evangelist of open markets. Japan stepped up to fill the gap after the US departed. This reflects
a fundamental re-orientation of the Japanese economy reflected in a new approach to supply
chain management by many Japanese companies and illustrated by their expansion into South
East Asia over the past decade. As Logisticians, one example we have of this is the acquisition of
Toll and APL Logistics in the last few years.

Although Trump is not supportive of the TPP, the example of NAFTA and the USMCA agreement
that superseded it illustrates that even he does not preclude big free trade deals. Also, no one
knows for sure what will happen after 2020 – or the very latest after 2024.
The agreement sweeps away tariffs on whole categories of goods including most agricultural
products and along with new customs processes, we envisage many companies will be looking
at how their supply chains should be leveraged to capitalize on this into 2019 - especially given
the fact that many companies are already looking at supply chain re-design as a result of the
US-China trade war. As a result of the latter, Taiwanese companies are looking at re-shoring
production to Taiwan as a result of the trade dispute. The CPTPP also introduces a new
arbitration mechanism for trade disputes and rules on labour regulations.
The effects on logistics markets within and between the economies involved are likely to be
dramatic. Not only are agricultural trade routes between Australasia or South America and
North and South Asia likely to grow rapidly but investment in assembly operations in an
economy such as Vietnam are likely to benefit from easier movements not just between it and
Japan but also between Australia, Chile, Mexico, Peru and Canada.
The CPTPP, and RCEP when it eventuates, is a strong indication that globalization is still the
order of the day. Although the US may not yet be in this agreement, the prospect is one of the
CPTPP laying the foundations of a huge free trade structure including much of the developed
world but pivoting around Asia. An opportunity even for a free trade structure that could
supersede the floundering WTO?
Interesting times ahead and certainly opportunities abound for those with the expertise and
fortitude to act.

Dr. Raymon Krishnan, currently serves as President of the Logistics & Supply Chain
Management Society. With a career spanning close to three decades across multiple
geographies, he is the regions foremost expert and thought leader in Supply Chain
Management