After more than a decade of deliberations, negotiations between the 12 participating countries of the Trans-Pacific Partnership (TPP) were concluded in October. While ratification may take more time, the release of the agreement's full text late last week will provide companies with the necessary details to begin formulating their plans.
The TPP is a cross-regional accord covering Canada, US, Mexico, Chile, Peru, Brunei, Japan, Malaysia, Singapore, Vietnam, Australia and New Zealand.
It encompasses 40 per cent of global gross domestic product (GDP) covering trade-related aspects of industry, agriculture and services. The TPP members have a combined GDP of US$ 28 trillion, 870 million in population and accounts for 25 per cent or more of global trade.1
Overall, the agreement addresses trade challenges including tariffs and quotas, but also tackles emerging challenges such as the facilitation of e-commerce and intellectual property.
At first glance, the TPP may seem like it provides limited direct economic upside for Singapore. Indeed, a Peterson Institute for International Economics report forecasts that the accord will boost Singapore's GDP by 2 per cent by 2025, compared to the more robust growth of 13.6 per cent for Vietnam and a 6.1 per cent rise for Malaysia.2
However, the modest headline numbers mask the vast opportunity for Singapore and for internationally-oriented Singapore corporates.
Trade ultimately is the lifeblood of Singapore and the increased trade network and activity that will inevitably stem from the accord will accentuate Singapore's position as an entrepot economy and a regional hub for more than 7,000 multi-national corporations.
Conversely, the TPP may trigger a further round of Singaporean firms shifting production to lower-cost manufacturing member countries like Malaysia and Vietnam whilst keeping the head office management functions within Singapore. Producing in these countries and capturing the ensuing trade flow to consumer powerhouses likes US, Japan and Australia – whilst maintaining the management in Singapore – is a best of both worlds scenario.
Singapore corporates could also benefit on a second level though lower production costs if they move manufacturing facilities from non-signatories, such as Thailand, Indonesia and Sri Lanka, and intensify production facilities in Vietnam and Malaysia.
On the import side, the openness between the member countries – particularly those within ASEAN - can provide opportunities across the supply chain for economies of scale, specialisation and access to an expanded range of competitive inputs and components that can be of benefit to high-end manufacturers based in Singapore.
All of these indirect benefits from the TPP will not be lost on multi-nationals who are currently operating outside of the member countries in the region and could trigger an inflow of investment into Singapore as corporates seek to capture any possible economic upswing that the TPP brings.
And for European and North America companies, who have been debating on whether to enter ASEAN to tap its strong long-term economic fundamentals, the TPP could be the tipping point in making that decision.
Despite not being ratified yet, it is simply a matter of time before the TPP is implemented and Singapore corporates will do well to re-evaluate their business plans and strategies to prepare to take advantage of its extended benefits.
Unfortunately, many Singaporean corporates – particularly small and mid-sized companies – may not have fully harnessed the potential of Singapore's trade pacts in the past, and the TPP could be at risk of receiving a similar fate.
It is clear then that while trade agreements like the TPP offer significant benefits to corporates, their less-than- optimal utilisation is due to a general lack of awareness and confusion about terms. Indeed, research commissioned by HSBC previously found that the average usage of FTAs by Singapore exporters is just 21 per cent, with lack of utilisation cited by respondents to be due to complexity of the agreement terms (52 per cent) and lack of internal expertise (37 per cent).3
While Singapore's trade and investment agencies, such as the Singapore Economic Development Board and International Enterprise, will be instrumental in ensuring Singaporean corporates fully leverage the TPP, there is certainly a role that banks can play to drive conversations around trade pacts and use their own expertise to provide businesses with assistance and advice in the area to develop a competitive edge.
The benefits of the TPP will not be enjoyed overnight, but Singaporean companies that want to grab a bigger share of the pie – particularly in a period of subdued global trade growth – need to make good use of the time whilst the TPP is being ratified to plan their business strategies accordingly.
1 HSBC Global Research. Trans-Pacific Partnership: It’s a deal! Oct 5, 2015
2 Peterson Institute for International Economics. The Trans-Pacific Partnership and Asia-Pacific Integration: Policy Implications. 2012.