ASSIGNMENT 3

INTERNATIONAL MARITIME .....................................................................................

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By Greg Knowler

THE GOOD, BAD AND UGLY OF THE TPP If ra tifie d , the Trans-P acific P a rtn e rs h ip will h u rt C h in a, b u t h e lp c o n ta in e r s h ip p in g , an a ly s ts say

W H EN 12 PACIFIC Rim nations finalized nego­ tiations and signed off on th e Trans-Pacific P artn ersh ip free trad e agreem ent in early October, th e reaction and analysis was both rapid and mixed. T hat analysis continues to p o u r in, w ith M a Fun, chief econom ist for the People’s Bank of China’s research bureau, predicting the agreem ent—w hich excludes China — will slash 2.2 percent off th a t coun­ tr y ’s GDP, an d m a ritim e an aly st D rew ry saying th e deal would lead to an increase in containerized trade volumes.

“S im ulation re su lts sh o w th a t, w ith China’s accession com pared to th e scenario of China not joining, China will lose 2.2 p er­ cent of GDP,” M a w rote in a research paper compiled jointly w ith th e Shanghai Securi­ ties News.

I t’s not th e kind of free trad e agreem ent a co u n try w ould w a n t to be outside. The W ashington-led deal covers 40 p ercen t of th e global economy and is th e largest free tra d e deal since th e N o rth A m erican Free Trade Agreem ent betw een the U.S., Canada and Mexico w as established in 1994.

The TPP covers a range of industries and prom ises to reduce or elim inate tariffs and quotas on m any pro d u cts trad e d betw een the mem ber countries. The agreement, esti­ mates say, will result in the reduction to zero of more th an 18,000 tariffs on U.S. products.

T he deal com prises th e U.S., A u stra­ lia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, N ew Zealand, Peru, Singapore and Vietnam.

Strong economic incentives exist among the TPP p artn ers to finalize th e accord, said Kevin Gaynor, head of fixed income research for E urope, th e M iddle E a st an d Asia at Nomura. “The participating states represent 40 percent of the world’s GDP, w hich is why

removal of trad e barriers will m ean a lot in economic term s,” he said.

W hether China eventually would join the TPP is an open question. “China is currently busy settingup its ow n trade arrangements, like the Regional Comprehensive Economic Partnership,” Gaynor said. “But in a couple of years’ time, who knows?”

Ma’s estimate of th e GDP loss comes at a difficult tim e for China, w hich is in th e grip of a slowdown in economic and trade growth. Many China experts fear the TPP will hasten the migration of factories from the mainland to Vietnam, as manufacturers take advantage of tariff cuts on raw materials.

Still, even as the 12 nations were agreeing on final terms after five years of negotiations, the World Bank announced in a report that it was cutting its grow th forecast for the Asia- Pacific region for this year and 2016 because of the risks posed by China’s economic slowdown and the looming rise in U.S. interest rates.

Christine Lagarde, head of th e In tern a­ tional M onetary Fund, also issued g row th warnings, saying there could be an economic “vicious cycle” caused by higher U.S. inter­ est rates and th e Chinese slowdown. These th re a ts could jeo p ard ize recent economic gains in Asia and Latin America, she said.

The TPP n o w m u stb e ratified by th e leg­ islatures of all th e m em ber countries and is expected to face strong resistance, not least in th e U.S., w h ere D em o cratic p resid e n ­ tia l h o p efu l H illa ry C linton alre ad y h as expressed h er opposition.

A lthough th e re is u n ce rtain ty over th e politics o f th e deal, London-based D rew ry believes th e TPP w ill provide in creasin g co n tain e r volum e g ro w th for th e p a rtic i­ pating nations. In a recent Container Insight Weekly, D rew ry said it had found evidence

s u p p o rtin g th e a rg u m e n t th a t fre e tra d e deals encouraged heightened trade grow th, specifically in the container shipping arena.

One o f th e m o st sig n ific a n t FTA s in rec en t years w as th e p ac t b etw een th e 10 m em ber states of th e Association o f South­ e a s t A sian N atio n s an d C h in a in 2005, D rew ry said. In th e 10 years before th e deal, th e annual grow th rate for China’s m erchan­ dise exports to ASEAN w as broadly in line w ith the rest of th e world at 17 percent. “Fol- low ingthe deal, the 10-year CAGR increased to 19 percent. Not such a significant gain you m ight th in k , b u t consider th a t th e annual rate to th e rest o f th e w orld had dipped in th a t period to 13 percent,” D rew ry said.

ASEAN started to accelerate beyond the overall trend beginning in 2009, suggesting it takes a few years after implementation for th e trade benefits to really kick in.

This was the case when Drewry looked at the impact on trade, m easured in U.S. dollar value, w hich has been less im m ediate th an seen w ith China-ASEAN. Since 2005, U.S. trad e w ith non-FTA partners, such as w ith its second-largest trading partner China, has grown faster than it has w ith its FTA partners.

B etw een 2005 and 2014, U.S. e x p o rts to non-FTA p artn e rs increased 85 percent versus 74 percent for FTAs, w hile im ports w ere up 42 percent com pared w ith 40 p er­ cent, respectively.

Drewry, however, found th a t as w ith th e China-ASEAN pact, U.S. trad e g ro w th w ith its FTA p artn ers appears to be gaining momentum, and if the comparison period is narrowed, U.S. exports and im ports to FTA partners are expected to increase at a faster clip.

FTA p a r tn e rs , D re w ry n o ted , h ad a m uch sm aller, b u t grow ing, sh a re o f th e containerized trad e w ith th e U.S. th a n they did w ith total m erchandise trade, control­ ling about 19 p ercen t of th e tw o-w ay trad e in 2014, as m easured in tons, up from 18 per­ cent in 2013. China accounted for 30 percent, w hile other non-FTA trading p artn ers took the rem aining 51 percent, ioc l l l l l l l l l l l l l l l l l l l l l l l l l i l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l

Contact Greg K now ler a t greg.l<nowler(g)ihs.com and

fo llo w him on Twitter: @greg_l<nowler.

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