1. NEWSLETTER
Dr Felix Peña discussed the
role of the TPP as an
inter-regional and regional
preferential trade agreement.
As such, he described that
challenges arise when deciding
who should be a member,
despite the existence of Article 4
of Chapter 30 of the TPP
agreement, which lays out the
conditions for ascension.
If TPP enters into force and
other countries request to join
it, the TPP will resemble a WTO+
agreement, i.e., a global trading
KEYINSIGHTS
system. In this scenario, there
will be a high risk of
fragmentation of the
international trade system.
The most daunting challenge
would be transforming TPP into
a global multilateral system, and
not a regional one. The
implicattions are multi-fold: the
most salient of which being that
the idea of the TPP will be
altered rom that of a regional
trade agreement into a global
trade agreement. Since the TPP
could be part of international
trade reality, it is important for
trade in Argentina and Latin
America. It is too soon to speak
about Argentina becoming a
member, for its current
obligations are to Mercosur. Dr
Peña recommends that
stakeholders consider and be
prepared for all scenarios; they
should follow closely the
evolution of approval process
because member states are
important from the political view
acceleration of GDP on a global
basis in the 90s to the renewed
wave of globalisation. The
current backlash against trade
was due to the financial crisis of
2008, resulting in a significant
reduction in trade volume, which
then impacts the performance of
the global economy. In light of
such developments, the main
question on everyone?s minds is:
How do we get the world back on
its feet and going again?
Ms. Parades then diverted her
focus to free trade agreements in
the global context. In order to
explain what integration would
mean for the economy, she
provided a brief explanation
about the current economic
trade landscape. Firstly, prices of
commodities are driven by
international forces, instead of
local ones. This characteristic of
commodity prices was both a
curse and a blessing; the latter
during the last super-cycle of
commodities but the former for
many economies now, in light of
the global economic downturn.
DELIAPAREDES
Ms. Paredes provided her
perspective on the issue of
global trade through the case
study of Mexico. She also
outlined the rationale behind
the free-trade agreement, as
well as analyze opportunities
and threats with regards to the
TPP. She began her speech by
characterising the undeniable
relationship between trade and
growth, and attributed the
FELIXPEÑA
INTER-REGIONALWEBINAR2016
Director, ICBC
Foundation (Argentina)
Speaking topic: Possible
effects of the TPP and other
mega-preferential trade
agreements on the design
and operation of the global
trading system and the
consequences for Latin
America.
?Non-members of TPP
should follow closely
the evolution of
approval process
because member
states are important
from the political view
of the market.?
Chief Economist, Banorte
Speaking topic: TPP in the
Global context
2. (cont'd) As a result, the fall in prices was causing many emerging
economies to suffer, and these economies had to quickly adjust to
a new paradigm of prices. Tying this back to integration, she
mentioned that integration of such economies could bring rapid
changes with rippling effects across industries.
Case study: Mexico
Mexico is currently an important auto industry hub and is
starting to venture into the aerospace industry; these industries
are in the centre of Mexico. Globalization helped the economy
develop more rapidly, as was the case in Mexico in 50?s and 70?s,
where they enjoyed a strong period of growth. This cycle of growth,
however, upended in the 80?s. This period of rampant crises ended
in the early 90s with the tequila crisis. As a result, Mexico decided
to make some structural changes to the economy, one of which
was joining the NAFTA agreement.
Integration has strengthened Mexico?s macroeconomic goals
and enabled them to enjoy a steady growth rate of around 2.5%
despite losing market share in the U.S. to China, which joined the
WTO in 2000. The scale of Mexico?s trade with the U.S. is extremely
large when compared with the export volume it shares with its
second largest trading the partner, the EU, at 5.2%. Recognising
the need to solidify its relations with its primary trade partner, the
U.S., Mexico sought member status in the TPP. To date, the U.S.
receives 78% of Mexico?s imports. Another way in which Mexico
had developed its economic prospect is by differentiating itself
from Latin America, where the latter mostly exports commodities
and agriculture. In doing so, Mexico has now regained back 12% of
market share in U.S., and has also experienced renewed wave of
competitiveness ? wages have converged with China and estimates
currently show that Mexico?s labour wages are lower compared to
those in China.
NAFTA
Under NAFTA, Mexico?s daily exports grew from 123 million in
1994 to 1102 million in 2015. Mexico has also been able to
produce advanced manufacturing products. It currently has a trade
surplus with the U.S., in contrast to its 1.3 billion deficit in 1994.
Mexico?s economy has also observed increased trade and
investment flows. As mentioned previously, NAFTA enabled
integration in the region in terms of supply chain and higher levels
of competitiveness, which has proven to be an economic antidote.
Mexico is therefore anticipating the developments from the TPP
since its members will be Mexico?s competitors in the U.S. market,
such as China. Another reason in support of further integration is
Mexico?s macroeconomic framework, which has converged and
synchronized with the U.S. Once again, this is both a curse and a
blessing; a curse in the period of 2008, but a blessing now because
the U.S. is one of the only few economies with advanced recovery
from the crisis.
Nevertheless, there are some aspects that NAFTA has not
achieved. For instance, it has not recovered per capita levels. There
remains a wide differential of wages across Mexico ? the region
dedicated to manufacturing and export is a region with high
productivity that is growing at levels above 5%. On the other hand,
the South, which is not export-oriented, has experienced a decrease
in GDP. In response to this challenge, Mexico introduced a new wave
of structural reforms in 2013 to tackle productivity issues. Integration
remains a key component of this recovery.
Free Trade Agreements
Economists are generally concerned with trade creation
(production of goods allocated in the best possible way and also the
trade increase between regions) or deviation (industry moving to
another country and the country of origin not gaining benefit from
that). In the case of FTAs, some factors used to analyze convenience
of TPP include economic welfare before and after union, as well as
income distribution among members. There is no standard global
measure for quantifying the potential effectiveness and benefits of
the TPP, and therefore it is necessary to conduct analyses according
to sectors in the economy. For instance, countries gain market
access and products get better prices, such as for commodities.
Regional integration drives expansion and contraction in countries,
affecting labour demand and income levels. Evidently, the benefits of
the FTA depend on the type of country being integrated.
Integration in the age of Technology
With the ongoing wave of digitisation, knowledge is key, and
agreements allow easy sharing of knowledge and technology, which
is a positive boost for country developements. Additionally, while the
wave of globalization in the 80s, 90s, and the accompanying
integration was guided by economic rationale, there is now a
geopolitical argument for integration. Evidence for this claim lies in
the share of trade of countries heavily invested in integration: the EU
accounts for 53.4% of global trade, China accounts for 20.2%, the
U.S. 18.8%, Chile 0.7%, and Peru and New Zealand 0.4%. As a group,
TPP members will represent 44.8% of trade which bodes well for the
U.S. market, in relation to competition with China who has one fifth
of global trade. Integration also means political integration, which is
the main barrier to global trade and development. However, there is
growing negative sentiment towards globalization and open trade in
advanced countries, as exemplified in developments such as Brexit
and the U.S. elections, where Trump specifically targeted Mexicans
and Hillary retreated from trade openness in her renegotiation of
trade agreements. This predicament is compounded by the German
and French elections that signal the rise of Euro-skeptic parties, as
well as the global immigration crisis.
2|INTER-REGIONALWEBINARNEWSLETTER
MARIANOTURZI
Expert on International Relations, Professor at Di Tella
University and NYU Buenos Aires
Speaking topic: Competing political coalitions? The domestic
Latin American support and opposition to the TPP
Mr. Turzi?s speech was focused on the political effects of TPP, which
had 2 critical dimensions: the regional, and the local.
3. Regional component 1 ? The impact of
TPP on Asia-LATAM relations
The TPP opens up new vector of relations
in LATAM and Asia-Pacific regions. In the last
decade and half, these relations have been
independent from the U.S. The TPP brings
the U.S. and LATAM back into relations with
Asia Pacific, creating a new geo-strategic
vantage point in the new decade that
coincides with commercial, financial and
other developments in Asia Pacific-LATAM
relations.
Regional component 2 ? U.S.-LATAM
relations
The TPP encompasses U.S. as having a
major presence in LATAM, especially in the
ports of the pacific. The 2015 ranking of
best ports in LATAM included one in South
Atlantic, port Santos in brazil, and others in
the Caribbean or the Pacific in Mexico,
Ecuador, etc. The agreement significantly
alters cost of transportation, local duties
and taxes, hence there is a need to look into
the interests of the corporations.
Regional component 3 ? Intra-LATAM
Keeping in mind the existence of regional
institutions like Mercosur, the TPP opens up
a strategic vector which poses a challenge:
What is the future of LATAM integration or
arrangements with the implementation of
the TPP?According to Dr. Turzi, the answer
to this questions will come from experts in
private sector, such as corporations.
Regional institutions create incentives and
opportunities that are closely watched by
private sector actors. For example,
corporations could respond by
restructuring along production chains or, in
other words, global value chains. The
government?s concession, resistance or
negotiation will generate different kinds of
coalitions within LATAM. It is important to
note that politicians and corporate actors
have different interests. While LATAM has
historically committed ?beautiful blunders?
that pay less attention to economic
efficiency and prioritise political survival, or
maintenance of political power. As such, to
external onlookers, Latin American policies
may come off as incongruent with rules of
global economics. It is now important to
question the type of national political
coalitions that will support or oppose the
TPP. Currently, there exists a divide between
Atlantic countries (e.g. Mercosur) and Pacific
countries (e.g. Pacific alliance and countries
that have asked to be observers of the
alliance).
Case Study of Argentina
Argentina?s political national economic
coalition that sustained the government
from 2003 to 2015 is different from the
coalition currently dominating. The
government is now concerned with
openness to the world, that is, with
trade/financial opportunities. This has
allowed it to broker agreements, which
enabled Argentina to gain observer status
to the Pacific Alliance. Argentina?s
reorientation demonstrates how the region
re-orientates itself to the Pacific in
commercial and geopolitical terms. Final
Thoughts
The fate of the TPP lies not in the
agreements that are negotiated but in the
capitals of the countries that are going to
adopt it, that is, in the capitals of LATAM.
Corporate interests must be negotiated
alongside the national political economic
coalitions. In other words, the political
dimension has to be added to understand
the viability of the TPP. Ultimately, TPP will
be concerned with the local power of
government and the local base that will
support them. Thus, analysis of the TPP will
have to encompass the possibility that it will
either become an instrument for,or a
barrier to, perpetuating impact.
BATSAIKHAN
ZAGDRAGCHAA
Risk and Resilience Advisor, Prosper
Consulting
Speaking topic: FTAs - New
opportunities and challenges for SMEs
and some key frameworks: legal,
cultural, institutional.
Mr. Zagdragchaa opened his speech with
the implications of free-trade agreements
on small-and-medium enterprises.
According to him, while there have been
challenges in the past regarding efficiency
and effectiveness of FTAs on SMEs, the TPP
is a pioneer in incorporating a new clause
that directly caters to and supports SMEs.
FTA ? Impacts on SMEs
FTAs confer upon SMEs the opportunity to
access new markets, expand in production
networks, mobilise financial resources, and
facilitates technological transfers. However,
FTAs also create some disadvantages for
SMEs, in that there is an increase in both
regional economic competitiveness in
export orientation and also in domestic
market. The benefits that FTAs bring to
MNCs will likewise have adverse impacts on
the SMEs. Nevertheless, it is important to
note that the impact of the TPPs on SMEs
will differ from country to country and
sector to sector. On balance, the extend of
impacts of FTAs will depend on how diverse
the trade structure is and how concentrated
the sector is.
SMEmanoeuvring: Maximising
benefits and minimizing negative
impacts from multilateral FTAs
It is important for SMEs to reduce their
vulnerabilities when participating in such
agreements, regardless of whether they are
focused on exports. FTAs will eventually
affect domestic markets, creating
aggressive competitiveness and cost
reductions due to large producers achieving
greater connectivity. The challenges for
SMEs therefore include the transportation
and delivery of goods and products, and the
efficiency of logistic services, the
enhancement of which would be key to
successful participation in TPP. In response,
SMEs can realign and reposition their
strategies. The TPP would be valuable since
it pushes big and small firms to be
adaptable to the new challenges, as well as
to changing customers needs and
demands. It is worthwhile to note that not
all companies that are involved in these
trade agreements will benefit from direct
trade. For example, Vietnam is an emerging
economy concerned with digital
e-commerce and how TPP has included
rules for the digital economy. The TPP is
attentive to global trends, and presents a
key opportunity for Southeast Asia?s
e-commerce front, particularly in its
provisions related to the digital economy.
Case studies: Korean and Chinese
SMEs
According to the Korean Small Businesses
Institute, majority (97%) of SME?s in Korea
supply to large producers in Korea and
eventually they have the potential to export
globally. Hence, these SMEs indirectly
benefit from global trade.
(cont'd) On the other hand, the main
INTER-REGIONALWEBINARNEWSLETTER|3
4. challenge posed to Chinese SMEs was the lack of information,
which is a crucial factor that could allow SMEs to participate in
FTAs. The TPP presents a unique aspect in that it caters directly to
SMEs. Its SMEchapter discusses the creation of a user-friendly
website where small firms can gain access to information,
including regulations and procedures for businesses and
employment-related issues.
3 main frameworks for evaluating the TPP
Firstly, SMEs could evaluate the TPP through its impact on laws
and regulations. For instance, the TPP highlights binding
responsibility by countries on regulations on labour force, IP,
environment, government corruption. Secondly, the impact of the
TPP on cultural business environments should also be considered.
For example, opening up to new markets requires understanding
of the government structure and business culture. SMEs should
be cognisant of issues of trust, and the country-specific standards
for different products and services, which could pose a challenge
to SMEproduct sales. Lastly, the TPP would require SMEs to
consider institutional aspects: How they position their business
strategy and product in the new market?Possible solutions
include faster changes and more market-based customisation, in
addition to short production life cycles. On balance, however, the
TPP would provide more opportunities for SMEs to participate in
global value and supply chains.
china?s growth and the tepid global recovery from financial crisis.
The agreement would be a game-changer for Mexico and
Singapore because it is the first trade agreement between the
two; who recognise each other as hubs in their respective regions.
The signing of MOU have also led to the strengthening of ties
between these regional communities, and they are set to increase
bilateral cooperation in sectors like oil and gas, manufacturing
and urban infrastructure.
The TPP will increase SG?s access to regional markets in goods and
services sectors, in ways that are different from previous trade
agreements. For example, in the goods sector, the TPP presents
an opportunity for regional accumulation for Singapore. This
includes access to price competitive imports while maintaining
qualification for lower tariff rates among TPP member states. For
the service sector, the TPP will benefit services supplies hoping to
establish a commercial presence in a TPP market by enabling
preferential market access.
Singapore believes that the short term gains of TPP are best
leveraged if companies can channel them into longer term
ingredients for growth: internationalization and innovation.
Key Challenges
The TPP brings an unprecedented pace of competition to SME?s ?
especially so for highly-localized companies. It would force them
into efficiency faster than any other trade agreements before,
hence, government institutions need to play a greater role in
supporting SMEs. Moreover, beyond lowering trade and
investments barriers, the TPP reinforces region?s commitments to
rules-based trading system. Across member states, it aims to
harmonize production and environmental standards, IP protection
regulations, transparency standards and rules of the new digital
economy. As such, localized SME?s, especially those in catching up
economies, may find it harder to commit to higher regional
standards. However, if they manage to do so, these SMEs will be
well poised to participate in regional production and supply
chains. Singapore?s initiatives Due to breadth and depth of
challenges, government support has to be more broad based and
go beyond standard tax and monetary policies. In Singapore, for
example, SMEs make up 99% of companies and employ 70% of
our workforce. Recognising the importance of such SMEs, the
government plans to nurture 1000 SMEs into global players,
setting a target for each of these 1000 to cross internal turnover
threshold of SGD$100 million by 2020.
For SMEs with less than SGD$100 million turnover, IESG will help
to defray 70% of cost for market access, capability building or
manpower development skills. Enhancing financial support for
SMEs is one of IESG?s main concerns because IESG recognizes the
importance of SME?s as future drivers of the economy.
On a macro level, Singapore also has developed tax incentives to
companies intending to tap into the TPP market via SG. These tax
incentives seek to attract investments for holistic development.
Additionally, Singapore also heavily invests in technological
support for companies through R&D. For instance, the A Star
collaborative commerce space for R&D was created to help
companies climb up value chain by plugging their technological
shortfalls. Such initiatives aim to get SMEs onto online B2B or
technology matching platforms, so as to position themselves to
4| INTER-REGIONALWEBINARNEWSLETTER
LEJONCHUA
Manager, IE Singapore
Speaking topic: TPP - The Singapore Experience: Strong
Government-SMEs Partnership as the Bedrock for Success
For SMEs looking to leverage on the TPP, they have to remain
resilient, relevant and competitive at all times ? even more so with
trade integration.
Singapore ? An introduction
Singapore enjoys a GDP per capita of USD$60 000, ranking 5th
globally, has a labour force ranked third in the world in terms of
skills and productivity, and has established strong IP relations.
Since Singapore faces resource constraints, it was focused on
trading to develop its economic ecosystem. Fostering good
tripartite relations between the government, the private sector
and the labour union for over 50 years and actively participating in
FTAs could be a major factor for its success. Singapore is a
founding proponent of TPP ? regarded as an offshoot of the P4
FTA about 10 years ago. The TPP is the largest in terms of coverage
and depth of liberalization: membership spans 12 countries over 4
continents, involving 800 million people and 30% of the world
economy.
Singapore?s perception of the TPP: Opportunities
According to Mr Chua, the TPP is what the world needs to revive
the longer term flagging trade caused by the slowing down of
?The TPP is an opportunity for intensified
reform.?
5. leverage on the potential of the digital age.
IESingapore?s 4 Pillars of Support
1. Capability Building: This pillar aims to shore up capabilities in
marketing and operations, network and financial support ? both to
learn and improve IP management and protection at home and
overseas. Equipping them with this management capability would
be critical for their survival in globalized markets.
2. Market Access: IESG has strengthened its existing 39 trade and
liaison offices worldwide.
3. Manpower Development: As SMEs grow, they may face labour
and HR challenges overseas, such as attracting fresh talent. IESG
addresses this through co-developing with the SMEa holistic
strategy to manage key talent around the world and by supporting
company-initiated market attachments.
4. Help SME?s gain access to overseas financing: IESG will bear 70%
coverage of risk of loans, and has in place 2 schemes to support up
to 50% of minimum premium with approved insurance.
INTER-REGIONALWEBINARNEWSLETTER|5
CAROLARAMÓN-BERJANO
Policy Expert, CARI
Speaking topic: China: the new world economic and political
counterbalancing force
When looking at integration agreements such as the TPP, it is
important to pay attention to who?s in it and who is not. China?s
rise, but absence in the TPP, creates implications that will ripple
across the economies of TPP members, since over half of China?s
trade is within the Asian region. US-China relations US-China
relations are a chess game, where initiatives are met by
counter-initiatives, in other words, counter-balancing strategies.
The nature of US-China relations are encapsulated mainly in the
Regional Comprehensive Economic Partnership (RCEP) and the
TPP, where the latter is more global and heterogeneous in terms
of member composition.
TTIP between USand EU
Geopolitical tussles also play out through agreements between the
USand other trading blocs. The Transatlantic trade and investment
partnership was conceptualised not only for trade purposes but to
also consolidate stronger negotiating power with China and Russia.
However, negotiations have stalled. One Belt, One Road On China?s
part, the One Belt, One Road is China?s main counterbalance of the
U.S. The initiative marries land and maritime corridors, and will
transform the geopolitical map completely. For instance, in
Kazakhstan, the biggest infrastructure integration project is
ongoing, and there is a considerable number of cultural projects on
the silkroad.
The impacts of China?s rise on trade and geopolitics
At the start of 2016, 32 containers were delivered from Shanghai
to Iran in 14 days via train when it used to take 45 days over sea. In
Jan 2015, the Myanmar China pipeline opened, saving time, money
and allowing China to achieve independence from the U.S.
Thus, when looking at the TPP and considering the impact of
non-members, China is evidently advancing at a rapid pace with
widespread support. In contrast, the TPP and the TTIP met with
lukewarm response or even resistance.
These speechesare dated 14 Oct 2016. The perspectivespresented belongto the speakers, and should not be attributed to their
affiliated organisations. The followingisa summary of their main insightsand key takeaways, adapted from the speechesmade during
the online webinar session.
6. Founded in 2015, the Asia-LATAM
Connection is a public company
limited by guarantee which aims to
connect the two fastest-growing
emerging markets in the world:
Southeast Asia and Latin America.
We are an umbrella network that
organises and co-hosts projects
ranging from market research,
events and strategic valued
networks in Singapore, Malaysia,
and Mexico, with the objective of
promoting business engagement
between regions.
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