And they say global trade is “stuck” … But now we have the best prospects in decades for some real movement. Negotiators in Atlanta from 12 Pacific Rim states have concluded a deal over what amounts to one of the most ambitious free trade agreements ever negotiated. If fully implemented — still a big “if” — the Trans-Pacific Partnership will cover some 40% of global gross domestic product and an equal, if not greater, share of world trade.

     The benefits for Asian participants are substantial. Not only will this help to revive lackluster exports over the coming years, but the agreement will pry open sheltered domestic markets, spurring much needed reforms. Take Japan. Prime Minister Shinzo Abe’s third arrow of structural reforms — stimulating the private sector — has so far fallen short of its target. Joining the TPP will facilitate access for foreign competitors to Japan’s local service sector, where productivity has long fallen woefully short of ambitions.

     In Southeast Asia, too, economies will benefit. As signatories, Vietnam, Singapore, Brunei and Malaysia will receive preferential access to advanced markets, such as those of the U.S., Japan, Australia and Canada. But that’s not all: More foreign direct investment should also flow into these economies as a result, raising their external competitiveness as well as competition locally. With credit growth slowing and exports facing ever stiffer headwinds, this might just be the shake-up these markets need to reinvigorate growth.

     At a time when local demand is starting to look wobbly, progress on the trade front is essential. Asia needs to step up exports — the source of the most rapid productivity gains in recent decades — to drive its economies. At the same time, opening local markets should spur reforms, of for example state-owned enterprises or restrictive regulation, that have not yet been implemented with the desired vigor.

     The TPP deal might also galvanize progress more broadly. With few advances in multilateral trade liberalization for well over a decade — except, perhaps, for a welcome trade facilitation agreement recently concluded by the World Trade Organization — the TPP could inspire other, similar arrangements. In Asia, this includes the Regional Comprehensive Economic Partnership, a continent-wide free trade agreement that includes some TPP members but also others outside the TPP, notably China and India. As such, the TPP should be regarded not as a defensive bloc, but as a catalyst for liberalization well beyond its borders.

Inclusiveness is vital

This is an important message for signatories to heed. The TPP should remain open for new countries to join, and for existing members to forge closer ties with those outside the group. As a building block for broader trade liberalization in Asia and beyond, the TPP will succeed. As an exclusive club designed to protect individual interests, it will fall short of its goals. The TPP must be but a first step toward deeper and broader economic integration, if it is to ultimately spur a global revival in trade.

     But before the benefits can be reaped, the agreement must be implemented. The first step is ratification by individual signatories. This might be the hardest part yet. In the U.S., for the congress to vote it through would be a complicated endeavor at any time but at this time will be even more so with presidential elections looming next year. Negotiators have opted to keep many of the finer details under wraps to facilitate the talks, but these will now be brought into the open, raising the specter of heated discussion and, most likely, fierce opposition by some.

     In Asia, too, the TPP agreement needs to be ratified by individual governments. This might prove a hard sell when suspicion over foreign involvement in local economies remains strong. In particular, state-owned enterprises, still prominent in many countries in Southeast Asia, might face uncomfortable stipulations. Opening the door to competition is never easy politically. But, in the end, it serves efficiency and is essential to economic progress.

     For those who considered far-reaching economic reforms unlikely at a time of growing economic challenges, here is an encouraging sign that important changes can still be attained. But the deal just struck is just an initial step. The next, and possibly harder, one is to enact the TPP as envisioned and in a timely fashion. And then the agreement needs to remain open to all. Exclusivity cannot be the basis of lasting success in trade liberalization. Nevertheless, kudos to the negotiators and the TPP, a hopefully fair and inclusive agreement that prompts the reforms required to put growth in Asia on a sustainable path.

Source: www.asia.nikkei.com