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

KEY INSIGHTS

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.

DELIA PAREDES

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

FELIX PEÑA

INTER-REGIONAL WEBINAR 2016

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 polit ical view of the market.?

Chief Economist, Banorte

Speaking topic: TPP in the Global context

(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.

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MARIANO TURZIExpert on International Relations, Professor at Di Tella University and NYU Buenos Aires

Speaking topic: Competing polit ical coalit ions? The domestic Latin American support and opposit ion 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.

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 Consult ing

Speaking topic: FTAs - New opportunit ies 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.

SME manoeuvring: Maximising benefits and minimizing negative

impacts from multilateral FTAs

It is important for SMEs to reduce their vulnerabilit ies 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

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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 SME chapter 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 SME product 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, IE SG will help to defray 70% of cost for market access, capability building or manpower development skills. Enhancing financial support for SMEs is one of IE SG?s main concerns because IE SG 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

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LEJON CHUAManager, 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 t imes ? 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 intensif ied reform.?

leverage on the potential of the digital age.

IE Singapore?s 4 Pillars of Support

1. Capability Building: This pillar aims to shore up capabilit ies 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: IE SG 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. IE SG addresses this through co-developing with the SME a 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: IE SG 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.

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CAROLA RAMÓN-BERJANOPolicy Expert, CARI

Speaking topic: China: the new world economic and polit ical 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 US and EU

Geopolitical tussles also play out through agreements between the US and 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 speeches are dated 14 Oct 2016. The perspectives presented belong to the speakers, and should not be attributed to their affiliated organisations. The following is a summary of their main insights and key takeaways, adapted from the speeches made during the online webinar session.

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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