Int'l Cooperation

Last updated: Tuesday, March 19, 2019


From TPP to CPTPP: Unmissable Opportunity for Vietnamese Businesses

Posted: Friday, February 23, 2018

After the United States withdrew from the Trans-Pacific Partnership (TPP), negotiations among 11 existing members revived the deal under the new name - Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). They agreed that they would conduct legal reviews as well as complete internal procedures to prepare for the signing on March 8, 2018 in Santiago, Chile. How is CPTPP different from TPP, and how will Vietnamese companies benefit from this deal? Vietnam Business Forum has an interview with Ms Nguyen Thi Thu Trang, Director of the Centre for WTO and Integration, the Vietnam Chamber of Commerce and Industry (VCCI). Thu Ha reports.

The US withdrawal from the TPP seriously eroded confidence in the prospects for TPP Agreement. However, the remaining 11 countries have been working hard to reach consensus and renamed it CPTPP. How do you assess the rough road from TPP to CPTPP?
Indeed, US President Donald Trump’s decision to withdraw from the TPP in January 2017 was a great shock to other TPP member countries as well as the world as it completely changed the future of TPP - the largest new-generation free trade agreement in recent years.

Earlier, the TPP was concluded by 12 member states, including the US, and awaited internal approval from signatories (requiring at least six nations approving, specifically including the US and Japan) for it to come into official effect. Now, with this decision, the US would not proceed with its internal approval, at least during the Donald Trump administration. The TPP was not broken by the US withdrawal, but the future of TPP was uncertain as when the US would return with its internal approval for the revival and validity of TPP remained unknown.

At that time, TPP countries were facing several different approaches. Should they would wait until the return of the US, or continue without the US, or replace the TPP with other bilateral agreements with the US, or start a new deal with the TPP as the starting point with new members to be added later? For any approach chosen, there would be difficulty in the way and of course the result would be unlikely to completely replace the original TPP.

Besides, there were both external and internal factors that might affect the decision of member countries, e.g. Canada and Mexico were then renegotiating NAFTA; New Zealand had a new prime minister; the rise of counter forces against the TPP in Malaysia; new trade protection tendencies influenced by the US, etc.

Hence, the decision reached by TPP countries in Da Nang City in November 2017 was not easy, but very, very difficult.

It took quite long time from January to May 2017 for member countries to come to a decision that they would continue the TPP with 11 members, temporarily without the US. And, it took the next six months for them to agree on keeping a majority of contents unchanged and using a new name for it, CPTPP. It was a very long process of thinking, weighing and arguing on internal and external factors to overcome obstacles in member countries.

Vietnam has proudly contributed very actively to this process. Both crucial decisions to TPP - CPTPP made in May and November were reached during APEC events with Vietnam being the host.

What are other noteworthy differences between TPP and CPTPP?
Until this point of time, it is probably too early to fully and accurately list differences between CPTPP and TPP because, although TPP ministers agreed on core contents of CPTPP in Da Nang City, there would be more contents to be further discussed and agreed upon. And more importantly, the final text of the CPTPP is still being finalised. Only when the CPTPP is officially signed can we assess it exactly.

Right now, the differences below are obvious.

The most obvious difference is membership. TPP has 12 members, including the US, while CPTPP has 11, excluding the US.

Second, enforcement conditions of the TPP and the CPTPP are different. CPTPP is expected to reduce requirements. The requirement of combined GDP minimum of approving members will be abolished.

Third, commitment contents in the TPP and the CPTPP are different. Although the CPTPP is based on most TPP commitments, some will be temporarily suspended in the CPTPP (20 specific TPP points). Postponed contents mainly come from very demanding requirements from the US in TPP negotiations that remaining members find it too hard to execute. For example, the CPTPP will postpone certain intellectual property commitments (expanding cases of patent protection, offsetting delays in protection registrations, extending the validity duration of copyright protection, etc.) The CPTPP will also suspend certain commitments that increase the protection of investors per se abroad, in normal operations as well as disputes with investment authorities of the host country. In addition, some other commitments on labour and delivery services will also be left out.

All side letters and bilateral agreements between TPP members and the US in relation to the TPP, will not be enforced in the CPTPP.

CPTPP countries will have to agree, from now until the official signing of the CPTPP, on continued implementation or postponement of an additional group of four other issues, and if postponed, to what extent. These issues include state-owned enterprises with Malaysia, exceptions to investment and service in Brunei’s coal industry, trade sanctions in Vietnam's proposed dispute settlement mechanism, and cultural exceptions as required by Canada.

The CPTPP is a large-scale multilateral free trade agreement. The adoption of CPTPP will be a breakthrough for free trade among member countries. Could you tell us about the expected impact of CPTPP on Vietnam? How will Vietnam benefit from this agreement?
As mentioned above, the CPTPP retains almost all TPP commitments, leaving only a very small portion suspended. Thus, the impacts of CPTPP on the Vietnamese economy are likely to be similar to those of the TPP.

Specifically, the CPTPP is expected to create significant advantages for Vietnam's exports as it opens the priority path for Vietnamese goods to enter low-tariff gates into 10 partner countries. This advantage is enormous in markets where we have not had FTAs yet, like Canada, Mexico and Peru. Even FTA partners with Vietnam, such as Japan, Australia and New Zealand, the CPTPP will also create new opportunities and new options for Vietnamese exporters in approaching these markets.

The CPTPP will also create pressure for stronger economic institution reforms to meet high criteria of investment, intellectual property, public procurement and other contents stated in CPTPP commitments.

With commitments to investment and stronger service market opening, the CPTPP is expected to boost foreign investment into Vietnam, while also facilitating stronger competition in many service markets, particularly manufacturing services, which promise to bring higher quality, more reasonable prices for people and businesses.

However, compared to the TPP, the CPTPP lacks an important member - the US. Therefore, what we expected most from the US market in the TPP will no longer be available with the CPTPP. Its positive impacts on Vietnam will also diminish in relation with the TPP, particularly huge tariff opportunities in the US market.

According to a study by Japanese experts published in August 2017, taking only merchandise trade into account, the TPP is expected to boost Vietnam’s GDP by 17.7 per cent and TPP-11 (presently US-excluded CPTPP) will help its GDP expand by 10.39 per cent, mainly thanks to the removal of non-tariff barriers from partners.

What should Vietnam do to prepare for institutions and integration policies, and what should domestic businesses do to capture the best opportunities from this trade agreement?
I think there are both similarities and differences between preparing for CPTPP and preparing for other free trade agreements we have signed.

Like any previous FTAs, it is important to utilise export and import opportunities from CPTPP.

There is no other way for businesses than actively equip themselves with commitment contents, especially tariff commitments and rules of origin, to work out input, production and customer strategies to take advantage of tariff preferences (both export and import). Authorities must also participate in this process by providing businesses with the most comprehensive, easy-to-understand information on tariff opportunities, advising them on accurate knowledge of rules of origin and ways to meet those rules. State agencies must also make related procedures, especially procedures for issuing certificates of origin, simple and convenient for businesses, to grasp opportunities.

Unlike the rest, the CPTPP is a comprehensive and progressive agreement that continues most of the high standards set by TPP which are applied to behind-the-border issues such as intellectual property, investment protection, competition, dispute settlement, labour and environment. Therefore, CPTPP preparation is not only a story of taking advantage of merchandise tariff preferences, but also, more comprehensively, a story of reviewing and modifying laws and economic institutions to meet these high standards while ensuring the best interests of businesses and the economy.

The first and foremost challenge to authorities is to help not only negotiators but also the administrative and enforcing apparatus accurately understand commitments, and define what and how to modify its policies and laws to match new requirements. The TPP document has been published for more than two years, but it is difficult to confirm that all State agencies understand TPP commitments related to their work, let alone the necessary preparations for effective implementation.

The challenge to businesses is how to understand very complicated institutional commitments and seek out policy trends beneficial to them. Then, they need to cooperate with each other and with business associations to lobby and join in the process of reviewing and modifying laws introduced by CPTPP enforcement agencies.

The enforcement of FTAs in the past has shown that these preparations are not simple at all. It is much more complicated for this CPTPP, but we have no other choice. Failing to grasp CPTPP advantages is not only a waste of great benefits but also likely a serious loss. We will lose competition to strong rivals, especially when the CPTPP offers a very wide opening of the service market. We will suffer a loss if faced with sanctions related to commitment enforcement.

But we also have certain advantages in this process. Lessons from previous FTAs will be valuable experience for us to move forward with the CPTPP. In addition, along with the CPTPP, Vietnam must simultaneously implement many other new commitments, particularly the Vietnam - EU FTA with many similar commitments. Joint efforts in implementing these FTAs are expected to bring about better results.

In a nutshell, we are moving from an extensive integration to an intensive integration, from from-the-border integration to behind-the-border integration. And, the CPTPP is a milestone on this path. It is hoped that, with the official signing of the CPTPP in the coming time, our businesses and authorities will have well prepared themselves for this important agreement.

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