Moody's CPTPP is credit positive for all member nations

08:30 | New York (U.S.), Mar. 13.

Last Thursday, the 11 members of the Trans-Pacific Partnership (TPP) signed the revised Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), moving forward without the U.S. (Aaa stable), which withdrew from the TPP bloc in January 2017.

Gains from the renamed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will be smaller without U.S. participation, but the trade deal still will boost exports and incomes for all members and help sustain reform efforts in a number of countries, all credit positives, Moody's projected.

Participating nations are Australia (Aaa stable), Brunei, Canada (Aaa stable), Chile (Aa3 negative), Japan (A1 stable), Malaysia (A3 stable), Mexico (A3 negative), New Zealand (Aaa stable), Peru (A3 stable), Singapore (Aaa stable), and Viet Nam (B1 positive).

Analysis by the Peterson Institute for International Economics (PIIE) finds that the CPTPP will generate real income gains of US$157 billion for member countries, compared with US$465 billion for the original TPP, including the U.S.

Malaysia will be the biggest winner from CPTPP, according to the PIIE analysis. The deal provides Malaysia export access to new markets including Canada, Mexico, and Peru, benefiting palm oil, rubber, and electronics producers.

However, because Malaysia —along with Viet Nam— had the most to gain from greater access to the U.S. market under TPP given the scope of current trade agreements, they lost more export opportunity than other signatories after the U.S. withdrawal from TPP.

The real income gains for Australia, Canada, and Mexico are similar to the original TPP deal because these countries already have free trade agreements with the U.S. and they will benefit from growing exports to other CPTPP members.

"We expect Canada and Mexico to attract more investment from CPTPP members, particularly Southeast Asian exporters looking for greater access to the U.S. market –assuming a smooth resolution on the North America Free Trade Agreement renegotiations," Moody's expressed.

Chile has free-trade agreements in force with all CPTPP signatory countries, so the gains from trade in the CPTPP will be small.

Because the lower trade and non-trade barriers under CPTPP are conditional on country-specific reforms, the agreement also will help to sustain domestic reform momentum.

"We expect ongoing reform efforts to boost competitiveness and investment, and strengthen institutional quality over time for member nations," Moody's affirmed.

The benefits would be greatest for those sovereigns with relatively low governance and competitiveness scores, such as Peru, Viet Nam, Mexico, and Brunei. However, the suspension of specific provisions from the original agreement could slow reform progress in some countries.

If the CPTPP expands its membership to include other large Asian economies that have expressed interest in joining the deal, including Indonesia (Baa3 positive), South Korea (Aa2 stable), the Philippines (Baa2 stable), Taiwan (Aa3 stable), and Thailand (Baa1 stable), real income gains for members would be much greater than the current CPTPP deal and higher than the original TPP.

The PIIE estimates that the inclusion of the five aforementioned Asian countries would result in real income gains of US$486 billion for member countries.

Information provided by Moody's.


Published: 3/13/2018