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THE FUTURE OF FREE TRADE IN ASIA PACIFIC
More than half of business leaders cite trade deal uncertainty as one of the key complexities they face today. In this feature, we consider recent developments shaping trade policy, and provide some direction for companies to approach today's greatest macroeconomic questions on supply chain and trade.
TPP: A REBIRTH?
For 79% of respondents, the Trans Pacific Partnership (TPP) not entering into force as originally envisaged would negatively impact their corporate growth, with 34% saying this impact would be significant. Since the US exited the trade pact, many believed the TPP would be left for dead. Yet, recent discussions among the remaining signatories show signs of life, and the TPP-11 (the other 11 countries that had negotiated the pact) movement seems to be gaining momentum. The future of other trade agreements also hangs in the balance. A proposed agreement between Vietnam and the EU was recently jeopardized following questions of human rights violations by the Southeast Asian country. Likewise, the US may withdraw from a free trade agreement with Korea on calls by the Trump administration to renegotiate the pact. Amid these changes, businesses need to gauge the temperature of the current business climate and work out whether it’s better to make some deals at present or put investment decisions on hold. They should also consider how they might raise capital and allocate resources for trade relationships or cross-border transactions when it’s unclear how the rules and terms of trade are going to change.
Almost half of executives (48%) see US influence in Asia Pacific to be declining. For 77% of respondents, this void will be filled by a new leader: China. China’s rapid growth has allowed it to expand its influence over the past decade, and the Beijing-led Regional Comprehensive Economic Partnership (RCEP) could further solidify its place in the region. Businesses have to prepare for the possibility of working more with Chinese businesses and capital, requiring them to develop the skill sets and cultural sensitivities to engage with these new business partners and investors.
CHINA: THE NEXT TRADE LEADER?
ASEAN: MOVING UP IN THE WORLD
The Association of Southeast Asian Nations (ASEAN) is quickly moving up the global value chain. Singapore is set to become the IP hub of Asia as it shifts towards a knowledge based economy, while Thailand and Malaysia transition to capitalintensive enterprise and away from labor-intensive industry. In general, the ASEAN Economic Community is paving the way towards stronger trade flows among its member states through the reduction of tariffs on physical goods. Businesses looking to capture early-stage opportunities need to monitor developing policies so they can move quickly. The best possible counsel, both externally and internally, will be needed to translate current developments into actionable insights. They should also be ready to consider tweaking their supply chains to benefit from trade acceleration measures.
Foreign investors must pay continuous attention to new regulations in emerging Asia. It is often the overlooked detail in a deluge of information that brings an entire business to a standstill. For example, retroactive tax levied by a fiscally challenged government could have serious ramifications for foreign investors.”
Fred Burke, Managing Partner, Vietnam, Baker McKenzie
New trade facilitation rules have been causing new issues and confusion for businesses, underscoring the importance of distributing supply and value chains across various jurisdictions for tax optimization and better regulatory exposure. Spending more to implement a carefully planned system that ensures strict compliance could simplify problems down the road.”
Frank Pan, Special Counsel, Shanghai, Baker McKenzie
TACKLING TRADE DEAL UNCERTAINTY
With the future of the TPP and other trade pacts unclear, businesses need to be mindful before making cross-border investments that trade rules may change in the near term. With China expected to become a trade leader in the region, businesses need to cultivate the cultural sensitivities requisite for developing successful cross-border business links with China. As the ASEAN Economic Community strengthens its competitiveness, corporations should keep up to date on the region’s developing policies and translate them into actionable insights to capture business.
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