New Trade Agreement in the New World

Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

Like a phoenix reborn from the ashes, the Trans-Pacific Partnership has taken on a new form as CPTPP and will likely prove highly beneficial for Mexico.

Even though the renegotiation of the North American Free Trade Agreement (NAFTA) has monopolized both domestic and international media attention, the signature of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in March 2018 represents a major milestone in Mexico’s trade diversification strategy. The potential is significant as international trade within this new block amounted to USD356 billion in 2016.

The negotiation of this agreement, born from the ashes of the Trans-Pacific Partnership (TPP) was surprisingly swift. Only weeks after the US withdrew from TPP in March 2017, the eleven remaining countries came together in Chile to revive the agreement as CPTPP, or TPP11. A year later, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam met again in Chile to sign the revised version of the deal. President Peña Nieto sent it to the Mexican Senate in early April 2018 to be ratified.

The main differences between TPP and CPTPP are first geopolitical. The US’ withdrawal gave Japan a leadership position and made the core of the agreement shift from North America to Asia. And some clauses on intellectual property, especially those related to the pharmaceutical sector, and investor state dispute settlements that were defended by the US were eliminated. Nevertheless, most of the content is identical to the original TPP.

CPTPP grants Mexico access to six new markets: Australia, Brunei, Malaysia, New Zealand, Singapore, and Vietnam. Preferential access to these economies means getting a step closer to two global-giant consumer markets: India and China. Also, Mexico is the second-most-populous country in the block. This demographic advantage could represent a magnet for companies from the 10 other countries seeking to invest in a market of this size.

And while the impact on the ongoing NAFTA renegotiations remains uncertain, CPTPP may reduce Mexico’s and Canada’s dependence on NAFTA should it disappear. Increased value chains between Mexico and Canada are likely to emerge.
The signature of the deal already had an impact on some trade projections for Mexico in 2018. According to Maersk Line, a global shipping company, imports will grow by 7% and exports by 4% in 2018. Container traffic is expected to increase 6%.
In the agribusiness sector, world-famous Mexican avocados will more easily reach new markets. Other products with high potential in the Asian Pacific are bananas, oranges, blackberries, and strawberries. Mexico is already a relevant player on a global scale in the production of pork meat, and the potential for growth is important. According to the US Foreign Agricultural Service, Mexico was the ninth-largest producer of pork meat in 2017, but only 2% was exported. Given that Japan recently granted Mexico its export zoo sanitary certificate, all the conditions are met for trade in pork to thrive.

Concerning hydrocarbons, Mexico will have immediate tariff-free access to all the member economies, except for Brunei whose full opening will take 7 years and Vietnam, whose process will span over 11 years. As for any trade agreement, there will be some losers too. The National Workers Union (UNT) rejects the deal because farmers will be negatively affected and wages will not increase. Mexico took some measures to protect some sensitive industries, such the shoe and leather industries. According to the Chamber of the Footwear Industry of Guanajuato (CICEG), Mexico is the world’s 9th-largest producer of footwear with 254 million pairs in 2016. In this case, almost 80% of tariffs will only be lifted gradually between 2028 and 2031.

Regarding Mexico’s flagship manufacturing sector, the Mexican Automotive Industry Association stated that even though Mexico reached a good deal, there is a significant challenge in terms of logistics, given that the country currently does not have the necessary infrastructure to meet the projected demand rise associated with CPTPP.

CPTPP will come into force once the majority of signatory countries ratify it. The doors to any other country willing to join—or rejoin—remain open.