POLICY

Trade as a Tool to Build Bridges, not Barriers

April 22, 2022

In January 2002, then Japanese Prime Minister Junichiro Koizumi and then Singapore counterpart Goh Chok Tong presided over a momentous signing: the Japan-Singapore Economic Partnership Agreement (EPA). This was Japan's first ever bilateral trade pact with another country, and one of Singapore's first with a major economy.

In the years since, companies and consumers in both countries have benefited from a drastic reduction in tariffs that has led to a freer exchange of goods ー including Japanese seafood and products that have gained a loyal following in Singapore ー while also catalysing bilateral investments

While both countries now stand on the same page as flagbearers of multilateralism and free trade, it is also worth observing that their road to trade could not have been more different. For Singapore, a small country that is only as large in size as the 23 wards of central Tokyo, it is in its interests to foster strong trading relations with the rest of the world. On the flipside, and from the perspective of an outsider looking in, Japan had long been plagued by the so-called 'Galapagos Syndrome' given the size of its domestic market. To its credit, and perhaps in recognition of its ageing population and increasing global connectivity, Japan has assiduously sought to shed this syndrome in recent years.

Notably, despite headwinds such as the COVID-19 pandemic, Japan's customs-cleared trade value in 2021 was at near-record highs with 83.1 trillion yen in exports and 84.8 trillion yen in imports. In comparison, its exports in 2002 were 52.1 trillion yen, and imports at 42.2 trillion yen respectively. One clear case in point is how easy it has become to find imported produce and cheaper wines in Japanese supermarkets today.

A series of multilateral trade agreements forged in recent years has given momentum to an even more interconnected world. These include the 11-nation Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), also known as the TPP11, the 15-nation Regional Comprehensive Economic Partnership (RCEP), while Japan has also signed an EPA with the 27-nation European Union.

That this has come despite a rise in protectionist tendencies in some parts of the world sends a strong statement in favour of multilateralism. Notably, Japan and Singapore are both signatories of the CPTPP and the RCEP, and have voiced support for United States President Joe Biden's proposed Indo-Pacific Economic Framework. Japan held the chairmanship of the CPTPP Commission -- the decision-making body for the Pacific Rim agreement -- last year before handing over leadership to Singapore this year.

CPTPP'S ROAD TO FRUITION

The CPTPP had much more humble beginnings, with the idea based on an existing free trade agreement known as the P4 that involves Brunei, Chile, New Zealand and Singapore. The first trans-Pacific trade pact, which was signed in 2005 and enacted a year later, attracted interest from the U.S. in 2008. This paved the way for the start of negotiations of the Trans-Pacific Partnership (TPP).

While the TPP was signed in 2016 among 12 countries, the U.S. withdrew from the pact a year later. The remaining 11 nations decided to forge ahead with the pact, with Japan widely reported to have taken the lead in the endeavour. The updated agreement, now known as the CPTPP, spans 583 pages over 30 chapters, with the suspension of 22 provisions that the U.S. had wanted in the original TPP.

The CPTPP entered into force on December 30, 2018, and eight of its 11 members have thus far ratified the pact. They are, in order of ratification: Mexico, Japan, Singapore, New Zealand, Canada, Australia, Vietnam and Peru. The remaining three countries not to have completed their domestic procedures are Brunei, Chile and Malaysia.

The CPTPP, which covers 13.5% of the world economy and 500 million consumers, is seen as a "gold standard" for trade agreements given its high levels of commitments and focus on building an open, inclusive, and rules-based trading architecture. Among other things, there are ambitious market access commitments in the trade in goods, services, investment, and government procurement.

The pact also contains strict rules over state-owned enterprises, and includes provisions over intellectual property, the digital economy, and the environment. These are areas that Japan is poised to take the lead on, having mooted in 2019 the "Data Free Flow With Trust" concept. It has also pledged to achieve net-zero emissions by 2050.

In a strong sign of tailwinds for more trade connectivity as the world emerges from the COVID-19 pandemic, several countries and regions have expressed interest in joining the pact with the United Kingdom, the first non-founding member to apply, now at the second "market access" phase of negotiations.

Singapore's Trade Minister Gan Kim Yong said that Singapore's priorities in its chairmanship of the CPTPP Commission was to work with members to "leverage the CPTPP to facilitate regional economic recovery, and advance cooperation in digital and green initiatives".

OVERLAPPING FRAMEWORKS

The CPTPP includes many countries that already have existing bilateral deals with each other, while seven of its 11 members are also part of the RCEP. But as each trade agreement has differing terms and conditions ー some like the CPTPP more stringent than others ー this could help bring more countries into the fold of free trade, according to their level of acceptability.

The RCEP, which was first proposed by Asean in 2011, involves the 10 Asean countries as well as Australia, China, Japan, New Zealand and South Korea. It is the world's largest trade bloc by size and population, accounting for 30 per cent of the global economy and 2.3 billion people, though it differs from the CPTPP by not establishing standards on labour and the environment. The pact, which came into force on Jan 1 this year, has been ratified by 11 of the 15 signatories. The remaining four countries are Indonesia, Malaysia, Myanmar, and the Philippines.

Asia, meanwhile, is also anticipating the details of the U.S. proposed new Indo-Pacific Economic Framework. Japan and Singapore are among the countries that have signalled support for the initiative that is expected to create trade rules in areas such as digital trade and the environment.

Ultimately, what the various agreements do is to help member countries build economic integration and strengthen the multilateral trade architecture. Singapore's Finance Minister Lawrence Wong, who was named heir-apparent to current Prime Minister Lee Hsien Loong, told a Washington think-tank event recently that this can be "a way for us to build shared interests, interdependencies, and ensure a path away from a conflict down the road".

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