Singapore businesses 'not too worried’ as TPP's fate hangs in the balance

Singapore businesses 'not too worried’ as TPP's fate hangs in the balance

Local companies that have made plans to leverage on the Trans-Pacific Partnership (TPP) told Channel NewsAsia that they are disappointed by the recent turn of events, but the likely breakdown in the trade deal is not keeping them up at night.

SINGAPORE: As it looks to venture into new foreign markets such as Canada and Mexico, Singapore food manufacturer Tee Yih Jia has been hoping to leverage on the Trans-Pacific Partnership (TPP) to give its exports a boost.

Currently, Canada and Mexico are the two TPP countries that Singapore does not have free trade agreements (FTAs) with. "With the implementation of TPP, all tariffs would be eliminated... and it will benefit our exports to Canada and Mexico," said Ms Laureen Goi, the company's general manager for export sales and marketing.

The TPP would also translate into a bigger appetite for its signature spring roll pastry in overseas markets such as Malaysia and Vietnam. Alongside increased trade activities in these countries, industrial users of Tee Yih Jia's product may be motivated to make more purchases for value-adding and re-export purposes, Ms Goi added.

However, since the comments from American President-elect Donald Trump on how he plans to pull the US out of the Trans-Pacific Partnership (TPP) the day he takes office, the outlook for the massive trade pact has never looked more bleak.

Given the size of the American economy, trade observers said that meeting the TPP's rule – that there must be ratification from at least six countries that account for 85 per cent of the combined gross domestic production (GDP) across the TPP nations by February 2018 – could be a tall order if the US withdraws.

While the privately-owned company is disappointed about a potential US withdrawal from the TPP, it is already on the lookout for other ways to venture into new markets. In Mexico for instance, Tee Yih Jia is looking to market its roti paratha, or the Indian flat bread, as a potential substitute for the local tortilla equivalent.

"The population in Mexico is about 130 million. Our chairman (Sam Goi) envisions that if we can convince just 1 per cent of the consumers to substitute the tortilla with our roti paratha, we can spearhead our market reach which includes investing in a new factory in Mexico," Ms Goi told Channel NewsAsia.

TPP: ALL SET FOR A BREAKDOWN?

Following Mr Trump's comments, member nations such as Japan and Australia have pledged to push ahead without the US. In Singapore, the Ministry of Trade and Industry (MTI) said last week that it remains committed to working with other countries to ratify the TPP.

Analysts have previously said the trade deal, which covers 40 per cent of the global economy, is expected to boost trade and investment links between Singapore and other TPP partners, as well as accentuate the city-state's position as an entrepot economy. Special provisions within the trade pact will also give small-and medium-sized enterprises (SMEs) a leg-up when it comes to overseas expansion.

Even as the prospect of the vast trade deal coming into effect has dimmed considerably, local apparel manufacturer Sing Lun Holdings remains “cautiously optimistic”. Chief executive Mark Lee told Channel NewsAsia that while he would be disappointed at a no-go for the TPP, it will not be a doom and gloom situation.

"We feel that things will continue to be OK and it could be better because you may not see those rapid inflows of foreign direct investments coming into Vietnam that will compete with you for talent and drive wages up," he explained.

Sing Lun, which counts popular brands such as The North Face and Under Armour among its clients, employs around 4,000 workers in its two manufacturing plants in Hanoi.

"We entered Vietnam in 2004 and that was a commercial decision that happened before the TPP because we were looking for an alternative manufacturing base to China," he added. "If TPP happens, it will make our investments more valuable but if it doesn't, I won't be too worried and say it will be a disaster."

Even as the fresh setbacks to the TPP comes amid ebbing global trade flows and slowing economic growth worldwide, these two businesses are holding on to a glass half-full outlook.

Tee Yih Jia's Ms Goi told Channel NewsAsia: "Although a sluggish economy might affect some of our export sales, we may be able to mitigate the impact by propelling growth in our retail market sales as more people choose to eat at home more versus dining outside."

Sing Lun's Mr Lee noted that the company's order book has "not been as robust as before" amid uncertainties such as Brexit, but the company is counting on strategies such as expanding its manufacturing capabilities to stay ahead of the curve.

According to the Singapore Business Federation (SBF), the local business community has "not expressed any concerns so far with regard to the TPP". Given the scale and complexity of the agreement, its ratification and implementation was not going to be straightforward, noted SBF CEO Ho Meng Kit.

Mr Ho added that the US’ withdrawal from the TPP "is a setback not only for Singapore, but also the region and the world". However, if the TPP does fall through, there are other initiatives and agreements that can be pursued such as bilateral trade agreements, the Regional Comprehensive Economic Partnership (RCEP) and the ASEAN Economic Community, he said.

WEIGHING THE ECONOMIC IMPACT ON SINGAPORE

That is also why some economists reasoned that Singapore may not feel the direct economic impact from a TPP breakdown, at least in the near term.

According to the Peterson Institute for International Economics, the trade accord is expected to give Singapore's GDP growth a 2 per cent boost by 2025, compared to 13.6 and 6.1 per cent for Vietnam and Malaysia respectively.

"Everyone has overestimated the potential impact of the TPP," DBS senior economist Irvin Seah said. "If you talk about market size, it is perhaps the biggest outside of the WTO (World Trade Organisation) so in that regard, the TPP is significant. But as far as Singapore is concerned, the level of commitment in the TPP pales in comparison to the bilateral trade agreements that we already have."

"So, the impact of the TPP for Singapore is going to be very marginal," added Mr Seah.

Nomura Singapore's economist Brian Tan echoed that sentiment, noting that the death of the TPP would signify a "loss opportunity", rather than an actual impact on Singapore's GDP growth.

"It would have opened up more markets, created more opportunities to do business and encouraged innovation," he said. "But keep in mind that the TPP hasn’t come into force yet so it's not like we are benefiting and things will get worse from here."

Nonetheless, the TPP carries "strategic benefits" for the trade-reliant economy.

"Because the WTO negotiation has stalled, that's where the TPP comes in and hopefully continue to push through this global trade liberalisation process that Singapore has been a strong believer of," DBS' Mr Seah said.

There is also the worry that if US President-elect Trump follows through on his campaign promise to take on a more protectionist stance towards trade, Singapore's open economy would be dealt with a heavy blow.

According to a note dated Nov 11 from Deutsche Bank, Singapore's exposure to the US in terms of export earnings is a substantial 14 per cent, if global production chains are taken into account.

"If the US president-elect Trump follows through with his campaign promise to walk away from multilateral trade deals and impose punitive tariff on imports, it could potentially accelerate the de-globalization dynamic, leading to a zero-sum world where US gains come at the expense of EM (emerging markets), especially the highly exports-dependent EM-Asia," Deutsche's chief Asia economist Taimur Baig wrote.

Follow See Kit on Twitter @SeeKitCNA

Source: CNA/sk

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