Free trade agreements (FTAs) strive to facilitate trade in goods and services through measures like tariff reduction. A recent study by ACI delved into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the “gold standard” trade pact, to assess its impact on intra-CPTPP trade in goods and services. Using data of bilateral trade and tariff data, the researchers find that the CPTPP has promoted intra-group trade for both imports and exports after three years into effect. 

The CPTPP is a high-standard regional trade pact signed among 11 Asia-Pacific countries that entered into force in late 2018. Currently, the CPTPP parties make up 13.5% of the global GDP. It is widely considered a transformational trade pact, which allows massive market access for all participating countries. Usually, when a trade agreement is established between countries, trade barriers such as tariffs, quotas, or other restrictions will be eliminated or reduced, increasing trade flows between partner countries. This phenomenon is called the “trade creation effect.” Since the CPTPP countries agreed to reduce up to 98% of tariff lines, it is interesting to study whether the CPTPP has created such an effect.          

In the past three years, the increase in trade between CPTPP member countries was not as significant as expected (see Figure 1 below). This occurred because these countries already have pre-existing trade agreements between themselves. The detrimental effect of the COVID pandemic on global trade is another major disruption. Therefore, to more clearly analyze how the CPTPP will affect trade among members, the paper used the gravity model in international trade studies to facilitate the analysis. They found that out of 65 industries, trade within the CPTPP led to more business opportunities in 11 industries for exports and 17 industries for imports. The agricultural and pharmaceutical industries saw particularly pronounced effects. This happened perhaps due to the lack of significant trade commitments in these sectors prior to the CPTPP.

Apart from trade in goods, the research also delves into the trade in services by looking at trade patterns. The overall picture of intra-CPTPP trade in services is growing steadily, but the effect was gradual (see Figure 1 below). Zooming into digital services, the trade value among members was growing. Both the import and export of digital services have some noticeable growing trade patterns from 2010 to 2019, with Singapore and Japan being the forerunners. In sum, the first year of CPTPP implementation saw a positive sign for the digital trade of the region.

Asia-Pacific sees more and more regional trade agreements signed between countries, with the CPTPP being one of the most influential ones. This ACI study complements the empirical studies on the impact of the CPTPP on trade in goods and services of all member countries. As more data becomes available, researchers can delve deeper into the effects of the CPTPP and help policymakers make more informed decisions to facilitate regional trade.

By XU, Ni Scarlet

Researchers: BANH, Thi Hang, ZHANG, Xuyao, ZHANG, Chi, LE, Hien Chuc An