The Trans-Pacific Partnership (TPP) trade pact signed earlier this week likely won’t significantly boost economic prospects in the short term, but it may shape the future of financial integration, credit rating agency Fitch Ratings announced on Wednesday.
In a statement, the rating agency says that the landmark trade deal among 12 countries, including Canada, the U.S., and several Asian and American countries, “would set important precedents for the future development of international trade and investment if ratified”. In the long term, that the TPP “will be a significant contributor to economic integration…,” Fitch says. “However, it is unlikely to be a game-changer for members’ economic prospects in the short term.”
The impact of the deal will vary from country to country, Fitch notes. And although the deal will likely be positive overall, it may divert trade and investment from non-participating countries, Fitch adds, meaning that the net impact on global activity “may be small as increased trade within the TPP is offset by trade diverted from countries outside the bloc.”
Moreover, that ratification of the deal is not assured, Fitch notes. Some provisions of the deal are controversial, and are likely to generate political opposition, it says. And, certain measures will only take effect over many years, “so the broad-based effects of the TPP may only manifest over the long term.”
Commenting on the deal in a research note, National Bank Financial (NBF) says, “we’re not popping the champagne bottle just yet.” It stresses that ratification will take time and, there’s no assurance that it will be approved. It has been more than a year since Canada and the European Union reached a trade deal that is still under review by European parliament, NBF says.
Moreover, even if the deal is approved, NBF says that there’s no guarantee that it will be a net positive for the Canadian economy. “Previously protected industries will be under siege from foreign imports, while our exporters will only be able to take advantage of the TPP’s lower tariffs if they are offering better value than the competition,” it says, adding that this generally only happens as the currency weakens.
Assuming that the deal is ratified by the various participants, “the most significant consequence will be in setting the rules and guidelines under which economic integration deepens around much of the Pacific Rim,” Fitch suggests. “This will, in turn, set a powerful precedent for other global trade and investment protocols.”
The rating agency notes that the agreement includes provisions to lower trade barriers in services, to remove foreign investment barriers, and to lowering tariffs on trade in goods. “Provisions setting common minimum standards on labour markets and environmental protections as well as international dispute resolution regimes also set important foundations for future economic integration in the region,” Fitch says.