Executives face the daunting task of having to anticipate potential outcomes, plan for potential changes, and capitalize on opportunities in a world full of uncertainty. Two mega-regional trade deals on the horizon—the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP)—are no exception, throwing up a multitude of possible outcomes depending on which of these two deals come into force.
Executives should use a scenarios framework to prepare for the scenarios most likely to occur and the impact these will have on their firm’s market and operating environments. In FSG’s report, “The Future of Asian Trade Relations” we assign base-case, upside, and downside scenarios and probabilities to each of the two deals separately, and then look at both of them in conjunction. This produces nine newly created scenarios and likelihoods. We then take the top three possible outcomes and look at each of them in further detail.
Understanding the agreements
When the United States pulled out of the 12-member Trans-Pacific Partnership (TPP) in January 2017, the deal was considered all but finished. But in January 2018, a revised deal, rebranded the CPTPP, was agreed in Tokyo and officially signed in Chile in March 2018.
The CPTPP follows in the footsteps of its predecessor, going beyond just cutting tariffs to removing a slew of non-tariff measures and setting exacting standards in areas such as labor law, environmental protection, intellectual property, and government procurement.
RCEP is an ASEAN-led initiative involving the 10 members of ASEAN plus their regional trade partners: China, Japan, South Korea, Australia, New Zealand, and India.
The initiative is first and foremost a traditional “free trade” deal, lowering and eliminating tariffs, but is less stringent on regulatory standards than the CPTPP. It seeks to knit ASEAN’s five existing FTAs (called ASEAN+) together into one comprehensive agreement, reducing intraregional transaction costs by simplifying and harmonizing rules of origin, customs procedures, and standards.
The three most likely scenarios and their impacts
Two mega-regional trade deals—the CPTPP or RCEP—look to fundamentally change the market and operational environment for companies. A scenarios framework prepares executives for change by helping them to evaluate how their companies would fair in the three most likely scenarios outlined in this blog, thereby helping them to make appropriate investments in capturing opportunities, while protecting them from any downside risks that may emerge.
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