As Logistics Managers we have to be pending of what is happening with the Trans Pacific Partnership, the biggest trade deal in last years. This agreement was signed by twelve different economies: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, US and Vietnam; its announcement has unleashed opinions, so, in this opportunity I want to share mine, being respectful of others.
First of all, let´s start saying that the agreement is just waiting for some approvals in Legislative Chambers of each country member, practically is a fact. At this point we have two options: to complain or learn how to deal with it and try to take advantage of its offer.
I find three key points on this discussion to understand much better what this is about.
How the business works?
The countries involved are looking for duty preferences to export services and merchandises between them, which mean a reduction in the costs of foreign sales and an opportunity to compete with local market to increase sales; that´s basic, but the business is not over yet.
Tariff levels between TPP countries vary nearly 10%, the idea is to carry that percentage to zero. 10% of savings could mean improvements in infrastructure, wages levels, foreign investments, education and other opportunity areas that would increase competitiveness of members.
Paul Krugman and Joseph Stiglitz say that the TPP economies will not grow even 1%. It is probably true, but I think that the bet is not for economic growth but economic development, huge difference.
I have to underline that there are special safeguards for specific goods like textiles, apparel and footwear, and, of course, agricultural products that are considered as “sensitive products”. These items will not be “unprotected” immediately; further negotiations will take place to solve this core issue in the TPP.
Time to compete, the biggest challenge
Competitiveness. I have talked about this word in this blog many times, now this is the concern about TPP: How are these countries going to compete considering the economic size of each one?
The Competitiveness Index for 2015-2016 shows a gap of 1.5 points between the best-ranked vs the worst.
*Competitiveness Index 2012-2013
Countries in the bottom of the chart have good opportunities to increase the trust in institutions and the quality of infrastructure; countries in the middle have a chance in the innovation field; tops are concerned about compete in the labour market against lower wages. The table below shows the index on each of 12 pillars of Competitiveness Index.
The key play to succeed on this race is creating complementary synergies among members where weaknesses get strength by participation of other countries. The table above is a big puzzle that should look fit each piece to reach the objectives of each TPP country.
Philosophically, the necessity of play a good role as competitor obligates to contenders to train and develop the better of each one. That´s the challenge of TPP members: keep improving.
Adam Smith talked about the efficiency as result of specialisation of production (Division of labour). In this case, the theory has evolved to efficiency as result of competitiveness, where countries will look for offer the best relation cost/benefit to customers and win their preferences based in quality, price and service.
For Logisticians there is no doubt; opportunities will grow in next years. The National Skill Development Corporation (NSDC) estimates that logistics sector will require 11.7 million additional employees by 2022. Initiatives like TPP will demand part of that required labour to satisfy the needs of many industries that will export and import between these 12 countries.
Other sectors will benefit their market diversifying their customers, expanding their frontiers and raising their incomes in consequence. Companies willing to compete will obtain more profits of this Partnership Agreement.
As consumers, the options of purchase will turn wider and cheaper. As I mentioned a bit before, the fight of companies to win the preference of their customers will bring a better cost/benefit factor, quality, price and service of products.
Finally, in a world that is enjoying the speed of the Internet era, agreements like this one would not surprise us, certainly is a consequence. E-commerce, for instance, is more used every day and people don´t want worry about borders and duties, they (we) want our product with less paperwork and the quickest possible. Demand is pushing to reduce the barriers to trade. So, are you in?
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