Moody's Investors Service says that the withdrawal of the US from the Trans-Pacific Partnership (TPP) represents a lost opportunity, especially for countries that would have substantially expanded their export access to major markets.

Accordingly, the collapse of the Trans-Pacific Partnership (TPP) trade pact is a “material” loss to the export-driven Vietnamese and Malaysian economies, says Moody’s Investors Service.

However, the rating agency said the effects of the TPP’s demise on the two countries’ sovereign credit quality might not be as large as earlier projected. This is because investment made in anticipation of the TPP is unlikely to be reversed and will continue to bolster growth potential in years to come.

Moody’s cited research by the Peterson Institute for International Economics (PIIE), which ranked Vietnam and Malaysia as countries among the 12 TPP signatories expected to see a sizeable pick-up in growth.

The two countries would have benefited from the opening up of trade with the United States, and relatively large long-term foreign direct investment inflows.

The research found that the Vietnamese economy – as measured by real income in 2015 US dollars – would be 8.1 per cent larger in 2030 compared to a baseline without the TPP, while Malaysia’s would be 7.6 per cent bigger.

In addition, the end of the TPP could slow the reform momentum the deal had fuelled.

Moody's conclusions are contained in its just-released report "Sovereigns - Asia Pacific: US Exit from Trans-Pacific Partnership Represents Lost Opportunity for Asia".

Moody's notes that the TPP deal went far beyond existing free trade agreements (FTAs) by setting standards in areas including intellectual property rights, government procurement, environmental and labor conditions, and corruption prevention, in addition to reducing or eliminating tariffs and non-tariff barriers.

The deal also would have further increased access to trade - even where agreements already existed - applied to some hitherto protected markets, such as Japan's (A1 stable) agricultural products.

The significance of the deal is also testified by its scope and size - with the TPP signatory economies accounting for about 40 per cent of global GDP.

While a number of TPP signatory countries are working on other trade deals such as the Regional Comprehensive Economic Partnership (RCEP) - with the exception of the Free Trade Area of the Asia-Pacific (FTAAP) agreement - the potential benefits from these trade deals would be smaller than those of the TPP, as they would cover a smaller share of global trade, overlap with existing arrangements and be narrower in scope.

VN Economic Times