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Geo-Economic Showdown Over the World’s Largest Free Trade Zone

With applications for membership from China, Taiwan, and the United Kingdom, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) could soon represent one-third of global GDP. What does this dynamic expansion mean for absentee states like Switzerland and the United States?

For a few years now, Dominique Ursprung, who is also managing director of the Swiss-Japanese Chamber of Commerce, has been studying the changing world of free trade agreements. For him, the world’s largest bilateral trade agreement, the one agreed between Japan and the EU in summer 2017 was a wake-up call for Switzerland as a trading nation: Such significant agreements can lead to discrimination against non-members in the markets concerned. In the case of Japan, for example, Swiss exporters of dairy products are suffering from declining sales because their competitors in Germany and France can export their goods to Japan duty-free, while Swiss companies pay tariffs between 15 and 30 percent. This example shows very clearly that such global shifts have very concrete consequences also for the international activities of Swiss companies.

Uneven playing field for Swiss exporters

Together with Patrick Ziltener, an international trade expert at the Universities of Zurich and St. Gallen, Ursprung has analyzed the unexpected turnaround towards the formation of large free trade zones. In a recent article, published in “Die Volkswirtschaft”, they show that this trend goes beyond the EU-Japan Economic Partnership Agreement (EPA), which came into force in February 2019. This development also includes the world’s largest free trade area to date, the Regional Comprehensive Economic Partnership (RCEP), a treaty which has been signed but has not yet entered into force. In their article, the two authors highlight the significance of the dynamic force of the third of these large initiatives, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), for Switzerland and the United States. While neither economy is involved in this “mega-regional”, which has been in force since the end of 2018, they are both watching from the sidelines to see what will happen.

Swiss Perspective on RCEP and CPTPP in 2021

What is special about the CPTPP is that it is explicitly open to new, even non-regional members, and this possibility is being actively exploited: The United Kingdom applied for membership in February 2021, followed by China on 16 September and Taiwan on 24 September 2021. If all three would join the agreement, this would catapult this mega-regional to 34 percent in terms of share of world GDP. The CPTPP is therefore well on its way to becoming the world’s most important free trade area. Just watching from the sidelines is therefore not necessarily the best strategy for a trading nation such as Switzerland.

The article has been published in German “Showdown um die Freihandelszone CPTPP” and in French “Bras de fer autour de la zone de libre-échange PTPGP”.

Contact: Dominique Ursprung, International Management Institute