The TPP and thenew landscape of world tradePeter A. PetriMarch 2013www.asiapacifictrade.org

The new landscape• Game change: 3 mega-negotiations– Trans-Pacific Partnership (TPP, 12 countries)– Regional Comprehensive Economic Partnership (RCEP 16)– Trans-Atlantic Trade and Investment Partnership (TTIP, 28)• Huge potential: the tracks are positive-sum games withmulti-trillion-dollar gains• Positive dynamics: the tracks stimulate competitive
liberalization and perhaps consolidation• Terrible public relations!

Slide 2Mega-tracks =77% world GDPRCEP
26%

TPP
38%

TTIP44%Slide 3

Status• TPP– 16th rounds completed– Japan to join (90 days?)– Negotiators aim for 2013 finish• RCEP– Announced in November at ASEAN summit– First round scheduled for May 2013
– Uncertainty about directions• TTIP– Announced in February– Negotiations to begin in 2013
– Agree on many important issues, disagree on agriculture
Slide 4

Seeking a 21st century agreement• New issues electronic commerce, state owned
enterprises, connectivity, transparency• Improve rules that limit business behind the border• Balanced liberalization to address comparativeadvantage of emerging and advanced markets—agriculture; manufactured goods, services,investment, IPR• Consolidate the “noodle bowl”

Slide 5

A contest of templates• Asian templates address comparative advantage ofemerging markets—manufactured goods• Trans-Pacific/Atlantic templates address goods andcomparative advantage of advanced economies—
services, investment, intellectual property• Both needed for 21st century trade

Slide 6

Many problems to solve!
•••••••••

Services
Investment: investor-state dispute resolution
Intellectual property
Government procurement
Competitive neutrality of SOEs
Labor
Environment
Agriculture (various products)
Rules of origin (esp. textiles for Viet Nam)

Slide 7

An optimistic scenario
2010-2015: Competition– Negotiations compete over templates
2015-2020: Implementation– Other economies join, agreements implemented
2020-2025: Consolidation– China/US/EU still lack FTA– Create Free Trade Area of Asia Pacific?
– Launch new negotiations in WTO?

Slide 8

How big are the benefits?

Slide 9

Estimates of Japan’s benefits from TPP
Government

Petri/Plummer/Zhai

0.66% GDP1.96% GDPTariffs

FDIOld trade

New trade
Slide 10

How did estimates of NAFTA perform?
(percent increase in trade/GDP, 1988-1999)
Variable

ActualModel

Canadian exports

534

Canadian imports

584

Mexican exports

14151

Mexican imports

5134

US exports

193

US imports

302

Actual = 23.2 + 2.43 * Model
Source: Kehoe (2005).
Slide 11

Improved estimating approach• Ongoing analysis by P. Petri, M. Plummer, F. Zhai
www.asiapacifictrade.org• Economic model– Include tariff, non-tariff barriers, FDI effects– 47 existing trade agreements built into baseline– Future agreements based on historical examples– Novel model: firms differ in productivity

Slide 12

Sources of Japan’s benefits• Increased FDI, especially services (finance,insurance, trade, transportation)• Increased productivity, especially services• Slight increase in manufacturing; shift toward highproductivity sectors• Slight decrease in agriculture; shift toward highproductivity sectors

Slide 13TPP or RCEP?
(in 2025, $2007 bill)

Baseline
2025

Change from baseline
TPP12

√

TPP16RCEPJapan

5,338

105

12996

Korea

2,117-35082

ASEAN

3,6356221878

World

103,223223451644√√√ Preference.. but why not both?
Slide 14

China and the United States(in 2025, $2007 bill)

Baseline
2025

Change from baseline
TPP16

RCEPFTAAP

267

United States

20,273

108

0

China

17,655

-84

297

World

103,223

451

644

√
√
678

1,922

√ Preference.. why not FTAAP?
Slide 15

Getting through the politics

Slide 16

Slide 17

From The New York Times

Questions• US-China tensions: are the tracks a zero-sum
political game—are they “containing China”?
• Race: will the tracks compete and divide theregion in two?
• Regional politics: do the tracks contribute to“strategic mistrust”?

Slide 18

Conclusions• Let’s do it!
• Balance depth of TPP vs. future expansion toother countries• Pursue third track of cooperation with China
consistent with eventual FTAAP

Slide 19

For more information:www.asiapacifictrade.org

Slide 20