Trans-Pacific Partnership (TPP) Countries: Comparative Trade and Economic Analysis
Released: 2015-07-07T00:00:00

Introduction1

The Trans-Pacific Partnership (TPP) is a proposed regional free trade agreement (FTA) under negotiation between the United States and 11 other countries. Current participants include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. Participation in the negotiations has grown over time with Canada and Mexico joining in late 2012 and Japan, the most recent country to participate, joining in July 2013. The proposed agreement's ability to attract and incorporate new members will likely affect the ultimate global significance of its regional platform and the new trade rules the agreement may come to embody.

Congress has a major role in the negotiation and implementation of FTAs. Throughout the negotiating process, Congress may conduct oversight hearings and consultations with U.S. trade negotiators, providing Members an opportunity to oversee and influence the development of the final TPP. Congress may also establish U.S. trade negotiating objectives as part of its granting of Trade Promotion Authority (TPA) to the executive branch. Congress would also have to consider and approve implementing legislation before a final FTA could enter into force.

The United States has a number of objectives in the proposed TPP agreement. These include

achieving a comprehensive and high standard regional FTA that eliminates and reduces trade barriers and increases opportunities for U.S. trade and investment; allowing the United States to play a role in developing a broader platform for trade liberalization, particularly throughout the Asia-Pacific region; and providing the United States with an opportunity to establish new rules on emerging trade issues, such as regulatory coherence, supply chain management, state-owned enterprises, and increasing trade opportunities for small- and medium-sized businesses.

This report focuses primarily on U.S. economic interests in the TPP agreement. It provides a comparative economic analysis of the countries currently negotiating the TPP and describes the U.S. trade flows with these countries at the bilateral level and in relation to the countries' economic linkages with the rest of the world. It also provides information on the existing trade agreements of TPP countries. As such, this report aims to serve as an introduction to the economic relationship these countries have, both individually and collectively, with the United States.

Economic Overview

Asia-Pacific Region

The Asia-Pacific region, defined for the purposes of this report as the current members of the Asia-Pacific Economic Cooperation (APEC) forum, has substantial global economic significance. Among its 21 member economies, APEC includes all 12 of the current TPP participants ( Table 1 ). It is home to 40% of the world's population and nearly 60% of global GDP. Moreover, the region's economies are growing quickly. In 2014, six of these 21 economies had GDP growth above 5%, while GDP growth in the United States was 2.4%. Along with increasing economic influence these economies account for a growing share of world trade. For example, Asia's share of world imports grew from 18.5% in 1983 to 31.8% in 2013. The region is significant not just as a burgeoning market, but also as an integral part of global value chains. The East Asian members, in particular, are highly connected through global value chains and involve the United States in complex production networks spanning the Pacific. In 2009, for example, 64% of Asian non-fuel imports were in intermediate goods and over $600 billion in intermediate goods moved between Asia and North America.

The Asia-Pacific region represents an important source and destination for U.S. trade and investment. Together, these economies represent nearly 60% of overall U.S. trade and about one-quarter of the stock of foreign direct investment (FDI) into and out of the United States. Yet, there remains great potential for further U.S. economic engagement with the region. Some U.S. policy observers argue that the United States has fallen behind in its focus on market access abroad, particularly in emerging Asia and Latin America. The ongoing U.S. involvement in regional trade negotiations, including the TPP and the Transatlantic Trade and Investment Partnership (T-TIP) with the European Union, plurilateral initiatives such as the potential Trade in Services Agreement (TISA), and multilateral negotiations at the World Trade Organization (WTO), as well as recent congressional approval of Trade Promotion Authority legislation, suggest continued U.S. interest in opening markets and expanding U.S. economic engagement abroad.

TPP Countries

The 12 countries that constitute the current group of TPP participants are economically and demographically diverse. As shown in Figure 1 , the United States is more than twice as large as any other TPP country in terms of its economy and population. Japan, the newest and next largest TPP country, has a GDP and population that are 27% and 40% of the U.S. level, respectively. GDP per capita at purchasing power parity (PPP), a rough measure of a country's level of economic development, ranges from just over $5,500 in Vietnam to over $80,000 in Singapore, more than $20,000 higher than that of the United States. These countries vary greatly in their geography as well. They range from Australia, a large and resource-rich continent, to Singapore, a small, trade-dependent city-state. As discussed in the final section of this report, some of this economic and demographic diversity is reflected in both the type and intensity of trade and investment flows between the United States and TPP countries.

A potential TPP FTA may present an opportunity for the United States to expand its trade and investment with a large and fast-growing regional market. Non-U.S. TPP partners collectively represent a potential market with a population about 50% larger than the United States and several TPP economies have grown rapidly over the past decade (e.g. , average GDP growth for 2005-2014 was 6.2% in Vietnam and Peru, 5.9% in Singapore, and 4.9% in Malaysia). U.S. trade and FDI flows with these countries have increased significantly. U.S. exports to TPP countries increased by just over 90% during this period, exceeding $178 billion in services in 2013 and $727 billion in goods in 2014. U.S. imports from TPP countries increased by nearly 60% since 2004, with services imports of $95 billion in 2013 and goods imports of $882 billion in 2014. The annual flow of both inbound and outward foreign direct investment (FDI) between the United States and TPP countries was much higher in 2013 than 2004, although it has fluctuated throughout the decade. The flow of U.S. FDI abroad to TPP countries was $86 billion in 2013 with inward FDI at $69 billion. The stock of both U.S. FDI in TPP countries and inward FDI from TPP countries nearly doubled from 2004 to 2013 ($440 billion to $983 billion and $350 billion to $664 billion).

The United States has consistently run a goods trade deficit with TPP countries and a services trade surplus ( Figure 2 ) . The U.S. services trade surplus with TPP countries increased over most of the past decade while the U.S. goods trade deficit fell (became less negative) sharply during the recession and has yet to reach its pre-recession levels. In services, the U.S. trade surplus has increased from $38 billion in 2004 to $83 billion in 2013. In goods, the U.S. trade deficit in 2014 of $155 billion was less than the deficit in 2004 of $203 billion, and significantly less than the peak deficit in 2006 of $247 billion. Crude oil, a major U.S. import from both Canada and Mexico, is a large and growing contributor to the overall trade deficit with TPP countries. Excluding trade in crude oil, the United States actually had an overall trade surplus (goods and services) with TPP countries in 2013.

New and Potential TPP Participants

One of the United States' expressed interests in the proposed TPP FTA is its potential expansion to include other Asia-Pacific economies. To date the expansion of the negotiations has included only APEC members. In May 2011, the TPP trade ministers agreed "to consider the membership of any APEC members if and when they are ready to meet the high standards of the agreement." In November 2011, Canada, Japan, and Mexico announced their intent to seek consultations with existing participants on the possibility of joining the negotiations. Canada and Mexico became official participants in late 2012, and Japan joined the negotiations in July 2013.

South Korea and other APEC economies have also expressed interest in potentially joining the negotiations, as have non-APEC members such as Costa Rica and Colombia among other countries. Ambassador Froman welcomed South Korea's expression of interest in the TPP negotiations, noting the existing trade and investment commitments South Korea had made with the United States through the U.S.-South Korea (KORUS) FTA, but suggested that the current negotiating members would prioritize concluding the existing negotiations before considering the entry of new members. According to press reports, South Korea has been consulting bilaterally with the existing TPP negotiating parties about what steps would be required to join the TPP negotiations and what a potential timeframe for participation may be.

The recent participation of Canada, Japan, and Mexico greatly expanded the size of the TPP in terms of U.S. trade. Using trade figures from 2013, the share of U.S. goods and services trade encompassed by TPP partners increased from 5% to 31% with the addition of Canada and Mexico, increased further to 37% with the addition of Japan, and though unlikely in the near future, expansion of the potential agreement to all of APEC would increase its share of U.S. trade to 57% ( Figure 3 ).

Japan's entry into the agreement is particularly significant. Japan is the third-largest economy in the world, the fourth-largest U.S. trading partner, and not party to an existing U.S. FTA, as opposed to Canada and Mexico, which are part of the North American Free Trade Agreement (NAFTA). Japan is now the second-largest country participating in TPP, both in terms of population (127 million) and GDP ($4.6 trillion). Some analysts argue that Japan's participation in the TPP negotiations has attracted other Asia-Pacific countries and will help achieve the goal of membership expansion. For example, South Korea first expressed potential interest in joining in 2013, a few months after Japan became an official member of the negotiations. Others contend that Japan's entry may have complicated the negotiation process, adding a significant economic counterweight to the United States and perhaps slowing the overall speed of the negotiations. U.S. bilateral negotiations with Japan on sensitive issues including autos and agriculture remain major sticking points in the overall TPP negotiations.

Existing Trade and Economic Agreements

TPP participants belong to various multilateral, regional, and bilateral trade and economic agreements. For example, all TPP countries are members of the World Trade Organization (WTO), with Vietnam joining most recently in 2007. In addition, TPP countries have a number of bilateral and regional FTAs in effect, of varying degrees, some of which include other TPP negotiating partners. The United States, for example, has FTAs with 20 countries including 6 TPP participants (Australia, Canada, Chile, Mexico, Peru, and Singapore). In total, there are more than 180 preferential trade agreements among Asia-Pacific countries, most of which do not include the United States. The United States Trade Representative (USTR), as well as certain stakeholder groups, view the proposed TPP FTA as an opportunity for the United States to address this rapid rise in preferential trade agreements, with a goal of ensuring that U.S. goods and services remain competitive in the region and that the United States plays a central role in developing a framework for future regional free trade negotiations. Given the potential for future expansion in TPP membership, supporters contend that the ability to influence the strength and coverage of the agreement at the beginning stage may be particularly advantageous.

Asia-Pacific Economic Cooperation (APEC)

TPP participants are part of a broader network of international partnerships within the Asia-Pacific. The Asia-Pacific Economic Cooperation (APEC) forum is a primary vehicle for broader regional cooperation on trade and economic issues in the Asia-Pacific region. The annual APEC Leaders (heads-of-state) meeting provides an opportunity for stakeholders throughout the region, including political and business leaders, to address regional impediments to trade and economic integration through non-binding commitments. Although the organization itself does not negotiate trade agreements, its stated goals, known as the "Bogor Goals," include freer trade and investment throughout the region. Specifically, APEC views itself as an "incubator" of an eventual Free Trade Area of the Asia-Pacific (FTAAP) and supports the TPP as one step towards that goal. APEC's 21 members include the three largest economies in the world and the four largest U.S. trading partners.

Association of Southeast Asian Nations (ASEAN)

ASEAN is another major regional economic partnership that includes TPP countries. ASEAN members include Brunei, Burma (Myanmar), Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. Unlike APEC, ASEAN has already created a free trade area among its members. However, import tariffs on intra-ASEAN trade are being removed at different rates in different ASEAN countries depending on levels of economic development. According to the group's economic community blueprint, ASEAN members intend to promote further economic integration and freer flow of goods, services, investment, capital, and labor throughout their membership in the future.

The association has also established FTAs collectively with non-ASEAN countries, including Australia, China, India, Japan, New Zealand, and South Korea. Talks have also begun on a potential single trade agreement that would encompass ASEAN and its six FTA partners, known as the Regional Comprehensive Economic Partnership (RCEP). This agreement may present an alternative to the TPP in achieving freer trade throughout the Asia-Pacific region, though it may be less comprehensive in its trade liberalization ambitions. Some see these ASEAN economic partnerships that exclude the United States but include the other major economies of the Asia-Pacific as presenting a challenge to the United States' ability to retain its economic clout engagement in the region. However, at least one study has shown that while there may be benefits to whichever country or country-group has more influence in setting the trade rules for the region, there would remain significant economic benefits for the two largest economies in RCEP and TPP, China and the United States, to eventually merge the two separate efforts into one region-wide FTA.

Free Trade Agreements

Table A-1 in the appendix shows free trade agreements of TPP countries that have either been concluded or are under negotiation. While such a list provides a general overview of a country's proclivity toward economic openness, these FTAs differ in the extent of their tariff reduction, product inclusion, and trade rules. Due to this variation, a country may enter into a trade agreement as a member of a larger body (e.g., ASEAN-Australia) and also negotiate separate bilateral FTAs (e.g., Malaysia-Australia). The table includes both bilateral FTAs and larger regional agreements.

TPP participants have multiple FTAs in place throughout the Asia-Pacific and the world. As shown in Table A-1 , nine of the twelve TPP countries have agreements in place or are in negotiations with China, the largest economy in the region not currently participating in the TPP negotiations. Ten TPP countries, including the United States, also have agreements or are negotiating with the European Union. TPP countries are also well connected to one another through their existing trade agreements. Figure 4 shows that the number of agreements in force among TPP countries range from Canada with only four existing FTAs among the TPP countries, to Chile with 11 FTAs in place covering the entire TPP membership. The FTA among Brunei, Chile, New Zealand, and Singapore that served as the starting point for the current TPP, known as the Trans-Pacific Strategic Economic Partnership agreement (P-4), and ASEAN, play a large part in this interconnectedness, each joining four of the TPP economies into a free trade area. The North American Free Trade Agreement (NAFTA) joins three TPP partners, Canada, Mexico, and the United States, and encompasses over 50% of all TPP goods trade. This preexisting network of trade agreements among TPP members suggests that the negotiating countries may envision benefits from a concluded TPP agreement that extend beyond those achieved in their existing agreements.

U.S. FTAs and TPP

The United States currently has FTAs in force with 20 countries. Figure 5 places the potential TPP agreement in context with these existing U.S. FTAs and the potential T-TIP FTA the United States is negotiating with the European Union. Now that the members of NAFTA are part of the TPP negotiations, this potential FTA would be the largest U.S. FTA in terms total goods trade. U.S. trade with TPP partners was larger than the level of U.S. trade with South Korea, the largest of the recent U.S. FTA partners, by a factor of fourteen in goods trade in 2014 and a factor of nine in services trade in 2013. However, as noted above, much of this U.S.-TPP trade is already covered by existing trade agreements. U.S. trade with FTA partners accounted for 82% of U.S.-TPP goods trade in 2014 and 69% of U.S.-TPP services trade in 2013. Japan is the largest U.S. trading partner in the negotiations without an existing FTA. In terms of foreign direct investment (FDI) the TPP would be larger than any existing U.S. FTA, although the proposed T-TIP would be larger still, highlighting that existing U.S. investment linkages are greater with the European Union than with the Asia-Pacific TPP countries.

Bilateral Investment Treaties

International trade and economic relations include investment flows between nations, in addition to trade in goods and services. These investment flows can be the subject of negotiated disciplines in bilateral investment treaties (BITs) or FTAs. The United States typically includes investment provisions in its FTAs, as with each of the six existing FTAs between the United States and TPP participants. Currently, no U.S. BITs are in place with the other five TPP countries.

Among TPP participants, Malaysia has been the most proactive in negotiating BITS, according to the latest United Nations data on international investment treaties. As of June 2015, Malaysia had 50 BITs in force, while New Zealand had the lowest number of investment treaties with only 2 in force. The United States had 40 BITs in force as of June 2015 ( Table 2 ) .

Trade, Investment, and Tariff Patterns

This section examines trade and investment flows into and out of TPP countries as well as their tariff rates. Given the variation in geography, population, and economic development among TPP countries, the type and quantity of trade and investment varies greatly from country to country. Additionally, existing tariff structures among the TPP countries highlight the variation in their openness to trade and may identify some potential difficulties as well as opportunities in liberalizing trade between such diverse countries. The analysis and description that follows depends on the quality and scope of the relevant data. Hence, the most comprehensive examination is on merchandise trade.

U.S.-TPP Trade

Merchandise Trade31

Trade between the United States and other TPP countries represents about 40% of overall U.S. goods trade. The United States had a deficit in merchandise trade with TPP countries in 2014 ( Table 3 ) . Energy imports, particularly crude oil from Canada and Mexico, and imports of vehicles and parts from Japan accounted for most of this deficit. Canada, Mexico, and Japan are the first, third, and fourth-largest U.S. trade partners overall. The majority of U.S.-TPP trade is concentrated with these three TPP negotiating partners. Figure 6 below shows that U.S. imports each from Canada, Japan, and Mexico were larger than U.S. imports from the other eight TPP countries combined. The same held for U.S. exports to Canada and Mexico, but U.S exports to Japan were about only about 60% of the value of U.S. exports to the other eight TPP countries. In 2014, U.S. merchandise trade with these three countries accounted for nearly 87% of U.S. trade with TPP negotiating partners.

Among the other eight TPP countries, Australia and Singapore are the major export markets for the United States, while Malaysia and Vietnam are the major import markets. In 2014, of the $108 billion in U.S. goods exports to these other 8 TPP countries, over half went to Australia and Singapore, while over 70% of the $108 billion in U.S. imports came from Malaysia, Singapore, and Vietnam. Over the past decade, substantial increases in trade between the United States and some of the smaller economies have occurred ( Figure 7 and Figure 8 ). For example, U.S. trade with Peru and Chile has tripled, and U.S. trade with Vietnam has increased more than 5-fold. Figure 8 below highlights Vietnam's rapid rise in supplying goods to the United States, moving from the fourth-biggest to the largest supplier of U.S. imports among these eight TPP countries, gaining more ground in the U.S. market than even recent FTA partners such as Peru and Chile. Much of this increase likely reflects the improved trade relations between Vietnam and the United States over the past decade. The United States granted Vietnam conditional normal trade relations (NTR) status in 2001 and then permanent NTR (PNTR) status in 2006 when Vietnam acceded to the WTO.

Over the past decade the U.S. trade balance with these eight TPP countries has fluctuated. The trade deficit grew (became more negative) from 2004, peaked in 2006, and then fell to a surplus in 2008. The surplus grew until 2012 and then fell becoming a small deficit again in 2014. Driving this shifting trade balance were falling imports from Malaysia from 2004 to 2009 which then recovered by 2014 and a rapid rise in imports from Vietnam from 2009 to 2014. Exports have grown more consistently throughout the period but the largest increases have been in exports to Singapore, Australia, Chile, and Peru, who like Canada and Mexico are current U.S. FTA partners.

At the aggregate level, the top U.S. import categories are motor vehicles, oil and gas (primarily crude oil), motor vehicle parts, semiconductors and other electronic components, computer equipment, nonferrous metal, and communications equipment. The top export categories are motor vehicle parts, petroleum and coal products, motor vehicles, aircraft, computer equipment, semiconductors and electronic components, and basic chemicals. Similarities in these product categories among the top U.S. imports and exports may reflect the supply chains and production linkages that exist between the United States and Asia-Pacific countries. Even in petroleum products, for example, raw crude is the primary U.S. import, while refined petroleum products are the primary U.S. export. Other major supply chains include motor vehicle and electronic equipment production.

Considering bilateral flows, U.S. exports are largely in the same top product categories across countries and include those listed above. However, U.S. imports from TPP countries vary greatly. Table 4 shows the top three imports/exports for each of the TPP countries, their value, and the percent of each country's total U.S. imports/exports that category represents. Top U.S. exports including motor vehicles and aircraft highlight the U.S. advantage in high-tech products.

U.S. imports from TPP countries reflect the dominant industries and relative strengths in each country. Agriculture and natural resource products are the top U.S. imports from Australia, Chile, New Zealand, and Peru. Malaysia and Singapore's exports to the United States consist primarily of manufactured products such as computers, semiconductors and electronic components, and chemicals. From Canada and Mexico, the United States imports both raw materials, such as crude oil, and manufactured goods such as motor vehicles and parts. Vietnam, the TPP country with the lowest per capita GDP, specializes in lower skilled, labor-intensive apparel and footwear industries, which represent over 40% of its exports to the United States. Over 40% of U.S. imports from Japan are advanced manufacturing products such as motor vehicles and parts and aircraft and parts.

Agriculture Trade

Trade is particularly important to U.S. agriculture, with exports accounting for approximately 20% of U.S. agriculture production. In the context of the TPP negotiations, the United States has both potential import sensitivities and major export interests, which vary by product and country, given the range of TPP participants, making for a complex negotiating dynamic. Other TPP participants include major agriculture exporters such as Australia and New Zealand as well large consumer markets with relatively high agricultural tariffs such as Japan, Malaysia, and Vietnam. Table 4 below provides data on U.S. agricultural trade with TPP countries. Canada, Japan, and Mexico are the largest U.S. trade partners in agriculture products. The United States has an overall surplus in trade in agriculture products with TPP countries, due primarily to the large U.S. surplus with Japan.

Services Trade33

A main focus of the proposed TPP FTA, billed as a "21 st century" agreement, is emerging issues in international trade. Although covered in previous U.S. FTAs, trade in services, particularly as it relates to digital trade, is one such emerging issue. The United States, in which services provide 80% of U.S. civilian employment and account for 70% of GDP, is considered to be particularly competitive in this sector. Services, unlike goods, are typically intangible (e.g., financial, legal, accounting), making their trade more complex to measure than tracking a shipping container from location A to location B. As a result, trade in services data lack the detail provided for trade in goods. The analysis below only covers the TPP countries individually included in U.S. services trade statistics: Australia, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, and Singapore. The most recent bilateral services trade statistics are available through 2013. Elsewhere in this document, if not specified, trade simply refers to merchandise (goods) trade.

U.S. services trade with the eight TPP countries for which data are available presents the same pattern of competitiveness seen in U.S. services trade with the rest of the world. In 2013, the United States had a collective services trade surplus of more than $83 billion with these eight TPP countries. As with goods trade, Canada, Japan, and Mexico are the largest U.S. services trade partners among TPP members ( Figure 9 ) . However, during the past decade U.S. services trade with other TPP countries, particularly Australia, have increased at a faster rate than those from Mexico, such that U.S. services trade with the other TPP countries, collectively, now exceeds U.S. trade with Mexico. Services exports from the United States to these eight TPP countries collectively have more than doubled over the past decade, and services exports to Australia, in particular, have nearly tripled. In 2013, the United States had a significant services trade surplus with all TPP countries for which individual data are available ( Table 6 ).

The composition of U.S. services exports to the eight TPP countries differs somewhat from the composition of U.S. services imports. Figure 10 below shows that while the United States has a trade surplus in each of the six categories listed, some categories have relatively more balanced trade than others. For example, U.S.-TPP trade in financial services shows a large U.S. surplus—U.S. exports are more than three times as great as U.S. imports. In the categories of royalties or charges for the use of intellectual property, U.S. exports are also more than double U.S. imports. U.S. exports of travel and transport services, the largest category of U.S.-TPP trade, are slightly less than twice as large as U.S. imports from TPP countries. For business services trade and insurance, telecommunications and other private services, U.S. exports and imports with TPP countries are relatively balanced.

Services Supplied through Foreign Affiliates

Countries also provide services to foreign residents by establishing a commercial presence in local markets. The BEA collects data on services supplied to foreign residents by majority-owned foreign affiliates (MOFAs) of U.S. multi-national corporations (MNCs) (i.e., U.S. companies with operations in foreign countries). Typically, the value of U.S. services supplied through MOFAs is considerably larger than trade in services discussed above. For instance, in 2012, more than $1.2 trillion in services were provided to foreign residents through foreign affiliates of U.S. companies, compared to just over $600 billion supplied through trade in services. At a smaller scale, the same pattern holds true for U.S. services provided to the eight TPP countries for which services data are available. During 2004-2012, the latest period for which consistent data are available, services supplied through U.S. MOFAs grew rapidly in most TPP countries, doubling in TPP countries as a whole. In 2012, slightly over half of services supplied to TPP countries through U.S. MOFAs went to Canada (34%) and Japan (20%), although the other TPP countries share of this trade has grown considerably ( Figure 11 ) .

In 2012, the value of services supplied to U.S. residents through majority-owned U.S. affiliates (MOUSAs) of foreign MNCs (i.e. , foreign companies that have established a commercial presence in the United States) was only about 60% of the value of services supplied abroad through MOFAs of U.S. MNCs. This same pattern is evident among all TPP countries except Japan: the value of services supplied to the United States through TPP MOUSAs, excluding Japan, are about half of those supplied to TPP countries from U.S. MOFAs. Conversely Japan's services supplied to the United States through its MOUSAs are one-third larger than the U.S. services supplied through MOFAs in Japan. This likely reflects the fact that Japan's investment in the United States has exceeded U.S. investment in Japan (see investment discussion below). Among TPP countries, Japan (48%) and Canada (36%) account for the vast majority of services supplied through MOUSAs ( Figure 12 ) .

Aggregate TPP Trade

Who trades with TPP countries? Figure 13 shows TPP countries' aggregate goods trade with each other and the rest of the world.

Goods trade among TPP partners was more than $2 trillion in 2014. As the largest country in the TPP, both in terms of population and GDP, U.S. trade with TPP partners accounts for much of the trade among TPP countries. Specifically, trade among the NAFTA countries, Canada, Mexico, and the United States, was over $1.2 trillion in 2012—over half of all intra-TPP trade. U.S. trade with Japan, the third largest bilateral trade partnership in the TPP, accounted for nearly $200 billion of total intra-TPP trade. See Table A-2 in the Appendix for intra-TPP trade data for each TPP country.

Even larger than intra-TPP trade, however, is TPP country trade with the other APEC members not currently party to the TPP negotiations. This goods trade amounted to over $2.7 trillion in 2014. Trade between China and the TPP countries, nearly $1.5 trillion, made up over half of all TPP country trade with the other APEC members. In terms of goods trade, expansion of the TPP to include China and the other APEC members would encompass more TPP country trade than expanding the agreement in any other region including the European Union ($1.3 trillion) and Latin America ($459 billion).

Investment Flows

The proposed TPP FTA, like previous U.S. FTAs, is expected to include provisions on investment. As mentioned above, the FTAs the United States already has in place with six of the TPP countries (Australia, Canada, Chile, Mexico, Peru, and Singapore) include investment provisions. However, no other bilateral investment treaties (BITs) exist between the United States and the remaining TPP countries. The most recent available investment data is through 2013.

Nearly all of the top U.S. investment partners in the TPP are covered by an existing FTA and the stock (accumulated value) of U.S. investment in these countries exceeds their investments in the United States ( Figure 14 ) . Japan, however, does not have an existing U.S. FTA, and uniquely among TPP countries, the stock of Japanese investment in the United States is more than double the stock of U.S. investment in Japan. As discussed above, this pattern can also be seen in U.S.-Japanese services trade through affiliates.

TPP-U.S. FDI flows in 2013 show that Japan and Canada were the largest U.S. investment partners accounting for 34% and 30% of total inward and outward U.S. FDI with TPP countries. Australia (13%), Singapore (12%), and Mexico (7%) were the other top U.S. investment partners among TPP countries ( Table 7 ). Flows of FDI can vary significantly from year to year. From 2012 to 2013 outward U.S. direct investment in TPP countries declined slightly from $90 billion to $86 billion, while inward U.S. FDI from TPP countries nearly doubled from $37 billion to $69 billion.

Tariff Levels

TPP negotiating partners are striving for a high standard and comprehensive FTA that addresses trade barriers beyond tariffs. Traditional tariff barriers, however, still exist among TPP members and can be an impediment to expanded trade. While tariffs are only one form of potential trade barriers, they are relatively easy to compare and can provide a general picture of a country's openness to trade.

As all TPP members are members of the WTO, one relevant tariff to consider is the applied most-favored nation (MFN) tariff. The MFN concept is a WTO principle that requires member countries to non-discriminately apply their tariff rates to other members. The average applied MFN tariff then is simply the average, among all products, of the tariff rates actually applied to other countries, as opposed to bound rates, which are essentially caps, or the maximum level that may be imposed under WTO commitments. Often, applied rates are well below bound rates. For example, Chile's average MFN applied rate is 6% compared to an average bound rate of 25%. Both levels are important and the proposed TPP FTA aims to eventually reduce and eliminate tariffs at both the applied and bound level.

The average applied MFN tariffs vary greatly among TPP countries. Vietnam has an average rate of almost 10%, while Singapore charges tariffs on so few items that it has an average rate of 0%. Figure 15 below shows the average MFN tariffs for TPP participants as reported in the most recent WTO tariff profiles. Per capita GDP, a rough measure of economic development, is graphed on the right axis, revealing that, in general, the more highly developed TPP countries tend to be those with the lower tariff levels. Hence, movement towards zero tariff rates will require a greater reduction in applied tariffs among the less developed members.

Although average tariff rates among all products are below 10% for TPP countries, some industrial and agricultural sectors have relatively high tariffs. For example, the average applied MFN tariff rate on Canadian dairy products is 249%, even though the overall Canadian average applied MFN tariff rate is only 4.2%. Table 8 below provides the product category with the highest tariff rate for each TPP country. These include dairy, clothing, beverages/tobacco, sugar, and electrical machinery.

Uniquely among the TPP members, Chile and Singapore have little variation in tariffs at the industry level. Singapore has an average tariff of 0% in every category except beverages and tobacco. Chile has a higher but still uniform tariff structure, with an average tariff of 6% in all but one product group.

When considering tariff rates, it is useful to consider the overall importance of trade in a nation's economy. Trade-to-GDP ratios, shown in Figure 16 provide one such measure. The figure shows a great range in trade-to-GDP ratios among TPP countries. Singapore's trade-to-GDP ratio of over 366% implies that the country's imports and exports are nearly four times larger than its total domestic production of goods and services. Such a high figure likely reflects Singapore's importance as a regional shipping hub, re-exporting products that merely pass through its borders, as well as its importance in international supply chains, perhaps domestically producing only a portion of the components in the manufactured goods it exports. Given this significant reliance on international trade, it is less surprising that Singapore would have such a low average applied tariff level. The United States, the TPP country with the largest population and economy, and, hence, the largest domestic market, has a trade-to-GDP ratio of 30%, indicating that trade accounts for a smaller share of economic activity in the United States than in any other the TPP countries. The United States, however, has one of the lowest average applied tariff rates among the TPP countries, suggesting that the importance of trade in a country's economy is not the only determinant of its openness to trade. The variation in trade-to-GDP ratios is another indicator of the diversity among the TPP countries, which may ultimately be reflected in their trade policy priorities.

Conclusion

The proposed Trans-Pacific Partnership FTA would be a significant FTA for the United States and could eventually become the platform for a broader Asia-Pacific free trade area, an area that encompasses 40% of the world's people and over half of global production. TPP would be the largest U.S. FTA based on trade flows, and with the entry of Japan, a significant share of U.S.-TPP trade is not currently covered by an FTA. Due to the great diversity among the TPP participants, there may be challenges in achieving a comprehensive and high standard agreement. TPP countries vary in terms of population, economic development, and geography.

In goods and services trade, Canada is the top U.S. partner among TPP countries, with Mexico and Japan as the next largest partners in most categories. In terms of FDI flows, Japan was the largest U.S. partner among TPP countries in 2013. Australia, Malaysia, and Singapore are the other top U.S. partners in merchandise trade among TPP countries, and Australia and Singapore are also major U.S. partners in services trade and investment flows among TPP countries. Vietnam, given its significant population and quickly growing economy, may hold the greatest potential for increased economic relations with the United States moving forward. Malaysia, Mexico, Chile, and Peru also represent growing economies that have populations above 20 million. Chile, Peru, and Mexico's potential for increased U.S. economic exchange due to the TPP, however, may be somewhat lessened given their existing FTAs with the United States.

Appendix.