Should TPP Be Formed? On the Potential Economic, Governance, and Conflict-Reducing Impacts of the Trans-Pacific Partnership Agreement

Abstract

(ProQuest: ... denotes formulae omitted.)Comprehensive are the most distinctive aspect of the TPP. (Petri and Plummer (2016), p. 5)I. INTRODUCTIONThe proposed Trans-Pacific Partnership (TPP) is a free trade agreement (FTA) among 12 Pacific Rim countries whose joint gross domestic products (GDPs) account for approximately 36 percent of world GDP and whose mutual trade accounts for approximately 24 percent of world trade. For the United States, the 11 potential TPP partners already account for 45 percent of U.S. exports.1 Moreover, the United States already has in place FTAs with 6 of these 11 countries.2 Other TPP countries also have FTAs in place with several countries. Hence, TPP is designed to expand trade-policy liberalization among a larger number of countries, to deepen the degree of trade-policy liberalization by lowering non-tariff trade barriers and other fixed trade costs (including liberalizing trade in services and lowering foreign direct investment (FDI) barriers), and to improve harmonization of trade and FDI policies. The likely most substantive contribution of the TPP is to reduce an overwhelming array offixed costs that firms face in exporting goods and services to foreign markets. The comprehensive rules noted above in Petri and Plummer (2016) should reduce such export fixed costs. In other words, in stark contrast to most previous FTAs, the TPP is unique and unprecedented in two dimensions. First, the TPP will improve the of international trade and FDI to allow all countries' firms to trade on a fairer and more transparent footing. Second, by lowering variable and fixed trade costs, the TPP will enable a greater number of firms to export to foreign markets.Prior to any new FTA formation, academic, business, and government economists typically conduct ex ante computable general equilibrium (CGE) analyses of the (expected) economic benefits and costs to nations' trade, employment, and real gross domestic products (GDPs) and national incomes. Such models provide quantitative predictions of the effects of an agreement, typically using multi-sector, multi-country frameworks with factors of production (such as labor) adjusting between industries (and some models even allow net employment increases or decreases). While several such CGE models have been implemented for TPP and their predictions summarized and contrasted,3 two prominent CGE analyses are those by Petri and Plummer (2016) and the U.S. International Trade Commission, ITC (2016). Petri and Plummer (2016) is an updated version of Petri, Plummer, and Zhai (2011) and suggests that annual exports of the United States would increase by about 9 percent from TPP (by year 2030, relative to the baseline), while annual U.S. real GDP would increase 0.5 percent (in their analysis, employment is unchanged, assuming full employment). In contrast, ITC (2016), a study mandated by the U.S. Trade Priorities Act following President Obama's notification, used a CGE model and found-under some different, and more traditional, assumptions-that annual U.S. exports to the world would grow only 1 percent (though by 5.6 percent with TPP members) and annual U.S. imports would grow similarly (relative to the baseline). ITC (2016) also predicted that U.S. real GDP would increase only 0.2 percent, which is 40 percent of the 0.5 percent impact in the Petri and Plummer (2016) study.4 While many observers claim that such impacts are small (cf., Wall Street Journal, May 16, 2016), in this era of annual real GDP growth rates among developed countries of 2 percent, additional annual growth of 0.2-0.5 percent is substantive and should not be discounted.5This paper-intended to complement these studies-examines the potential impacts of TPP beyond traditional CGE estimates, taking a broader economic, governance, and historical perspective. We do this by bringing to the fore five issues that traditional CGE models ignore; consequently, we will argue that traditional predicted CGE estimates of the trade and real income effects of TPP, such as those in ITC (2016), should be interpreted as a likely floor in terms of potential benefits. …