Since the conclusion of the Uruguay Round the development of international trade rules has drifted from global to regional and bilateral agreements. The United States has not participated actively in this shift and the Trans-Pacific Partnership (TPP), now in negotiation, could become its first significant regional agreement since the North American Free Trade Agreement (NAFTA). The TPP is also a possible pathway to the larger Free Trade Area of the Asia-Pacific (FTAAP). This study examines the potential benefits and costs of the TPP and its strategic implications for economic integration in the Asia-Pacific.

The few regional initiatives that the United States has recently supported have not been particularly successful. An effort to position the Asia Pacific Economic Cooperation (APEC) forum as a venue for binding agreements ended with the failure of the “Early Voluntary Sectoral Liberalization” initiative in 1998. U.S. proposals for a Free Trade Area of the Americas did not attract enough support. And the FTAAP, although endorsed by APEC leaders, has met with little enthusiasm so far. In these efforts, U.S. expectations for market access have clashed with the sensitivities of diverse partners and domestic politics. Since most U.S. trade partners already have reasonably good access to U.S. markets, they have limited incentives to accommodate stringent U.S. demands. The expiration of “fast track” authority in the United States in 2007 will make reaching trade agreements even more complicated in the future.

Against this challenging background, the United States is working with eight other countries to make the TPP a cutting-edge, “21st century agreement” (USTR 2011). The initiative covers relatively little trade now, but it is ambitious in terms of issues and membership, encompassing advanced, emerging, and low-income countries. It aims to form the core of an Asia-Pacific-wide agreement with important implications for the global trade architecture.

The TPP negotiation is more likely to succeed than prior regional efforts that involved the United States because the participants are like-minded, open economies. Also, since trade measures usually attract bipartisan support, an agreement seen as beneficial to the United States could be acceptable to Congress despite current political divisions. Still, an agreement will not come easily, especially in the context of slow economic growth. Internationally, U.S. market are important, but are becoming less so compared to those of other, more rapidly growing economies. Domestically, the politics of trade remains contentious. Thus, the scenarious used in this study to analyze ambitious paths of future agreements-designed to highlight welfare and trade effects-may strike some as unrealistic. But there is no doubt that the TPP is a serious initiative and warrants careful analysis.

An assessment of the TPP must account for three unusual features of a potential agreement. First, the negotiations are emerging in the context of other trade initiatives in Asia. We therefore need to analyze interactions between two parallel efforts-the “Trans-Pacific track” and an “Asian track”- that will evolve and perhaps converge over the next 15 years. Second, the benefits of the TPP depend more on its impact on the future of the Asia-Pacific trading system-the development of a workable, high-quality template for regional integration-that on immediate gains from trade. Accordingly, we need to understand how the agreement will affect incentives for enlargement and the templates used in future negotiations. Third, the TPP involves relatively new issues ranging study attempts to address each of these issues.

Briefly, our results suggest that the two tracks are viable and largely complementary pathways to Asia – Pacific integration. Each tracks should generates substantial gains; each is likely to grow, and each will stimulate progress on the other. The tracks will compete with each other (mainly in the templates adopted) but will generate incentives for consolidation into a region-wide agreement. That outcome would be especially attractive to the region and the world, yielding benefits comparable to those that could have been obtained from a successful Doha Round.

Section 2 reviews the origins of the TPP and the objectives of the United States and other economies. Section 3 analyzes possible provisions of the agreement. Section 4 describes the model, data, and the methodology of the study. Section 5 examines welfare and trade results. Section 6 uses a strategic, game-theoretic perspective to explore why countries might agree on an initial framework and subsequent enlargements. Section 7 views the results from national perspectives, analyzing the role of key economies in the negotiations. Section 8 provides sensitivity results and Section 9 concludes.

Source: East-West Center

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