Presentation on theme: "The Implications of Trans-Pacific Partnership: A Preliminary CGE Assessment (Preliminary, not for quotation) Peter A. Petri, Michael Plummer and Fan."— Presentation transcript:
1 The Implications of Trans-Pacific Partnership: A Preliminary CGE Assessment (Preliminary, not for quotation)Peter A. Petri, Michael Plummer and Fan Zhai(Brandies University, OECD, China Investment Corporation)International Conference on “Globalization Trends and Cycles: The Asian Experience”January 12-13, 2011, Kuala Lumpur
2 I. Context of the study* Shift of economic gravity to Asia Proliferation of regional and bilateral agreements with limited participation by the United StatesCompelling logic of TPPAddresses changing global economic environmentProvides new model for U.S. economic partnershipsPotentially covers majority of US trade* These slides report on work in progress. The study is scheduled to be completed in spring 2011.
3 Asia rises: world output (GDP market prices) 199020102030Key: 1. Emerging Asia Japan US EU ROWSource: Petri 2010.
5 Asia-Pacific FTAs Asian track Trans-Pacific track ASEAN (1992)ASEAN - China (2004), Korea (2006), Japan (2008), Australia-New Zealand (2009)20 bilaterals among Asian APEC economies (Annex A)Official China-Japan- Korea study underwayEAFTA (ASEAN+3) and CEPEA (ASEAN+6) analysis underway in parallel working groupsTrans-Pacific Strategic Economic Partnership (2005)11 bilaterals among APEC economies on different sides of Pacific (Annex B)Trans-Pacific Partnership expansion negotiations underwayFTAAP proposed in APEC; work underway on pathways
6 Why TPP? Contribution to global trade architecture U.S. politics DDA negotiations remain stalledAsia-only initiatives could “draw lines” down the PacificNew approaches are needed for deeper integrationU.S. politicsAbsence of “fast track” authorityGood agreements might attract bipartisan supportScalable, forward-looking approach offers best prospectsMacro contextGlobal economic gravity is shifting toward AsiaStill need engines for sustained recoveryU.S. National Export Initiative
7 What kind of TPP? Innovative Attractive to U.S. Attractive to partners Forward looking: technology, information, investment, services, facilitationDynamic: stimulates expansion into FTAAPAttractive to U.S.Supports investment, services, technologyAddresses jobs and environmentTransparent, private sector drivenAttractive to partnersSupports developmentPragmatic and flexibleTensionsIs the point a “gold standard” or “21st Century”?How much room for phased liberalization?What does “comprehensive” mean?
8 U.S. trade with potential TPPs (prior to Malaysian announcement) AustraliaPeruVietnamBruneiChileNew ZealandSingaporeCanadaKoreaJapanMalaysiaMexicoChinaHong Kong, ChinaTaipei, ChinaOther AsiaOther Latin AmericaFTAAPTPP13TPP8P4US exports in 2009US imports in 2009Source: USITC trade database, July 2, 2010.
9 II. Design of the study Explores dynamic path of agreements Estimates implications for economies joining at different points on the dynamic pathIncorporates broad economic effects, including tariff elimination, service liberalization, trade facilitation, and investment
10 Game-theoretic approach Baseline scenario: Asian economies continue to implement an “Asian track” of trade agreements.Alternative scenario: the U.S. and other economies implement a dynamic “trans-Pacific track” of agreements, including the TPP.The TPP expands from 8** members in 2011 to 13 members in and to 21 members (the FTAAP) in 2020.Each potential member faces an “accession incentive” defined as the welfare difference between joining the TPP and not joining it (while other economies do*).Estimated accession incentives are examined to see whether they are consistent with assumptions made about the time path of country accessions.Sectoral effects are analyzed to assess specific incentives, adjustment impacts, and vulnerable industries.* The usual approach is to measure benefits relative to a “no-agreement” baseline.** Prior to Malaysia’s joining the negotiations.
11 Dynamic scenarios 2011 2015 2020 Asian track ASEAN + EAFTA (ASEAN+3) + bilaterals with China, Japan, Korea, Australia, New Zealand, IndiaEAFTA (ASEAN+3) +bilaterals with Australia, New Zealand, IndiaTrans-Pacific trackTPP8TPP13 (Malaysia*, Korea, Japan, Canada, Mexico join)FTAAP* Malaysia’s participation in the first round negotiations will be introduced in future revisions.
12 US incentive Trans-Pacific and Asian tracks National Welfare (US) Gain Baseline:neither trackAsiantrack2011TPP8ASEAN+2015TPP13EAFTA2020FTAAP2025The US is assumed to join in We expect slight gains as the TPP is formed and substantial gains as additional economies join and the FTAAP is established.
13 Japan incentive Trans-Pacific with Japan National Welfare (Japan) Asian trackGainTrans-Pacific without JapanBaseline:neither track2011TPP8ASEAN+2015TPP13EAFTA2020FTAAP2025Japan is assumed to join in We expect slight losses as the TPP is formed and substantial gains once Japan joins and the FTAAP is established.
14 China incentive Trans-Pacific with China National Welfare (China) Asian trackGainBaseline:neither trackTrans-Pacific without China2011TPP8ASEAN+2015TPP13EAFTA2020FTAAP2025China is assumed to join in We expect rising losses as the TPP is formed and expanded and substantial gains (perhaps greater than for any other economy) as China joins and the FTAAP is established.
15 III. Model structure, data Multi-country, multi-sector general equilibrium model of the world economy.Monopolistic competition with heterogeneous firms. The model generates significant productivity gains in addition to welfare triangles.The evolution of economies over time is simulated with annual solutions, allowing for the analysis of changes in investment paths.DataGTAP 2004 database updated with IMF and other growth projections and additional protection dataTariffsGTAP tariff dataNTBsTariff equivalents from World Bank estimatesServicesTariff equivalents from PIIE estimatesInvestmentTo be introduced exogenously as additions to capital stock and improvements in productivity. Investment effects will be based on gravity model studies. References. Fan Zhai, “Preferential Trade Agreements in Asia: Alternative Scenarios of ‘Hub and Spoke’”. Asian Development Bank, 2006; Fan Zhai, “Armington meets Melitz: introducing firm heterogeneity in a global model of trade,” Journal of Economic Integration, 2008; Zakariah Rashid, Fan Zhai, Peter A. Petri, Michael G. Plummer and Chia Siow Yue, “Regional Market for Goods, Services and Skilled Labor,” in Michael G. Plummer and Chia Siow Yue, eds. Realizing the ASEAN Economic Community, ISEAS, 2009.
16 The CGE modelA global CGE with 24 region, 15 sectors and 5 production factors6 CRTS sectors (agri., mining and gov),9 IRTS sectors (manufacturing and services)Production technology – Nested CESDemand systemHouseholds consumption: ELESOther final demand: fixed share Leontief function
17 IRTS sectors - following Melitz model A continuum of firms differentiated by product variety and productivitySupply is the CES aggregate of the continuum of varietiesConstant markupFixed and iceberg trade costs for exportsFixed inputs: K, L and M
18 Firm HeterogeneityProductivity is drawn from a random Pareto distributionCut-off productivity
19 Profits, entry and exitπxxbxaexitDomestic marketExports
21 FTA implementation (preliminary assumptions) FTAs are phased in linearly over 5 years after signingFinal bilateral protection in an FTA is reduced by:90% of initial tariffs and 2/3 of initial NTBs and service barriers in “comprehensive” FTAs (ANZCERTA, all trans-Pacific track FTAs, ASEAN)80% of initial tariffs and 1/3 of initial NTBs and service barriers in other FTAsTrade covered by multiple FTAs is subject to lowest of potential bilateral protection levelsSlide 21
31 Summary of preliminary results The trans-Pacific track generates substantial benefits for North and South American economies and solid incremental gains for Asian economies over the Asian trackOn the trans-Pacific track, U.S. benefits reach 1½ % of GDPSmall, open economies (e.g. Vietnam) gain most in percentage termsDynamics matter: moving from TPP8 to TPP13 roughly quintuples the gains, and moving from TPP13 to FTAAP further doubles the gainsU.S. export and output gains are concentrated in services and agriculture rather than manufacturingEven Asian liberalization alone will generate benefits for the U.S., albeit on a small scale, due to terms of trade gains that result from Asian productivity improvementsTrade in some agricultural products could rise dramatically under 100% liberalization, hence political feasibility might require some exceptionsIncreases in IP protection and foreign direct investment (not yet modeled) could yield significant additional benefitsSlide 31
32 Annexes Intra-Asian agreements Trans-Pacific agreements C. Region classification
33 A. Intra-Asian* agreements NameEconomiesSignedModel**APTA (Bangkok)Philippines, Korea, Thailand1975-ANZCERTAAustralia, New Zealand19832010ASEAN1992½ 2010 & ½ 2015New Zealand, Singapore2000Japan, Singapore2002China, Hong Kong2003Australia, SingaporeAustralia, Thailand2004ACFTAASEAN, ChinaJapan, Malaysia2005Korea, SingaporeNew Zealand, ThailandJapan, Philippines20062015AKFTAASEAN, KoreaPTA-D-8Indonesia, MalaysiaJBEPAJapan, Brunei2007JTEPAJapan, ThailandRIJEPAJapan, IndonesiaChina, Singapore2008New Zealand, ChinaAJCEPAASEAN, JapanMalaysia, New Zealand2009AANZFTAASEAN, Australia, New ZealandNew Zealand, Hong KongEFCAChina, Taiwan* Among APEC members. Source: ESCAP database, July 20, 2010.** Full implementation date; if >2010 then phased in over previous 5 years.
34 B. Trans-Pacific* agreements NameEconomiesSignedModel**BTAUnited States, Vietnam2000-Korea, Chile20032010United States, SingaporeAUSFTAAustralia, United States2004Japan, MexicoChina, Chile2005TRANS-PACIFIC SEPBrunei, Singapore, New Zealand, ChileJapan, Chile20072015KORUSKorea, United StatesAustralia, Chile2008Singapore, PeruChina, Peru2009* Among APEC members. Source: ESCAP database, July 20, 2010.** Full implementation date; if this date is after 2010, then the agreement is assumed to be phased in over the previous 5 years.
35 C. Region classification P4TPP8TPP13FTAAPASEAN+EAFTA+1Australia•O2Brunei3Canada4Chile5China6Chinese Taipei7Hong Kong, China8India9Indonesia10Japan11Korea12Malaysia13Mexico14New Zealand15Peru16Philippines17Singapore18Thailand19United States20Vietnam21Other ASEAN*22Russia23European Union24Rest of the World* Cambodia, Lao, Myanmar.• Member of FTA group.o Bilateral agreement with FTA group.