Felipe Caro and Christopher S. Tang, UCLA Anderson School
In late June of 2015, the Senate passed legislation that gave President Obama the authority to present the 12-nation Trans-Pacific Partnership (TPP) trade package to Congress with no amendments or filibusters allowed. TPP is a unprecedented trade deal in history because it involves 12 countries (United States, Japan, Australia, Peru, Malaysia, Vietnam, New Zealand, Chile, Singapore, Canada, Mexico, and Brunei Darussalam), which accounts for 40% of global trade. (The global trade amounts to US$ 38 trillion in 2014, where China took the lead with US$ 4.2 trillion and US was second with US$ 3.9 trillion.)
TPP creates advantages for its members to trade among each other, stimulating economic growth for its member countries with a combined population of 806 million (11% of the global population). On the flip side, many critics worry that TPP will create negative economic impact on many developing countries (e.g., Bangladesh, Cambodia, Ecuador, Guatemala, Indonesia, India, Pakistan, and many African countries). Is this concern valid?
Based on our evaluation, the impact of TPP on developing countries is not as bad as portrayed in the press. For instance, six of the ASEAN countries such as Cambodia, Indonesia, Laos, Myanmar, Philippines, and Thailand can leverage their FTAs with the remaining 4 ASEAN countries (Brunei, Malaysia, Singapore, and Vietnam) who are TPP members to develop cost effective supply chain operations to facilitate multi-lateral trades with minimal tariffs. Specifically, those 6 ASEAN countries can focus on “upstream” operations, and ship the components or semi-finished goods to the remaining 4 countries via FTAs to conduct the downstream operations before the finished goods are shipped to the other TPP members via TPP agreement.
Overall, TPP is not a threat to various developing countries. Instead, it can create new opportunities for more free trade agreements to stimulate trades among different countries. Hopefully, all trades will become free one day, free at last!
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