Nov 17, 2012

Thailand - Will Thailand join the TPP?

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Thailand will undoubtedly welcome President Barack Obama warmly this weekend, and is expected to announce its interest in pursuing membership in the Trans-Pacific Partnership trade agreement. This is an important milestone: it boosts the TPP’s prospects for success; improves the chances for Asia-Pacific free trade; and gives a further “thumbs up” to economic ties between Southeast Asia and the United States.

Originally a four-country trade agreement among Brunei, Chile, Singapore and New Zealand, the TPP now has 11 negotiating members on both sides of the Pacific, and could become the biggest trade agreement since the Uruguay Round. It is a huge, positive-sum game that promises benefits to all members and could help to define the trading rules of the 21st century.

If Thailand joins the TPP, it would be one of its biggest beneficiaries. Estimates that colleagues and I have done at the East-West Center and the Peterson Institute for International Economics show that the TPP would generate global income gains of $451 billion per year in 2025, assuming that Japan, Korea, Indonesia, the Philippines and Thailand eventually join the 11 countries now negotiating.  That is more than what the Doha Round could deliver, even if completed.

We also estimate that Thailand would have the second-largest percentage gains among potential members, with incomes rising by 7.6 percent as a result of a TPP agreement – only Vietnam would do better. The United States would gain more in dollar terms, but its percentage gains would be only 0.5 percent of GDP.

Thailand’s large potential gains are explained by its unusual trading position. As Southeast Asia’s main mid-level manufacturing hub, Thailand has powerful clusters in automobiles, computers and telecommunications, industries with fluid global production bases.  Due partly to rising wages and slowing growth in China, Thailand is now poised to gain market shares, particularly in North America. These manufacturing strengths are also reinforced by Thailand’s strategic role in services – banking, transport and logistics – including in the dynamic, emerging economies to its west.

But is Thailand entering the negotiations too late? In the past two and a half years of negotiations much groundwork has been done, but the truth is that the hardest issues have been on hold until now, awaiting the outcome of the U.S. presidential election. So if Thailand moves quickly enough – and it is still unclear whether it can do so – it can still make its opinions count on important choices.

It will not be easy to finish the TPP negotiations, or for Thailand to join. The goals include high, “21st century” standards for many economic linkages, including services, investment, and intellectual property. What makes the TPP so complicated to negotiate is that it is designed to benefit both emerging and advanced economies. But that is also its most valuable feature; a successful TPP could help to grow trade across a wide range of partners.

The United States and other partners have strong positions on many key issues, and have yet to make the concessions needed to make the agreements work. But there is a way to get there. The best strategy for Thailand – and others – is to trust their negotiators and allow concessions. The agreement promises such large benefits that all sides can win, even if all compromise.

Thailand would be the fifth ASEAN country to join the TPP, and in the process it would enhance ASEAN’s role in regional trade diplomacy. This may sound counterintuitive, since not all ASEAN economies would be members. But a likely consequence of Thailand’s membership would be to attract more ASEAN countries, and to accelerate the progress of the ASEAN Economic Community itself.

Economically smaller than China, Japan, or the United States, ASEAN is crucial to cooperation because of its dogged pursuit of economic integration and talented diplomacy. For example, its new framework for a Regional Comprehensive Economic Partnership is helping to create an integration model for the “ASEAN plus six” economies as well.

Eventually, with a foot in both tracks of agreements, ASEAN could help to facilitate convergence between them. By our estimate, that’s where the largest benefits would lie, reaching up to $2 trillion per year.

Large Asia-Pacific economies, including China, Japan and United States, should ultimately welcome such immensely profitable convergence to common rules.

Of course, China and the United States will have to work closely together in the meantime, reducing the differences that make a single free trade agreement unreachable today. But those issues, too, are solvable. China will hopefully resume reforms to open its economy and to level the domestic playing field for private and foreign companies. The United States, in turn, should settle into a new role in Asia as another partner – albeit an important one – in the region’s rise.

Asia’s prospects are strong and the economic clouds are now lifting in America. A commitment to partnership could reinforce these trends by brightening expectations – which can generate direct economic gains. Progress on trade cannot displace security concerns, but it can refocus attention on those fruitful aspects of cooperation that yield concrete gains to everyone.

A partnership with Asia is important to President Obama personally. As he explained three years ago, on the first of his five trips to the region so far: “I was born in Hawaii and lived in Indonesia as a boy. My sister Maya was born in Jakarta, and later married a Chinese-Canadian. My mother spent nearly a decade working in the villages of Southeast Asia, helping women buy a sewing machine or an education that might give them a foothold in the world economy. So the Pacific Rim has helped shape my view of the world.”

It is also important for the United States. America’s economic future, of course, depends in part on Asia.

But the ties are deeper: there are more than 17 million Asian-Americans now living in the United States, and their numbers are growing faster than those of any other ethnic group. Earlier this month, 73 percent of Asian-Americans voted for President Obama. America’s complexion is changing, and we are becoming a little more Asian every year.

Peter A. Petri

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