by Peter A. Petri, Peterson Institute for International Economics
and Michael G. Plummer, Johns Hopkins University and East-West Center
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The Trans-Pacific Partnership (TPP) agreement, now in negotiation among nine Asia-Pacific countries, could yield annual global income gains of $295 billion (including $78 billion for the United States) and offers a pathway to free trade in the Asia-Pacific with potential gains of $1.9 trillion. The TPP is a crucial step on what is becoming a "Trans-Pacific track" of trade agreements, and its expected template promises to be unusually productive because it offers opportunities for the leading sectors of emerging-market and advanced economies. A parallel pathway that the authors call the "Asian track" includes agreements centered on the Association of Southeast Asian Nations (ASEAN), negotiations among China, Japan, and Korea, and proposals for pan-Asian free trade areas. Both the TPP and Asian tracks are large, positive-sum projects that would yield substantial net gains. Asian templates prepare the ground for cooperation by addressing primarily goods liberalization, but the TPP is likely to go further by liberalizing sectors important in both emerging-market and advanced economies (such as services and technology), thus expanding opportunities for trade between them. Together, the TPP and Asian tracks are a dynamic process—an example of competitive liberalization—that could consolidate the "noodle bowl" of existing trade agreements and lead to a Free Trade Area of the Asia Pacific (FTAAP). A comprehensive agreement among all major Asia-Pacific economies does not appear to be feasible in the current macroeconomic and political context but hopefully will become more acceptable in the future. An ambitious TPP template would generate greater benefits from integration than less demanding alternatives, but it will be harder to sell to China and other key regional partners as the TPP evolves toward wider agreements. The importance of Asia-Pacific integration argues for an early conclusion of the TPP negotiations, without jeopardizing the prospects for region-wide or even global agreements based on it in the future.