TPP – implications for non-members Should the EU push FTAs with ASEAN countries?

Alessandro Antimiani, Beatriz Velázquez

European Commission*

19th Annual Conference on Global Economic Analysis

"Analytical Foundations for Cooperation in a Multipolar World"

Washington, The World Bank, June 15-17, 2016

* This presentation reflects the views of the authors and should by no means be associated to those of the European Commission

Outline

1. Context

2. Simulation setting

3. Main results

4. Concluding remarks

Context • Size of the Trans-Pacific Partnership (TPP) agreement:

– a combined GDP of 27 trillion dollars or 36% of the world GDP – total exports of 5.3 trillion dollars or 23% of world exports

• EU interests in the area:

– EU is by far the largest investor in ASEAN countries – long history of cooperation – on-going free trade negotiations EU with individual countries – ASEAN integration is proceeding + further liberalisation (trade flows

between Asean countries very dynamic)

• The on-going talks between EU and ASEAN countries could “mitigate” the trade diversion impact of TPP

Simulation setting- the model

• GTAP model - dynamic version

• GTAP database version 9.1: 13 sectors, 7 regions

• Baseline GDP, population, and labour force exogenous (sources: World bank, ILO and CEPII)

• Trade balance: 2011 fixed balances

• An actionable 10% ad valorem equivalent of the level of barriers for NAMA sectors (source CEPII) introduced as tariffs in the model at bilateral level

Simulation setting - Aggregation

Commodities and activities Factors

Primary products Land

Manufactured products Skilled labour

Textiles & apparel Unskilled labour

Chemicals Capital

Metal & metal products Natural resources

Motor vehicles Regions

Electronic equipment European Union

Machinery Asean countries in TPP*

Utilities Other countries in TPP**

Construction USA

Trade, transport and commerce Asean countries not in TPP***

Private Services China

Public services Rest of the World

* Brunei, Malaysia, Vietnam, Singapore

** Japan, New Zealand, Australia, Chile, Mexico, Canada, Peru

*** Indonesia, Cambodia, Laos, Philippines, Thailand, Rest of Southeast Asia

Simulation setting - Scenarios

Trans-Pacific Partnership Agreement

Trans-Pacific Partnership Agreement + China - Asean integration

No EU-ASEAN FTA

Scenario 1 TPP

Scenario 2 TPP China-ASEAN FTA

EU-ASEAN FTA

Scenario 3 TPP EU - ASEAN FTAs

Scenario 4 TPP China-ASEAN FTA EU - ASEAN FTAs

Overall results: GDP vs Total trade

Sc_3 EU

Scen_2

Sc_1 ASEAN

Sc_4 EU

Sc_1 EU

Sc_2 ASEAN

Sc_3 ASEAN

Sc_4 ASEAN

Sc_1 BOTH

Sc_2 BOTH

Sc_3 BOTH

Sc_4 BOTH

-5

0

5

10

15

20

25

30

-1 0 1 2 3 4 5 6

Ch

ange

in t

ota

l tra

de

(%

bas

e –

po

licy

2

03

0)

Change in GDP (% baseline – policy in 2030) EU ASEAN BOTH

Overall results: Terms of trade vs Total trade

S_1_EU S_2_EU

S_3_EU

S_4_EU

S_1_ASEAN

S_2_ASEAN

S_3_ASEAN

S_4_ASEAN

S_1_BOTH

S_2_BOTH

S_3_BOTH

S_4_BOTH

-5

0

5

10

15

20

25

30

-1 -0.5 0 0.5 1 1.5 2 2.5 3

Ch

ange

in t

ota

l tra

de

(%

bas

e –

po

licy

in

20

30

)

Change in Terms of Trade (% baseline – policy 2030)

Terms of trade and total trade gains/loses (baseline – policy in 2030)

EU ASEAN BOTH

EU - Change in export sectoral shares (policy-base, 2030)

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

Commodities

Manuf prods

Textiles & apparel

Chemicals

Metal products

Motorvehicles

Eletronic equip Machinery & equip

Utilities

Construction

Trade & transp

Private Services

Public services

Scenario_1_EU Scenario_2_EU Scenario_3_EU Scenario_4_EU

Change in export sectoral shares (policy-base, 2030)

-1.5-1

-0.50

0.51

1.52

Commodities

Manuf prods

Textiles &apparel

Chemicals

Metal products

Motorvehicles

Eletronic equip Machinery &

equip

Utilities

Construction

Trade & transp

Private Services

Public services

ASEAN - Change in export sectoral shares (policy-base, 2030)

Scenario_1 Scenario_2 Scenario_3 Scenario_4

-4

-3

-2

-1

0

1

2

3Commodities

Manuf prods

Textiles &apparel

Chemicals

Metal products

Motorvehicles

Eletronic equip Machinery &

equip

Utilities

Construction

Trade & transp

Private Services

Public services

BOTH - Change in export sectoral shares (policy-base, 2030)

Scenario_1 Scenario_2 Scenario_3 Scenario_4

Change in sectoral output in EU (policy-base, 2030)

-5

-4

-3

-2

-1

0

1

Commodities

Manuf prods

Textiles & apparel

Chemicals

Metal products

Motorvehicles

Eletronic equip Machinery & equip

Utilities

Construction

Trade & transp

Private Services

Public services

SCENARIO_1 SCENARIO_2 SCENARIO_3 SCENARIO_4

Concluding remarks

• High mobility of capital drives results, in particular ASEAN and BOTH => model settings

• Results underline low level of overall impact on EU GDP, ToT, and total trade in all scenarios

• Higher impacts at sectoral level in scenarios 3 and 4 => closer look at disaggregated level

• China’s choice significantly affects TPP members’ and non-members’

• Benefits from further EU-ASEAN integration to be evaluated closely, further work on model setting needed

Thanks!

Questions and/or suggestions? Contact:

beatriz.velazquez@ec.europa.eu

ASEAN SECTORAL IMPACT IN SCENARIO 3

2030

rental 2.08

q0 (capital) 3.78

production of textiles 4.86

market price 0.37

demand of capital by the textile sector 5.30

demand of skilled labour by the textile sector 5.41

demand of unskilled labour by the textile sector 3.75

Prod. electronic equipment 30.08

market price 0.36

demand of K by electronique equip. 30.37

demand of skilled labour by the textile sector 30.51

demand of unskilled labour by the textile sector 28.45

SECTORAL IMPACT IN SCENARIO 4

2030

rental 9.92

q0 (capital) 5.69

production of textiles 22.62

market price -0.46

demand of capital by the textile sector 23.55

demand of skilled labour by the textile sector 22.88

demand of unskilled labour by the textile sector 20.57

Prod. electronic equipment 28.42

market price -1.26

demand of K by electronique equip. 28.98

demand of skilled labour by the textile sector 28.27

demand of unskilled labour by the textile sector 25.86

ASEAN & TPP

SECTORAL IMPACT IN SCENARIO 3

2030

rental 5.52

q0 (capital) 17.30

production of textiles 115.34

market price 0.47

demand of capital by the textile sector 121.56

demand of skilled labour by the textile sector 110.16

demand of unskilled labour by the textile sector 107.20

Prod. electronique equipment 11.30

market price 1.57

demand of K by electronique equip. 13.70

demand of skilled labour by the textile sector 7.84

demand of unskilled labour by the textile sector 6.33

SECTORAL IMPACT IN SCENARIO 4

2030

rental 11.01

q0 (capital) 31.84

production of textiles 173.84

market price -3.84

demand of capital by the textile sector 187.19

demand of skilled labour by the textile sector 163.31

demand of unskilled labour by the textile sector 156.44

Prod. electronique equipment 28.64

market price 1.89

demand of K by electronique equip. 33.28

demand of skilled labour by the textile sector 22.20

demand of unskilled labour by the textile sector 19.01