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World Bank: Vietnam and Malaysia to Win Biggest With TPP

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TPP_USTR report

If the hotly contested Trans-Pacific Partnership (TPP) takes effect in due course, Vietnam and Malaysia will see the biggest benefit, while shifts would be more slight for the North American members.

The World Bank released a detailed study on the potential impacts of the trade pact just one month before the 12 member countries are scheduled to formally sign the deal after agreeing on its contents in October. But once they sign it, TPP will still face a battle for approval in a split U.S. Congress.

TPP, the largest and potentially most comprehensive trade deal that has members making up roughly 40 percent of the global economy, will eliminate most tariffs over time as well as remove other trade barriers between the undersigned nations.

A fair amount of TPP trade is already covered under existing trade agreements like NAFTA, the ASEAN Free Trade Area and the free trade agreement between ASEAN, Australia and New Zealand, among others. Under those agreements, average intra-TPP tariffs have more than halved since 1996 to 2.7% as of 2014, according to the World Bank.

With TPP, many of the high tariff barriers on individual goods not reflected in the aforementioned tariff averages, will be eliminated.

Of the 12 nations involved, including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam, the smallest, more open member economies—namely Vietnam and Malaysia—are going to benefit the most.

Vietnam in particular will see the biggest percentage boost to its economy by 2030 at 10 percent, and Malaysia will likely see an 8 percent gain as exporters there would gain an advantage over regional competitors like Korea and Thailand, which aren’t part of TPP.

“While the adverse effects of TPP on Korea could be attributed mostly to preference erosion (due to its existing FTA with the United States), losses for Thailand and other Asian countries could be mainly due to trade diversion,” the World Bank noted.

Other neighboring countries with advantages in apparel and textile manufacturing like Bangladesh and Cambodia could face greater competition by Vietnam in TPP member markets.

The U.S., Canada and Mexico will see smaller gains of 0.6% on average, mostly because existing trade barriers are low thanks to already in place agreements like NAFTA.

By 2030, TPP is expected to raise member country GDP 1.1% on average. It could also lift trade among member countries by 11 percent in that period. The benefits will likely materialize slowly, according to the report, and pick up toward the end of the period.

“The TPP stands out among FTAs for its size, diversity and rulemaking. Its ultimate implications, however, remain unclear,” the World Bank concluded. “Much will depend on whether the TPP is quickly adopted and effectively implemented, and whether it triggers productive reforms in developing and developed countries.”

On Feb. 4 in New Zealand, the 12 nations will formally sign the TPP agreement, but much of the work will come after that as countries look to their national parliaments and governing bodies for ratification of the deal.

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