TPP and Developing Countries

One of the claims about the Trans-Pacific Partnership (TPP) agreement is that it will benefit developing countries.  At Vox, Dylan Matthews spoke with Kimberly Ann Elliot of the Center for Global Development about how it will affect Vietnam, which has the lowest income among the countries negotiating the treaty.

Their discussion highlights a number of broader issues which arise with these regional (or "preferential") trade agreements:

• Trade diversion: part of the perceived benefit for Vietnam would be that its exports would get more favorable treatment than those of other developing countries, like Cambodia, that are not members of the TPP.  This is not necessarily a gain in terms of overall economic efficiency.
• Preference erosion: once countries in an agreement have preferential treatment for their exports, they may resist multilateral reductions in trade barriers with bigger global benefits (i.e., agreements through the WTO), because that would reduce their advantage relative to nonmembers.
• Rules of origin: in an age of multinational production chains, defining whether a good exported from a particular country is eligible for preferential treatment is less than straightforward. Rules of origin (ROOs) are meant to prevent trans-shipment, e.g., bringing Chinese goods to the US through Vietnam, but doing so creates a great deal of complexity in these agreements as questions like how should a shirt made in Vietnam of Indian cloth be treated need to be hammered out.

Overall, this is a further reminder that assessing the economics of these agreements is much more complex than simply applying our findings about the gains from trade.