Weekly economic report - English

1. Page 1 of 2
Economic Commentary
QNB Economics
economics@qnb.com
8 November 2015
Could the TPP revitalise world trade?
After five years of negotiations, an agreement
was reached on 5th
October on the Trans-
Pacific Partnership (TPP), the largest trade
deal in two decades. The TPP is a regional
trade agreement among 12 countries that
account for 26% of world trade and 37% of
global GDP. It aims to eliminate tariffs and
non-tariff barriers to trade in goods and
services between the member countries and
also contains rules covering new technologies,
the digital economy, services, and intellectual
property rights (for example, drug patents) as
well as setting standards for the environment
and labour laws. The TPP has the potential to
support global trade growth by reducing
protectionism, revitalising global supply
chains and setting the stage for further
regional agreements.
World trade has been sluggish in 2012-15,
growing by an average of 3.2% a year
compared with 6.2% in the previous 20 years.
This is a concern as trade has huge benefits for
the global economy. It supports a more
efficient allocation of resources between
countries that have diverse comparative
advantages and encourages the spread of
technology and know-how. The slowdown in
world trade is being driven by a combination of
weaker demand, changing global supply
chains as the US and China onshore more
manufacturing, and rising protectionism (see
our previous commentary, Why Is World
Trade in the Doldrums?).
Protectionism has increased since the global
financial crisis. The World Trade Organisation
(WTO) has warned of “creeping
protectionism” as governments have
implemented new trade restrictions.
Additionally, the WTO has had little success
recently in advancing a new global trade
agreement to remove tariffs and other barriers
to trade. The current round of the WTO talks,
the Doha Round, has been ongoing since 2001,
but is stalling as developing and developed
nations have failed to resolve conflicts. With
little progress being made on a comprehensive
global trade agreement within the WTO, a
series of regional and bilateral trade
agreements, such as the TPP, are currently
being negotiated outside the WTO which could
help reverse the protectionist slant by
reducing barriers to trade.
The TPP should also encourage more
offshoring of production, revitalising global
supply chains, benefitting global consumers
through lower prices and making member
countries’ producers more competitive. For
example, clothes manufactured in Vietnam
and exported to Australia receive their inputs
from Malaysia (buttons) and Singapore
(fabric)—both TPP members. Tariffs are
currently applicable on all the inputs (~5% of
the cost) as well as the final exported product
(~5%). Therefore, the removal of tariffs
through TPP could reduce the cost of the
product in Australia, a member country, by
around 10% and in non-TPP members by 5%.
So, Vietnam sells more clothes, Malaysia and
Singapore sell more buttons and fabric, and
Australian consumers get a cheaper product.
As a result, exports from TPP countries would
increase and GDP would gain from higher
exports. The greatest gains would be in
emerging market countries, such as Vietnam,
as the removal of relatively high tariffs would
make their manufacturing exports
significantly more competitive in large
markets like the US and Japan. Meanwhile, the
benefits for an advanced economy such as the
US would be less dramatic as tariffs are
already low and the economies of the other

2. Page 2 of 2
Economic Commentary
QNB Economics
economics@qnb.com
8 November 2015
TPP members are small in comparison to the
US.
Estimated cumulative gains
from the TPP by 2025
(% change from baseline)
Sources: Petri (2015), “Understanding the Estimated Gains from
Trade Pacts”
In addition to boosting trade and income, the
TPP also provides a template for other regional
trade deals, such as the Transatlantic Trade
and Investment Partnership (TTIP) between
the US and the European Union (42% of world
trade and 59% of global GDP). It is also likely
that the TPP will add new members over time,
extending the benefits from the treaty.
However, the benefits will take time to realise.
The TPP still needs to be approved by national
parliaments, which is unlikely to take place
until 2017 at the earliest, with significant risks
of failure or delays. Additionally, many of the
changes required by the TPP will only be
implemented gradually over the next ten
years, particularly in areas that face high
tariffs. Therefore, although the TPP could
significantly revitalise global trade, it will take
time to realise its full potential.
QNB Economics Team:
Ziad Daoud
Acting Head of Economics
+974-4453-4642
Rory Fyfe*
Senior Economist
+974-4453-4643
Ehsan Khoman
Economist
+974-4453-4423
Hamda Al-Thani
Economist
+974-4453-4642
Rim Mesraoua
Economist – Trainee
+974-4453-4642
* Corresponding author
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Exports Volumes Real GDP
Australia 3.4 0.5
Brunei 2.6 0.9
Canada 2.3 0.4
Chile 2.4 0.9
Japan 11.2 2.0
Malaysia 11.9 5.6
Mexico 3.8 0.5
New Zealand 6.8 2.0
Peru 6.3 1.2
Singapore 4.3 1.9
US 4.4 0.4
Vietnam 28.5 10.5