The Trans-Pacific Partnership complexity & context David Hummels Dean and Professor of Economics

What’s in TPP? What’s not in TPP?

Slide on WTO negotiations WTO Rounds Doha Uruguay Tokyo Kennedy Dillon Geneva II Torquay Annency Geneva Doha RIP

How are modern trade agreements different from historical norms? What policy environment is needed to facilitate trade in corn? How is that different from the policy environment needed to facilitate trade in airplanes, pharmaceuticals, business services?

Facilitating trade in corn Three steps: 1.Build some infrastructure 2.Lower tariffs (taxes on foreign trade) 3.Get out of the way Most of what we understand about the gains from trade, and the appropriate policies for supporting trade, are based on “corn trade”

Facilitating trade in airplanes Intellectual property Safety standards and technical barriers to trade Investment rules for FDI Government procurement national carriers, bribery State owned enterprises (Airbus) Subsidies Competition (“anti-trust”) policy

What is “free trade” in IP? Why should I pay for something that has zero marginal cost? How long should patents last? What is patentable? Should a patent granted in country A be automatically recognized in country B? Should we let a country force technology transfer in exchange for buying airplanes for their national carrier? What if the intellectual property was paid for by the government of country A leaving country B hopelessly behind? What if the IP was “only” the result of creating the institutions (universities) that create intellectual property?

Modern trade policy reflects a broader view of trade impediments Lowering taxes and getting out of the way isn’t enough. What policy environment is needed to facilitate trade? The problem This leads to highly complex and harmonized regulation. That regulation does not end at the border. Our understanding of the “right” policy and the likely effects of proposed policy on firms and the economy is very limited.

Why does this shift matter? Agriculture Manufacturing

What’s in TPP? What’s not in TPP?

Customs administration & trade facilitation Reducing delays at the border Facilitating express (air) shipments Eliminating costly and burdensome customs procedures Equitable treatment of cargo

Time delays: port, inland, customs

Source: Hummels (2007) Importing and Time Costs These costs are irrelevant to commodity trade, But hugely important to advanced manufacturing and supply chains

TPP: a tentative summary It is complex, far-ranging, potentially intrusive harmonization of economic policy. With some exceptions, we don’t really have good evidence for the impact of the various changes proposed. But…the increasingly complex nature of modern trade requires some kind of policy response and facilitation.