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This paper analyzes the impact on the U.S. economy of Taiwan’s accession to the Trans-Pacific Partnership (TPP) Agreement. While the TPP is to be concluded by the twelve current negotiating parties, other regional economies will be able to join, consistent with APEC’s endorsement of the TPP as a “pathfinder” approach to an FTAAP, which contemplates APEC economies that are ready to do so proceeding faster than others in deepening trade relations. Taiwan has clearly signaled its interest in acceding to the agreement. We evaluate the impact using a computable general equilibrium model that takes into account tariff liberalization, preference under-utilization and utilization costs, liberalized rules of origin, reduction of non-tariff barriers (NTBs) on goods and on cross-border services, and liberalization of foreign direct investment in services and the resulting implications for services trade through foreign affiliates. The liberalization assumptions are based on “best guesses” as to what the TPP agreement and the terms of Taiwan’s accession would actually be. The formulation of these assumptions is informed by the pattern of concessions that TPP parties have made in recent trade agreements and other information available on the TPP process. We find that Taiwan's accession generates significant benefits for the United States; based on the accession assumptions, the accession would not trigger US sensitivities.

The authors address how the founding 12 Trans-Pacific Partnership (TPP) members (the TPP12) will be affected by membership expansion, using Taiwan’s admission as a case study. They show that this would expand the overall economic gains for the TPP12 considerably, though they would have to give up preferential gains made at Taiwan’s expense. Accordingly, the path to a Free Trade Area of the Asia Pacific (FTAAP) through the expansion of existing free trade agreements (FTAs) faces the challenge of overcoming potential resistance from existing TPP members who might stand to lose rather than gain from the expansion.

Economic integration is evolving rapidly in East Asia, driven by a multitude of factors. The most important of these has been the entrenchment of China in the global division of labour and its increasingly important role as an independent engine of growth in the global economy. Business-led East Asian economic integration is now being complemented by a growing web of regional and bilateral free trade agreements within the region. This paper takes up the following questions: How deep is Asian economic integration today and how much further might it go? How does the deepening of regional economic links interplay with globalization? What factors will bear on the evolution of global and regional patterns of trade in the coming years? What are the implications for individual economies of being part of, or not being part of, regional trading agreements? The main conclusions are that the forces driving regional integration in East Asia are far from spent; that the unwinding of global trade imbalances and higher relative costs of transportation will increasingly force East Asia to rely on regional sources of final demand to sustain growth; and that parties to preferential agreements within the region will have an advantage in capturing the expanding intra-regional trade opportunities, although this advantage will be partly offset in the longer-run by continued multilateral trade liberalization that squeezes the margin of preference that regional trade agreements can offer. While many equate greater economic inter-dependence with heightened risk, in reality deep trade and investment ties mitigate risk compared to a world in which there is no or only limited commercial interaction between states. In East Asia, deepening inter-dependence, in practical terms, largely involves deepening commercial ties with mainland China. Recognizing this intuitively, business has already voted with its feet and beaten the path to the Chinese market.