Ministries mixed on merits of joining Pacific FTA

by Kazuaki Nagata

Joining a U.S.-backed trans-Pacific free-trade agreement would push up Japan’s real gross domestic product by ¥2.4 trillion to ¥3.2 trillion, or 0.48 to 0.65 percentage point, according to an estimate by the Cabinet Office released Wednesday.

In line with Prime Minister Naoto Kan’s interest in joining the Trans-Pacific Partnership Agreement (TPP), as well as the nation’s hosting of this year’s Asia Pacific Economic Cooperation meetings next month, the government came up with several estimates of the economic impact of the FTA.

The trade ministry estimated that if Japan neither joins the TPP nor signs economic partnership agreements with the European Union and China, while South Korea inks free-trade agreements with the U.S., China and the EU, real GDP will decrease by about ¥10.5 trillion by 2020 with the loss of 812,000 jobs.

The farm ministry, on the other hand, estimates that immediate tariff elimination without offsetting measures would cut agricultural production by ¥4.1 trillion and knock ¥7.9 trillion off the real GDP.

Many have suggested Japan’s FTA strategy vis-a-vis South Korea has contributed to the loss of market share abroad among Japanese manufacturers, particularly to South Korean competitors such as Samsung Electronics Co.

Recently, government ministers have called for broadening FTAs, with special attention paid to the TPP.

This year, the U.S., Australia, Peru, Vietnam and Malaysia are all negotiating to enter the pact, which was initiated by Singapore, New Zealand, Chile and Brunei as the Trans-Pacific Strategic Economic Partnership Agreement, in 2006.

Kan, who has shown interest in joining the TPP, is expected to announce Japan’s stance at the APEC summit meeting in Yokohama in mid-November.

But some lawmakers in the ruling bloc have expressed concern that joining the TPP could harm the domestic farm industry, and thus cost them votes among their constituents.

The TPP in principle requires member states to eliminate all tariffs, a step major farm exporters, including the U.S. and Australia, appear prepared to take.

According to the farm ministry, abolishing tariffs on 19 major agriculture products, including rice and dairy items, without taking offsetting steps, would decrease farm output by ¥4.1 trillion and chop ¥7.9 trillion off the real GDP.