Timing may be everything in TPP

Is Japan rushing headlong into bad deal or does it risk getting left out?

by Alex Martin

Second Of Two Parts

As emerging Asian economies facilitate growth in the region and increasingly stand out as important players in global trade, the United States appears intent on getting its own share of the pie in the form of taking a leadership role in the Trans-Pacific Partnership free-trade framework.

Washington has been pressuring Tokyo to join the TPP talks as a means to boost the trade pact’s economic significance, but questions remain whether the framework will be equally beneficial to all negotiating countries or merely become an instrument for the U.S. to increase its presence in the region.

At the end of last year’s Asia-Pacific Economic Cooperation forum summit in Yokohama, leaders of the nine countries negotiating the TPP endorsed a proposal by U.S. President Barack Obama that set a target for completion of the talks by the APEC summit next week. The goal of the TPP is to eliminate all trade barriers by 2015.

With South Korea recently concluding free-trade agreements with the U.S. and the European Union, pressure is mounting on Japan, which has yet to enter bilateral FTA talks with the U.S. or EU, to decided on the TPP talks soon.

Some experts argue that the U.S. needs Japan to join the free-trade bandwagon to boost the TPP’s economic significance, and to move the deal forward.

During a visit to Tokyo in early October, U.S. Assistant Secretary of State Kurt Campbell is reported to have spoken to high-level officials regarding the TPP, with both sides agreeing that Japan and the U.S. should create a “new framework for free trade in Asia.”

“Right now the U.S. is the only ‘big player’ at the table. Companies in participating countries have stood on the sidelines instead of pushing for a serious deal since they know a deal wouldn’t be possible without stronger leadership,” Clayton Yeutter, a former U.S. trade representative and secretary of agriculture, said in an opinion piece he cowrote for The Wall Street Journal in September.

“Japanese participation could help break the logjam. Tokyo would join Washington as a major, developed-world partner at the talks, providing necessary leadership,” he added.

The TPP was originally an economic partnership agreement signed by APEC members Brunei, Chile, New Zealand and Singapore, and took effect in May 2006.

Five other nations — Australia, Peru, Vietnam, the U.S. and Malaysia — later announced they would join the partnership, with the U.S. especially keen to take the lead in drawing up the actual framework.

If Japan decides to join the TPP, the aggregate GDP of the participating nations would reach an estimated 40 percent of the world’s GDP, creating the largest free-trade zone on the planet. Together, the economies of the U.S. and Japan would represent 90 percent of the TPP’s total GDP.

The TPP will set down rules for 21 fields, including trade facilitation, trade remedies, intellectual property, the environment and labor, and will oversee wide-ranging new trade and investment rules in the Asia-Pacific region.

Some also argue that the main objective of the U.S. is to open markets in the Asia-Pacific region and to expand exports.

“The ultimate goal of the United States is to reshuffle the existing economic paradigm in the Asia-Pacific region, to replace ASEAN’s leadership and to lead the Asia-Pacific Economic Cooperation forum through the TPP,” Zhang Bin, executive director of the China Institute of International Studies, wrote in an article published on the institute’s website.

Zhang posits that if the U.S. were to remain outside a regionwide free-trade zone, it stands to miss out on $25 billion a year in exports by U.S. companies and lose 200,000 high-paying jobs.

With South Korea, Canada, Thailand and the Philippines having already shown interest in joining the TPP talks, proponents of the trade pact hope that eventually all 21 APEC nations will be part of the deal, including other major economies China, Russia and Mexico.

This leads some to say that Japan will be left behind if it doesn’t join the talks now.

But it still remains largely unclear whether joining the TPP would indeed prove helpful for the Japanese economy.

So far, government estimates say joining the trade pact would increase GDP by 0.54 percent, or ¥2.7 trillion, over the next 10 years, with roughly half that amount coming from an increase in exports to the U.S.

The Ministry of Economy, Trade and Industry estimates that if Japan decides not to join the TPP, and if South Korea were to sign an EPA with China, Japan would suffer a loss of ¥10.5 trillion in GDP through a decline in automobile production and other sectors.

But those who oppose the TPP say joining would be devastating to farmers, because Japan would not be able to maintain its high tariffs on agricultural products such as rice and wheat.

According to estimates by the agriculture ministry, Japan would stand to lose ¥7.9 trillion in GDP due to a drop in farm production coming from overwhelming competition.

Some opponents also point out that Japan has little to gain from joining the free-trade negotiations so late in the game, fearing that with negotiations already through their ninth round — the most recent, held in Peru, wrapped up last Friday — Japan will have little say in the framework’s final version.

“I can’t see much merit for Japan joining the talks now, so late in the negotiations,” said Toshikazu Inoue, a professor at Gakushuin University and an expert on foreign policy.

Inoue said he fears that if Japan joins the TPP talks at this stage, it would have to accept all prior decisions, with little to its advantage.

“The nation most interested in concluding the agreement is the nation who will get the most out of the TPP — which in this case is the U.S.,” he said.

As if to back up such fears, the Tokyo Shimbun reported Wednesday that according to an internal government document, U.S. trade representatives said that even if Japan decided to join the TPP talks during the upcoming APEC meeting, it will take at least six months for the U.S. Congress to approve Japan’s entrance, by which time the framework of the trade pact was likely to be already decided upon.

In such a scenario, Japan will have little chance of having any say in the details of the deal, the newspaper reported.

Meanwhile, conflicting interests still exist among the nations already participating, with each member state making its case based on domestic circumstances.

The U.S. dairy industry, for example, frets being swamped by imports from New Zealand.

New Zealand media, on the other hand, published a series of WikiLeaks cables last December suggesting the nation’s trade negotiators had serious doubts about the possible advantages of entering a free-trade deal with the U.S.

To cope with the situation, the TPP may adopt an exceptional approach in the eliminations of tariffs for certain fields, or even postpone the conclusion of the talks until next year.

Still, with the Doha Round of world trade talks stalled, the U.S. appears determined to rush the TPP talks ahead.

U.S. Trade Representative Ron Kirk on Oct. 26 is reported to have told the U.S. Chamber of Commerce in Washington that a broad outline of the TPP would be reached by the Nov. 12-13 APEC summit in Honolulu.

While Kirk said the U.S. welcomes more countries, including Japan, into the deal, he also said Washington is was not about to delay the talks. “We aren’t going to slow down the current process to wait on them to make that decision,” he said.