Japan will finally sit down at the table with 11 other nations in Malaysia on Tuesday to negotiate the trade rules for the Trans-Pacific Partnership agreement after years of contentious political wrangling.
The current TPP participants — Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam — have already gone through 17 rounds and aim to reach an agreement by year’s end. Late-comer Japan has only three days left to state its case before round 18, which started July 15, ends on Thursday.
But Japan, whose GDP accounts for more than a fifth of all 12 TPP nations combined, still has a solid chance to be on the leading edge of drafting new trade and investment rules for the Asia-Pacific region.
Experts say that Japan’s economy is already open in many sectors, to a certain extent, and that Tokyo should aggressively negotiate to get the other participants to further open their markets, too. But they also said that Japan will not be able to protect all of the sectors the government has deemed “important” enough to shelter with high tariffs, including rice, beef, pork, sugar, dairy products and wheat.
The game is just beginning, says Yorizumi Watanabe, a professor of international political economy at Keio University.
“It is not too late. Actually, the negotiations won’t get into full swing until Japan joins,” said Watanabe, a former trade negotiator.
While the TPP could end up becoming a new global trade standard, Japan will have to make sacrifices to remain a player in what is being touted as the world’s most progressive regional economic integration scheme.
One of these sacrifices is built into the TPP scheme: New entrants, like Japan, must in principle agree with what was decided in the earlier rounds.
Watanabe, however, said that a key official from one of the TPP participants told him that little progress has been made in drafting the rules for the free-trade accord or in abolishing tariffs.
Other experts said that Japan should thus get actively involved in crafting rules for 21 fields, including investment, trade remedies, government procurement and competition to create a high level of regional economic integration.
University of Tokyo professor Junji Nakagawa, an expert in international economic law, said that a major goal for Japan should be to open up other markets in a way that is conducive to Japanese business.
“Japanese firms have been building big supply chains in the Asia-Pacific region. It’s important that the trade and investment markets in this region are open so that they can do business in more stable, vigorous ways,” Nakagawa said.
Liberalizing government procurement is one goal Japan is keen to push. Only four of the TPP countries, including Japan, are party to the World Trade Organization’s government procurement agreement, which requires that fair and open access be provided to overseas firms.
If the other TPP members agree to open their government procurement markets, it will create more business opportunities for Japanese companies eager to build infrastructure in emerging countries in Asia, Nakagawa said.
Competition policy is also part of the TPP process. The United States is seeking to level the playing field by urging participants not to allow state-owned enterprises to hold the advantage in their markets.
Japan has privatized, to a greater or lesser extent, many of its state-owned enterprises, making it possible to accept the U.S. proposal, which would apparently make it easier for Japanese firms to enter overseas markets, Nakagawa said.
Watanabe meanwhile said that Japan could actually lead the negotiations.
“Japan’s GDP accounts for 22 percent of the 12 TPP members. This is a huge and attractive market to the other members, so the size of the Japanese market is a resource for negotiations,” he said.
Japan has also acquired valuable negotiating experience by participating in other trade talks, including the General Agreement on Tariffs and Trade, the WTO and bilateral free-trade pacts.
Watanabe said chief negotiator Koji Tsuruoka is an experienced hand who will be aided by a contingent of more than 100 officials that will help him get up to speed on the talks.
“We have to fill the information gap among the existing TPP countries as soon as possible,” Akira Amari, the minister in charge of TPP issues, said July 16. “Through this round, we will firmly inform other countries about our government’s stance.”
But experts said Japan will have no choice but to drop protections on certain sensitive products because the TPP will mandate a high standard for opening markets. Japan has imposed tariffs on about 9,000 items but has never relented on 940 of them — including rice, milk and beef — in past FTAs. Nakagawa said members will probably have to free up around 98 percent of their protected sectors, including items that Japan deems sensitive. On the other hand, Japan wants other countries to lift tariffs on industrial products, including cars.
Watanabe, who was chief negotiator for the FTA with Mexico signed in 2004, said trade talks are all about balancing interests.
“It’s important that offers and requests are balanced. Japan can’t be the sole winner,” he said.
Both Nakagawa and Watanabe said it is critical that Japan remain on board with the TPP. Since Japan is also pursuing free-trade pacts with China and South Korea, as well as with the EU and with the Association of Southeast Asian Nations, its experience with the TPP will allow it to play a leading role in setting international trade rules.
“Global trade and investment rules are not something that change frequently. The current rules are based on GATT and have been in place for about 60 years . . . the rules currently being drafted will possibly be in place for the next 50 years, too,” Nakagawa said.
“Japan can play a significant role in the rule-making process and spread the new rules to ASEAN and the EU. This is a big chance,” he said.
While the TPP members are aiming to conclude the talks by the end of the year, Nakagawa and Watanabe said that goal is unrealistic, especially now that Japan has joined. After Malaysia there will be a couple more rounds, but not enough to wrap up the TPP by year’s end, they said.
Watanabe said the U.S. probably wants to reach an agreement by the time of the general election in autumn 2014, because President Barack Obama, who promised to double America’s exports in five years, will want to point to the TPP deal as a sign of progress.
Watanabe also said China has been closely studying the TPP process and noted it is just a matter of time before the world’s second-biggest economy joins in.
But the high market-opening standards pursued by the TPP will make it difficult for China, which has many powerful state-owned enterprises, to join before the current members reach an accord, Nakagawa said.