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Japan increases TPP possibilities but not its own competitiveness

by Teruhiko Mano

Special To The Japan Times

Japan finally entered the trade talks for hammering out the Trans-Pacific Partnership agreement during the 18th round last month in the Malaysian resort of Kota Kinabalu. The delegates joined the talks on the afternoon of July 23 after Japan’s participation was cleared by the U.S. Congress.

The TPP is a framework that aims to liberalize trade in the pan-Pacific region. It started as an accord that was signed in June 2005 (and took effect in May 2006) by Singapore, Brunei, Chile and New Zealand with the goal of eliminating trade tariffs virtually without exception.

Later, other countries including the United States, Australia, Malaysia, Vietnam and Peru negotiated to join, and Prime Minister Shinzo Abe announced in March that Japan would take part as well.

The international talks revolve around the conflicting interests of the parties. Resistance lingers in each to give up vested interests, and protections for Japanese farmers and U.S. automakers are two areas where the most heated debates are anticipated. Detroit’s recent bankruptcy filing, the biggest municipal bankruptcy in American history, could cast a shadow over the talks.

On the other hand, consumers benefit a lot from being able to buy imported products on the cheap after tariffs are eliminated. It also must not be forgotten that Japan’s participation provides the following benefits to all parties.

First, the sheer expansion in market size. With Japan’s entry, the combined gross domestic product of all the negotiating parties jumps from $18.8 trillion to $24.3 trillion. The bigger the market, the larger the opportunities to expand trade.

Second is the expansion in potential benefits to the United States. Of the combined GDP of the 11 parties who entered the TPP talks before Japan, the U.S. accounted for a dominant share of 75.8 percent, followed by Canada (8 percent), Mexico (5.8 percent), Australia (5.4 percent), Chile (3.1 percent) and Malaysia (1.2 percent). The other five combined account for less than 1 percent.

With Japan’s participation, America’s share drops to 58.5 percent, which means more opportunities for the U.S. to trade with the other TPP members.

Third, participants other than the U.S. will now have a larger say in the negotiations. A country with a larger GDP share in the TPP market will have more influence over the negotiations, and the non-U.S. participants now account for 41.2 percent, compared with 24.2 percent before Japan entered. This is perhaps what everyone outside Uncle Sam expects Tokyo to bring to the talks.

The fourth benefit is stability in the Asia-Pacific region, including China. Southeast Asia is becoming wary of China’s rapid ascent, which is being led by its military strength.

At the moment, China, despite having the world’s second-largest GDP, is not qualified to take part in the TPP because of its various regulations, such as foreign exchange control. The expansion in the free trade bloc afforded by Japan’s entry will shed light on China’s true power and could ultimately press China to transform itself into a market economy with the same qualities as the TPP economies.

Balancing the different interests of the negotiating parties will not be easy, but those obstacles need to be overcome in light of the benefits to be gained from a TPP deal.

Last but not least, it must be noted that Japan, in order to actually join the TPP, needs to become more competitive. Each country’s requests for exceptions to the TPP’s overriding negotiating principle reflects their lagging competitiveness in the fields being protected.

Teruhiko Mano is an international economics analyst.