The 11-member reincarnation of the Trans-Pacific Partnership, known as the CPTPP, moved one step closer to implementation last week in a sign that — despite a spate of recent international trade disputes — such deals are very much alive in Asia.
The deal caps off an already busy year for Japanese trade negotiators who also signed a large economic partnership agreement with the European Union, moved forward with bilateral trade negotiations with the U.S. and launched early discussions about expanding the CPTPP beyond its original members.
And yet Tokyo still appears keen to squeeze more out of 2018, striking an increasingly hopeful tone that a tentative agreement can be reached before year’s end on another massive trade deal known as the Regional Comprehensive Economic Partnership (RCEP).
How exactly will these trade deals affect Japan? When will consumers begin to notice changes?
Here is a recap of this year’s developments to date on trade and the economic ramifications of the deals, which are likely to impact everything from foreign policy to the Japanese dinner plate.
CPTPP is a done deal (almost)
Although the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), also referred to as TPP-11, was signed by its negotiating members in March 2018, over half of the countries were required to ratify the deal domestically for it to move forward.
Following Mexico, Japan, Singapore, New Zealand and Canada, Australia became the sixth country Wednesday to ratify the deal, bringing it one step closer to final implementation.
But Japanese consumers and importers will have to wait a little while longer before they start to see lower prices on imports, because CPTPP doesn’t go into force until 60 days after a majority of countries have ratified the agreement.
As each country has its own process to confirm trade deals and differing legislation schedules, members have ratified the deal according to their own timelines.
Brunei, Chile, Malaysia, Peru and Vietnam have yet to ratify the accord.
More room at the table?
Thailand, Indonesia, Columbia, South Korea, Taiwan, the Philippines and Britain have all expressed interest in joining the deal.
The Hong Kong-based South China Morning Post reported in October that behind the scenes, China was even considering whether to publicly express interest in joining the pact. Most trade watchers agree that the chance of China coming on board remain low given that CPTPP includes provisions on state-owned enterprises and government subsidies — anathema in Beijing.
While withdrawing from the TPP was one of U.S. President Donald Trump’s first moves in office, his administration has left open the possibility that Washington might reconsider.
Talks on exactly how these countries could join will likely start “soon after the pact takes effect,” a senior Japanese government official said in July.
Cheaper meat and fruit?
While it remains to be seen how fast supermarkets and consumers will shift to cheaper imports, the drastic reductions in tariffs likely portends changes to demand for various foodstuffs.
Meats and fruits are likely to see significant drops in price over the next decade as imports from the 10 other members will face far lower tariffs in Japan. Japanese producers will thus either have to lower prices or differentiate their product.
Tariffs on beef, currently at 38.5 percent, will be lowered to 9 percent over a 16-year period. Tariffs will be eliminated immediately for grapes, strawberries and melons, while those on oranges and tea will be scrapped over a six-year period. The eventual removal, or drastic reduction, of tariffs is also under way for many other food products, including tuna, mackerel and seaweed.
On the other side of the coin, Japanese exporters, including carmakers, may see a boost to sales. Tariffs on autos to Canada will drop from 6.1 percent to zero over six years, while auto tariffs to Vietnam will drop from 70 percent to zero over 10 years.
Japan-EU deal: Drink up
In July, the European Union and Japan signed a massive trade deal of their own. It is currently one step behind CPTPP, but if the EU Parliament approves the deal, it is expected to enter into force by March 2019.
One of the most notable components of the deal is the immediate removal of all Japanese tariffs on EU wines (currently 15 percent). Similar to CPTPP, tariffs on beef will be cut from 38.5 percent to 9 percent over 15 years for EU countries.
Tariffs on hard cheeses such as Gouda and cheddar (currently 29.8 percent ) will also be eliminated, while those on leather products will be phased out over 10 years.
In return, the EU will abolish tariffs on autos (currently 10 percent) over an eight-year period.
Boon for growth
The combined effects of the two trade deals will increase Japanese employment by 750,000 and push up potential economic growth by ¥13 trillion per year, according to analysis produced by Japan’s Cabinet Secretariat.
And according a study by the Peterson Institute for International Economics released in October 2017, the benefit to Japan from the CPTPP was estimated to be worth $46 billion in income gains by 2030.
That being said, there is genuine worry that the deal will do lasting damage to Japan’s agricultural sector. The Hokkaido Prefectural Government predicts that it is likely to lose about ¥31 billion to ¥49 billion a year in agricultural sales.
But independent economists and government officials are confident that the savings for consumers, as well as other efficiency gains, are extremely likely to outweigh the costs.
Recent moves on RCEP
Made up of 16 countries in Asia, RCEP is widely expected to be less ambitious in terms of tariff reductions and rule-making than CPTPP, but it could potentially provide larger benefits if it were to come to fruition.
RCEP would be the largest trade deal in the world measured by participants’ economic output, and it comprises economies that have large populations and massive latent economic potential, including China, India and ASEAN countries such as Indonesia and Vietnam.
Japan could see $56 billion in income gains by 2030 if RCEP were implemented, compared to the aforementioned $46 billion with the CPTPP, according to the analysis from the Peterson Institute for International Economics.
Recently, Japanese negotiators have indicated that an agreement can be reached by the end of the year, but outside observers are not yet certain this is feasible.
Even if a deal was agreed to by the end of the year, full implementation would likely still be months, if not years, away.
The member countries include the 10 ASEAN countries — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam — plus Australia, China, India, Japan, South Korea and New Zealand.
U.S.-Japan bilateral talks
With the U.S. backing out of TPP, the tariff reductions would not be applied to American exporters to Japan.
Japanese negotiators were originally insistent that if America wanted to also have tariff reductions it would have to rejoin the TPP.
Tokyo has since backtracked, agreeing to bilateral trade negotiations with the Washington in late September under the official name of Trade Agreement on Goods (TAG). In exchange for entering trade talks, Japan received a temporary exemption from the Trump administration over its threatened auto tariffs.
At the moment, Japan is insistent that any tariff reductions will not go beyond CPTPP levels in order to avoid upsetting the other 10 member countries, which all worked for years to reach what they felt was the best deal they could negotiate.
With negotiations set to kick off in January 2019, the timeline for completion is still unclear.
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