The creation by 11 Pacific Rim countries of a massive free trade zone brings with it a new test: Can and will the framework become a future magnet for additional members and, eventually, the United States and China?
The odds appear against it for now as the world’s two largest economies are locked in an ongoing tariff war.
But Japan has a crucial role to play as a stabilizing force that is tasked with enhancing the appeal of multiparty free trade agreements that U.S. President Donald Trump is not a big fan of, political and trade experts say.
“The Japanese should … push ahead with RCEP, the Regional Comprehensive Economic Partnership, as well as keeping open the possibility for China as well as the United States joining the TPP-11,” Mike Mochizuki, associate professor of political science and international affairs at George Washington University, said.
Japan is one of the 16 Asia-Pacific nations that are negotiating to create RCEP, which could be the world’s biggest trade bloc.
“In many respects, the trade war between the United States and China is a reflection of this rivalry about the international order,” Mochizuki said recently in Tokyo, adding that Japan can serve as a “gyroscope” in the region.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership entered into force Sunday without the United States. It covers 13 percent of the global economy, much less than the approximately 40 percent share it would have had if the world’s largest economy had taken part.
The lowering and elimination of tariffs, however, is expected to encourage the flow of goods within the 11 countries and intensify competition.
After the United States withdrew from the original TPP in 2017 in pursuit of bilateral trade deals, Japan scrambled to rescue it from the brink of collapse. Tokyo also rushed to conclude a separate free trade agreement with the European Union that is now set to take effect in February.
When combined with the impact of the accord with the European Union, Japan’s economy is projected to get a ¥13 trillion ($117 billion) boost, welcome news for Prime Minister Shinzo Abe, who has promoted free trade.
Domestic farmers worry about cheaper farm produce — ranging from beef and pork to fruit and cheese — flooding into Japan. Still, the deal could also give a fresh impetus to reform of the agriculture sector that officials and experts see as inevitable as the domestic market is shrinking.
“You have to see that other markets (than Japan) are opening up as well,” said Martin Schulz, a senior research fellow at the Fujitsu Research Institute.
“This is important because if they open up for a variety of products, moving away from U.S. products, then it opens the possibility for Japanese producers to go into those markets,” Schulz said. “The United States is becoming the biggest loser on this front.”
Japan’s imported beef, for instance, comes largely from the United States and Australia. Under the CPTPP, the current 38.5 percent tariff will be reduced to 9 percent in stages over 16 years, giving Australia a more competitive edge.
The same arrangement applies under Japan’s trade accord with the European Union when it takes effect.
For Japan, though, not all is well as the CPTPP and the free trade agreement with the European Union cut both ways.
On the one hand, the mega FTAs will bring economic benefits and send a message that trade-reliant Japan is what Abe has termed a flagbearer of free trade.
But the United States — using the CPTPP and the Japan-EU accord as a baseline — may push for deeper concessions than under those deals when Tokyo and Washington start bilateral trade talks in early 2019.
Junichi Sugawara, senior research officer at Mizuho Research Institute, said the first priority for the two countries is to determine and define the scope of their upcoming talks, where the auto and agriculture sectors will be in the spotlight.
“What is worrying is the prospect of a cap on auto exports (to the United States) because it would have a huge impact on domestic production,” Sugawara said.
Japan has promised it will contribute to increasing production and jobs in the U.S. auto sector, in return for Washington respecting Tokyo’s stance that no larger concessions than under the existing FTAs will be made.
The Japanese political schedule points to the likelihood that drastic decisions will be difficult for Abe who, as leader of the ruling Liberal Democratic Party, will need to garner public support in a series of national and local elections through next summer.
If the United States fails to defuse the tension over trade with China, however, Trump may step up his rhetoric and shift his focus more to Japan, according to the trade experts interviewed.
As a defense measure, Japan is expected to continue seeking a bigger united front with more countries. Britain and Thailand, both hosting many Japanese manufacturers and other enterprises on their soil, are seen having interest in the CPTPP.
Mizuho’s Sugawara expects the pace of membership expansion may not be as fast as previously thought.
“The significance of the CPTPP will be felt more if it morphs into one that would enable the United States to return and China to join,” Sugawara added.
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