The Diet’s ratification last week of the Trans-Pacific Partnership pact, touted as a free trade deal encompassing economies that together account for 40 percent of the world’s gross domestic product, will end up as an exercise in futility unless the agreement takes effect — which now seems doomed with U.S. President-elect Donald Trump’s repeated vow to pull his country out of the deal. If the administration of Prime Minister Shinzo Abe genuinely believes in the TPP’s benefits to spur the Japanese economy, he needs to explore a Plan B to pursue what the pact is supposed to achieve.
In fact, the government’s estimate that the TPP would push Japan’s GDP upward by more than 2 percent in real terms in 10 to 20 years is reputed to be based on rosy scenarios that everything will go just as hoped. Its forecast that the deal would add ¥13.6 trillion to the economy and generate nearly 800,000 new jobs is widely seen as overblown, while the expected damage to domestic agriculture output due to increased cheap farm imports — in the range of ¥130 billion to ¥210 billion — is viewed as underestimated.
But even assuming that the government’s estimates of the TPP’s benefits are reasonable, they will come to nothing if the pact does not enter into force. The agreement among 12 Pacific Rim countries is to take effect when it’s been ratified by at least six members that together account for 85 percent or more of the GDP of the signatories combined. In other words, the deal needs to be ratified by both the U.S. and Japan — by far the two largest economies involved.
Abe, who acknowledged that a TPP without participation of the U.S. would be “meaningless,” is said to have pushed for the Diet’s approval in the hope that ratification by Japan would prompt Trump to somehow change his mind. The prime minister also told the Diet it was important for Japan to “send a message about the TPP’s strategic and economic significance of creating a fair economic grouping” even when the prospect of its implementation is uncertain.
That will have only a symbolic importance if the deal is indeed doomed. Trump, who during the campaign blamed past free trade deals for pushing American jobs and industries out of the country, has repeatedly said he will withdraw the U.S. from the TPP on the day he takes office in January.
If the Abe administration indeed believes in the TPP as a key to drive up Japan’s growth, it should not be content with the Diet’s ratification and the slim hope that Trump might change his mind. It should instead prepare to restructure its strategy on how to push the nation’s free trade agenda in case the deal is formally declared dead.
The TPP aims to promote trade and investments among its participants not only by lifting and cutting tariffs but setting common rules on intellectual property, government procurement and other areas of business. While the government tends to play up the benefits of free trade pacts, there will be both positive and negative impacts of these agreements. An estimate by the U.S. International Trade Commission in May showed that the TPP would push up America’s GDP by a mere 0.15 percent in the 15th year of its implementation and that both output and jobs will slightly decline in manufacturing and energy sectors — given that the economic benefits of the deal will be limited since the U.S. already has free trade agreements with six of the TPP signatories. That must be hardly reassuring for Trump, who won the election on his vow to pursue “America first” policies to bring back manufacturing jobs to the country.
Will there be practical alternatives to the TPP? Trump said he would instead pursue bilateral trade agreements with other countries to bring back jobs and industries to the U.S. There may emerge moves to rescue the TPP by changing its rules so that it can enter into force without the participation of the U.S. The TPP, which does not include China as a member, has had the political aspect of the departing administration of President Barack Obama, in taking the initiative for the deal, seeking to secure the U.S. influence in the Asia-Pacific region in the face of China’s growing clout in this part of the world. There are views that a U.S. pullout from the TPP will pave the way for China to take the lead in crafting the region’s trade architecture. The Abe administration needs to prepare Japan’s possible responses to these questions.
There’s one thing that Abe seems certain of doing. He said that with or without the TPP taking effect, his administration will go ahead with the government’s spending on domestic measures to deal with the free trade pact.
More than half of the roughly ¥1.2 trillion earmarked in the budget so far is going to the agricultural sector — to finance measures billed to boost the competitiveness of Japanese farmers against anticipated rise in imports, including public works projects to promote large-scale farming. The prime minister said these measures are necessary to make Japan’s farming industry more competitive even if the TPP does not come into force. But if so, his administration needs to make sure that the spending will accomplish what it is intended to achieve, instead of being wasted as were past government expenditures on the agriculture sector in the face of farm trade liberalization.
IN FIVE EASY PIECES WITH TAKE 5