Editorials

Making the most of multilateral free trade deals

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) — which entered into force in late December with the completion of domestic procedures by Japan and five of the 11 members that sustained the deal following the withdrawal of the United States from the original pact two years ago — creates a free trade bloc with a combined population of 500 million that accounts for 13 percent of the world economy. In February, the economic partnership agreement between Japan and the European Union — with their combined share of the world’s gross domestic product hitting 30 percent — will kick in. These developments herald a new stage in Japan’s pursuit of multinational free trade regimes.

Free trade agreements are meant to expand trade opportunities among the participants by eliminating or reducing tariffs and other barriers to business, thereby benefiting consumers and producers in each country. Going forward, Japan needs to change its industrial structures in ways that make the most of the expanded business opportunities that these pacts provide. Free trade pacts often raise concerns about agriculture and other sectors that are expected to be hit by increased imports. Appropriate measures need to be introduced to alleviate the impact of increased competition in these sectors, but steps also need to be taken to make those sectors more competitive, such as by helping them start exploring demand in overseas markets.

Beefing up the multilateral free trade regimes is all the more important today as free trade comes under threat worldwide. Even though the the U.S. and China agreed last month on a 90-day “ceasefire” in their trade war, an exchange of retaliatory tariffs between the world’s largest and second-largest economies cast dark clouds over the global economy’s prospects.

Particular serious is the threat posed by the Trump administration’s trade policy, with its short-sighted emphasis on enhancing what it views as America’s own interests through bilateral negotiations with the nation’s trading partners. President Donald Trump has managed to revise the North American Free Trade Agreement with Canada and Mexico in ways that favor the U.S. in automobile trade, and in renegotiating the free trade accord with South Korea inserted clauses that pave the way for curbs on steel exports and restrict currency policies. The Trump administration has also pushed Tokyo into agreeing to bilateral trade talks by threatening to impose higher tariffs on exports of automobiles and automotive parts, and the U.S. is expected to make tough demands on Japan in the talks that start this year.

The launch of multilateral free trade deals like the CPTPP and the Japan-EU economic partnership will serve to fend off the threat posed by the unilateral protectionism that is exemplified by Trump’s trade policies. For the participants in such pacts, the standard of trade liberalization that they agreed on in the deals should serve as a guide for them to rebuff potentially unreasonable demands from the U.S. Meanwhile, the U.S., which pulled out from the Trans-Pacific Partnership that Trump’s predecessor, Barack Obama, took the initiative to create, will be at a disadvantage in trading with CPTPP participants because it won’t enjoy the pact’s benefits, such as tariff cuts. Efforts must be made to maximize the benefits of these multilateral free trade pacts to grow the participants’ economies — and to show the U.S. what it stands to lose by staying out of such arrangements.

Expanding the CPTPP to other countries that have shown interest in joining, such as Thailand, Indonesia and Britain, will also be important to boost its presence, which was reduced by the U.S. pullout. The 11 CPTPP members will hold a Cabinet-level meeting in Tokyo this month to discuss entry procedures for new participants. The ongoing talks on the Regional Comprehensive Economic Partnership (RCEP) among 16 Asia-Pacific economies, including Japan, China and ASEAN members, should also be expedited to reach a broad agreement.

Japan also needs to hold its ground in the upcoming bilateral talks with the U.S. When Prime Minister Shinzo Abe agreed to the bilateral talks with the U.S. in his summit with Trump last September, Tokyo said it would not offer cuts in tariffs on farm imports from the U.S. beyond what it promised in its past free trade agreements. However, the U.S. side has indicated that it would seek tariffs reductions equal to or greater than the levels agreed on in the TPP pact. It it caves in to irrational U.S. demands under the threat of automobile tariffs — which the Trump administration has said would be put on hold while the talks with Japan are going on — Japan’s commitment to multilateral free trade regimes could be thrown in doubt. The government needs to be aware that much will be at stake when it faces the U.S. in the upcoming talks.

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