Japanese Prime Minister Yoshihiro Noda has finally announced that his country will seek to participate in the Trans-Pacific Partnership (TPP) negotiations.
His government was poised to enter the talks earlier in the year, but the decision was postponed in the wake of Japan’s earthquake, tsunami and nuclear disaster — and even Noda’s announcement this week was delayed multiple times as he tried to shore up support within his own party.
Despite the controversy, the choice is the right one for both Japan and the TPP.
Japan’s decision to join the TPP makes sense for two key reasons. First, the current structure of the Japanese economy, especially the agricultural sector, is not sustainable. As Japan’s Council to Promote the Revitalisation of Food, Agriculture, Forestry and Fisheries made clear in its October report, these sectors are under severe strain. Problems include declining incomes, shortages of farmers and an aging population. Addressing these issues will require a reorganization of the country’s agricultural sector — whether Japan enters the TPP or not.
Second, Japan’s export sector is increasingly suffering from trade diversion, as key trading competitors like South Korea benefit from their various FTAs. For example, the EU-Korea FTA and the EU-US FTA mean that Korean cars will enter the EU and US markets more cheaply than those from Japan. This will make life increasingly difficult for Japanese car manufacturers seeking to export their goods. And while Japan does have a network of economic partnership agreements, most are not with major trading partners.
Fixing this problem on a bilateral basis by signing agreements with trading partners one-by-one is time consuming and often quite difficult. Joining the TPP will allow Japan to fix some of its trade-diversion problems in one stroke. It also sets Japan up for future gains if the TPP expands to include new members.
Japanese membership of the TPP is also important for the partnership itself. Until now, the agreement has included nine mostly small trading partners: Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the US and Vietnam. A dense web of existing bilateral FTAs already links these nine partners, and the TPP was not going to engender a great deal of additional market access to most partner countries — with the important exceptions of the US-Vietnam and the US-New Zealand relationships, where no current FTAs exist.
Japan is the world’s third-largest economy. It has some links to other TPP member countries, but the market-access commitments involved here are weaker than those anticipated under the TPP negotiations. Hence, the negotiations should create significant scope for markets to open, with the current absence of a US-Japan FTA of greatest economic significance. The TPP will represent the first attempt to bring together the world’s first- and third-largest markets into one coherent agreement.
This will not be an easy task. Those with long memories might recall the near-trade wars between the US and Japan in the 1990s over cars and car parts, insurance, postal services, retail services and delivery, construction and various agricultural products. Many of these disputes have been simmering, largely unresolved, for decades. They will resurface in the TPP negotiations and must be addressed once and for all.
But the Prime Minister’s announcement suggests that Japan is now prepared to take the task of liberalizing markets seriously. The government is apparently planning to use the TPP as a mechanism for pushing through necessary domestic reforms in the agricultural sector. Since this sector has — until now — been seen as the primary obstacle to broader efforts at liberalization, clearing this hurdle is critical.
While the commitment to open all agriculture markets, at least in the long run, is going to be important to current TPP members, they will also be asking Japanese negotiators about their willingness to discuss other issues on the TPP agenda. These include at least some opening up of services, telecommunications, e-commerce, investment, government procurement contracts and labour markets to firms from other TPP member states.
The TPP aims to be a high-quality agreement. It requires an ambitious level of commitment from its members across a much broader range of topics than most existing bilateral agreements. Getting Japan involved will further this ambition and bring benefits to both Japan and other TPP members./.