Japan and the Trans-Pacific Partnership

Japan’s TPP membership paves the way to build a genuinely Asia-Pacific platform for economic integration by enlisting a major economy in the region and creating incentives for other countries to follow.

japan-tradeOn April 16, 2013, acting US Trade Representative Demetrios Marantis announced that Washington approved Japan’s entry into negotiations on the Trans-Pacific Partnership (TPP) negotiations, a critical step for Tokyo’s inclusion in a regional trade pact that underpins the efforts of its ambition in reshaping the Pacific economically and politically.

The Trans-Pacific Partnership is a proposed free trade agreement under negotiation by Australia, Brunei, Chile, Canada, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. Ostensibly intended to be a “high-standard” agreement for emerging trade issues in the 21st century, the free trade agreement will affect not only the trade in goods, rules of origin and trade remedies, but also the sensitive aspects of trade such as the sanitary and phytosanitary measures, technical barriers to trade, trade in services, intellectual property, government procurement and competition policy.

According to the International Monetary Fund (IMF) report in 2010, the GDP of TPP member states totaled $16.84 trillion which is 27% of the world’s total number. If negotiations with Japan, Canada and Mexico succeeded, the number would be $24.91trillion, 1.5 times of the European Unions and as 40% of the world’s total.

However, although Canada and Mexico were admitted to the partnership in 2012, there will be fundamental changes in structure and the balance of power within the partnership and the Pacific region if Japan’s admission was approved in July 2013.

If Japan succeeds in joining the partnership, 91% of the total GDP of the TPP member states would be from Japan and the US. This will create a de facto US-Japan Free Trade Agreement, undermining the negotiating capacity of other member states while bringing them great opportunity in generate trade growth and increasing trade diversity.

For Japan, TPP participation puts aside concern that the world’s third largest economy will play a marginal role in international trade negotiations.

Moreover, by providing a focal point for the deregulation and competitiveness measures that Japan’s economy sorely needs, it helps realize the single most important component of Japanese Prime Minister Shinzo Abe’s structural reform economic strategy.

According to the Japanese Ministry of Economy, Trade and Industry, by joining the TPP, Japan will gain a GDP growth of 2.4-3.2 trillion Yen in 10 years. The Abe administration also sees chances in supporting the falling manufacturing industry by cutting tariffs. The tariff Japan paid to the US and other 10 TPP member states totals 0.47 trillion Yen, approximately 480 million Dollars, half of which is related to automobile products.

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With strong support from the industry, Abe is more confident in dealing with opposition from the agriculture industries and their lobby groups. Since the new Prime Minister is looking to consumption and domestic investment to boost economic growth, it is unlikely that he will put much weight on the agriculture side when he has growing support from the manufacturing partners. Japan’s admission to the TPP negotiation is one of the best chances for him to move forward in economic structural reform and drop off the burden of agriculture industry.

For the US, Japan’s TPP membership dramatically increases the economic significance of this agreement. It paves the way to build a genuinely Asia-Pacific platform for economic integration by enlisting a major economy in the region and creating incentives for other countries to follow.

However, regional changes in the balance of power is about to come. China and South Korea are closely following negotiations between the Washington and Tokyo to develop their own strategy in the irreversible trend of reshaping the Pacific regional relations.

The total GDP of China, Japan and South Korea is about 20% of the world’s total number and 70% of East Asia. However, comparing to the 40-70% of interdependence rate of the European Union and North American Free Trade Agreement, the interdependence rate of the three countries is as low as 25% with a significant decreasing tendency in recent years. The potential of inter-regional trade growth is enormous while challenges in the political aspect cannot be ignored.

Competition is now between the US and China: As a balancer of East Asia, Washington is concerned about the interdependence between China and other East Asian countries. Having Japan in the TPP – China’s largest trade partner and competitor – will enhance economic and political bilateral ties. Meanwhile, China is also looking to disperse the risk of restructure by moving to ASEAN countries.

Though it’s still unclear whether Japan’s admission to the TPP will result in a different Pacific alliance, the traditional major powers are moving to develop their own strategy in response to the possible changes.

Sainan Yu is a MA student in politics specializing in East Asian affairs at New York University.