The Tokyo Foundation for Policy Research


The Tokyo Foundation for Policy Research

Beyond the TPP Flap: Toward a New Dialogue on Trade Policy

November 29, 2011

The issue of Japan's participation in multilateral talks for an expanded Trans-Pacific Partnership erupted with a vengeance this fall after being pushed to the back burner in the wake of the March 11 Great East Japan Earthquake. With the November 12–13 summit of the Asia-Pacific Economic Cooperation forum in the offing, Prime Minister Yoshihiko Noda viewed the summit as the last chance for Japan to announce its intention to join in ongoing negotiations for the TPP, a broad-based Asia-Pacific free trade agreement advocated by the United States. [1] This triggered howls of protest, primarily from the farm lobby and its allies, and in no time the controversy was raging full force.

With the decision a fait accompli, there is a danger that the debate could subside as quickly as it erupted, without ever progressing beyond a meaningless exchange of verbal blows between the supporting and opposing camps. In the following, I would like to look beyond the announcement per se to raise some more fundamental trade issues and challenges looming on the horizon.

From Announcement to Anticlimax

Given the urgent tenor of the debate—both in the pro-TPP camp, which warned of Japan's "missing the bus" unless it promptly opted to join the talks, and in the anti-TPP army, which fiercely fought to prevent such a calamity—one might suppose that the controversy over Noda's decision represented a climactic battle in the TPP wars. In fact, Noda's APEC announcement is just one step in a long and uncertain process. Let us begin by shifting the focus from the rather myopic object of the Noda government's headlong charge and what lies beyond.

At the TPP summit held a year earlier, in conjunction with the November 2010 APEC meeting in Yokohama, the parties involved agreed to step up negotiations with an eye to winding them up in November 2011, at the APEC meeting in Honolulu. Later it became clear that more time would be needed to iron out differences on commodity market access and other key issues, and that the most they could hope to achieve by November this year was a basic framework.

For Japan to formally join in these talks, it needs the approval of all nine of the countries currently involved in the negotiations. [2] Six already have free trade agreements with Japan, but three do not: the United States, Australia, and New Zealand. [3] It is expected to take at least three months for Japan to win approval from all nine countries and begin taking part in negotiations.

The United States has called for a "high quality" FTA that eliminates all tariffs, but that will be no easy feat given the economic diversity of the participants. Reconciling the TPP with existing bilateral agreements—something Japan has experienced in negotiating an FTA with the Association of Southeast Asian Nations—will be a key obstacle to concluding negotiations in the coming year.

For example, the US-Australia FTA, which went into effect in 2005, exempts a number of key areas from liberalization, and the parties have yet to agree on whether those items will go back on the negotiating table in the multilateral TPP talks. Similar challenges await if the TPP is to expand further into a Free Trade Area of the Asia-Pacific (FTAAP). The handling of this issue could also determine whether Canada and South Korea, which have their own FTAs with the United States, will opt to join the TPP.

Assuming these obstacles are overcome and an agreement is reached and signed, the pact then goes back to each country for ratification. The United States presents special challenges in this regard. Notwithstanding the fears of American domination expressed by some Japanese opponents of TPP membership, the United States is hardly capable of using the TPP as a tool of imperialist expansion. [4] To overcome domestic resistance in pursuing an expanded free trade network, President Barack Obama must rely on the promise of boosting exports and creating jobs.

Members of Congress must consider the TPP's impact on their own constituencies, and in the private sector, attitudes toward the partnership differ from industry to industry and even from business to business, depending on the scale of operations. In this sense the United States is no different from Japan.

Moreover, the TPP is bound to come under greater public scrutiny in the United States now that it is set to evolve from a pact with a handful of small-to-midsize Asia-Pacific economies to a free trade agreement with Japan. Bearing in mind the US auto industry's early resistance to the US–South Korea Free Trade Agreement, we should expect similar objections to the TPP to flare up once Japan joins the negotiations.

The fact is that the diversity of economic interests in the United States can make congressional approval for any trade agreement a very tenuous proposition, depending on the political landscape at the time. The US–South Korea FTA was signed in June 2007 but was not passed by Congress until October this year, more than four years later. [5] The action then shifted to the South Korean National Assembly, where ratification was delayed by the same sort of partisan strife before being forced through the legislature in November.

Clearly, such political risk is not limited to the United States. However, as things stand now, the fate of any such agreement in Congress is especially problematical owing to the expiration of fast-track authority. Under the US Constitution, Congress has the power to regulate commerce with foreign nations. To prevent international economic agreements from becoming hopelessly bogged down in congressional bickering, Washington developed the system of fast-track authority (or trade promotion authority), whereby Congress can grant the President sole authority to negotiate trade agreements for a designated period. Once such an agreement is signed, Congress must either accept or reject it as submitted, without modification.

However, when the last period of fast-track authority came to an end in July 2007, under the administration of George W. Bush, Congress failed to renew it. This means that, as things stand, any TPP agreement signed by the president would be subject to modification by Congress. Needless to say, this would throw a wrench in the process and undermine Washington's credibility in international trade negotiations. > [6]

Domestic Fears

In reality, it is far too soon to worry about political obstacles to ratification, and in any case we cannot confidently predict how politics play out in another country. But from Japan's standpoint, the recent decision to join the negotiations seems precipitate, given the international and domestic hurdles described.

To begin with, embarking on international trade negotiations with domestic opinion so sharply divided increases the risk that Japan will fail to ratify the resulting agreement and lose international credibility.

Meanwhile, our very participation in the TPP negotiations—which could drag on for years—raises questions that have yet to be addressed. Will it affect the conclusion of FTAs with China, the European Union, and South Korea? Is there any point in continuing FTA negotiations with Australia and Canada? And does it signal Japan's relinquishment of its insistence on exemptions for agriculture, which had shackled FTA negotiations until now?

Noting that current TPP negotiations are aimed at a high-standard, broad-based agreement, opponents in Japan have voiced concerns over the impact of international competition not only on agriculture but also healthcare, finance, telecommunications, and government procurement. They have raised the specter of skyrocketing unemployment caused by an influx of unskilled labor and warned that Japan's very identity as a society could be in jeopardy. Supporters have dismissed such fears as ungrounded, arguing that Japan's healthcare system is not about to collapse and that a surge of immigrants is unlikely.

The objections raised are no doubt the product of deep and widespread uncertainty over the future of the country's healthcare system, business environment, food safety, and employment picture amid the rising tide of globalization. The recent burst of opposition to the TPP should be taken as an admonition to those who have rushed into economic integration without pausing for a serious and forthright discussion of how the Japanese economy has fared under current free-trade regime and how it can be expected to fare in the future. This is a topic that will be given closer attention by the Tokyo Foundation.

Trade policy is one means a country has of defining its relationship with other states. Today the international community as a whole is being transformed by the irreversible advance of globalization. Japan cannot remain unscathed by such transformation or isolate itself from the global trend toward market liberalization and integration. We must realize that erecting uniform walls around our borders to keep out competition is no longer tenable.

That being the case, it is all the more important to pursue policies and strategies that maximize the merits and minimize the drawbacks of access and exposure to the global economy. For this, Japan needs to formulate a national strategy that addresses the future of all our major industries in the context of the global marketplace—regardless of whether they are included in the TPP framework.

Taking Stock

The first step—however circuitous it may appear—is to review the extensive FTA network that Japan has built over the past decade, primarily with ASEAN members. What was the original purpose of this network, and how well has it served that purpose? What sort of trade agreements should we aim for henceforth?

Japan's first economic partnership agreement was concluded with Singapore in 2002. World Trade Organization negotiations were stalled, and with more and more economies entering into regional and bilateral trade partnerships, Tokyo was anxious not to be left out. But the landscape has changed since then. The world has outgrown its early, somewhat naïve expectations for a post–Cold War globalized society. China's clout in East Asia and the world has increased dramatically. Confronted with these new realities on the one hand and external pressures for further market liberalization on the other, Japan needs to seize this moment to develop a new economic vision and strategy for the future.

While the principal purpose of trade agreements is economic, these agreements can also have important diplomatic implications. The extent to which Japan's participation in the TPP talks is viewed as being proactive and an outgrowth of its own initiative will become key factors. And the way in which Prime Minister Noda explains his decision to the Japanese people and to the international community will have diplomatic repercussions. He must adopt a lofty tone and make it clear that Japan's foremost concern is its own role in the international community, not accommodating American allies or drawing China and the EU into free trade negotiations.

The Noda administration may regard the decision to join the TPP talks as a victory. But for Japan, the real fight is yet to come.

[1] This was strictly a self-imposed deadline set by the Noda cabinet. The current four-party Trans-Pacific Strategic Economic Partnership Agreement (P4 Agreement), which lays the foundation for the TPP, establishes no such deadline.

[2] At present there are nine parties to the TPP negotiations: Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the United States, and Vietnam.

[3] The Japanese government has been pursuing economic partnership agreement s on the understanding that EPAs cover more ground (such as nontariff barriers) than FTAs, which focus on trade in goods and services. In recent years, however, the trend has been toward more comprehensive FTAs, and for this reason I have chosen to use that term to cover all such agreements, including EPAs.

[4] While opponents of Japanese participation have placed considerable emphasis on the supposed threat of US domination over Japanese society, virtually no one seems to have asked how the countries of Asia feel about the pro-TPP argument that participation will allow Japan to "absorb Asian demand."

[5] The FTAs with Colombia and Panama that were approved at the same time were originally signed in November 2006 and June 2007, respectively. Colombia and Panama had completed ratification quickly and were awaiting action by Congress.

[6] Because the US-South Korean FTA was concluded when the Bush administration still had fast-track authority, it was not subject to revision by Congress.

    • Research Fellow
    • Takaaki Asano
    • Takaaki Asano

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