Japan's TPP decision

On Wednesday, April 24th, during the American Chamber of Commerce in Japan's annual Washington visit, the USTR announced that the Obama Administration has notified Congress of its intent to include Japan in the Trans-Pacific Partnership free trade talks. This notification triggers a 90-day consultation period with Congress and the public on U.S. negotiating objectives with respect to Japan.

Here is an April 8, 2013, Congressional Research Service report on  Japan's Possible Entry Into the Trans-Pacific Partnership and Its Implications.

APP Senior Fellow William L. Brooks wrote the following analysis for APP's April 22nd Asia Policy Calendar, which is sent weekly to its members.

Prime Minister Shinzo Abe?s go-for-broke decision to have Japan join the Trans-Pacific Partnership (TPP) negotiations, despite strong opposition in his own Liberal Democratic Party, seems to be paying off. Japan will now join full-fledged talks most likely in July. The hope is of being able to influence rule-setting to Japan?s advantage by the time that negotiations among the 12 member nations wind up late this year.

The support rate for the Abe cabinet in the polls continues to rise, with the Nikkei?s April survey giving it a heady 76%, a seven point jump from March. Kyodo?s poll gave the Abe cabinet a 71.1% approval rating. On TPP, a solid 62.1% of the public approve Japan?s participation in the Kyodo poll. Nikkei?s survey found 47% in favor of joining TPP, with only 30% opposed.

After deciding to join the TPP, Prime Minister Abe set up under his lead a TPP headquarters of 100 senior officials with relevant expertise. They are to prepare the government?s strategy and specific positions when Japan formally joins TPP rule-setting negotiations in July, as well as build domestic support for the effort. Though the public remains unsure as to whether TPP will really create new wealth in the Japanese economy, it is willing to go along with Abe?s bold decision on TPP because of strong expectations that Abenomics to end the long economic slump.

Experts seem to support such optimism. A steady stream of pro-TPP books and magazine articles has hit the market in recent months. Such opinion agrees that although some parts of the agricultural sector may suffer under TPP ? requiring government countermeasures and reforms to be introduced quickly ? other parts may grow, countering a long-term trend of decline. Moreover, the manufacturing and services sectors are likely to reap the bulk of the benefits, adding jobs and growth to the economy.

With Japan now welcomed by the U.S. and all 11 TPP participants, the debate in Japan has turned to what impact a TPP agreement might have on the economy at the macro and micro levels and what to do about it. In a Nikkei interview on April 12, Itochu Corporation Chairman Eizo Kobayashi championed TPP by stressing that joining it will not only make Japanese exports more competitive in member-nation markets, it will also usher in a wave of direct investments in the Japanese market. He pointed out that the share of the labor force engaged in manufacturing had dropped over the years from a peak of 25% to 16%. If foreign investment significantly increased in Japan?s domestic production base, it would boost domestic and external demand for the products and lead to much-needed job creation and a recovery of the labor force.

Even popular magazines, like the weekly Shukan Shincho, are starting to come around to the logic that the massive free-trade agreement that is TPP will produce benefits to Japan?s national interests that far outweigh the negative side. Even the now highly-protected rice market, the popular weekly argues, will survive liberalization. The premium grade strains such as koshihikari will be able to hold their own domestically. The best Japonica rice grown in the U.S. and now selling for about $20 or more for five kilograms is about the same as the retail price of premium grades in Japan. Adding shipping and distribution costs, U.S. premium rice will be an expensive commodity in Japan. Lesser U.S. grades, again adding shipping and distribution costs, will likely sell for about the same price as comparable strains in Japan. Lesser grades of domestic rice admittedly will not be able to compete with cheap imports, particularly from China or Southeast Asia. But users of such rice, such as the family restaurants and beef-bowl franchises, are already importing a significant amount.

In the U.S., at present, only approximately 300,000 tons of Japonica rice are produced and consumed almost all domestically, the Shincho report continues. Even if all of that was exported to Japan, it would only amount to 3-4% of the annual 8 million tons of domestic rice sold in Japan. Moreover, Japanese consumers are remarkably fussy about the rice they serve at the dinner table, preferring short-grain ?sticky rice? instead of medium to long-grained strains, which are produced cheaply and abundantly around the world. Short-grained rice remains in short supply. The magazine concludes that there is no immediate threat to the market for high-quality domestic rice in Japan.

On the other hand, Japanese vegetable and fruit growers, who receive neither government subsidies nor protection, see TPP as an ideal means for exporting high-quality fresh products to the world, according to a Nikkei report on March 31. Thus, the image of all Japanese farmers as being weak and uncompetitive has been exacerbated by the anti-TPP forces. Agricultural reforms aiming at modernizing the farm sector can help it survive the challenges of liberalization that will soon come. Of course, some products, such as sugar, may be wiped out once the 328% tariff on imported sugar is removed. This is a politically sensitive issue since most of the sugar cane grown in Japan is the sole cash crop of small islands near Okinawa. A government rescue package for those inhabitants seems likely.

There is a tendency to see TPP negotiations as focused mainly on trade in goods, but trade in services is also a key component. In 2010, for example, international transactions in financial and other services reached approximately 20% of global trade. Japan is no exception to that trend, so joining TPP will allow it to join another bandwagon for the country?s economic future, the liberalization of services markets among TPP members.

April 22, 2013

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