Growing Interest in International Trade Policy

Since last year, there has been a great deal of news coverage on an international agreement called the TPP, or officially, the Trans-Pacific Strategic Economic Partnership Agreement. Even now, the Japanese government is having talks with each country already engaged in the negotiations in preparation for joining the TPP negotiations. There are arguments from various angles as to the progress of such Japan's talks, the development of negotiations, the impact on domestic industries, and the like. This may be the first time this much public attention has been devoted to international trade policy since the Uruguay Round negotiations of the General Agreement on Tariffs and Trade (GATT)-which determined the establishment of the World Trade Organization (WTO)-entered crucial stages in the first half of 1990s.

Crucial Stages for Japan's Participation in the TPP

The on-going TPP negotiations originate from the Free Trade Agreement (FTA) concluded in 2006 by four countries with a strong inclination toward trade liberalization; i.e., Singapore, Brunei, New Zealand, and Chile. At the time negotiations were expanded to include such areas as financial services and investment, the U.S., Australia, Peru, Vietnam, and Malaysia joined, and a total of nine countries now participate in the negotiations. Countries that want to participate in the negotiations-including Japan-must gain approval from all of the nine countries. TPP coverage is not limited to those typically covered by many FTAs, such as the elimination and reduction of customs duties on goods, and liberalization of trade in services. It is comprehensive, covering rule-making in "non-tariff areas," such as investment, competition, intellectual property rights, and government procurement, as well as new areas such as environment, labor, and "cross-sector issues." Many of these areas have already been included in Japan's FTA (known as the EPA-Economic Partnership Agreement), although international commitments in the TPP are said to be more advanced. Ten negotiations covering wide-ranging areas in the agreement had already been conducted by the end of 2011, but would-be participants had limited information as text of Japanese government is forced to engage in difficult maneuvering, having talks with negotiating countries, while coordinating its own negotiating stance domestically, taking into account opinions from various positions. There has been some opposition based on misunderstanding, but thanks to bilateral talks between the Japanese government and the participating countries in TPP negotiations, a lot of the facts have been confirmed, and consequently, misunderstandings about the TPP have gradually been dispelled, and new facts presented. As Japan is now reaching crucial stages for TPP participation, we need to continue to watch with interest and consider developments from our own perspective.

TPP-Considered from a Historically and Geographically Broad Perspective

In considering the TPP, we may be heading in the wrong direction if we regard it as a single current issue.

It is important to have long-term perspective in understanding the history of what benefits Japan has received from the world's free trade system in the postwar period, as well as how Japan's external economic policy has been changing. As a trading nation, Japan has been receiving the benefits of multilateral trading system under the GATT and its successor organization, the WTO, after the war. To this day, the GATT/WTO has been supporting the international trading system not only by liberalizing trade in goods and making rules but also by expanding its coverage to non-tariff barriers, trade in services and intellectual property rights, and providing the function of dispute settlement among countries. It has become difficult for the WTO, however-with its increased 153 members (soon to be 156)-to reach new agreement; we can see no sign of conclusion of the Doha Round that has been under negotiation since 2001. Under this circumstance, the importance of FTAs-which supplement international trading rules-has been rising. In particular, TPP will become the building block of the future trading system because of the economic size and trading volume of its current and prospective participants as well as its advanced content. In TPP negotiation, Japan is expected to contribute to establishing a new order, while checking the influence of the U.S. In doing so, we can set aside the extreme view of U.S. threat by reviewing what requests the U.S. has made in the bilateral talks with Japan, and how Japan has responded to them. Issues such as automobile and medical insurance are not inherent to the TPP, but they have already been discussed in bilateral context. Needless to say, it is important not only to learn from history, but also to have perspective for the future. Given that we cannot expect successful conclusion of the WTO negotiation for the time being, we need to think about the medium- to long-term risk of not participating in the TPP as well as the short-term demerits of TPP participation.

Moreover, when we consider the TPP, we must have a geographically broader perspective, taking into account Japan's relationship with not only the TPP participating countries, but also other countries/regions, including China and Europe. After Japan's announcement to start considering participation in the TPP negotiation, the European Union (EU) changed its position by actively seeking economic partnership with Japan. Furthermore, we can expect the TPP to play a role in warn against the protectionist movement of China, which is not participating in the TPP.

As for the policy implications of the TPP, it is essential to promptly plan and implement policies for the domestic industries such as agriculture that need measures in response to trade liberalization. On the other hand, we could have more balanced examination by having not only a sense of caution about foreign powers invading Japan, but also an outward orientation promoting the expansion of Japanese companies overseas. Korea-which is competing with Japan in many industries-is ahead of Japan, as it has already concluded FTAs with the EU and the U.S., and Korean companies could get conditions that are more favorable than those of their Japanese counterparts. With respect to the treatment of high tariff items that remain in the U.S., however, the TPP could improve the situation where exports from Japan are less favorable compared with those from Korea, due to the U.S.-Korea FTA, and restore a level playing field.

As for the policy implications of the TPP, it is essential to promptly plan and implement policies for the domestic industries such as agriculture that need measures in response to trade liberalization. On the other hand, we could have more balanced examination by having not only a sense of caution about foreign powers invading Japan, but also an outward orientation promoting the expansion of Japanese companies overseas. Korea-which is competing with Japan in many industries-is ahead of Japan, as it has already concluded FTAs with the EU and the U.S., and Korean companies could get conditions that are more favorable than those of their Japanese counterparts. With respect to the treatment of high tariff items that remain in the U.S., however, the TPP could improve the situation where exports from Japan are less favorable compared with those from Korea, due to the U.S.-Korea FTA, and restore a level playing field.

In November 2010, the cabinet decided on the Basic Policy on Comprehensive Economic Partnership as Japan's policy toward the FTA. In the Policy, the government recognized that Japan was behind in its efforts, set as a goal the Free Trade Area of the Asia-Pacific (FTAAP) encompassing 21 member countries and regions of APEC, and declared the need to respond to the TPP, which was the only on-going negotiation toward that goal. We may or may not support this policy. Nevertheless, we are expected to participate in forming public opinion on the TPP negotiation and other external economic negotiations by examining them from temporally and geographically broad perspectives.