The United States and Japan on Friday announced they had reached agreement on Japan's participation in negotiations for a Trans-Pacific Partnership trade agreement.
Japan last month signaled its willingness to join the TPP and would become the 12th nation in the talks once approved by the current partners. As the world's third largest economy, it's participation would make a Pacific Rim trade bloc extremely powerful, accounting for nearly 40 percent of global GDP and about one-third of world trade. It would also enhance the U.S. government's strategic shift to the Asia-Pacific from the focus on the Middle East and Europe, and open up a huge market for U.S. companies. But U.S. business groups want to ensure that Japan commits to eliminate long-standing tariff and non-tariff barriers that have protected the domestic industries from foreign competition before Japan is accepted into the talks.
They appear satisfied Japan is willing to grant new market access to their agriculture, manufacturing and services sectors.
“Japan’s participation would significantly increase the potential of the TPP, and the progress that has been made in addressing market barriers in the Japanese automotive and insurance sectors is welcome. This promising start must be matched by agreement on uniformly high standards for the effective elimination of non-tariff market barriers and for addressing emerging trade issues such as competitive neutrality for state-owned enterprises, as well as by a shared commitment to concluding the negotiations this year,” Calman Cohen, president of the Emergency Committee for American Trade, said in a statement.
Japan is consulting with other TPP parties - Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam - to gain consensus for joining the negotiations by this summer. The governments have expressed their intent to conclude a deal by the end of the year, so there is a strong desire to make sure that Japan is ready to follow the trade liberalization process.
Japan satisfactorily demonstrated its seriousness about TPP membership to the U.S. government by agreeing to more than double the number of vehicles eligible for import under its Preferential Handling Procedure and to accept a long, back-loaded phase-out of the existing 2.5 percent tariff on imported cars and 25 percent tariff on trucks, according to an issue brief by Matthew Goodman, a political economist at the Center for Strategic and International Studies. Japan also agreed to reform its insurance market.
The two governments also agreed to set up two parallel sets of bilateral talks alongside the main TPP negotiations to fully resolve the auto access issues, as well as address several non-tariff measures that affect U.S. exporters and investors, including impediments to mergers and acquisitions in Japan, inadequate regulatory transparency, and government procurement and competition policies. The outcomes of those talks will be folded into the main TPP agreement and be subject to dispute-settlement provisions, Goodman said.
Japan also made clear its readiness to negotiate a high-standard and comprehensive TPP agreement and to put all products on the table for negotiation, he said.
Japan's entrance puts pressure on South Korea to consider joining the TPP, which would be relatively easy because the TPP is largely modeled after the existing U.S.-Korea free trade agreement, Goodman said. Seoul has been reluctant to join the talks so far because of lingering domestic opposition to the U.S.-Korea FTA and concerns about tilting too far away from China.
The TPP is setting up as a counterweight to the Regional Comprehensive Economic Partnership of 18 East Asian countries led by China and Indonesia.
"Joining TPP is one of the key pillars of Japanese Prime Minister Shinzo Abe’s strategy to revitalize the Japanese economy, dubbed 'Abenomics,'" Goodman wrote. In addition to monetary and fiscal stimulus, Abe has identified structural reform of the protected and inefficient agriculture sector, of Japan’s rigid labor markets, and of its burdensome regulatory practices as essential to strong and sustained Japanese growth. Domestic resistance to these reforms is strong, and the TPP is seen as the catalyst that could force the needed change.
"Armed with the 'confidence-building measures' it needed from Tokyo, the Obama administration
will soon notify Congress of its intention to bring Japan into the TPP
negotiations, launching a 90-day consultation period. Vocal opposition from some
House members—especially those representing automotive interests—is likely, but
the administration is counting on support from most Republican members and
enough Democrats to overcome this resistance. The other 10 countries in TPP
must also approve Japan’s entry; Australia, New Zealand, and Canada have expressed
some concerns but are likely to come aboard now that the United States has
welcomed Japan in," Goodman predicted.
Last week, a delegation of ambassadors and other senior embassy officials from several countries engaged in the TPP trade talks visited local businesses in Louisville, Ky., and Cincinnati, Ohio, - including the UPS package hub, General Electric and Procter & Gamble - to discuss the potential benefits for their countries and the United States of a TPP agreement. The trip was organized by the U.S. Business Coalition for TPP. - Eric Kulisch