Japan’s Big Bet on the Trans-Pacific Partnership: The TPP Nations Should Reciprocate

Prime Minister Shinzo Abe announced on March 15th Japan’s bid to enter the Trans-Pacific Partnership (TPP) trade talks. Pending approval by TPP countries, Japan’s participation in this ambitious trade negotiation with 11 other Asia-Pacific nations is a game changer, and one with very positive payoffs for both Japan and the United States.

For Japan, TPP participation puts aside the concern that the third largest economy in the world 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 Prime Minister Abe’s economic strategy: structural reform.

For the United States, Japan’s TPP membership dramatically increases the economic significance of this agreement, 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), and boosts its efforts in the negotiation table in the rules area of the agreement as the United States and Japan share views on disciplines for investment protection and intellectual property, among others.

If TPP participation is a win-win for both countries, why is Japan coming on board so late in the game? For over two years, successive administrations of the Democratic Party of Japan (DPJ) were unable to decide on Japan’s TPP participation given the determined opposition of the agricultural lobby; the campaign to scare the Japanese public (with alarmist charges that the TPP would undermine Japan’s national health care system, the safety of the food supply, and would lead to massive immigration of unskilled foreign workers); a divided parliament, and the lack of party cohesion on this issue. When the Liberal Democratic Party took the reins of government earlier this year, the prospects of moving on the TPP front prior to the Upper House summer election seemed slim, as the LDP’s landslide electoral victory depended heavily on the agricultural vote and the anti-TPP party caucus gathered close to half of its parliamentarians.

Why, then, has PM Abe thus surprised us by acting before the July elections? A number of factors explain the bet of Prime Minister Abe that TPP membership now will not bring an electoral debacle. One, his high approval ratings -product of his focus on economic revitalization- gives him some immunity from TPP foes. Two, the electoral dominance of the LDP (with the decimation of the DPJ last election) has left the agricultural lobby bereft of a large national party that can champion its anti-TPP crusade. Three, LDP party members are less tempted to defect when they expect the Abe government to finally break the cycle of one-year prime ministerships. Fourth, the carefully worded Obama-Abe statement of the February summit (that all goods are subject to negotiation, but the results of tariff elimination are not pre-ordained, and that both Japan and the United States have sensitive sectors), allowed Prime Minister Abe to make the case that TPP participation will not break its party’s stance of rejecting full tariff elimination as a precondition for TPP participation.

Many voices in the LDP are not convinced that the odds of this bet are good, hence the party has demanded continued protection for five agricultural commodities: rice, wheat, sugar, dairy and beef. These “five fingers” guarantee that there will be a ratification showdown down the road, as TPP partners will not agree to such wide ranging sectoral carve-outs. Prime Minister Abe’s announcement is hence a huge step, but only the first of many that will be required to ensure Japan’s meaningful participation in the Trans-Pacific trade talks. Two essential tasks come to mind. One, it is necessary to revamp Japan’s trade negotiation structure. Japan is coming late to the TPP talks, will need to hit the ground running, and its past negotiation style of sending scores of negotiators to represent multiple bureaucratic views, will simply not do. The decision a few days ago by the Abe government to establish a TPP secretariat to streamline the coordination of domestic interests and appoint a chief negotiator is, therefore, a very positive development. Second, Japan should learn the lessons from South Korea of narrowing down the range of its defensive interests significantly (in order to achieve tariff liberalization ratios of around 98%) and offering trade adjustment assistance to obtain farmer acquiescence. And the government should move boldly in the area of agricultural modernization with changes in the income compensation program and land transactions, to name a few.

Japan today has placed a big bet that the Trans-Pacific Partnership can help retool its economy to become more open and competitive, and reconfigure its domestic politics by eroding the clout of protectionist forces. These are the right bets to place and the international community should be supportive. It is time for the TPP nations to reciprocate with their own big bet on Japan, one that acknowledges that this is a critical juncture to support the cause of structural reform and market liberalization, and one that benefits them by making the TPP a far more significant trade agreement.