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Participation in the Trans-Pacific Partnership Agreement Significance and Challenges | Tsugio Ide, Professor Graduate School of Business Nihon University [Date of Issue: 27/December/2011 No.0202-0821]

Date of Issue: 27/December/2011

Participation in the Trans-Pacific Partnership Agreement
Significance and Challenges

Tsugio Ide
Professor
Graduate School of Business
Nihon University

Introduction

Recently the papers have been buzzing with debate over participation in the Trans-Pacific Partnership (TPP) Agreement. This is an extremely important choice for Japan as a country locating itself in the global social economy and, moreover, one facing a major socioeconomic paradigm shift. Discussion on the matter must be considered in the historical context of the world’s trading system which has benefited Japan over the years as a trading nation, as well as Japan’s future prospects.

Japan’s course to date as a trading nation

Just after having ratified the San Francisco Peace Treaty, Japan found itself in a world trade regime dominated by the General Agreement on Tariffs and Trade (GATT) and the International Monetary Fund (IMF). Under that regime, Japan pushed forward with its transition to an open economy—namely, the liberalization of trade, foreign exchange and capital—through its accession to the GATT and the Organization for Economic Co-operation and Development (OECD), as well as accepting the obligations set out in Article VIII of the IMF’s Articles of Agreement.

When the 1957 Treaty of Rome established the European Economic Community (EEC), then-US President John F. Kennedy responded to the perceived worry of trade barriers between the US and Europe by pressing for a new round of ambitious multilateral trade talks (the Kennedy Round) to promote free trade. Moving immersed in its transition to a market economy, Japan was concerned as to its own ability to handle the Kennedy Round negotiations, but emerged in fact as the greatest beneficiary. Following the Kennedy Round, Japan consequently called for the Tokyo Round (1973-79), taking on a leading role in the world’s free trade regime.

Following the turmoil caused by the second oil shock, the Uruguay Round (1986-95) took the world forward from GATT to the World Trade Organization (WTO), in which many developing countries too were involved. The greatest beneficiary of the Uruguay Round was said to be China, which acceded to the WTO in 2001. At the same time, because of the advance of economic globalization—or even perhaps despite it—particularly the least-developed countries, which were unable to benefit sufficiently from the Uruguay Round, now face various challenges. As a result, while the Doha Development Round began back in 2001, it has remained unable to achieve concrete progress.

Transformation of the international trading system and Japan’s response

Where free trade agreements (FTAs) were regarded as exceptional under the GATT regime, arrangements such as the EEC (which advanced into the European Union), the North American Free Trade Agreement (NAFTA) and the ASEAN Free Trade Agreement (AFTA) have created a another network. The world trading system is now proceeding down the twin paths of a multilateral trading system on the one hand and, on the other, FTAs as well as economic partnership agreements (EPAs), which take the FTA format a step further. Where Japan once considered the GATT/WTO-based multilateral regime to be the ultimate, it has now followed the world trend and concluded EPAs with, for example, Singapore and other ASEAN member countries, as well as Mexico, Chile and India.

Then there is the Asia-Pacific Economic Cooperation (APEC) forum, the concept and initiative for which came from Japan and Australia. APEC is historically significant as an international framework launched by countries other than the United States and Europe, the traditional initiators of such frameworks. The APEC Bogor Declaration produced in Indonesia in 1994 pledged to liberalize trade and investment in the region by 2010 in the case of developed economies and by 2020 for developing economies, but we are already in 2011. In that sense, the TPP could be said to be coincident with the direction of the Bogor Declaration. The creation of an FTA or EPA based on ASEAN + 3 or an East Asian community has also been proposed, but while such concepts should be kept in mind as extensions of the TPP, they do not seem immediately realistic.

With FTAs concluded between the EU and Korea and between the US and Korea, consideration of Japanese participation in the TPP is extremely timely, and Canada, Mexico and the ASEAN nations too have expressed an interest. Given the possibility that the TPP could widen out from the developed countries to include the ASEAN developing countries and also countries such as China and Korea, it will be vital to build an open system.

As Pacific trade has already surpassed Atlantic trade for some time now, it is natural that the US sees enormous future potential in partnership with Asia as a growth center.

Japan as a formulator of not the TPP but the global economic system

The sticking point in advancing not only the GATT/WTO regime and FTAs but trade negotiations in general has been the connection with domestic agriculture. When it comes to trade in agriculture, agriculture has been acknowledged as a special characteristics due to food security, the environmental conservation effect of agriculture, and the maintenance of farming communities. At the same time, there have also been calls to boost agricultural productivity and promote agricultural structural reform, but little has been achieved because of obstruction by vested interests and poor policy formation. The TPP could therefore also be viewed as a good opportunity to plan the revitalization of Japanese agriculture and draw up a future vision.

Another issue being discussed in relation to the TPP is the impact on domestic medical systems. Japan’s medical system reached systemic maturity early on, but bright ideas on systemic design could well emerge that take into account the current state of national finances, the rapid transition to a aging society and the development of global standards.

In approaching TPP participation and considerations, Japan needs to break free of its insular island mentality and look to harmonize with international systems, share Japan’s experience with developing countries, and serve as a formulator of an open world system with a view to Japan’s future prospects as a mature society.

Ending remark

Following the Lehman shock, international coordination has enabled the world economy to overcome the kind of mistakes seen in the pre-war period, such as import restrictions, competitive currency devaluations and the formation of economic blocs. However, no prospect has yet emerged of policy coordination toward creating a stable international financial and monetary system as common social capital. Free trade and a stable financial and monetary system are equally essential elements, and this point must be borne in mind in any discussion on trade issues, while continuing to press for reform of the financial and monetary system.

(original article : Japanese)
(For the Japanese version of this article)


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