The Diet’s ratification last
week of the Trans-Pacific Partnership pact, touted as a free trade deal
encompassing economies that together account for 40 percent of the world’s
gross domestic product, will end up as an exercise in futility unless the
agreement takes effect — which now seems doomed with U.S. President-elect
Donald Trump’s repeated vow to pull his country out of the deal. If the
administration of Prime Minister Shinzo Abe genuinely believes in the TPP’s
benefits to spur the Japanese economy, he needs to explore a Plan B to pursue
what the pact is supposed to achieve.
In fact, the government’s
estimate that the TPP would push Japan’s GDP upward by more than 2 percent in
real terms in 10 to 20 years is reputed to be based on rosy scenarios that
everything will go just as hoped. Its forecast that the deal would add ¥13.6
trillion to the economy and generate nearly 800,000 new jobs is widely seen as
overblown, while the expected damage to domestic agriculture output due to
increased cheap farm imports — in the range of ¥130 billion to ¥210 billion —
is viewed as underestimated.
But even assuming that the
government’s estimates of the TPP’s benefits are reasonable, they will come to
nothing if the pact does not enter into force. The agreement among 12 Pacific
Rim countries is to take effect when it’s been ratified by at least six members
that together account for 85 percent or more of the GDP of the signatories
combined. In other words, the deal needs to be ratified by both the U.S. and
Japan — by far the two largest economies involved.
Abe, who acknowledged that a
TPP without participation of the U.S. would be “meaningless,” is said to have
pushed for the Diet’s approval in the hope that ratification by Japan would
prompt Trump to somehow change his mind. The prime minister also told the Diet
it was important for Japan to “send a message about the TPP’s strategic and
economic significance of creating a fair economic grouping” even when the
prospect of its implementation is uncertain.
That will have only a symbolic
importance if the deal is indeed doomed. Trump, who during the campaign blamed
past free trade deals for pushing American jobs and industries out of the
country, has repeatedly said he will withdraw the U.S. from the TPP on the day
he takes office in January.
If the Abe administration
indeed believes in the TPP as a key to drive up Japan’s growth, it should not
be content with the Diet’s ratification and the slim hope that Trump might
change his mind. It should instead prepare to restructure its strategy on how
to push the nation’s free trade agenda in case the deal is formally declared
dead.
The TPP aims to promote trade
and investments among its participants not only by lifting and cutting tariffs
but setting common rules on intellectual property, government procurement and
other areas of business. While the government tends to play up the benefits of
free trade pacts, there will be both positive and negative impacts of these
agreements. An estimate by the U.S. International Trade Commission in May
showed that the TPP would push up America’s GDP by a mere 0.15 percent in the
15th year of its implementation and that both output and jobs will slightly
decline in manufacturing and energy sectors — given that the economic benefits
of the deal will be limited since the U.S. already has free trade agreements
with six of the TPP signatories. That must be hardly reassuring for Trump, who
won the election on his vow to pursue “America first” policies to bring back
manufacturing jobs to the country.
Will there be practical
alternatives to the TPP? Trump said he would instead pursue bilateral trade
agreements with other countries to bring back jobs and industries to the U.S.
There may emerge moves to rescue the TPP by changing its rules so that it can
enter into force without the participation of the U.S. The TPP, which does not
include China as a member, has had the political aspect of the departing
administration of President Barack Obama, in taking the initiative for the
deal, seeking to secure the U.S. influence in the Asia-Pacific region in the
face of China’s growing clout in this part of the world. There are views that a
U.S. pullout from the TPP will pave the way for China to take the lead in
crafting the region’s trade architecture. The Abe administration needs to
prepare Japan’s possible responses to these questions.
There’s one thing that Abe
seems certain of doing. He said that with or without the TPP taking effect, his
administration will go ahead with the government’s spending on domestic
measures to deal with the free trade pact.
More than half of the roughly
¥1.2 trillion earmarked in the budget so far is going to the agricultural
sector — to finance measures billed to boost the competitiveness of Japanese
farmers against anticipated rise in imports, including public works projects to
promote large-scale farming. The prime minister said these measures are
necessary to make Japan’s farming industry more competitive even if the TPP
does not come into force. But if so, his administration needs to make sure that
the spending will accomplish what it is intended to achieve, instead of being
wasted as were past government expenditures on the agriculture sector in the
face of farm trade liberalization.
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