The Trans-Pacific Partnership: What’s In It for Japan?

July 4, 2015

 

The Trans-Pacific Partnership, in various forms, has been under discussion since 2002, with an ever-increasing number of counterparts entering the movement. Intended to regulate trade and investment flows across the Asia-Pacific region, the plan has faced increased opposition, most notably in Japan and the United States.

 

While widespread fears about the deal have been growing, very little is known of what benefits the plan will deliver if, as expected, the deal gets ratified. This is partly due to the highly secretive nature of the negotiations and worries from interest groups about the impact of reforms on protected industries.

 

To clear things up, a recent research paper by Masahiro Kawai of Tokyo University of Tokyo explains the opportunities of the TPP and they break down as follows:

 

  • TPP can stimulate foreign investment in Japan. Compared with other developing and developed countries, Japan’s ratio of FDI to GDP is particularly low, indicating Japan’s historical resistance to outside investment.

  FDI as % of GDP, 2013

Source: IMF, 2014

 

  • Japanese companies will have more confidence investing overseas. It will simplify trade and investment procedures and unify regulatory standards across the Asia-Pacific region, thus reducing the financial costs of doing business.

 

  • Japanese businesses and consumers will have access to a greater amount of goods and services after TPP opens up markets across the region. As well as having a low ratio of FDI to GDP, trade remains a small part of the economy, accounting for 6-7% of GDP, compared to more than 20% in South Korea and Germany.

 

  • TPP will act as the basis for common rules regarding trade in the Asia-Pacific region and, from Japan’s point of view, will allow it to diversify its trade business away from a dependence on Chinese markets.

 

These outcomes are quite standard for a trade deal but they haven’t been communicated particularly well. Negotiations have been notably secret to protect against inciting political instability, particularly because the reforms in the agreement may upset powerful trade lobbies and unions in the countries concerned.

 

News of the TPP has not been received well in Japan, since liberalization included in the TPP will challenge Japan’s long-protected agricultural sector, erode the current welfare system and take government procurement opportunites away from domestic businesses.

 

However, independent estimates put the net loss of missing out on the TPP at 1.53% of GDP in 2020, with the loss of 812,000 jobs and a negative impact on Japan’s export sector. With Japan’s economy struggling with low growth and a rapidly aging populace, it makes sense to be proactive on a TPP deal since it will spearhead many of the reforms Shinzo Abe has promised in his national rejuvenation plan.   

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