Media  Global Economy  2013.04.02

Prospect of Japan's participation in TPP negotiations

English translated version of "Business Prospect" on NHK Radio Channel 1 on February 19, 2013

1.Whether or not Japan participates in TPP negotiations has come under the spotlight again just before Japanese Prime Minister Shinzo Abe visits the United States. What is the current status of TPP negotiations?

Member countries participating in TPP negotiations aim to reach an agreement this October. They have spent about three years on negotiations so far. All proposals of member countries are already on the table. The subjects in which members have conflicts of interest have been elucidated since they have successfully narrowed down contentious issues. The remaining issues are all big ones, such as US tariffs on sugar and dairy products and Canada's tariffs on dairy products and poultry, which both the US and Canada are insistent about maintaining. These issues cannot be solved at the negotiators' level. They require political decisions and resolutions. Therefore, negotiations could be concluded rapidly if members negotiate intensely at the political level, such as through a ministerial meeting or heads-of-state summit, with a view to successfully conclude an agreement in October.

The US will have a mid-term election next year. As trade liberalization may often be to the detriment of certain industries, the US does not really want to conclude trade agreements in an election year. President Obama declared in his recent State of the Union address that, "we intend to complete negotiations on a Trans-Pacific Partnership." It is the first time that the term "TPP" has been mentioned in a US President's State of the Union address. His statement is regarded as indicating his strong will to conclude TPP negotiations by the end of this year.

2. What about the current status of TPP in Japan?

The Research Commission of Regional Diplomatic and Economic Partnership of the Liberal Democratic Party of Japan (LDP) has announced its "basic principle" that the LDP "opposes participation in TPP negotiations if it is negotiated based on the premise that tariffs will be abolished 'without sanctuary' (i.e. without exceptions)." This confirms the LDP's campaign pledge in the latest Lower House election.

The campaign pledge also included the following phrases:
(2) Not to accept any numerical targets for automobiles or other industrial products which are against the idea of free trade;
(3) To protect the universal health insurance system;
(4) To maintain standards for safety and security of food;
(5) Not to agree to an ISD clause which may erode national sovereignty; and
(6) To stress Japan's characteristic features of government procurement and financial services, etc.

The correct term for "IDS clause" is "ISDS (Investor-State Dispute Settlement) clause," under which corporations investing in a foreign country have the right to take the country's government to court over certain policies. However, it is generally acknowledged in international society that a country's legitimate policies are not claimable unless a specific policy discriminates foreign corporations from domestic corporations. Therefore, this clause does not adversely affect Japan's sovereignty. There are many free-trade agreements that Japan has concluded with foreign countries which include the "ISDS clause."

In addition, the issues that the US has claimed in bilateral negotiations with Japan cannot be taken up in TPP negotiations if they are not covered by a WTO agreement or other international trade agreements. For example, national health insurance systems are outside the scope of the WTO's General Agreement on Trade in Services and therefore have never been taken up in negotiations for any free-trade agreements. An official of the USTR has clearly stated that the US has no intentions of discussing public medical insurance systems (including Japan's universal health insurance system) in the negotiations for TPP agreement. With respect to food safety, the members of TPP negotiations have not negotiated systems which may deviate much from those in existing international trade agreement, i.e. WTO's SPS Agreement.

In sum, the focal point is whether agricultural products can be excluded from the elimination of tariffs. In this respect, Prime Minister Abe has said that he will judge whether Japan will participate in TPP negotiations if he himself can get a feeling at the upcoming Japan-US summit for whether agricultural products can be excluded.

3. Can he make the decision whether to participate in TPP negotiations?

The US wants to maintain the tariff on sugar imported from Australia and that on dairy products from New Zealand. Naturally, Australia and New Zealand oppose them. Canada really wants to keep the tariffs on dairy products, poultry and eggs, but the US has requested Canada to abolish the tariff on dairy products. Interestingly enough, while the US insists on excluding sugar from tariff liberalization, which Australia has agreed to in the US-Australia free-trade agreement, and does not want to renegotiate, Canada also wants to continue imposing the tariff on dairy products imported from the US in accordance with its free-trade agreement with the US. So, the US is contradicting its own position to maintain the tariff on sugar imported from Australia while at the same time asking Canada to eliminate its tariff on dairy products.

Thus, the current status of TPP negotiations is complex and confusing because there are conflicting interests among members and contradicting arguments sometimes made between countries. In the end, it is true that nothing is certain until negotiations are complete. However, it would be worth exploring during the course of the negotiations whether making exceptions is a good thing or not. In the course of GATT Uruguay Round negotiations, Japan successfully excluded rice from "tariffication" (i.e. replacing all non-tariff import restrictions with tariffs). However, an import ceiling on rice with duty-free status (which is called minimum access) was increased to a level higher than that in the case of rice "tariffication." So, in the course of the implementation period, Japan changed its policy to "tariffy" rice in order to hold down the import ceiling. We must note that making an exception requires compensation. If an exception were to be made for rice in TPP negotiations, an additional import ceiling under the TPP agreement might be imposed on top of the current import ceiling of 770 thousand tons of rice. We must proceed with negotiations based on a thorough study of the advantages and disadvantages of specific conditions.

The United States and the European Union have agreed to enter into the free-trade agreement. I would think that if Japan is left behind in the global trend of trade liberalization, we cannot overlook the possibility that Japanese companies may be locked out of a wide range of global free-trade zones.

(This article was translated from the Japanese transcript of Mr. Yamashita's speech in the "Business Prospect" session of the radio program "First in the Morning News" broadcast by NHK Radio Channel1 on February 19, 2013.)