Media  Global Economy  2013.09.04

Japan joins the TPP talks

English translated version of "Business Prospect" on NHK Radio Channel 1 on August 6, 2013

1. Japan joined the TPP negotiations at the end of July. What are your thoughts on Japan's participation at this point in time?

Japan's entry into the TPP negotiations was delayed despite the fact that Japan began preparations for the possibility of participation about three years ago. Because of the delay, there has been concern that Japan would not be able to enter into the bulk of the negotiations and only attend what was widely reported would be the final session of the negotiations in October (although, ultimately, a Japanese delegation was also able to join part of the July session).

I believe that the reason for the delay was that the substance of free trade agreements (FTAs), such as the TPP, were not fully understood by the Japanese people. A FTA intends to eliminate tariffs and facilitate trade and investment between the signatories. Countries belonging to a FTA ideally enjoy significant benefits while countries not joining it suffer big disadvantages. Two years ago, the Prime Minister at the time, Yoshihiko Noda, announced that Japan would start consultations with the relevant countries to participate in the TPP negotiations. This was followed by the Canadian Prime Minister and the Mexican President immediately announcing their participation. Canada and Mexico feared their possible exclusion from a potentially vast free trade zone which would be created by a TPP agreement including Japan.

Accordingly, China cannot afford to disregard the TPP. President Xi Jinping has lately requested that President Obama keep China informed on the progress of the TPP negotiations. This was also due to Japan's participation.

What we may be seeing is an example of the 'domino effect': the larger the FTA becomes, the more countries want to be included due to fears they may be excluded from a large free trade zone. The Japanese public may not have been as supportive of anti-TPP protests if another large economic country such as China had joined the talks.

2. What has Japan learnt subsequent to participation in the TPP talks?

I think that the Japanese negotiators have been reasonably well prepared for the talks; they have been kept in the loop by countries participating in the earlier rounds and have also obtained information from various professional magazines in the US. This has enabled them to enter the talks relatively well-informed.

Before joining the talks, they may have been given an indication that the negotiations had not been progressing smoothly. The Japanese media have reported that the negotiations have been concluded in many areas. However, generally speaking, countries involved in trade negotiations can reach agreement, through working-level consultations, only on uncontentious issues. Other issues often prove more difficult to agree. One example of this in the TPP talks is drug patents. The United States and developing countries have difficulty in reaching an agreement on drug patents as the US is in favour of strengthening patent protection to safeguard profits of major American pharmaceutical companies. Meanwhile developing countries oppose the continuation of patent terms which force them to pay more for such medicines.

I met the New Zealand's minister in charge of trade personally at the end of April. He informed me at the time that Japan did not need to worry about the delay in joining the talks since there had been little progress in the market access negotiations including tariff elimination for agricultural products. One of the sticking points was the US desire to maintain import duties on Australian sugar, which the Australian government strongly opposes. These "political" issues are difficult to agree and often remain unresolved in the working-level consultations. Decisions on these issues require a certain level of political will and are usually made at the very end of the negotiations. A good example of this was, the GATT Uruguay Round negotiations where the then-Prime Minister Morihiro Hosokawa made a last-minute decision to accept partial rice imports into Japan just before the close of negotiations.

3. Japan is pushing for five agricultural products to be excluded from tariff elimination. How do you expect the market access negotiations for the TPP agreement to proceed?

Once agreed, rules on investment and trade in the TPP agreement will be applicable to all member countries. Accordingly, these are discussed and agreed on in the plenary session.

For issues relating to market access, only the framework for negotiations will be decided in the plenary session - things such as the total number of items to be excluded from tariff elimination. The plenary session does not discuss which items are to be excluded due to different interests of each country.

For example, Japan desires the abolishment of tariffs on automobiles while it wants to maintain tariffs on imports of agricultural products. Vietnam requests the elimination of tariffs on rice while it wishes to protect its automobile industry by imposing import duties. So multilateral trade negotiations like the TPP are usually conducted via bilateral negotiations where one country submits a request to another country to open the market for certain products which in turn makes an offer to liberalize trade on another product. This is called "request-offer" approach. The collective results of these bilateral negotiations form the basis of the larger multilateral agreement.

Accordingly, individual items are not discussed in the plenary phase of TPP negotiations. Media reports speculate that Japan may ally with Canada to negotiate for the continuance of import duties on dairy products from the US. However negotiations are usually not so straightforward. The US will request that Canada abolish tariffs on dairy products while it pushes for the continuance of tariffs on imports of dairy products from New Zealand. The US would not accept any universal resolution either maintaining or abolishing tariffs on dairy products. In Japan's case, at this time no strategy exists where protection on one or more of the five products can be abandoned for "political" reasons. Furthermore, any potential concessions will almost certainly not involve protection for rice farmers.

In conclusion, Japan should seriously consider what the national interests it needs to protect are: does it have to preserve and promote agriculture in Japan or is it essential to maintain tariffs as a means of agricultural protection? Why cannot Japan take measures to distribute government subsidies directly to farmers as the US and the EU do instead of imposing import duties? These are the points which need to be seriously discussed in Japan prior to the conclusion of the TPP negotiations.

(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 August 6, 2013.)