Media  Global Economy  2014.08.21

TPP negotiations on non-agricultural issues

English translated version of "Business Prospect" on NHK Radio Channel 1 on July 22, 2014

1.Media reports say that there is conflict of interest among countries involved in the TPP negotiations on issues other than tariffs. What other things are they negotiating?

The TPP agreement aims to liberalize and facilitate trade and investment in the Asia-Pacific region. Efforts are made not only for the elimination or reduction of tariffs on goods and barriers to finance and other service trade but also for the establishment of rules for investment, fair competition and intellectual property protection. While all of these subjects are covered by the bilateral free trade agreements that Japan has concluded with other countries, the countries involved in the TPP negotiations are in discussion to advance and strengthen the rules in these areas. One example is the competition law issue, for which the members are aiming to introduce new rules compelling the government not to provide benefits solely to state-owned enterprises (SOEs) whereby foreign companies and foreign products are discriminated against. In addition the TPP agreement intends to regulate relations between trade and environment and between trade and labour. In these new areas the intention is to prevent the member countries from lowering labour or environment standards so as to obtain unfair advantage in competition with other countries.

2.Some in Japan expressed their concern that participation in the TPP agreement could break up Japan's universal health-care and public medical insurance systems or could reduce food-safety standards.

The countries involved in the TPP negotiations are aiming to conclude a legally binding agreement. As a kind of free trade agreement the TTP should base itself on the World Trade Organization (WTO) agreement. Government services such as public medical insurance systems are out of the scope of the WTO service agreement nor have they been covered by any free trade agreement so far. In other words, issues not within the framework of free trade agreements cannot be handled in the TPP negotiations even when they have previously been taken up in bilateral talks on other occasions. The official of the US Trade Representative has clearly stated that the US will not make demands for anything in relation to public medical insurance.

Under the WTO's SPS Agreement (The Agreement on the Application of Sanitary and Phytosanitary Measures) dealing with food safety issues, the member countries are encouraged to adopt the international standards because their uniformity contributes to the promotion of international trade. Some in Japan are critical that the Japanese government will be forced to change its food-safety standards to bring them in line with US or other countries' standards once Japan joins the TPP. However, it is impossible in an international society where sovereign right is respected for one country to be forced to adopt another country's standards. In addition the SPS Agreement clearly provides that the member countries are allowed to maintain higher levels of health protection than the international standards so far as they are based on an appropriate risk assessment supported by scientific evidence. Therefore, any country is able to adopt stricter SPS measures than the international standards. The TPP agreement cannot supersede the WTO's basic principles.

3.Then, in which areas do the countries have conflicts of interest?

One of the disputes lies in the intellectual property area: how long should the period of protection be for patents of newly developed medicines? While the United States with its well developed pharmaceutical industry wants a longer period of protection, developing countries who can benefit from cheaper generic drugs want to make the protection period as short as possible. Another dispute is in the area of market access. Although the US agrees to the abolishment of tariffs on textile products as it is no longer competitive in that sector, it opposes the elimination of tariffs on those textile products made of cheaper materials imported from China. Vietnam opposes the US position.

In the area of trade and labour, there was a conflict of interest between developed and emerging countries where the former were against imports produced by low-cost labour. There seems to be agreement that the trade of products produced by child or forced labour be prohibited in accordance with the standards of the International Labour Organisation (ILO), and that the benefits of tariff elimination will be denied to countries who violate this prohibition. On the other hand, there are still many conflicting issues in the area of trade and the environment where the negotiations are unresolved.

Finally, there is disagreement on the regulation on SOEs. The United States is pushing for the abolishment of beneficial treatments for SOEs, such as preferential taxation and subsidies, which distort competition with private companies. Malaysia and Vietnam oppose the US position because their industrial structure is SOE-centric. They seem to have agreed to allow exceptions for certain beneficial treatments for SOEs. However, while the US and Japan wish to reduce the number of exceptions, emerging countries, which tend to have a large number of SOEs, want to maintain benefits for them as much as possible.

4.You point out that SOEs have a negative impact on agriculture.

The problems in SOEs are not only with subsidies and other benefits but also with their monopolistic power, both of which distort market competition. Indeed, these problems have significant impact on the Japanese agriculture. The agricultural market in Japan, which has been protected by high tariffs, will shrink in the near future due to the aging population with a lower birth rate. To preserve and develop the agricultural industry in Japan there is no way other than to develop overseas markets by exporting agricultural produce. The agricultural industry must deal proactively with trade liberalization negotiations such as the TPP in order to eliminate tariffs and non-tariff barriers of trade partners and to promote exports. Although Japanese rice priced at 300 yen per kilogram in the domestic market can be exported with a one percent import duty in China, it is priced at the equivalent of 1,300 yen in the Shanghai market. This is because the Chinese SOE makes a huge profit due to its monopoly power in rice distribution in China. Even if an import duty is reduced to zero, Japanese rice exports cannot be increased so long as a "de facto" import duty is imposed by the SOE. It is assumed, reasonably, that China will find it difficult to isolate itself from the TPP arrangement when the areas covered expand. The United States seems to be working under the assumption of China's future participation in the TPP agreement. To prepare for such a situation, the US is now trying to introduce regulations on SOEs in the TPP negotiations. Establishing regulations on SOEs will give Japan's agricultural industry a chance to further develop its Chinese market.

(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 July 22, 2014.)