Media  Global Economy  2017.02.14

U.S. President Trump's and Japan with no policy -Japanese government officials should take measures placing emphasis on the national interest rather than defending their own interests-

The article was originally posted on Webronza on January 27, 2017

Doesn't the Japanese government understand yet?

U.S. President Donald Trump has signed an executive order to withdraw the United States (U.S.) from the Trans-Pacific Partnership (TPP). Prime Minister Shinzo Abe has responded to questions in the Diet by saying he believes that President Trump understands the importance of free and fair trade and will try to persuade him.

But, doesn't the Prime Minister understand yet that President Trump is not a person moved by such persuasion?

Are there any government officials, writing draft responses for Prime Minister Abe, who believe that there is such a chance? They have also made the Prime Minister answer that he would like to pursue President Trump's understanding on the strategic and economic importance of the TPP. Are they seriously going to make Prime Minister Abe negotiate with Trump to cancel the U.S. withdrawal from the TPP? It would be too high a risk to take.

If we take for granted that Trump would accept such talks, then in return for U.S. participation in the TPP, he would probably make huge unreasonable demands such as requiring Japan to bear all expenses of the U.S. forces stationed in Japan or increase the American share of the Japanese automotive market to the same level as that of Japanese cars in the U.S. market.

Being a businessman, Trump would naturally make such demands, which are what he calls deals. They will probably become new weights on Japan- U.S. relations.

Very few negotiation results for U.S. market access

The Japanese government seems to be explaining that the TPP without U.S. participation is meaningless. But, even if the TPP does not come into force, Japan will not lose the U.S. market. Even now, when the TPP has not taken effect, Japan can export vehicles freely to the United States. It is not true that Japanese cars cannot be exported to the U.S. market unless the TPP comes into force.

In the first place, how much market access has Japan been able to expand in the United States through the TPP negotiations?

There has been very little success. U.S. tariffs are already at low levels. Those that are said to be high are the tariffs imposed on textile and apparel products which are roughly 20%. Should these tariffs be eliminated, and if so, how much benefit would there be to Japanese companies? The countries that benefit from the elimination of tariffs on textile and apparel products are Vietnam and others, not Japan. Even in government procurement, the United States did not open up state procurement further, as it had promised in the past.

Disastrous negotiations on U.S. market access

The TPP negotiations on U.S. market access for vehicles were disastrous.

The current 2.5% tariff on imported Japanese passenger vehicles to the United States will be reduced to 2.25% from the 15th year, halved to 1.25% from the 20th year, reduced to 0.5% from the 22nd year, and eliminated from the 25th year. Similarly, the 25% tariff on imported Japanese trucks will remain in place for 29 years, and eliminated from the 30th year. Talking about the 25th and 30th years, it will take an excessively long time to have these tariffs eliminated.

Under the United States-Korea Free Trade Agreement (KORUS FTA), tariffs on imported Korean cars to the United States will be eliminated in 2017. Japanese cars will have to compete in the U.S. market being handicapped for a long period of time.

The Japanese government explained that the TPP, as soon as it takes effect, will eliminate the 87.4% tariff on Japanese auto parts, which they say is a much greater achievement than that won by Korea under the KORUS FTA. However, Japan pays to the United States approximately 100 billion yen as tariffs for Japanese cars, while paying only 20 billion yen for auto parts. The reason why only such results were achieved is Japan's refusal to eliminate agricultural tariffs.

What the real TPP achievement would be for Japan

In other words, the TPP contributes little to expanding U.S. market access for Japanese companies. Japanese companies are able to export products to the United States just as they have been doing without the TPP. The TPP will expand market access not to the U.S. market, which has already been opened up to a considerable extent, but to the markets of emerging countries in Asia that have previously been protected by high tariffs.

Unlike the government officials in charge of the TPP who know little about the real state of the economy, business operators who actually conduct commercial activities consider the benefits of the TPP to be the opening up of the Asian markets.

The benefits are not confined to the elimination of tariffs on industrial products. As part of trade facilitation, a provision was made in the TPP that allows express cargo to be received within six hours after the start of customs clearance. This will contribute greatly to the forming of distribution networks in the Asia-Pacific region. Taking advantage of U.S. power, Japan has been able to develop high-standard rules on trade and investment, which Japan alone could not have achieved.

This is the achievement of the TPP for Japan.

On the other hand, for agricultural-exporting countries such as the United States, Canada, Australia and New Zealand, the reduction or elimination of Japanese agricultural tariffs through TPP negotiations will be of great benefit.

If the United States withdraws from the TPP, Canada and Australia will then be able to have market access in Japan with more advantageous conditions than the United States. While the United States will have to pay a 38.5% tariff on beef, Canada and Australia will pay only a 9% tariff. They can also export wheat to Japan with half the surcharges imposed compared to the United States. For these countries, the TPP without U.S. participation would be more favorable. If Japan should suggest a new TPP without U.S. participation, they will definitely come on board.

The edge of the sword Japan can hold to the neck of U.S. President Trump

U.S. agricultural products will be driven away from the Japanese market. The loss of U.S. share in the Japanese market would lead to the loss of jobs in the United States. Trump will refuse to listen to an empty explanation of the importance of free and fair trade. The most effective way to change Trump's mind is to conclude a new TPP without U.S. participation. This is the edge of the sword that Japan can hold to Trump's neck.

The Japanese government officials shy away from this task because they are worried that the opposition party would question their lack of foresight if they should request ratification of a new TPP without U.S. participation after having had the TPP approved by the Diet.

However, this reaction comes from the officials' desire to defend their own interests. The bilateral free trade agreements (FTAs) concluded between Japan and the TPP member countries of Australia, Mexico, Vietnam, Malaysia, etc. coexist with the TPP. Business operators are able to conduct trade choosing the more advantageous rules. It is not unusual at all for the TPP without U.S. participation to coexist with the TPP.

The government officials should deal with the matter laying emphasis on the national interest rather than defending their own interests.

(This article was translated from the Japanese transcript of Dr. Yamashita's column in "Webronza" on January 27, 2017.)