Media  Global Economy  2017.12.07

Clear ominous clouds from TPP11: Use Asia and agriculture as bargaining chips

The article was originally posted on Webronza on November 14, 2017

Contents of the TPP11 agreement

The TPP (Trans-Pacific Strategic Economic Partnership Agreement) 11 was agreed on in general without the US on November 11, resulting in a line of three 11s. The most important characteristic of the TPP is that, in anticipation of the US's return, the 11 countries have decided to freeze the effect of the 20 items they conceded at the demand of the US until the US returns.

For example, the data protection period for new drugs has been fixed at eight years. If a company develops a new drug and submits clinical test results and other data to receive approval for the manufacture and sales of the drug, the data is protected as intellectual property during the data protection period.

This protection differs from patent protection. During the period, generic drug manufacturers cannot use the data held by the manufacturer that developed the new drug. In other words, it is difficult to file an application for a generic drug. If the protection period lasts longer, the developer will gain more profits. If the period is shorter, this will be beneficial to generic drug manufacturers and poor consumers. The US, which speaks on behalf of new drug developers, insisted that the protection period be 12 years, while Australia and other countries that took into consideration benefits to domestic consumers insisted that the period be five years. Both reached a compromise and agreed that the period should be eight years.

Regarding the data protection period for new drugs, the US's opposite stance to the other TPP member countries (Japan took a neutral position) meant that the freeze was soon agreed on. However, whether to freeze four difficult items, including favorable treatment of state-owned companies, an item demanded by Malaysia, and favorable treatment of domestic companies for protection of culture (an item demanded by Canada), was left to future negotiations. If the 11 countries reach an agreement about these items and sign the TPP early next year and six countries ratify it, the TPP will come into force 60 days thereafter.

Revolt of Canada

Although the TPP was agreed on at a ministerial-level meeting, the Canadian Prime Minister raised an objection. As a result, the top-level meeting of the TPP member countries for confirmation of the agreement was postponed.

It has been reported that, at the ministerial-level meeting, the Canadian minister in charge readily approved the agreement on the TPP, and that it was only Canadian Prime Minister Trudeau who raised an objection for no apparent reason. At the subsequent ministerial-level meeting for confirmation of the agreement also, because the minister in charge raised no objection to any specific items, the other member countries could do nothing other than be critical of Canada.

Canada's reason for the objection is unclear. It has been reported that the US will take advantage of Canada's weakness during renegotiations on NAFTA (North American Free Trade Agreement) if Canada easily compromises on TPP11. However, because the TPP itself was agreed on two years ago, no country compromised on anything anew. It seems that Canada cannot state any reason because the reason cannot be disclosed publicly. Canada may have been pressured by the US, which insists on bilateral negotiations on the FTA (Free Trade Agreement), and has been making a deal with the US in relation to the renegotiations on NAFTA.

If so, it will be difficult to urge Canada to change its decision, relying on Canada's conscience and good sense. Canada may refuse to sign the TPP. In this case, Japan will also have to pressure Canada.

Domino effect from the use of Asia as a bargaining chip

First of all, Japan can use Asia as a bargaining chip.

When the original TPP was agreed upon, Taiwan, the Philippines, Thailand, Indonesia, and other Asian countries declared their interest in participating in the TPP. If the free trade zone expands, this will be disadvantageous to the countries not participating in the TPP. As soon as Prime Minister Noda declared in Honolulu that Japan would consider participating in the TPP, the Canadian Prime Minister immediately decided to participate in the TPP without consultation with his Cabinet. This was because he feared that Canada would be excluded from the wide free trade zone in which Japan would participate.

To expand the TPP zone, Japan should encourage other Asian countries to participate in the TPP. There is no reason why Thailand and the like cannot participate in the TPP, in which even Vietnam has participated in spite of its delayed economic growth. If the TPP zone expands, not only Canada, but also the US may change their decision to withdraw from the TPP.

Use agriculture as a bargaining chip

It is most effective to use agriculture as a bargaining chip.

The US is positive about the conclusion of an FTA with Japan because Australia and other countries exporting farm products will deprive the US of the Japanese market as a result of the US's withdrawal from the TPP. Regarding beef in particular, while a customs duty of only 9% is imposed on Australia, the US has to pay a customs duty of 38.5%.

Unless Canada participates in the TPP, it will suffer damage from not only beef, but also pork and wheat. Because an FTA between Japan and the EU was concluded, Canadian pork will have a greater disadvantage than Danish pork, on which no customs duty will be imposed unless Canada participates in the TPP. Regarding wheat, the levy on imports within the framework of exclusive importation by the Ministry of Agriculture, Forestry and Fisheries as a state trade enterprise will be reduced by 45% under the TPP. Under this framework, the US's share has been 60% and Canada and Australia each has had a 20% share for a long time. Canadian wheat will have a greater disadvantage than Australian wheat. In addition, this distribution of market shares depends on the discretion of the Ministry of Agriculture, Forestry and Fisheries. Canada is fully aware of this. If Japan cannot meet the demand for wheat from Australian imports alone, it can import the crop from the EU.

Agriculture has so far hindered the conclusion of FTAs. This time, high customs duties on imported farm products can be used as a means for promoting the conclusion of FTAs.

Of course, if this does not result in Canada's participation in the TPP, a TPP10 can be concluded without Canada.

Toward a high-level TPP free trade zone

Although the four difficult items still remain, if they hinder the conclusion of TPP11, Japan should promote the conclusion, even if it needs to make concessions to some extent.

In the case of the GATT also, Japan and other member countries reduced customs duties and improved or created rules through multiple rounds of negotiations for trade liberalization. The contents of the TPP can be improved through future negotiations. In addition, if there are economic changes, it will be necessary to revise the TPP. The conclusion of the TPP11 may be thought of as a mere milestone on the road toward a higher-level TPP free trade zone in the future. We should aim at both enlargement and consolidation of the TPP.

(This article was translated from the Japanese transcript of Dr. Yamashita's column in "Webronza" on November 14, 2017.)