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Friday, Oct. 21, 2011

EDITORIAL

Informed decision needed on TPP

Moves to join the talks for the Transpacific Strategic Economic Partnership (TPP) agreement had been put on hold since the March 11 disasters devastated the Tohoku region. But Prime Minister Yoshihiko Noda is now eagerly pushing for progress.

He hopes to accelerate discussions on the TPP within the Cabinet and the Democratic Party of Japan so he can announce a clearer stance on whether Japan will join the TPP talks when he attends a summit of the Asia-Pacific Economic Cooperation leaders in Hawaii on Nov. 12-13.

One wonders whether the Cabinet and the DPJ can make a correct judgment on the merits and demerits of Japan's joining the multilateral comprehensive free-trade scheme in such a short period of time. Another problem is that the government has not disclosed sufficient information about the TPP, which covers a large number of areas of economic activities — a much larger scope than an ordinary free-trade agreement — and has the potential to drastically change the lives of people in Japan.

The original TPP was signed in 2005 by Chile, New Zealand, Singapore and Brunei. The United States, Australia, Malaysia, Peru and Vietnam are negotiating to form an enlarged TPP. In principle, the TPP aims to abolish all tariffs within 10 years. Intellectual property and liberalization of investment and services are among the many areas to be covered by the TPP.

Mr. Noda said that because the Asia-Pacific region will become an engine for economic growth, Japan's participation in the TPP will have a positive effect on the nation. But his statement could be misleading. South Korea, which has signed a free-trade agreement with the U.S., says that it will not join the TPP. Indonesia and Thailand, important ASEAN members, are not parties to the TPP talks. It is unlikely that China will join the TPP because it will see it as a Japan-U.S. economic bloc. If Japan joints the TPP, gross domestic product of Japan and the U.S. will account for more than 90 percent of the TPP members' total GDP. In this sense, the TPP is a Japan-U.S. economic partnership.

Major exporting firms have great expectations that the tariff abolition will promote their exports. Tariffs on imported trucks in the U.S. are high at 25 percent, but other tariffs are relatively low. For example, passenger cars are 2.5 percent and bearings are 9 percent. Except the tariff rate on trucks, other U.S. tariffs are not very high, therefore an abolition of U.S. tariffs will not lead to a large increase in Japan's exports. The advantage for Japanese exports from the tariff abolition may be erased by further appreciation of the yen.

Japanese leaders have been saying that Japan's participation in the TPP will lead to the "third opening of Japan" following the first opening toward the end of the Edo period and the second opening after Japan's defeat in World War II. But this is thoughtless rhetoric tantamount to saying that Japan is a closed nation. Japan's average tariff on all items is 2.6 percent, lower than that of the U.S. Japan's average tariff on agricultural products is 12 percent, higher than the U.S.' 6 percent but lower than EU's 20 percent. That rhetoric will only provide fodder with other TPP negotiations participants to make adamant demands against Japan.

The farm ministry estimates that if Japan joins the TPP, its food self-sufficiency rate will fall from the current 39 percent to 13 percent. It is true that there exist vested interests in Japan's agriculture. The TPP may enable consumers to purchase inexpensive food from abroad (Japan's tariff on rice is ¥402 per kilogram), but Japan's food security would likely fall into the hands of the U.S., a huge agricultural exporter. Japan should consider whether such a situation is desirable. It should also consider the possibility that climate change could impact future food exports to Japan.

By carefully studying the U.S.' past economic demands against Japan, the government should consider whether the TPP will be beneficial to the Japanese people's health and safety. The U.S. has complained that Japanese tests of imported agricultural products and regulations on food labeling are too strict. It has also demanded that Japanese markets for medical insurance and drugs be liberalized. But doing so may undermine Japan's public medical insurance. The Japan Medical Association has pointed out the possibility that the TPP will spread "mixed medical treatment" (combining publicly insured medical treatment with medical treatment at the patient's own expense), diminishing medical treatment covered by public health insurance. It also fears that business firms may be allowed to run hospitals, leading to a lowering of safety and withdrawal from areas where profits cannot be expected. (The government says that the points made by the JMA are not discussed in the TPP talks.)

The U.S. may also demand an easing of Japan's labor regulations. For the sake of informed public discussions, the government should immediately disclose to the public detailed information on what will happen in each field covered by the TPP's 24 working groups if Japan joins the TPP, as well as worst scenario cases.

People pushing the TPP hope that it will serve as a leverage to increase Japanese exports, but there is no guarantee that such an outcome would raise people's income. In the midst of deflation, the most important economic goal is to increase domestic demand. The government should direct its efforts in this direction.



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