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Thursday, March 22, 2012

Join TPP but also expand in Asia: economist

Staff writer

Japan should adopt a two-pronged trade strategy — participate in the U.S.-led Trans-Pacific Partnership free-trade agreement and further deepen economic ties with the rest of Asia — to achieve economic growth, according to the top economist at the Asian Development Bank Institute.

News photo
Trade advocate: Masahiro Kawai, dean and chief executive officer of the Asian Development Bank Institute, is interviewed recently in Tokyo. SATOKO KAWASAKI

Masahiro Kawai, dean and chief executive officer of the Tokyo-based think tank affiliated with the ADB, a multilateral financial institution headquartered in Manila, argues that Japan's participation in the TPP talks is imperative because the negotiations there may well set the future rules of trade for the entire world, not just the Pacific region.

At the same time, Japan should push for a multilateral economic cooperation framework with the so-called ASEAN Plus Three or ASEAN Plus Six nations, the latter of which includes both China and India, "to get an energy boost from the region," he said.

By pushing for the two free-trade agreements, Japan could be a "bridge" between the TPP members and the rest of Asia, because there would be no other major economic power participating in both, he maintained.

The TPP, for which the final agreement is in sight by the end of this year, aims to achieve high-level liberalization of trade among member economies through elimination of tariffs and other trade barriers. Its impact on Japan's economy is expected to be far greater than that brought on by conventional economic partnership agreements. Japan so far has signed EPAs with 13 countries and regions.

Kawai, who headed the Finance Ministry's Policy Research Institute before taking the ADBI helm in 2007, said Japan has a lot to gain from joining the TPP, countering views that it would end up benefiting U.S. interests only. Prime Minister Yoshihiko Noda announced in November that Japan would enter negotiations for joining the accord, but domestic opposition runs strong — in particular from long-protected farming and medical sectors.

"Being a major economic power, Japan would have a lot of clout in the TPP negotiations," Kawai said in an interview last week. "Prevailing views in Japan are that the United States would decide all the rules and Japan would have no choice but to comply with them. Such a tendency does exist in bilateral talks, but it wouldn't (with the TPP)."

For example, Japan should team up with New Zealand, Kawai said, as that country, like Japan, provides universal health care. By doing that, he argued that Japan could fend off possible threats to its system, under which everyone in theory has access to health care and the prices of drugs and medical treatments are set by the national government.

But Kawai also stressed that Japan should try to develop its medical sector as a market, nurturing cutting-edge technologies and attracting more "medical tourists" from abroad.

"Japan's medical standards are high, and it can be developed as an industry," he said.

Equally as contentious is the liberalization of the agricultural and fishing sectors envisioned by the TPP. Opponents argue that the elimination of tariffs for rice and other agricultural produce would spell the end of the nation's primary industries. Domestic farmers and fishermen are heavily protected, with tariffs for imported rice set at 778 percent, for starch at 583 percent and for beans at 403 percent.

In addition, allowing for cheap imports of produce, Japan's calorie-based self-sufficiency rate for food would decline further from the current 39 percent to around 14 percent, posing a threat to food security, TPP opponents argue. Skeptics also worry that Japan's food safety standards would be compromised.

Kawai, however, said the TPP can strengthen these industries by making them internationally competitive and management-minded, noting that many farmers in Japan are too old, too small-scale and not motivated enough.

Subsidies are given to all owners of farmland, so there is little incentive for the aging farmers of Japan to increase their productivity, he said.

On concerns that the TPP would hamper the reconstruction efforts in Tohoku, whose farmers and fishermen were severely hit by the Great East Japan Earthquake, tsunami and nuclear crisis, Kawai said that, while devastation from the disasters has been enormous, it could be an opportunity for sweeping reforms of the region's agricultural sector.

"Japan's agriculture is on the brink of collapse, regardless of whether Japan joins the TPP or not, with the average farmers aged 67 or 68," he said. "While the devastation (of farmland in Tohoku) was enormous, it also means that such lands can now be aggregated into larger plots. It should be made into an opportunity for young, motivated and management-minded farmers to come in."

Kawai added that domestic farmers would thrive if they work hard to meet consumer demand for safe food by disclosing — candidly and in detail — such information as radioactivity levels in their produce.

Pursuing both the TPP and the ASEAN Plus Three (or Plus Six) free-trade arrangements is also important in diversifying sources of imported food, making Japan less vulnerable to shortages in times of disasters, he said.

"Japan should buy its food from, say, the United States, Australia, China, Brazil, Vietnam, Thailand . . . and maybe in the future from such countries as Myanmar," Kawai said. "By buying from many different countries, Japan would diversify its food supply. Signing EPAs with various different regions would help Japan prepare for that."

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The Japan Times

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