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In March 2013, Prime Minister Shinzo Abe formally announced Japan's intention to participate in the Trans-Pacific Partnership (TPP) negotiations. Japan's participation was subsequently officially recognized at a meeting of the 11 participating countries that had already begun negotiations, and at the summit held in Bali, Indonesia in October, a statement was adopted stating that "we will tackle the difficult challenges toward a conclusion by the end of 2013" (Figure 1).
Japan's participation in the TPP is expected to lead to an expansion of exports (of industrial products, including cars and trucks) within the TPP region, especially to the United States, but there are also concerns that the influx of cheap agricultural products will damage Japan's agriculture industry, and that the deregulation of food and medical products will threaten safety and security. In this article, we will consider basic knowledge about the TPP and the main points of contention surrounding the negotiations.

First of all, what is the TPP?

The TPP (Trans-Pacific Partnership) is a free trade agreement that aims to further liberalize the movement of goods, services, capital (funds), and labor within the APEC (Asia-Pacific Economic Cooperation) region, centered on the Asia-Pacific region, by eliminating as many import and export tariffs as possible, and by unifying or harmonizing the standards and regulations for goods and services of the countries in the region as much as possible. It is one of the EPAs (Economic Partnership Agreements). The reason why the TPP is so noisy is that it aims to achieve the highest degree of liberalization in the world, exceeding the existing EPAs and FTAs, under the leadership of the United States, in the wide region of Asia-Pacific.

Efforts to liberalize trade with specific countries and regions include "Free Trade Agreements (FTAs)" and "Economic Partnership Agreements (EPAs)." An FTA is an agreement to mutually reduce and eliminate barriers to trade in goods, such as tariffs and import quantity restrictions. In contrast, an EPA is an agreement that goes beyond trade in goods to expand a wide range of economic activities, including the movement of services, capital and labor, and the protection of intellectual property rights.

So how does the TPP differ from existing FTAs and EPAs?

First, while conventional FTAs and EPAs aim to liberalize trade between specific countries or within a region, their member countries are limited to the countries that initially participated in the negotiations. In contrast, the TPP does not fix the countries that participated in the negotiations, and ultimately aims to liberalize trade within all 21 APEC member countries and regions.
In fact, the goal of "ASEAN + 3 (Japan, China, and South Korea)" and "ASEAN + 6 (Japan, China, South Korea, India, New Zealand, and Australia)" is to incorporate all APEC members in the future. Ultimately, it is considered ideal to integrate APEC into one free trade area (FTAAP).

Second, the TPP is a comprehensive agreement that not only eliminates tariffs on goods and liberalizes trade in services, but also creates common regional rules in other areas (such as investment, competition, intellectual property, and government procurement), and includes new areas (such as the environment, labor, and cross-cutting issues).

The biggest feature of the TPP is that it aims for "liberalization in principle without exceptions" and calls for the 100% elimination of import tariffs. Because of these features, the TPP can be described as "a highly complete FTA that aims for the liberalization of global trade in a wide range of fields." It should be noted that while the WTO, which has 159 member countries around the world, negotiates the reduction of domestic agricultural subsidies based on strict rules, the TPP has no rules on agricultural subsidies and no reduction negotiations are held at all, and that many of the countries participating in the TPP negotiations are hoping to expand exports to the US market.

Why is the international community undertaking such efforts toward trade liberalization?
In the 1930s, during the Great Depression, Britain and France discriminated between the countries in their economic spheres, including their colonies, and the rest of the world, and imposed high tariffs on their exports. The spread of this protectionism was the cause of the spread of the Great Depression. After that, many countries competed to strengthen their protectionist stances, which led to intensified economic friction and political conflict, and is said to have been one of the factors that led to World War II.

Reflecting on this, the idea of institutionalizing the world economy under free trade (the Atlantic Charter) was already being worked out during the war, primarily by the two major powers of the United States and the United Kingdom, and after the war in 1948, the General Agreement on Tariffs and Trade (GATT) was concluded primarily by capitalist countries. The collapse of the Soviet Union in December 1991 was one of the catalysts for the launch of the World Trade Organization (WTO) in 1995 to oversee the new free trade system under the Uruguay Round, the multilateral trade negotiations that were being carried out under GATT at the time. The WTO is an international organization that maintains and promotes free trade in both name and reality, incorporating GATT and adding various agreements that stipulate the liberalization of trade in services and the protection of intellectual property rights (Figure 2).

Multilateral trade negotiations under the WTO, known as the Doha Agenda (commonly known as the Doha Round), began in 2001, but have yet to be concluded due to conflicts between developed and developing countries in eight areas. The interests of each country in the WTO have become complicated, making it difficult to conclude negotiations. After repeated interruptions and restarts due to conflicts between developed countries and rapidly emerging countries (China, India, Brazil, etc.), the negotiations broke down in 2008. They are now effectively on hold (note that Yemen's accession to the WTO was recently approved, bringing the number of member countries to 160).

Subsequently, with the change of WTO Director-General from the EU's Pascal Lamy to Roberto Azevedo from Brazil, the number of negotiating areas was narrowed from eight to three, including agriculture, and a partial agreement was finally reached on December 7th of this year.

For these reasons, in recent years, FTAs and EPAs have been gaining attention as an alternative to the WTO. Unlike the WTO, which has many member countries and where negotiations are difficult, FTAs and EPAs can be implemented in a short period of time if the parties agree. In addition, it is possible to flexibly agree on the content of liberalization, such as making exceptions for certain items. Due to these advantages, the number of FTAs and EPAs concluded has been increasing rapidly in recent times.

The predecessor of the TPP was the FTA that came into effect in 2006 between Singapore, Brunei, Chile, and New Zealand, and was called the "P4" at the time. In fact, before that, around 2001, there was a proposal to conclude an FTA with five countries, including the United States, that is, the "P5," but the United States dropped out and it became "P4." In 2008, the United States announced its participation in negotiations to establish the TPP based on the P4, which attracted attention. In 2010, negotiations began with eight countries, including the P4 countries, including the United States, Australia, Peru, and Vietnam. After that, Malaysia, Mexico, and Canada joined the negotiations, and Japan officially joined in July 2013, bringing the total number of negotiating countries to 12. If it comes into effect, it is expected to realize a new framework for trade in the Asia-Pacific region and further increase the growth potential of the region. Also, according to a newspaper report on November 29, 2013, South Korea plans to participate in the TPP negotiations.

The greatest economic benefit that Japan will gain from joining the TPP is the improvement of export competitiveness due to the reduction in logistics costs of industrial products produced within the region in the long term. This is natural considering that tariffs will be zero every time they are moved across borders. In addition, if various specifications and standards are unified and mutually recognized among the countries in the region, this will also make exports and local production easier. In other words, parts produced in different countries in the region can be freely exchanged with each other at zero tariffs, which is expected to reduce supply chain costs. The benefits will be even greater if Southeast Asian countries, where thousands of Japanese companies are concentrated, join the TPP.

On the other hand, there are also expected to be disadvantages to joining the TPP. Until now, in the EPAs that Japan has concluded individually with 13 countries, tariffs have not been eliminated in five important areas: rice, sugar, dairy products, beef and pork, and wheat. However, in the TPP, tariffs may be significantly eliminated in all or many of these items. If tariffs on a total of 586 items in these five areas, or 6.5% of agricultural products, out of a total of 9,018 items subject to trade, are not eliminated in the TPP negotiations, the trade liberalization rate will be 93.5%, which is far from the principle of 100% liberalization that the TPP negotiations aim for. If the TPP aims to be the FTA with the highest liberalization rate in the world, some believe that a liberalization rate of at least 98% is necessary, as will be discussed later. In any case, the background is the debate on how to think about Japan's food self-sufficiency rate. It may be that this is why the debate in Japan on whether to join the TPP is based on the "industry vs. agriculture" diagram.

Currently, agricultural groups and others who are opposed to joining the TPP are claiming that "Japanese agriculture will be devastated by joining the TPP," but is this true?

The principle in the TPP negotiations is to "eliminate all tariffs regardless of sector," but in reality, each participating country has "sacred areas" that they would like to treat as exceptions from the perspective of protecting domestic industries. For example, the United States is opposed to the elimination of tariffs on sugar, and Canada is opposed to the elimination of tariffs on dairy products. In the case of Japan, they plan to maintain tariffs on rice, sugar, dairy products, beef, pork, and wheat, which are the "five important sectors." It is believed that the TPP negotiations will ultimately require "about 98%" liberalization. This means that 2% of the total 9,018 items, or about 180 items, will not need to be liberalized as exceptions. If that happens, rice, a general term for 58 items such as unhulled rice, brown rice, polished rice, and rice flour, could be made an exception to liberalization without any problems.

I personally believe that the stance the Japanese government should take is to "maintain and expand free trade while maintaining Japanese agriculture." In Japanese agriculture, it is generally believed that grains such as rice, which are somewhat suitable for large-scale production, have high production costs due to the fragmentation of farmland during the postwar land reform, and therefore lack international competitiveness. On the other hand, agricultural products such as fruits and vegetables, which are not suitable for large-scale production, are highly regarded overseas, and the high level of agricultural technology is also well-known. Some see trade liberalization in the agricultural sector as a "once in a lifetime opportunity" to change the high-cost nature of Japanese agriculture and to gain export competitiveness that can withstand liberalization. However, I think that what is desirable is to maintain a system that can secure a minimum amount of food in an emergency without eliminating the diverse food and agricultural product varieties in our country, at the lowest possible cost. What is required of the Japanese government is to come up with a long-term and strong policy that focuses on the "continuation of Japanese agriculture" rather than on maintaining "agricultural employment." To achieve this, concrete measures and rules are needed, such as banning the conversion of farmland intended for growing agricultural products into residential land, rather than abstract phrases such as "improving competitiveness."

For items that truly need protection, the global standard is to protect them with subsidies rather than tariffs. In order to balance the maintenance and expansion of free trade with agriculture, it is time for the government to get serious about "structural reform of agriculture," such as by introducing a new protection system to replace tariffs. The "individual income compensation system" that was conditioned on rice production reduction (= production restrictions) under the Democratic Party administration, which was derided as a handout, has been renamed the "business income stabilization measures" under the Abe Liberal Democratic Party administration, and may eventually be transformed into a system that allows farmers to produce agricultural products freely and pays subsidies according to their contribution to environmental conservation measures, such as promoting the survival of diverse organisms and reducing CO2 emissions.

When discussing whether or not Japan should join the TPP, it is important to also consider the political and social implications of the TPP in the Asia-Pacific region. Although the TPP is primarily a framework for economic partnership agreements (EPAs), it will also have a major impact politically and diplomatically.

In addition to the TPP, other free trade agreement frameworks being pursued in the Asia-Pacific region include "ASEAN+3," which includes the 10 ASEAN countries, Japan, China, and South Korea, and "ASEAN+6," which adds Australia, New Zealand, and India (Figure 3).

From an economic perspective, one of the criteria for Japan to consider when deciding which of these three frameworks to prioritize is "how much GDP will increase as a result of membership." According to estimates released by the Japanese government prior to deciding to negotiate TPP membership, it is expected to gain "4 trillion yen from ASEAN+3," "5 trillion yen from ASEAN+6," and "3 trillion yen from the TPP." From this alone, it would seem that ASEAN+6 is the option Japan should choose, but there is hope within the Japanese government that the outcome of the TPP negotiations will have a positive impact on the course of the other two negotiations.

Now let's look at these three frameworks from the perspective of which countries are participating and which countries are leading the discussions. The central country in ASEAN+3 and ASEAN+6 is China, whose market is expected to continue to expand, and the United States is not participating in the negotiations. On the other hand, the TPP is led by the United States, and China is not participating.

Which of these three frameworks Japan will prioritize is deeply related to the struggle for leadership in the Asia-Pacific region between the two major powers, the United States and China, and Japan's position within that struggle. For Japan, which is faced with territorial disputes and unprecedented risk factors for national security, it is essential to maintain and strengthen its alliance with the United States. From this perspective, it may be necessary for Japan to join the TPP.

Japan, one of the world's leading economic powers and a self-proclaimed "trade-based nation," has a long history of leading the postwar global free trade system together with the United States and the EU. For Japan to continue to be a key player as it has been until now, I believe that "not joining the TPP" is not an option.

What is particularly important is that the more items are targeted for liberalization and the level of liberalization increases in the TPP negotiations, the more this will serve as a catalyst for further increases in the levels of liberalization in the FTA negotiations currently underway with the EU and the Japan-China-Korea FTA, creating a strategic virtuous cycle.

(Published in 2013)