TPP rat­i­fi­ca­tion needed to boost pro­duc­tiv­ity

The Pak Banker - - OPINION - Mo­to­shige Itoh

IN early Fe­bru­ary, rep­re­sen­ta­tives of Ja­pan, the United States and 10 other na­tions signed the Trans-Pa­cific Part­ner­ship free trade agree­ment in New Zealand. The sign­ing cer­e­mony took place al­most three years af­ter Ja­pan's de­ci­sion in March 2013 to take part in the ne­go­ti­a­tions, a move that pre­cip­i­tated ve­he­ment ar­gu­ments for or against the ac­cord. From now on, the TPP will un­dergo con­tentious de­lib­er­a­tions with re­gard to the rat­i­fi­ca­tion process in the Diet. In the United States, many of the lead­ing pres­i­den­tial can­di­dates have ex­pressed op­po­si­tion to the pact. Trade ne­go­ti­a­tions with for­eign coun­tries usu­ally en­tail ar­du­ous do­mes­tic political skir­mish­ing. Busi­ness or­ga­ni­za­tions and la­bor unions strongly op­pose trade lib­er­al­iza­tion be­cause of its neg­a­tive im­pact on them. In the case of the TPP, Ja­panese farm­ers typ­i­cally voiced their op­po­si­tion, while the au­to­mo­bile in­dus­try and la­bor unions in the United States have been lob­by­ing the U.S. Congress to re­ject the deal.

The suc­cess­ful con­clu­sion of trade ne­go­ti­a­tions does not mean a smooth path for rat­i­fi­ca­tion at home. For ex­am­ple, Wash­ing­ton and Seoul signed a free trade agree­ment in June 2007, but the U.S. Congress and the South Korean Na­tional As­sem­bly rat­i­fied it more than four years later in Oc­to­ber and Novem­ber 2011, re­spec­tively, af­ter forc­ing the two gov­ern­ments to rene­go­ti­ate the ac­cord. When I met a South Korean diplo­mat, I asked him if Seoul would join the TPP. He said: "A con­sid­er­able pe­riod of time is nec­es­sary for each party [to the TPP] to have it rat­i­fied by its par­lia­ment. That means we have plenty of time to think about it." There is no ques­tion that the TPP is a vi­tal mul­ti­lat­eral en­tente in terms of set­ting the fu­ture di­rec­tion of the Asi­aPa­cific re­gion. In­deed, its sig­nif­i­cance will be much greater if the 12na­tion agree­ment em­braces as new sig­na­to­ries not only South Korea but also In­done­sia, Tai­wan, Thai­land, the Philip­pines and other coun­tries that have shown an in­ter­est in join­ing. This would mean the emer­gence of a mas­sive re­gional eco­nomic part­ner­ship in­volv­ing vir­tu­ally all Asia-Pa­cific economies, ex­cept China.

In the U.S. pres­i­den­tial race, Repub­li­can can­di­dates Don­ald Trump and Ted Cruz and Demo­crat can­di­date Bernie San­ders, all of whom are noted for mak­ing ex­treme re­marks, op­pose the TPP. Demo­cratic hope­ful Hil­lary Clin­ton, too, has come out against the pact, say­ing, "I am not in fa­vor of what I have learned about it." Her about-face from her pre­vi­ous po­si­tion is wor­ri­some, but she is thought to have had no choice but to speak against the TPP as she would oth­er­wise risk los­ing the sup­port of la­bor unions. If the Congress fails to rat­ify the TPP while U.S. Pres­i­dent Barack Obama is in of­fice - un­til Jan­uary 2017 - the prospect of it be­ing rat­i­fied will be­come even more un­cer­tain. In this con­nec­tion, it is per­haps worth­while to re­mem­ber what hap­pened to the North Amer­i­can Free Trade Agree­ment dur­ing the 1992 U.S. pres­i­den­tial con­test. Hil­lary Clin­ton's hus­band, Bill, re­mained non­com­mit­tal as to his stance to­ward NAFTA un­til Oc­to­ber of that year - just one month be­fore the vote - when he said he would sup­port the trade deal with Canada and Mex­ico pro­vided he was elected pres­i­dent and had time to rene­go­ti­ate with the neigh­bor­ing coun­tries to en­sure U.S. work­ers would be pro­tected. He signed it in De­cem­ber 1993, say­ing ju­bi­lantly, "NAFTA means jobs, Amer­i­can jobs." Bill Clin­ton was un­der­stood to have re­al­ized the vi­tal im­por­tance of a ma­jor FTA to the over­all na­tional in­ter­est of the United States while un­der­stand­ing he had to con­sider the in­ter­ests of cer­tain in­dus­trial sec­tors as well as la­bor. I am look­ing for­ward to see­ing the win­ner of this year's pres­i­den­tial race look at the "big-pic­ture" and make an about­face on the TPP af­ter as­sum­ing the pres­i­dency in Jan­uary. What kind of ben­e­fits can the Ja­panese econ­omy ex­pect from the TPP? The ex­tent of the ben­e­fits can be cal­cu­lated by us­ing gross do­mes­tic prod­uct pro­jec­tions based on a tra­di­tional es­ti­ma­tion model. By es­ti­mat­ing the de­grees of the TPP's eco­nomic ef­fects on var­i­ous in­dus­trial sec­tors and the whole econ­omy, econ­o­mists can de­ter­mine how much the over­all size of the econ­omy will grow un­der the agree­ment, as mea­sured by the GDP. In 2013, the govern­ment of­fi­cially fore­cast that Ja­pan's par­tic­i­pa­tion in the TPP would boost its real GDP by about ¥3.2 tril­lion, or 0.66 per­cent. This es­ti­mate re­flected such pos­i­tive ef­fects as a pos­si­ble de­cline in im­port prices thanks to the low­er­ing or elim­i­na­tion of im­port tar­iffs and growth of Ja­panese ex­ports. How­ever, the govern­ment's fore­cast was based on a tra­di­tional es­ti­ma­tion model econ­o­mists have used for many decades now. We now have so­phis­ti­cated mod­els that in­clude the im­pact of struc­tural changes of in­dus­try on the growth path of an econ­omy on top of the ef­fects of tar­iff re­duc­tion or abo­li­tion.

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