TPP ratification needed to boost productivity
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.