Here Comes the Sun
This article was originally published in the Thursday, November 17, 2011 edition of National Journal Daily.
Japan's announcement at the APEC summit last week in Honolulu that it was considering joining the Trans-Pacific Partnership trade negotiations — involving the United States, Australia, Vietnam, and six other nations— was met with enthusiasm from the White House, caution from the business community, and cynicism from Japan hands and some on Capitol Hill.
Whether Tokyo will eventually join the TPP deliberations (and if so, in what time frame) is largely dependent on Japanese domestic politics. Moreover, America's scars from past trade wars with Japan give the Obama administration every reason to be skeptical that the country will ever grant meaningful access to its famously closed market.
Nevertheless, the foreseeable Washington-Tokyo friction points in any TPP negotiations are resolvable. And the potential economic and strategic payoff for the United States from Japan's TPP membership clearly justifies the effort.
The economic goals driving TPP are the elimination of barriers to investment and trade in goods and services, as well as the reduction of nontariff trade barriers that impair the efficiency of supply chains which now drive global commerce.
The strategic goal for most participants is to embed the United States in East Asia as a counterweight to China.
Not surprisingly, Japan is deeply divided over TPP. Prime Minister Yoshihiko Noda sees closer economic ties with rapidly growing East Asia as his country's best chance to pull itself out of its sluggish growth. The country's exporters have more immediate concerns. Last year, Japan's automakers paid $1.7 billion in tariffs to ship vehicles to TPP countries. If Japan doesn't join TPP, Tokyo worries that its firms will increasingly choose to manufacture their products abroad.
But Japanese rice producers, among others, fear greater competition from abroad. And the Japanese people are undecided: Recent polls show that fewer than two in five support the negotiation.
This is why Noda has merely committed his government to look into joining TPP, postponing his actual decision.
If Japan eventually joins, some of the principal U.S. objections to its participation can be anticipated. And history suggests they can be overcome.
Tokyo will undoubtedly want to exempt the politically sensitive issue of rice from the deliberations. The Japanese legislature, or Diet, is disproportionately made up of members from rural areas.
Rice was a major stumbling block in concluding the Uruguay Round of trade negotiations in the early 1990s. At the time, after weighing various U.S. interests, Washington accepted a relatively closed Japanese rice market.
Nevertheless, a quarter of all rice that the U.S. currently exports goes to Japan. U.S. rice producers believe they could increase those sales if Japan is forced to eliminate its 778 percent tariff on imported rice. But such liberalization would also apply to other rice-producing TPP nations, such as Vietnam, so American rice growers could face stiff competition in the Japanese market.
Moreover, U.S. negotiators will want their own exemptions in the negotiations (the Bush administration refused to include sugar in its free-trade agreement with Australia). So rice may appear to be more of an obstacle than it will turn out to be.
A second, more formidable, hurdle will be the dramatic U.S.-Japan trade imbalance in the auto sector. In 2010, Detroit exported 14,000 cars and light trucks to Japan, while Japanese automakers shipped 1.5 million units to the United States.
Japan imposes no tariffs on imported cars. So elimination of duties in a TPP agreement would be of no help to American automakers hoping to sell more vehicles there. The impediments to sales are rules and regulations that discourage buying imported vehicles. Clinton administration efforts to eliminate such obstacles got nowhere.
But in its South Korea free-trade pact, the Obama administration came up with some new wrinkles that might prove useful in TPP. The South Korea deal stipulates that U.S. auto tariffs will snap back in place if U.S. car sales there do not improve, pending an inquiry into allegations of nontariff trade barriers. In TPP, Washington could insist that the 2.5 percent American tariff on Japanese vehicles would similarly snap back if U.S. auto sales in Japan do not grow due to nontariff trade barriers.
The most consequential U.S. objection to Japanese participation in TPP involves the calendar. The talks are already behind schedule and the participants' goal of completing the legal text of a deal by the end of 2012 looks unrealistically ambitious. Inclusion of Japan, with all of its complications, could further delay agreement.
If Tokyo drags its feet in deciding to participate, it should be offered the opportunity to become a TPP member at some point in the future. The Japanese will object to being latecomers to the party, but that should give Washington additional negotiating leverage. If being a founding member is important to Japan, it must be willing to make additional compromises up front.
Japanese participation in TPP is doable, despite the many obstacles. All that is needed is political will, both in Tokyo and Washington, and some negotiating creativity.
Bruce Stokes is a senior transatlantic fellow at the German Marshall Fund of the United States in Washington DC..
Image by the White House.