Courtesy Reuters

The Trans-Pacific Partnership and the Rise of China

What Japan Joining the TPP Means for the Region

On October 14, in a speech to the Economic Club of New York, U.S. Secretary of State Hillary Clinton heralded the United States’ so-called pivot toward Asia, announcing, “The world’s strategic and economic center of gravity is shifting east.” Her remarks were part of a recent U.S. effort to reaffirm the United States’ role as a Pacific power, a response to worries among Asia-Pacific states about the rise of China and the United States’ long-term commitment to the region. U.S. President Barack Obama will reinforce this message later this month when he visits several Asian capitals and hosts the Asia-Pacific Economic Cooperation forum in Hawaii. Central to this regional policy is trade: with Congressional approval of the U.S.-Korea Free Trade Agreement now behind him, Obama seeks to cement the United States’ economic role in Asia by finalizing the Trans-Pacific Partnership agreement, a free trade pact currently being negotiated by Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the United States, and Vietnam.

When the negotiations are completed, the TPP agreement will bring most import tariffs on trade within the group to zero over a ten-year period. In addition to the merchandise traditionally included in previous such pacts, the TPP will cover services, intellectual property, investments, and state-owned enterprises, among other areas. Given its expansiveness, U.S. Trade Representative Ron Kirk has touted it as a “twenty-first century” agreement that will lead to a flourishing of regional trade.

But if the TPP were to remain as it is presently constituted -- without Japan’s inclusion -- the agreement would not be the economic boon many hoped it would. The TPP group accounts for only six percent of U.S. trade, about the same fraction as U.S. trade with Japan alone. Japan is a major importer of U.S. goods and services, and particularly of expensive advanced-technology products, such as jet engines, numerically controlled machine tools, and biotechnology products. And in contrast to the U.S. trade deficit with China, which is rising sharply, the trade imbalance with Japan is declining steadily. Washington understands all this, and has called for broadening the TPP to include Japan. Clayton Yeutter, a former U.S. trade representative, and the international trade lawyer Jonathan Stoel recently wrote in the Wall Street Journal that with Japanese participation, “trade in the Asia-Pacific region will explode. It could easily triple or quadruple.”

The United States was not always so bullish on trade with Japan. The idea of a U.S.-Japanese free trade agreement was first proposed by U.S. ambassador to Japan Mike Mansfield in the late 1980s, but, given fears about Japanese economic supremacy, few in the United States gave the idea serious consideration. Tokyo dismissed it as well, mainly because its economic outlook at the time centered on global multilateral trade rather than on regional trade agreements.

All that has now started to change. U.S. Deputy Secretary of State William Burns said in Tokyo in October that the United States would “welcome Japan’s interest in the TPP, recognizing of course that Japan’s decision to pursue joining will be made based on its own careful considerations of its priorities and interests.” For its part, Tokyo seems ready to join the talks. Japanese entry has been on the table since October 2010, when then Prime Minister Naoto Kan and his foreign minister, Seiji Maehara, both endorsed it. Of course, all trade issues were put on hold in March 2011 by the triple disasters of earthquake, tsunami, and nuclear meltdown. But Tokyo spent recent months testing the waters, and Prime Minister Yoshihiko Noda is expected to announce this week that Japan will join the negotiations.

Japan’s new interest in the TPP stems from three factors. First is the fear generated by the U.S. free trade agreement with South Korea. Japan’s export industry has long been worried about near-identical Korean products in foreign markets, and Seoul’s access to U.S. consumers will only grow once the pact is implemented.

The second element is the declining political clout of Japanese agricultural interests. This group was long opposed to a free trade agreement with the United States because it feared that Japan’s small-scale and highly protected farmers would be overrun by lower-priced imports. But agriculture now accounts for less than 1.5 percent of Japan’s GDP, which has also meant a sharp decline in farm-related employment. The need to rebuild the economy in the wake of the March disasters amplified calls for reform of Japan’s outdated farming sector. This has eased the way for Japan’s exporters, led by the business federation Keidanren, to step up their pro-trade agenda.

The final factor is China’s new foreign policy assertiveness. An early sign was Beijing’s revival, in 2010, of claims to islands in the South China Sea, an issue that has roiled relations between China and its neighbors since the mid-1990s. In 2002, China and its neighbors in the Association of Southeast Asian Nations agreed to resolve the claims multilaterally, but China later insisted on dealing bilaterally with each neighbor. China’s foreign minister argued at the time, “China is a big country and other countries are small countries, and that’s just a fact.”

Japan bore the brunt of Chinese belligerence in September 2010, when a Chinese fishing trawler rammed one of its coast guard boats. When Japan arrested the trawler’s captain, Beijing demanded that Japan apologize and release him, and it stopped exports to Japan of crucial rare-earth minerals. Maehara, then foreign minister, called China’s reaction “hysterical”; now a central player in the Noda government, he is among Japan’s most popular politicians. In a recent speech in Washington, reflecting Tokyo’s assessment, he expressed worries about how China’s rise “alters the power balance of the game in the region.”

Such statements show that Japan has come a long way from where it was in 2009, when former Prime Minister Yukio Hatoyama urged Japan to integrate more with Asia and to adopt a policy of “equidistance” between Beijing and Washington. The Noda government has instead reinforced its already close ties with Washington, and many Japanese now argue that Japan must join in the booming transpacific trade to escape the economic doldrums of the past two decades. “Japan should harness the energy of the Asia-Pacific region,” Noda said at a Democratic Party of Japan meeting in August, “and use it for economic recovery.”

The U.S. ambassador in Tokyo, John Roos, recently remarked that Japan’s inclusion in the TPP would be a “game changer.” He is right. A transpacific trade agreement with Japan on board would be a victory for the principle of an open international system. Moreover, as an adviser to Prime Minister Noda stated earlier this month, Tokyo joining the TPP talks would help it “consolidate a strategic environment that gives China the impression that Japan is a formidable country that can’t be intimidated.” Nations of the region need not succumb to the inevitability of a Pacific dominated by China. A Trans-Pacific Partnership composed of Japan, the United States, Australia, and the group’s smaller economies represents a healthier alternative -- one that realists would recognize as a step toward a classic balance of power.

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