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Economy

Matthew Goodman: Japan's moment to lead on TPP

In the late 1940s, the United States chose to make a strategic investment in the international economic order, which had been reduced to rubble over the previous three decades. By helping create new institutions like the World Bank and the International Monetary Fund, then offering its capital and open markets to rebuild the war-torn economies of Europe and Japan, Washington paid a small price to advance its own long-term prosperity and security. The return on that investment has been immeasurable.

     Over the next few weeks, Japan has a similar opportunity to invest in its own economic and strategic future. By leaning forward to close a bilateral deal with the U.S. under the Trans-Pacific Partnership, the Abe government can kill three birds with one stone: reviving Japan's economy, strengthening its partnerships in the Asia-Pacific region, and upholding the global rules-based order that has so benefited Japan over the past 70 years.

     The 12 countries participating in the TPP have been working for over four years to reach a high-standard, 21st-century trade agreement. They are now tantalizingly close to a deal, but success hinges on the ability of Japan and the U.S. to reach agreement on improved market access for each country's exporters. And this in turn depends on Tokyo's willingness to go a bit further in opening its agriculture market, especially for dairy, beef, and pork.

Nothing ventured

Despite the inflated claims of JA, Japan's agriculture lobby, the price of allowing more access for foreign agricultural products is truly negligible. Japanese farmers exposed to greater competition are likely to be cushioned by long transition phases, income supports, and remaining protections. The agriculture sector as a whole is likely to become more efficient, creating new export opportunities for Japanese farmers who make high-quality products.

     Yet the potential returns for Japan on an investment in the TPP are enormous, for three main reasons. First, Japan will enjoy substantial economic benefits. Peter Petri of Brandeis University has estimated the annual income gains for Japan from a TPP agreement that includes South Korea at $120 billion in 2025. In the near term, a TPP deal is likely to boost the Tokyo stock market and give a much needed lift to the "third arrow" of Prime Minister Abe's economic reform program, which most observers agree is losing momentum.  

     Second, the TPP is vital to Japan's strategic interests in the Asia-Pacific region. It will deepen Tokyo's ties with regional partners, especially in Southeast Asia. Most important, the TPP will strengthen the U.S.-Japan alliance and underpin the Obama administration's strategy of "rebalancing" to the Asia-Pacific, which is also losing steam. Broad and deep U.S. engagement in Asia is critical to Japanese security and prosperity.

     Third, the TPP will update and uphold the global rules-based order. A high-standard TPP agreement will align trade and investment rules with 21st-century international commerce, which is centered on global value chains. The current rules are not only out of date but under challenge from emerging countries like China, which understandably want to have more say in shaping the rules, but may also wish to rewrite them in ways detrimental to Japanese interests.      

Two-way street

To be sure, the U.S. needs the TPP for the same three reasons: to promote economic growth, reinforce America's presence in the Asia-Pacific region, and uphold the rules-based order. But Japan arguably needs these things more. Its economic future is less certain, and it has more challenges in its immediate neighborhood.

     Of course, the domestic politics of the TPP are hard. But they are less hard for Prime Minister Abe than for President Obama. Abe is secure in his party position, has little opposition in the Diet, and faces no national elections until 2016. His bold decision to join the TPP last year required far more political capital than the relatively minor concessions on agricultural market access needed to conclude an agreement. 

     Many people in Japan ask why Tokyo should put its final market-access offer on the table when the Obama Administration has not obtained the trade promotion authority (TPA) needed to ensure passage of the TPP by Congress. Certainly it would be better if TPA were in place, but this clearly will not happen before the U.S. midterm elections in early November, or before the critical meeting of TPP leaders on the sidelines of the Asia-Pacific Economic Cooperation summit in China. 

     This leaves Japan with two choices: either trust Obama and his able trade representative, Michael Froman, to deliver on their end of the deal, or wait until TPA is enacted, which is unlikely to happen quickly even when a new Congress convenes next January. Further delay will put the entire TPP venture at risk. Does Japan really want to forego the three substantial benefits described above to protect the narrow interests of a tiny part of its economy and population?         

     Prime Minister Abe has an opportunity to show leadership over the next few weeks by making the small investment of political capital required to complete a TPP agreement. He should seize the moment. The returns for Japan's future prosperity and security will be immeasurable.

Matthew Goodman is Senior Adviser for Asian Economics and holds the Simon Chair in Political Economy at the Center for Strategic and International Studies (CSIS) in Washington, D.C. He previously served in the Obama White House.

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