Japan is preparing to enter negotiations on the Trans-Pacific Partnership (TPP) agreement just as the three year-old negotiations appear to be building momentum for a push to the finish line. As Congress reviews their entry, it is important for lawmakers to think about Japan’s inclusion based on a practical assessment of the situation on the ground.
Many people still have a 20th century image of Japan as a closed and opaque market. This image needs to be updated to reflect the reality of a contemporary Japan and U.S. economic relations with them.
With Japan’s entry, the TPP will be a much more commercially meaningful agreement, covering 40 percent of the world’s gross domestic product and one-third of global trade. Japan is one of only five current TPP members with which the United States does not already have a free trade agreement, so it makes great sense to include them. President Obama deserves great credit for moving to do this.
The overall U.S. commercial relationship with Japan — two-way trade in goods, services and agriculture combined with investment income and royalty payments — exceeded $375 billion in 2012, more than with any other country except Canada, Mexico and China.
Japan is the fourth largest export market of the United States. U.S. manufacturers exported $58 billion to Japan in 2012, more than any other non-North American Free Trade Agreement (NAFTA) country except China, with aerospace, computers and communications, chemicals, pharmaceuticals and medical devices all registering billions of dollars in sales. U.S. agricultural exporters generated more than $13 billion in sales in Japan in 2012, second among non-NAFTA markets. U.S. service providers exported $47 billion to Japan in 2012, placing it behind only Canada and the United Kingdom as a market for U.S. air travel, telecom, finance and insurance and technical services.
For many U.S. companies, Japan is the largest non-U.S. source of revenue and profits, and a critical technological and supply chain partner in many industries.
Japan is also a critical economic partner for American states as an export market and source of investment and jobs. According to a study commissioned by the U.S.-Japan Business Council, Japan is a top-five export market for 29 of 50 states, and a top-five source of foreign-affiliated jobs in all 50 states. In short, trade and investment with Japan means high-paying jobs for U.S. workers, and expanding the U.S. relationship through the TPP will only add to this.
Much has changed in Japan, but there are still issues with high tariffs on some agricultural products, as well as non-tariff issues, such as excessive regulation, unique product and safety standards, and transparency in sectors ranging from agricultural to manufacturing and services. As the most advanced, comprehensive and highest standard agreement ever pursued by the United States, the TPP will help address these issues.
Prime Minister Shinzo Abe deserves credit for making economic growth his top priority and formulating a coherent economic strategy, sometimes called Abenomics, based on the “three arrows” of bold monetary policy; tactical fiscal stimulus; and growth strategy, which includes structural reforms. Successful participation in the TPP is an essential element of the third arrow, as this will help drive necessary changes, such as trade and investment liberalization, and agricultural and regulatory reform in key sectors that will boost Japan’s long-term growth potential.
Abenomics aligns well with the ambitious vision articulated by the like-minded TPP negotiating countries, and the Abe government is moving forward in TPP despite strong opposition from vested interests. The prime minister is also organizing Japan’s TPP negotiating team in a much more strategic way that centralizes overall negotiating authority in the prime minister’s office.
Combined with the parallel bilateral consultations agreed to by the U.S. and Japanese governments, Japan’s entry into the Trans-Pacific Partnership provides the best opportunity ever — it would not be hyperbolic to say historic — for the United States to eliminate long-standing tariff and nontariff barriers to trade in agricultural and manufactured goods and services and investment, through a congressionally ratified trade agreement. No previous U.S. bilateral agreement with Japan meets this test. Ultimately, this will be good for U.S. companies, workers and our economy.
Lake is chairman of the U.S.-Japan Business Council (USJBC) and chairman of Aflac Japan. The USJBC is part of the Chamber of Commerce and represents U.S. companies across a wide range of manufacturing, agribusiness and services industries that do business in Japan.