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Japan Faces Hurdles in Next Round of TPP Talks

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Pacific Money

Japan Faces Hurdles in Next Round of TPP Talks

With the next round of TPP talks starting today, Japan faces some major challenges.

Stopping in Tokyo on Monday during his first trip to Asia since being confirmed in late June, U.S. Trade Representative Mike Froman met with his Japanese counterpart, Toshimitsu Motegi, in advance of the next round of Trans Pacific Partnership (TPP) negotiations, which get underway in Brunei today.

In prepared remarks on Monday, Ambassador Froman noted that, while the U.S. and Japan see eye to eye on “IPR, investment, state-owned enterprises, and services,” “barriers to access to Japan’s automotive and insurance markets…hold back growth and innovation.” To be fair, the latter sectors constitute the low-hanging-fruit of the Japan-U.S. trade agenda. His remarks on the remaining challenges, which deliberately omitted any mention of the word “agriculture,” highlight the contentious issues yet to be resolved now that Japan is a full participant in the talks.

After getting a seat at the table during the Malaysia-round in late July for the first time, Japanese negotiators realized that their planned liberalization rate of 75% did not match the commitments made by many of the 11 other partner nations. In response, Japanese officials recently announced a plan which will raise the liberalization rate to nearly 85% in some instances, according to the Asahi Shimbun. Ambassador Froman, when asked about this move, called it “a good initial step.” This tepid response, understandable given that the U.S. maintains a liberalization rate between 96-99%, underscores the “wait and see” approach many TPP countries have adopted with regards to Japan’s participation.

Though Japan was at the table for part of the Malaysia-round, it did not participate in the tariff negotiations and, as a result, its proposals in Brunei will offer participating countries a first look at where things stand on what is expected to be the most contentious part of the negotiations.

In addition to automotive and insurance concerns, the heavily subsidized agriculture sector in Japan, which accounts for 6.5% of trade, remains stubbornly untouched. On August 8th, Japan’s Central Union of Agricultural Cooperatives, a branch of the powerful agricultural cooperative JA Group, came out with a statement expressing concern over “grave problems” with the TPP. This 10 million-member organization, which also operates a bank that manages $532 billion in customer deposits, has successfully marshaled public opposition to the TPP for the past several years.

However, there are also signs that much of the public supports Japan’s engagement with the TPP. Following a major parliamentary victory in mid-July, Abe is currently enjoying the highest public satisfaction numbers since the Pew Research Center began conducting surveys of Japan in 2002. This consolidation of political power and increased political capital could provide the added credibility the Abe government needs if it plans to get serious about some of the outstanding trade issues. For now, the ruling Liberal Democratic Party has decided to reserve judgment on whether to address international access to the agriculture sector, no doubt in the hope that there will be increased flexibility during subsequent rounds of negotiations.

The United States and Japan have every incentive to conclude this agreement on time and on mutually favorable terms. Recently released trade data revealed that the U.S. was Japan’s largest export destination for the second month running and, with tensions over the Senkaku/Diaoyutai Islands still casting a shadow over Japan-China relations, the U.S. looks increasing attractive for Japanese exporters in search of a stable market. On the U.S. side, the TPP, as noted in Ambassador Froman’s remarks, has become a hallmark of the U.S. “pivot” to Asia.

Toward the end of his remarks on Monday, Ambassador Froman noted that “agreements that leave the biggest opportunities and challenges untouched are certainly easier to negotiate.” Let’s hope the news that Japan will be sending 100 staff to Brunei later this week is a sign of their willingness to tackle these big opportunities and challenges.

John VerWey is a Program Assistant at the American Enterprise Institute.