Trade Agreement Signed
Feb. 4, 2016
The Trans-Pacific Partnership free trade agreement has been signed by its 12 member nations, moving them a step toward realizing one of the world's largest trade deals.
Ministers from Japan, the United States and 10 other countries attended the signing ceremony in Auckland, New Zealand.
The TPP encompasses a huge economic zone consisting of 800 million people. The area accounts for nearly 40 percent of the world's gross domestic product.
Speaking at the ceremony, New Zealand Prime Minister John Key said, "What brings us together is a shared belief that opening an integrating our markets through trade and investment will enhance the prosperity of our peoples"
US President Barack Obama has welcomed the move. In a statement, he said the TPP will put American workers first by supporting good jobs while boosting US leadership abroad.
The TPP will now undergo a two-year ratification period in the participating countries. But it won't be easy.
In the US, Republicans in the Congress want to postpone deliberations until after the presidential election in November.
So what is the TPP, and what are some of its implications?
The TPP is a framework for 12 nations to liberalize trade and investment and establish new rules.
The agreement aims not only to lower or eliminate tariffs, but also to liberalize services and investment at high levels.
For example, Vietnam will abolish government screenings which will allow retailers to open additional stores in the country. That means retailers will be able to set up new outlets freely 5 years after the TPP takes effect.
This will smooth the way for foreign firms such as the operators of convenience stores to expand into Vietnam.
Among the TPP member nations, Japan has the largest market in Asia. The government estimates the pact will create about 800,000 jobs and will raise the country's GDP by about 120 billion dollars.
Officials say there's a possibility that it will have an impact on the agricultural sector. Removal or elimination of tariffs will lead to more imports and lower prices.
As a result, the total production of 33 items, including beef and pork, is expected to shrink in value by up to 1.7 billion dollars per year.
Former Japanese Vice-Finance Minister, Eisuke Sakakibara, spoke with Yuko Fukushima and Sho Beppu in the studio about the TPP. Mr. Sakakibara is known as Mr. Yen, a nickname he picked up for his influence over the exchange rate in the 1990s.
Fukushima: What are your thoughts about the TPP? How do you evaluate this trade pact?
Sakakibara: Well, the TPP is certainly positive. But, my view is, the positive influence is not as big as the government says it is.
Fukushima: What do you mean by that?
Sakakibara: Well, the level of customs duties is already very low. So from that low level, moving to zero wouldn't create so much GDP or jobs besides the 21 areas where the deregulations are now being contemplated. How much developing countries would deregulate on those items is still uncertain. So it is certainly positive but how much it affects the Japanese economy is somewhat uncertain.
Fukushima: Do you see any possible positive impact to the Japanese economy going forward in the service/investment area?
Sakakibara: Yeah, I think particularly for those developed countries, deregulator in financial services, investment and so on, that would be a significant benefit to Japan. But as I said, that's uncertain.
Beppu: Well there are voices of concern aren't there. Like for example here in Japan, some farmers are saying that it would not be to their benefit. Do you see their concerns as legitimate?
Sakakibara: Yeah, I think that because of the TPP, the import of agricultural product from abroad would increase quite significantly. So currently the share of domestic agricultural product is 40 percent. That is expected to decline to 30 percent, which is quite a blow to existing agricultural farmers. Of course, the government is taking measures to compensate for that. And the best way to really promote agricultural production in Japan is to promote exports. The quality of the Japanese agricultural product is very high. So there is a lot of room to export those high quality goods abroad, particularly to Asian countries.
Beppu: On the other side of the Pacific in the United States, there are some people saying that their jobs would be stolen. What do you think about this concept?
Sakakibara: I don't think so, I don't think so. American jobs might even increase because of the deregulation and because of the liberalization of the trade. But, their jobs wouldn't really decline that much.
Fukushima: TPP have officials gathered for a signing ceremony, but they need to have their parliaments ratify this treaty before the TPP can go into effect. How long do you think it will take?
Sakakibara: Well, Japan would ratify fairly quickly, but the problem is the US congress. And some of the presidential contenders are against TPP. So, at least until the presidential election of November of this year, the treaty would not be ratified. Even after the presidential election, the possibility for ratification is probably fifty-fifty.
Fukushima: Mr. Sakakibara, you know that China has not joined the TPP despite its considerable influence as the world's second largest economy. Now the country is instead seeking to promote the Regional Comprehensive Economic Partnership, that's RCEP, aimed to eliminate tariffs and liberalize investment among 60 nations, including Japan, India, and ASEAN countries. Now some TPP member nations have participated in RCEP also, including Japan and Vietnam--RCEP is still in negotiation. Now the people behind RCEP hope to finalize an agreement by 2016.
So I would like to ask you for a broader picture of this trade agreement. US President Barack Obama said in a statement today after the signing ceremony that the partnership will give the US an advantage over other leading economies, namely China. So from the statement I guess we can see that this TPP is eyeing China, and the US is forming the TPP. So it seems that there is going to be 2 big blocks in the world, RCEP and TPP led by China and the US. How do you see this landscape?
Sakakibara: Well, the Japanese position is quite delicate. We need to balance between the United States and China. The United States is a Japanese ally, particularly on national security issues, but China is the biggest trading partner of Japan. So we really need to balance the two, RCEP and TPP. We are participating in both of them but we need to be very careful--not to antagonize China, and of course not to antagonize the US.
Fukushima: So what is the intention of the US in forming and leading this trade pact?
Sakakibara: Well this is my view, but the intention of the US is to try to get the food out of rapid Asian growth. The Asian region is the fastest growing region in the world, and by TPP, the United States would like to participate in it and take advantage of high-growing Asian area. And I think that's a really rational move on the part of the United States.
Fukushima: Do you think the US is eyeing China as a competitor?
Sakakibara: Yeah, I think so. Although, they have fairly good interactions under the current. Take for example, a lot of Chinese people study at the Ivy League universities in the United States, while Japanese civilians' numbers are declining. So the China and US interaction is probably much more than we think it is.
Beppu: Having said that, seeing other developments--especially in the political domains--the two countries are having some tensions in some fields. It is as if this part of the world is split between the two major powers. But, so as not to fall into that trap, what do you propose?
Sakakibara: Well, they are not really confronting each other, but they are two big nations in the world right now. The US is number one in terms of the GDP, China is number two. And particularly in Asia they are competing to increase their influence. And it's sort of a natural move, both on the part of China and on the part of the US. So Japan needs to balance the two. We are close to the US, and we are biggest trading partner of China. So that we need to sort of be in-between the two and try to accommodate if necessary, or there are confrontations.
Beppu: And if the two countries cooperate better, it's better for the whole region.
Sakakibara: Yeah I think so, it's better for Asia for example.
Fukushima: And Japan could be the key player.
Sakakibara: Yeah I think Japan could be the key player.