Japan

Japan hopes Pacific trade pact can shield it from tough U.S. demands

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Now that the year-end launch of a trans-Pacific free trade framework has become official, expectations are growing that it will provide Japan with a much-awaited line of defense ahead of bilateral trade talks with the United States.

The 11-member trade pact without the United States is symbolic of Prime Minister Shinzo Abe's push for multilateral free trade that he hopes will energize the Japanese economy, with no immediate end in sight to an escalating U.S.-China trade war.

Another mega deal — the free trade agreement with the European Union — is also expected to enter into force in February, giving further impetus to Japan's drive to serve as a "flagbearer" of free trade.

But the arrangements to cut tariffs and encourage investment could be a double-edged sword, as some trade experts point to the possibility of increased U.S. pressure on Japan in upcoming bilateral trade talks based on an agreement between Abe and President Donald Trump in September.

"At a time of growing concerns in industries about increasing costs and growing barriers in international trade, these tariff cuts (under the trans-Pacific trade pact)…will provide reassurances to exporters that their investments will pay off," said Martin Schulz, a senior research fellow at the Fujitsu Research Institute.

"But no FTAs can provide a 'line of defense'," Schulz said. "Japan will have to deepen political and economic relations with its partner countries in Asia further."

Japanese government officials say no larger concessions will be made than those already agreed to under existing free trade agreements such as the 11-member pact formally known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

Australia became the sixth country to complete its domestic process to ratify the pact that was revised and signed following an abrupt U.S. pullout in January 2017. The agreement takes effect 60 days after at least six countries have ended domestic procedures.

The CPTPP will "send out a strong message that free and fair rules for the 21st century will spread to the world," Toshimitsu Motegi, Japan's economic revitalization minister, told reporters.

Besides the symbolic nature of the trade pact without the United States going into force while Trump focuses on his "America First" agenda, it will also set the stage for its signatory countries to discuss an expanded membership.

Japanese officials and trade experts say there is a sense of urgency among countries promoting free trade in the face of Trump's protectionist steps, resulting in the launch of the CPTPP and the Japan-EU FTA.

Junichi Sugawara, senior research officer at the Mizuho Research Institute, said the key to success lies in maximizing the pact's benefits by increasing the number of countries joining it.

Britain, which is scheduled to leave the European Union in March, and Asian countries such as Thailand and South Korea are among countries willing to join the CPTPP.

"An expanded CPTPP will benefit Japan with the participation of countries such as Thailand. It will also make it more appealing to the United States," Sugawara said.

"If American farmers, for instance, raise their voices after the CPTPP which the United States is not part of takes effect, the United States could step up pressure on Japan through bilateral talks," he added.

In October, U.S. Agriculture Secretary Sonny Perdue indicated that the United States will urge Japan to reduce tariffs on agricultural products beyond levels agreed to under the CPTPP.

That came after Abe and Trump agreed in September to launch bilateral trade talks, a development seen at the time as Tokyo caving in to Washington's demand.

Japan imposes a 38.5 percent tariff on beef imports, but it will be lowered in stages to 9 percent over 16 years after the CPTPP takes effect.

Asked about the forthcoming talks, Motegi said Wednesday they may serve as a "plus" for any future U.S. return to the CPTPP, without elaborating.

The withdrawal of the world's largest economy shrank the size covered by the multi-party deal to the current 13 percent of the global economy from around 40 percent.

Japanese government officials say Tokyo will continue to exercise leadership in the implementation of the CPTPP while talks are still ongoing to reach an agreement on a more diverse regional free trade zone in the Asia-Pacific region that includes China and India.

Analysts expect the taking effect of the CPTPP will add momentum to the year-end target for a broad deal on the 16-member Regional Comprehensive Economic Partnership free trade pact, but uncertainty apparently remains over whether that is the case.

"It has yet to be seen whether the current multiplying effect (of one affecting another) will continue," one Japanese government official said.

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