Center for American Progress

Japan’s Inclusion Makes the Trans-Pacific Partnership a Big Opportunity

Japan’s Inclusion Makes the Trans-Pacific Partnership a Big Opportunity

New Agreement Could Lead to Better Trade Between U.S. and Japan

A regional trade agreement being hammered out this week in Dallas could lead to improved trade between the United States and Japan once they get over a few hurdles, write Jordan Bernhardt and Sabina Dewan.

Women ride bicycles past Sony Corporation headquarters in Tokyo. The Trans-Pacific Partnership would benefit  well-known Japanese businesses such as Toyota and Sony and give U.S. businesses better access to Japanese markets. (AP/Katsumi Kasahara)
Women ride bicycles past Sony Corporation headquarters in Tokyo. The Trans-Pacific Partnership would benefit well-known Japanese businesses such as Toyota and Sony and give U.S. businesses better access to Japanese markets. (AP/Katsumi Kasahara)

Representatives from the United States, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam will meet in Dallas this week to continue negotiations on the Trans-Pacific Partnership, an ambitious new trade agreement that if done right could reap benefits for the United States. But one big issue confronting negotiating countries is who isn’t in the negotiating room yet.

At the Asia-Pacific Economic Cooperation summit last November, Japan announced that it was interested in joining the TPP negotiations, and Prime Minister Yoshihiko Noda has made Japan’s entry into the agreement a top priority. But to be part of the agreement Japan would likely have to commit to further opening of its protected farm and auto sectors, and this is controversial in Japan.

Still, Japan’s entry into the Trans-Pacific Partnership would magnify the potential impact and import of this agreement for the U.S. economy. For the impact to be a positive one, however, U.S. negotiators would have to work through the thorny issues mentioned above.

A little background on U.S. trade with Japan

Japan’s trade relationship with the United States is currently governed by 29 different bilateral agreements—ranging from understandings about patents to lumber to distilled spirits—and by general trade rules with which all World Trade Organization members must comply. The Trans-Pacific Partnership is a proposed regional comprehensive free trade agreement that would complement existing bilateral agreements between Japan and the United States and build on existing WTO frameworks. Free trade agreements are contracts between the United States and other countries that reduce trade barriers and help harmonize national rules on issues like intellectual property protections and labor standards. The United States currently has free trade agreements with 18 countries.

The prospect of Japan joining the TPP is indeed promising for the United States. U.S. goods trade with current TPP economies constitutes 5.3 percent of total U.S. goods trade. Japan’s inclusion would double this to 10.6 percent.

And while Japan is already a leading destination for U.S. exports, the United States has a $62.6 billion goods trade deficit with it. The TPP could help bring down that deficit by reducing trade barriers and opening the Japanese market up to more exports from the United States and other countries.

The United States has welcomed Japan’s participation in the TPP. U.S. Trade Representative Ron Kirk said, “In close consultation with Congress and our domestic stakeholders, we look forward to engaging with the Japanese in these discussions…. Japan’s interest in the TPP demonstrates the economic and strategic importance of this initiative to the region.”

But even though Japan’s potential inclusion is exciting, there are points of contention. U.S. agricultural producers have long been frustrated with their ability to access the Japanese market. They argue that Japan’s restrictions on U.S. beef and rice imports must be part of the TPP discussions.

Protections against foreign cars and auto parts are also troubling for U.S. businesses. They believe that nontariff barriers such as technical standards for cars and auto parts currently lock U.S. manufacturers out of the Japanese market.

These are legitimate concerns, and TPP partner nations are also wondering whether Japan’s addition to the negotiations at this stage would slow down the current process. That’s why many stakeholders, including some U.S. businesses, would in fact prefer if Japan joined the negotiations after the initial terms were put in place by the nine countries currently engaging in trade talks.

It’s true that participation in the TPP will not come without costs for Japan, particularly to its sectors that rely on high and uncompetitive protective tariffs. To be part of the agreement, however, Japan will have to be willing to put these barriers on the negotiating table.

But for Japan, the benefits of the agreement outweigh the costs. Japan pays some of the highest food prices in the world, and Japan’s participation in the TPP would help reduce that burden. Lower tariffs would benefit well-known Japanese businesses such as Toyota and Sony and help attract investment into Japan’s struggling economy.

The TPP is a historic opportunity. It will foster the kind of regional integration that will create dynamic and stable domestic economies in each of the partner nations. The TPP can ultimately be a net positive for Japan and the United States if the two countries can work out their differences.

Jordan Bernhardt is a Special Assistant for Economic Policy and Sabina Dewan is Director of Globalization and International Employment at the Center for American Progress.

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Jordan Bernhardt

Research Assistant

Sabina Dewan

Senior Fellow