July 23, 2017

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What is the Transpacific Partnership?

The Trans Pacific Partnership (TPP) is trade agreement, whose predecessor is the Pacific 4 (P4). P4 was a free trade agreement signed by Brunei, Chile, New Zealand, and Singapore in May 2005 and came into effect on May 28, 2006. The four signatories of the P4 are also members of APEC, and the treaty creating the P4 explicitly welcomes other APEC members to join. As a result, the Obama administration announced that it would join the P4 in 2009. The negotiations to expand the original agreement started in March 2010, and the name of the free trade area was changed to “Trans Pacific Partnership.” Along with the US and the original P4 members, Australia, Vietnam and Peru also participated in the initial round of negotiations. A few months later, in October 2010, Malaysia declared that it would join. Currently, there are nine countries that are involved, but the US has taken the lead on pushing the negotiations forward.

Japan’s participation in the TPP negotiations came much later. At an APEC meeting in October 2010, Prime Minister Naoto Kan announced that his government was contemplating joining the negotiations. However, the decision was postponed due to the emergency surrounding the massive Tōhoku earthquake and tsunami in March 2011. Kan’s successor as prime minister, Yoshihiko Noda, revived the issue in November 2011 by expressing interest in joining. Japan’s official declaration to join the negotiation finally came in March 2013, after both Canada and Mexico formally joined in October 2012.

The founding principle of the TPP is that member countries should remove all tariffs and nontariff barriers to trade. The difference between free trade agreements (FTAs) or economic partnership agreements (EPAs) and the TPP is that FTAs and EPAs are overseen by the WTO and must abide by its rules. In an FTA, the participants have to remove tariffs on at least 90% of the total trade volume within 10 years of joining the FTA, but the other 10% is left to the discretion of the members. Japan had signed EPAs and FTAs with many countries, but in the most cases, Japan pushed to include agricultural products under the 10% exemption. The TPP, in contrast, requires that the member states immediately remove tariffs on 80% of their total trade volume, and then abolish all remaining tariffs within 12 years. Moreover, in addition to removing tariffs, the TPP is establishing “common rules” in 21 trade-related areas. These areas include intellectual property, food safety, labor, finance and the environment. Because these areas are so sensitive and touch the lives of citizens of each country, the negotiations among the participants are done in behind closed doors. Agreements over these 21 areas are also confidential in order to prevent information about ongoing negotiations to be leaked and cause political backlash for participating governments. Because detailed information about the negotiations are not available to the public, there has been increasing public pressure to on the US and Japanese governments to open up the information regarding the TPP negotiations.

Fundamental Differences between WTO, FTA and EPA.

1. The WTO is the world’s largest trade agreement, which has 160 member states. It sets the basic rules of free trade, such as prohibiting members from discriminating against certain countries by using different tariffs.

2. An FTA is an agreement to liberalize the trade of goods and services between multiple countries or within certain regions.

3. An EPA is an agreement that also seeks to liberalize trade of goods and services, but in addition, it usually creates a broader set of common rules on investment and government regulations. The TPP is an example of an EPA, which is currently being negotiated among 12 countries.

What is EPA?

An EPA is an agreement between two or more countries to promote trade between the signatories. EPAs usually lower or remove tariffs and strengthen economic cooperation between signatories by making rules pertaining to various topics, such as food safety and safety of industrial products. Some EPAs even address immigration issues, such as making the procedures for issuing visas less cumbersome so that business people can easily travel between countries.

What is the main difference between an EPA and an FTA?

An FTA specifically emphasizes trade whereas an EPA places broader emphasis on establishing a cooperative relationship among its signatories.

Why do we need FTAs and EPAs?

FTAs and EPAs are more important than ever because negotiations among the WTO members has come to a halt. The WTO emerged as a reaction to the high degree of protectionism which facilitated the outbreak World War II. One of the founding principles of the WTO was that it specifically does not discriminate against or in favor of specific countries on trade matters. Since the Doha Round began in 2001, the WTO has continued to try to lower tariffs on a wide range of goods in multilateral trade.

However, as the number of member states in the WTO has increased to 160, it has become more difficult to balance the interests of such a wide range of countries. This has led to a trend toward using FTAs and EPAs as the dominant method for negotiating trade deals. Because FTAs and EPAs are negotiated among fewer countries than at the WTO, the negotiation process is significantly easier.

Japan has signed EPAs with Singapore, Mexico, Malaysia, Chile, Thailand, Indonesia, Brunei, ASEAN, the Philippines, Switzerland, Vietnam, India and Peru. Japan is currently negotiating EPAs with Columbia and EU, and it signed signed an EPA with Australia on July 8, 2014.

Developments Achieved through Past Negotiations

A Working Level Meeting at Washington
April 15-17, Japan and the US had a working level meeting at Washington. USTR have called for Japan to open its pork market. The beef lobby also criticized Japan by saying that if Japan does not promote open trade, then it will hurt consumers and producers all over the world.


Obama’s Visit to Japan Between April 23 and 25, 2014 

The US automobile industry — which has been one of Obama’s largest political supporters since the administration used public funding to save the industry from collapse — has argued that the exclusiveness of Japanese markets has been damaging for US employment. Pressure from the auto industry in particular led Obama to take a very assertive stance during his visit to Japan to meet with Prime Minister Abe on April 23 and 25.

The series of negotiations between Obama and Abe started somewhat informally at a famous sushi restaurant, Sukiyabashi Jiro in Ginza, Tokyo on April 23, 2014. Knowing that Obama likes sushi, Abe had picked this restaurant because it had won three Michelin stars for seven consecutive years, and other American celebrities such as Anne Hathaway and Hugh Jackman have eaten there. It was not supposed to be an official meeting (as shown by the fact that neither Obama nor Abe wore a tie), but as soon as Obama arrived at the restaurant, he began pressing Abe on the TPP. In particular, Obama started with a plea to Abe: the “approval rating for your government is 60%. It is higher than my 40%, so please compromise with me.”

The tenseness of the negotiation between the leaders was illustrated by the following exchange. As the conversation continued, Obama joked that he “didn’t see any GM or Ford cars. Isn’t that because the Japanese market is so exclusive?” In response to Obama’s sharp question, Abe powerfully jabbed: “There are many German BMWs and

Right before President Obama’s visit to Japan, the US agricultural and auto lobbies put pressure on President Obama to take a very assertive stance toward Japan in negotiations over the TPP. On April 21, the National Pork Producers Council (NPPC) issued a statement saying that the Japanese policy of protecting five important industries undermines the fundamental principles of the TPP. Additionally, sixty-three Mercedes cars. It’s because European car manufacturers are making more efforts to adjust to the Japanese market, such as making cars with a right-side steering wheel.”

In fact, one of the reasons why the US entry into the Japanese market was so delayed is that major US automakers were reluctant to make cars that had right-side steering wheels. US car manufacturers now make some cars with right-side steering wheels, such as Ford Japan, which manufactures some (but not all) of its models with right-side steering wheels. For example, the Ford Explorer still has a left-side steering wheel whereas the Ford Kuga has a right-side steering wheel.

Source:(MSN産経ニュース『【検証・日米首脳会談】活況すし会談「街にGM車ない」「BMWはある」…“オバマ妥協案”フロマン氏に伝わらず』より 2014/04/30 08:27

Singapore Round May 2014
During a round of TPP negotiations between Japan and the US held in Singapore, US officials asked the Japanese officials why Toyota’s Japanese retail stores don’t sell American-made cars. The US officials emphasized the fact that Toyota is a symbol of Japanese automotive industry, and they insisted that Japanese auto retailers should sell a variety of cars, including US brands. Essentially, the US is asking for the dismantling of the Japanese keiretsu system among auto retailers. Normally, in Japan new cars are sold at the retail stores that are owned by subsidiary companies of the main auto makers. Therefore, it is common practice that Toyota retail stores sell only Toyota models, and that Nissan retail stores sell only Nissan models.

US officials also demanded that Japan adopt exceptions for US automakers in order to allow each US producer to export up to 50,000 cars annually that do not meet Japanese safety standards but that do meet US safety standards.

In an article in Tokyo Shimbun argues that this request is an attempt by US car makers to avoid the costs associated with remodeling vehicles to comply with Japanese standards, as well as to save time by avoiding lengthy safety tests on the new models. When the US signed a bilateral free trade agreement with South Korea, the US acquired a similar concession: South Korea agreed to allow imports of up to 25,000 cars annually that do not meet South Korean safety standards. It is worth pointing out that the US is demanding that Japan import twice as many cars under this provision than South Korea currently does.

During the Singapore round of negotiation, the US requested that Japan further open its auto market to US companies. These requests are largely due to pressure from the US automotive industry and the Congressmen who supported by that industry.

Japan has countered by noting that the Japanese auto market is already open, and that the real issue isn’t the openness of the Japanese market is, but rather the lack of effort by US automakers to adjust to Japanese tastes. As evidence of this, Japanese officials have pointed to the record sales of European cars in Japan, which hit their highest point in 2013. So far, US officials don’t seem to buy this argument.

However, according to the Japanese Automobile Manufacturers Associations (JAMA), the share of European cars in Japan grew steadily between January and August of 2013, hitting a high of 4.6%, the highest share ever. According to statistics from the Japan Automobile Importers Association (JAIA), 14 European car makers hit the highest number of new car registration on record. In contrast, US auto sales in Japan have struggled, and the share of US cars was 0.3% in the same period. As a reflection of these trends, the number of stores that sell European cars in Japan has increased to 1300, whereas the number of stores that sell US cars has dropped to 159.

According to JAIA, the best selling imported car type in Japan in 2013 was the Volkswagen Golf. Behind the Golf were (in order): the BMW 3 Series, the BMW Mimi, the Mercedes A Class, and the Volkswagen Up!. The Volkswagen Golf is quite popular in Japan and according to JAIA, Golf has been the best-selling imported car in Japan between 2003 and 2013.

One of the reasons why European cars have become increasingly popular in Japan is that European car makers have made serious efforts to adjust the Japanese market. For example, 66.4% of European cars were approved for the Japanese tax rebate on eco-friendly vehicles, but there was not a single US car approved for the same rebate. For example, German automakers Volkswagen, BMW and Mercedes, Swedish automaker Volvo and French automaker Renault all sell eco-friendly cars in Japan.

The eco-car tax rebate is a preferential treatment system that applies to cars with high fuel efficiency and that produce a less exhaust. If a person buys a car that qualifies for the eco-car tax rebate system, she can receive a tax rebate on both the Automobile Acquisition Tax and the Automobile Weight Tax. The size of the rebate depends on the car’s level of fuel efficiency and exhaust. The Automobile Acquisition Tax is paid when a person buys a new car, whereas the Automobile Weight Tax is paid after inspection by Ministry of Land, Transport and Infrastructure (MLTI) every couple years. The eco-car tax rebate system was adopted in 2009 and the standards for getting the tax rebate are set by the MLTI.

Moreover, European automakers manufacture smaller cars, which are better suited to Japanese consumers. Japan has offered these statistics as evidence that US automakers need to manufacture small, low fuel consumption vehicles geared toward Japanese consumers if the US wants to increase its market share in Japan.

On safety standards, the two countries’ disagreement over the issue is rooted in the fact that, in Japan it is the government responsibility to check the standard while in the US it is the automakers’ responsibility. One Japanese official participating in the negotiations mentioned that the way Japan and the US think about the safety and the responsibility of manufacturers are fundamentally different. In the view of this official, Japan simply cannot import US cars as the are because there are serious safety concerns. Another Japanese official has said that even the USTR knows deregulation of Japanese safety standards will not automatically increase US auto sales in Japan. There are more fundamental problems with US automakers’ market strategy in Japan.

Many have speculated that the US’s aggressive stance in the negotiations with Japan is a direct byproduct of Japan’s repeated accommodation of US demands. For example, in May 2013, Japan expanded the number of cars which are subject to the Preferential Handling Procedure for imported vehicles (PHP). The PHP allows imported cars to pass the Japanese safety test with fewer procedural hurdles, and it was intended to be restricted to small numbers of imported cars. Under the revised PHP program, US automakers will now be allowed to export up to 5,000 of each model annually. Previously, the maximum was set at 2,000.

Japanese officials also bowed to US pressure to abolish the special tax treatment for kei jidosha, which are a type of light motor vehicles that US automakers do not manufacture. Along with eco-cars, keijidosha are becoming very popular in Japan because car makers have been in fierce competition to improve their interior comfort, fuel efficiency and design. In 2013, the sales of keijidosha marked the highest record so far: 2,261,839 sales. The main advantages of keijidosha are that they can easily maneuver into small spaces; they are easy to drive; and they are very fuel efficient. However, their biggest attraction has been that the taxes on them are very low. While they did not completely abolish the special tax treatment, the Japanese government decided to increase taxes on keijidosha starting in April 2016 in order to partially reduce the tax gap between them and ordinary cars. At first, Japanese officials were staunchly opposed to the US request since a country’s tax system is ordinarily outside the purview of trade negotiations. But in the end, Japan yielded to this pressure. Yoshida argues that if Japan keeps yielding to US demands, then it will ultimately endanger the lives of Japanese citizens since many of the current demands are related to safety regulations.

(Source: 1. Tokyo Shimbun May 19, 2014. 2. http://www.ustr.gov/about-us/press-office/fact-sheets/2013/april/US-consultations-Japan).

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