In recent months, Japan has been debating the merits of joining trade negotiations that may lead to the realization of the so-called Trans-Pacific Partnership (TPP).
The TPP is promoted as a free trade pact currently being negotiated among the United States, Mexico, Canada, Australia, New Zealand, Brunei, Chile, Singapore, Malaysia, Peru and Vietnam. Prime Minister Shinzo Abe’s Liberal Democratic Party is divided, but Abe seems in favor of joining the negotiations.
If the TPP is concluded, one outcome is likely to be the end of government protection for the agricultural sector.
Supporters claim that the TPP will result in free trade, regional prosperity and a rejuvenated Japan. Since by definition, free trade agreements discriminate against nonmembers, it is difficult to see how this will occur. After many years of unsuccessful lobbying, agricultural exporters are salivating over the prospect of greater market access in Japan.
While Japan will be forced to adopt “free trade” in the TPP, the U.S. Congress will most likely this year reach agreement on a new Farm Bill to assist American farmers.
The previous Farm Bill (2008) involved $288 billion over five years. As is the case in Europe, these subsidies protect agriculture in a more subtle but politically correct manner. A tariff, if sufficiently high, can deter imports and is usually viewed as an honest protectionist device. A subsidy, on the other hand, can be repackaged as a legitimate form of assistance.
This is how the European Union and U.S. can provide such massive support to their agricultural sectors and remain faithful to World Trade Organization (WTO) rules. The reality is that free trade in agricultural commodities has always been a farce.
The U.S. Farm Bill undermines the idea that the TPP will lead to free trade. It has been convenient for even the most enlightened presidents to claim that the Farm Bills were necessary evils to placate American opposition to global free trade. But it is more complicated than that.
The Farm Bill is tied to the future of rural communities, the environment and domestic politics. In reality, many Japanese and American farmers are in the same predicament: how to survive in an increasingly competitive world amid shrinking government budgets and expenditure.
Free trade in agriculture, if it does occur under the TPP, will radically change the rural landscape in the same way liberalization in industrial goods transformed manufacturing. The question is whether it is worth the cost.
The death of manufacturing ruined some cities in the developed world and free trade in agriculture will probably do the same. Manufacturing was different because trade barriers were a poor defense against cheaper products from emerging economies. On the other hand, agricultural sectors in most developed countries have rarely pretended to operate on the basis of free trade. If Japan is forced to eliminate tariff barriers for rice or adopt more flexible quotas, then this will hasten the demise of many rural communities already facing demographic pressures. The cumulative effect will be devastating.
The TPP has deeper contradictions. If Abe wishes to rescue Japan, why has he proposed closer economic ties with the nation responsible for the global financial crisis and with a serious debt crisis?
A possible free trade agreement involving the U.S. and Japan might have been useful during the 1980s at the height of Japan’s economic success, if only to verify the legitimacy behind the many allegations of Japanese protectionism.
Japan is however no longer anywhere near No. 1 and the position of the U.S. is increasingly difficult to defend in the face of its economic realities.
Abe’s timing is surprising because China is absent from the negotiations. Apparently, China is welcome to join a major trade agreement that other economies have already negotiated. This is childish and underlies a growing regional paranoia concerning China’s regional ambitions.
The TPP could realistically be called the ACC, the “Afraid of China Club.” A departure from more open trade policies hints at an emerging isolationist position in the U.S., suggesting a strategic withdrawal from the global stage and from involvement in the design and maintenance of global trade architecture. This is not a good sign.
This shift has not been sudden. Both the Obama and Bush administrations walked away from the WTO and the possibility of leading new global trade negotiations. If the U.S. will no longer lead, who will?
Critics argue that there are simply too many competitors and that, in any event, past U.S. generosity was in the national interest. Both are valid points. For decades, U.S. trade liberalization and open policies were symbolically “sacrificial” — promoting a fairer as well as a competitive and productive world. Such policies even fostered and underpinned a rejuvenated Europe and East Asia.
These days, however, few talk of leadership. In the past the slogan was “Yes we can,” but the best President Barack Obama can manage is a trade negotiation that excludes Europe, China, India and most of the known world. Free trade pacts are for weak nations, not strong ones. They are for countries that no longer possess sufficient comparative advantages because of political and social compromises.
The TPP will neither jump-start the Japanese economy nor rescue it. The TPP is at best a distraction from the real world.
The world where China and India are not significant players is long gone. Any relevant regional architecture must involve China and other emerging giants. This used to be the view that underpinned decades of Asia- Pacific trade diplomacy.
China and India are both WTO members. Negotiate in the WTO, rather than among a club of a select few. This would demonstrate true leadership in an uncertain world and perhaps produce positive results.
Michael Sutton, Ph.D., is a visiting fellow at the WTO Research Center in Tokyo.